Adrift on the Ob, Yukos faces uncertain fate

While Yukos, Russia's embattled oil company, is fighting for survival, analysts are already shuffling a pack of Russian oil companies trying to pick top contenders for its biggest subsidiary, which bailiffs this week marked for sale. Yuganskneftegas (Yugansk), which produces 1m barrels of oil a day, 60 per cent of the Yukos total, is valued at $12bn-$40bn by analysts. None of the Russian companies have this money to pay for Yugansk, even if it were to be sold at a fair price in an open and transparent auction, a process which remains in doubt.


After this week's decision to seize the core asset of Yukos to settle a tax bill of $3.4bn, few observers expect a fair sale.

Surgutneftegas, the country's third-largest oil producer after Yukos and Lukoil, is viewed by analysts as the leading contender.

The company, based on the opposite bank of the Ob river from Yugansk in eastern Siberia, sits on a cash pile of $6bn. With almost no debt, its liquidity exceeds that of any Russian rival, and its management has an intimate knowledge of Yukos's oil fields. Perhaps most importantly, it has the political clout in what most analysts expect to be a politically-driven auction of Yugansk.

Investors support this view: while Yukos lost another 12 per cent of its market value yesterday, Surgut shares gained 2 per cent, bucking the downward market trend.

"Surgut would be the best fit for Yugansk, given its geography and infrastructure," says Paul Collison, chief oil analyst at Brunswick UBS, a Moscow-based investment bank.

Surgut, which produces 1.2m barrels a day, operates on the edges of Yukos' fields. Many Yukos workers have fled across the Ob river to Surgut, which offers better pay and working conditions.

The company made net profits of $2.2bn in 2003 on sales of $8.56bn. It is controlled and run by Vladimir Bogdanov, a publicity-shy oil man who has managed to preserve his position at the top since Soviet days.

In contrast to Mikhail Khodorkovsky, the former chief executive of Yukos who is standing trial for fraud and tax evasion, Mr Bogdanov is seen by many, including the Russian president, as a socially conscientious, old-style industry man who does not interfere in politics and cares about his workers and environment.

However, if the government decides to retain state control over Yukos' assets, it may choose to sell it to a state-owned group, such as Gazprom or Rosneft.

Gazprom, Russia's giant gas monopoly, has a vast borrowing capacity and is trying to build up oil interests as a separate business unit - it ranks just sixth among its domestic peers in terms of oil production.

However, it yesterday denied it was interested in any Yukos assets. "We are not considering the possibility of buying Yukos assets," said an official.

Rosneft is a state-owned company cobbled together from assets left over from the mid-1990s privatisation. It produces 400,000 barrels of oil a year and would be dwarfed by Yugansk.

It has few synergies with Yukos and no money to pay for it but has good political connections.

Last month Igor Sechin, a deputy head of Mr Putin's administration and the man rumoured to be behind the attack on Yukos, joined the board of Rosneft.

The wild card is Sibneft, the company controlled by Roman Abramovich, which tried to merge with Yukos but pulled out after Mr Khodorkovsky's arrest. Mr Abramovich has the money and knowledge of Yukos's assets, but he has been making his way out of Russia in recent months.

As Steven Dashevsky, an oil analyst at Aton, a Moscow based brokerage says: "Logically speaking Yugansk should go to Surgut, which has everything going for it - politics, money and expertise - but the problem is that logic rarely determines the real outcome in Russia."


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