Yukos Can Continue To Operate Three Oil Units

The Russian government on Thursday clarified a previous order freezing some assets of Yukos, which the country's largest oil producer had warned could have shut down its oil production.

The Justice Ministry said the company's three oil-producing subsidiaries Yuganskneftegaz, Samaraneftegaz, and Tomskneft could continue sales and production. But Yukos's property and assets remain frozen, as the company still faces a huge tax bill that it has been unable to pay.

A top Justice Ministry official on Thursday denied that Yukos had been ordered to halt production, after the threat of a stoppage pushed world oil prices to record highs on Wednesday. Andrei Belyakov, head of the Russian bailiffs' service, told the Itar-Tass news agency that the government had no intention of stopping production at Yukos: "We were not talking about banning the production, processing or supply and sale of oil."
Yukos on Thursday issued a statement saying that its three production units received notification from the Ministry of Justice dated Wednesday revoking earlier orders that prohibited "disposal or change of assets' status."

Government Intentions

"The decision of the Ministry of Justice to revoke its previous orders is consistent with our understanding of the government intentions with regards to oil production and distribution, and is welcomed by Yukos," the company's chief executive, Steven Theede, said in an e-mailed statement. "In a larger sense, we continue to work toward a satisfactory resolution of the tax issues and remain hopeful that one can be achieved."

Yukos, whose former chief, Mikhail Khodorkovsky, is facing trial for fraud and tax evasion, on Wednesday had warned that it had been ordered to shut down production within days as part of a broader investigation into the company.

Yukos produces about 1.6 million barrels per day, or 2 percent of the world's oil supply, and the possibility that its production might be halted sent oil prices to record levels. Bailiffs in Russia are thought to be preparing to confiscate and then to sell Yukos's most important asset and largest subsidiary, Yuganskneftegaz.

Yukos Output

The business produces about as much crude as some oil-producing countries and accounts for around 60 percent of Yukos's output. Separately, the head of the Organization of Petroleum Exporting Countries said the cartel was extremely concerned about the problems at Yukos, which have roiled oil markets.

Yukos shares and the broader Russian market rebounded on Thursday following the authorities' reversal, but industry analysts warned that an outright grab of Yukos assets by the Kremlin represented a new risk for investors.

"This new era of minority shareholder risks differs markedly from the past," noted the Troika-Dialog brokerage firm in a note to clients.

In the wild 1990s era of Russia's privatization, the note continued, "it was greedy oligarchs elbowing out minority investors. Now it is the sharp elbows of the state that are pushing minority shareholders' interests aside. The Yukos endgame shows that, just as the oligarchs hurt minority investors in their bid to control assets, the state may also trample minorities in its effort to claw back assets."
In the absence of a political counterweight to balance the government's latest moves, the firm added, "investors cannot be blamed for wondering which company is next."


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