State oil firm expected to get key Yukos asset

A powerful Kremlin aide was voted chairman of the board of Russia's state-controlled Rosneft oil company yesterday, sparking speculation that the firm will get the prized production arm of OAO Yukos.

Igor Sechin, who is rumoured to be one of Russian President Vladimir Putin's closest advisers and serves as deputy chief of staff, was elected chairman of Russia's only state oil company, the country's seventh-largest petroleum producer.

"I absolutely think that Rosneft is in the market for Yukos assets," said Stephen O'Sullivan, co-head of research at the UFG brokerage.

Yukos and its major shareholders have been under investigation for a year in a case that many say is Kremlin payback for the political ambitions of its billionaire founder, Mikhail Khodorkovsky, who financed opposition parties and openly criticized Mr. Putin's government.

Mr. Sechin, 43, is a leader of the hard-line camp within Mr. Putin's administration that is widely believed to be behind the investigation of Yukos and its main owners.

Mr. Khodorkovsky is standing trial with a top associate on fraud and tax evasion charges and faces up to 10 years in prison if convicted. Yukos, meanwhile, faces a 94-billion-ruble ($3.2-billion U.S.) tax bill that could eventually total nearly 300 billion rubles.

A week ago, court bailiffs said they intended to sell Yukos's main production subsidiary Yuganskneftegas. The move would effectively take the heart out of what today is Russia's largest oil producer, as Yuganskneftegas accounts for 60 per cent of Yukos production.

Oil prices climbed yesterday, partly over concerns about supply disruption in Russia caused by the crisis engulfing Yukos, analysts said. U.S. light crude climbed as much as 78 cents to hit $42.22 a barrel, before closing at $41.84.

Yukos shares, which have steadily fallen since Mr. Khodorkovsky's arrest last October, have plunged since last week's announcement.

Shares were $16 when Mr. Khodorkovsky was arrested. Yesterday they closed down 60 cents at $3.60.

Market players in Russia have been speculating wildly about the state's choice as buyer of the Yukos subsidiary, with gas monopoly Gazprom, third-largest oil producer Surgutneftegas and Rosneft among the names mentioned most frequently.

Mr. O'Sullivan of UFG said the sale of Yuganskneftegas to Rosneft would make most sense, as it would introduce a state-controlled company as a major player in Russia, which relies heavily on its oil exports for government revenue.

"Surgut is state-sympathetic, but it's not state-owned and I think people forget sometimes that ownership is different from sympathy," he said. "If you add Yugansk to Rosneft, you end up with about 1.4 million barrels a day. . . . So you don't form Russia's biggest oil company, but one that is state-owned so it's very much under your control."





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