Russia allows Yukos to pump oil, easing global energy crunch

Russia said that embattled giant Yukos could continue pumping oil after initial reports that its operations would be halted within days pushed world oil prices to historic highs.

Yukos shares ended the day up 13.24 percent on the news and global oil prices eased off record highs they reached Wednesday in part because of uncertainty about one of the top two world oil exporting countries.

Yet the market capitalization of Yukos remains below the potential tax bill that could bankrupt Yukos within weeks and see its jailed founder Mikhail Khodorkovsky lose a company that became a Western darling for its fair business practices.

The official orders signed by a justice ministry bailiff concern Yuganskneftegaz, Samarneftegaz and Tomskneftegaz -- the three production units that account for 1.6 million of the 1.7 million barrels of oil that Yukos pumps out on a daily basis.

The orders said the three could continue sales and production. But they confirmed that their property and other assets remained frozen as Yukos faces a massive tax bill that the company has been unable to pay.

Yukos is Russia's largest oil exporter but its stock has plunged to record lows since the arrest on fraud charges of the country's richest man and company founder Mikhail Khodorkovsky.

It had slumped to under three dollars on the dollar-denominated RTS index at Wednesday's close. The stock was worth about 16 dollars before Khodorkovsky's arrest at gunpoint in his own company jet in October.

Yukos faces a 3.4 billion dollar tax bill for 2000 that it cannot fully afford because its assets have been frozen.

A company chief executive said Wednesday that Yukos planned to cover 700 million dollars of the bill by the end of the month.

Additional bills for 2001-2003 could bring that sum to nearly 10 billion -- a figure now greater than the company's market capitalization.

Its chief executives and lawyers have repeatedly warned that Yukos could be forced to declare bankruptcy within days and end the existence of a company that is seen as one of Russia's most transparent in a climate where business activity is often murky and corrupt.

The jailed Khodorkovsky and his top associate Platon Lebedev face their own tax evasion and fraud charges that could land them in prison for up to 10 years.

Yukos chief executive Steven Theede told reporters on a trip to Siberia Wednesday that he was in constant negotiations with the authorities and said he was not giving up hope that Yukos could still be saved.

However Yuganskneftegaz -- the company's principal producer -- is due to go on the market to pay back taxes this year.

The sale is already a body blow to Yukos but should not theoretically affect world oil prices since Yuganskneftegaz would remain operational.

But analysts agree that it will hurt the Russian investment climate as the government zeros in on a company founded by a man who has since turned into an open political opponent to President Vladimir Putin.

They also say that while many competitors -- and the government -- may be sizing up Yukos, it is in no one's interests to see a production halt.

"While we can theorize about winners emerging from just about any endgame, shutting down production would seem to aid no one in business or government," Adam Landes of Renaissance Capital wrote in a research note.

"Yukos production is very valuable to the government and the company -- at current prices it is worth something in the range of 70 million dollars (58 million euros) a day to Russia in total revenues," he said.

Meanwhile, Alfa Bank said in a research note said the escape route for Yukos now was to declare voluntary bankruptcy.

"The company would theoretically gain time (for up to six months) and process, as a court-appointed administrator would have to compile a 'hierarchy' of assets for sale to settle claims," the bank said.

Putin this month said that it was not in the government's interest to see Yukos go bankrupt. But its chief Theede told reporters that he had received few signs so far that authorities wanted to see Yukos stay in one piece.


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