Lukoil rejects PetroKazakhstan’s ‘ nyet’

ALBERTA COURT HEARING TUESDAY

CALGARY •

Lukoil will take its legal feud with

PetroKazakhstan Inc. down to the wire by appearing in a Calgary court next week to block or delay the US$ 4.2- billion sale of the Canadian company to National Petroleum Corp.

Russia’s largest oil producer and CalgaryPetroKazakhstan are 50-50 partners in a Kazakh oil venture called Turgai Petroleum. Lukoil says a confidential partnership agreement gives either side the right to acquire the other’s stake in the event of an ownership change.

PetroKazakhstan says the Lukoil argument, to be heard in court next Tuesday minutes after shareholders vote on whether to accept a cash offer from CNPC of US$55 a share, is “without merit”

“There are provisions in the joint- venture agreement that can trigger pre- emption rights on both sides of the fence. We could buy them out and vice versa,” PetroKazakhstan spokesman Ihor Wasylkiw said in an interview. “ But this isn’t one of them. This isn’t a sale of assets, it’s the sale of the company. We say a corporate transaction doesn’t trigger the preemptive right and Lukoil says it does.”

Lukoil, one of the world’s largest energy companies, filed its notice to appear yesterday and will be represented by Toronto law firm Stikeman Elliott.

If shareholders favour the offer from CNPC, the plan of arrangement typically then goes before a provincial court judge for final approval immediately following the meeting.

It would be a rare, if not unprecedented, event for a judge to derail a sale against the wishes of shareholders.

Lukoil says the Alberta judge should defer the decision until after an international arbitration court in Stockholm settles the dispute between the two sides regarding the interpretation of the partnership agreement. That case is set to be heard next year.

Mr. Wasylkiw said a delay could cause shareholders “irreparable harm.”

“Other things could then get thrown at the amour and as a shareholder, if you can’t get your money, it then becomes a big a problem,” he said.

Turgai Petroleum is the operating company at the Kumkol North oilfield. In the second quarter this year, PetroKazakhstan’s share of production from the field averaged 30,994 barrels of oil per day, about 35% of the company’s total production from all holdings.

Wilf Gobert, vice-chairman of Peters and Co. Ltd. in Calgary, said Lukoil’s legal challenge appears to be a desperate attempt to scuttle the deal or at least establish an upper hand on its future partner in Turgai Petroleum — CNPC.