For a while, The Slug thought he was reading part of the script from a Godfather movie. You all know the famous line from mafia boss Don Corleone: “I’m going to make him an offer he can’t refuse.”

A casual outside observer might see Corleone’s hand in the way Rosneft handled its share float with big Western and Asian oil companies “invited” to participate in the share offer.

With each invitation came a strong hint that participation would cement future “friendship” – a clear implication that it would also ensure future participation in the Russian oil industry, one of the biggest games in world oil today.

According to reports from Moscow, companies that received the invitations included BP, ExxonMobil, Shell, Total and Chevron. As Petroleum went to print, no one had confirmed receipt of the offer or a decision to invest – hardly surprising given the size of the suggested investment and the rather obvious hooks attached.

The starting price for big new investors in Rosneft was said to be $500 million, but $1 billion would be kindly appreciated, thank you very much.

For the bigger figure you might get a 2% stake in Rosneft and a seat in the auditorium with other shareholders at the annual meeting – but please don’t ask too many questions.

The Rosneft approach to capital raising says a lot about the way business is done in Russia and sadly, a lot about the way it’s going to continue to be done because where you see the Rosneft name, there are some people who still see Yukos.

Before The Slug gets to Yukos, the Rosneft float must be discussed first, and the suggestion that investment in the share issue might open doors in the future. This inference comes straight from the Don Corleone School of Marketing and Beauty Therapy because there is an implied threat that “friends” who do not chip in will be kicked out.

It’s this hidden and sinister suggestion that companies not playing the game by Russian rules that particularly upsets The Slug – not so much because of the suggestion of a side deal, but because it’s being done so blatantly, openly and naively with the clear suggestion that “refuseniks” might like to consider exploring elsewhere because clearly they don’t like doing business in Russia.

The more The Slug looked at this situation, the worse it became. Perhaps the Russians simply do not appreciate the subtle nuances of doing business the western way where you might think it but not say it, and definitely not print it.

It is not, for example, acceptable to attach suggestions of future “friendship” with invitations to buy shares. If there was a corporate cop with any teeth in Moscow he would be grinding them down to stumps.

Try a deal like that in New York and the regulators will be knocking on your door with the morning milk delivery.

But Russia is different – and that difference will cause the oil industry a lot of angst over the next decade, especially with the ghost of Yukos lurking in the background.

The Rosneft share offer, which is part of the process aimed at creating an $80 billion Russian oil giant, brings back memories of the seizure of Yukos assets.

The Kremlin-inspired move on Yukos involved bogus allegations of tax avoidance on the part of the one-time Yukos boss, Mikhail Khordorkovsky, who fell out with President Vladimir Putin and is now in jail.

When Yukos was forcibly wound up, the bulk of its assets were sold at a very attractive price, to Rosneft (rhymes with theft).

While the collapse of Yukos might be a dead issue in Russia, it’s still bouncing around in the western legal system where investors in Yukos shares, via American Depositary Receipts, have vowed to a fight to the death – in the US legal system, not the Russian.

For big oil in the west, especially those who elect to buy shares in the Rosneft float, the lingering Yukos litigation presents the second serious issue.

It is possible, at least in The Slug’s fertile imagination, that investors in Rosneft might find themselves tied to future court action over the Yukos matter.

Small shareholders will have little to worry about but imagine the litigant’s delight should a business such as ExxonMobil participate in Rosneft. The temptation to join it to the Yukos case would be irresistible.

Rosneft will become the world’s most closely-watched oil business, firstly because of interest in its float, and secondly because it wants to sell itself in the west, where a legal quagmire awaits.

And just remember, even after the float Rosneft’s majority shareholder will be the Russian Government, and we all know how the Kremlin does business.

Originally published in the July issue of Petroleum magazine