Yukos Says Output May Stop; Russia Seeks $2.6 Billion

OAO Yukos Oil Co., Russia's largest oil exporter, said it may have to halt output after Moscow prosecutors expanded the freeze on the oil producer's accounts in pursuit of a $3.4 billion tax bill.

Yukos said it may struggle to pay for operations after a Moscow court froze the accounts of two units that extract 80 percent of Yukos's crude in pursuit of 76 billion rubles ($2.6 billion) of the 99 billion ruble tax bill. The Justice Ministry in July froze Yukos accounts that handle half the company's cash flows of $1.8 billion a month.

``The Yukos case is getting more serious as the authorities start going to units, not stopping at the parent company,'' said Ron Smith, an analyst at Moscow brokerage Renaissance Capital. ``If they don't let the units operate, output may in fact be halted.''

Investigations into Yukos and its largest owner, Mikhail Khodorkovsky, have driven up world oil prices and raised concern about property rights under President Vladimir Putin, prompting capital outflows. Concern Yukos's output might be disrupted helped push up crude oil futures in New York to a record $49.40 a barrel on Aug. 20, a 55 percent gain from a year earlier. The jump in prices helped to slow U.S. economic growth in the second quarter.

Yukos shares were down 2.37 rubles, or 2 percent, at 117.50 rubles at 6:13 p.m. in Moscow, after sliding by as much as 4.7 percent. They have lost 72 percent since Oct. 25, when Russia arrested Khodorkovsky, 41, on charges of fraud and tax evasion.

Crude oil for October delivery jumped as much as 1.8 percent to $44.79 a barrel in electronic trading on the New York Mercantile Exchange, the highest in a week.

`Complete Blockage'

The Basmanny District Court in Moscow on Tuesday supported prosecutors' requests to freeze the accounts of Yuganskneftegaz and Tomskneft, according to court documents obtained by Bloomberg.

The court's actions ``resulted in a compete blockage of the accounts of Yukos's subsidiaries and has stopped them being able to carry out any settlements including payment of wages, taxes, and operating expenses,'' Yukos said in its statement today.

The accounts were frozen in relation to a tax evasion case against Irina Golub, general manager of Yukos-FBC LLC, Yukos said.

The press service at the Prosecutor General's Office declined to comment.

Yukos last week cut its oil production target and capital spending for this year, the first sign its struggles to meet a $3.4 billion tax bill may reduce Russian oil supplies.

President Putin and Sergei Oganesyan, the energy regulator, said this week Russian oil production is exceeding the most optimistic forecasts. The country's output has surpassed that of Saudi Arabia, which pumped 9.36 million barrels a day in July and 8.5 million barrels a day in the first five months.

Russia's leader on Tuesday reassured German Chancellor Gerhard Schroeder and French President Jacques Chirac that his country's oil companies will increase output, at a meeting of the three leaders in Russia's Black Sea resort of Sochi.

``I was very pleased by the news that Russia will increase its oil production,'' Schroeder said Tuesday. ``We had real fears, if not for the present moment, that the world economy could suffer through oil prices.''

A week earlier, on Aug. 23, Putin, 51, told U.S. President George W. Bush, 58, over the telephone that Russian companies boosted production to help alleviate rising oil prices.

Shares Plunge

Khodorkovsky, who has remained behind bars since the arrest and is now facing trial, denies the charges as political.

Russia's Justice Ministry on July 20 said it's preparing to sell Yuganskneftegaz, which pumps about 60 percent of Yukos's oil, to settle the parent company's tax bill. The ministry on Aug. 12 said it Yuganskneftegaz will be valued by Dresdner Kleinwort Wasserstein.

Yukos said in July it may go bankrupt and halt production as it struggles to pay the 2000 tax bill, which the company calls politically motivated.

Taxes

A court has ordered Yukos to pay $3.4 billion in taxes and penalties for 2000. Yukos has paid $2 billion as of Sept. 1, according to today's company statement. It said it will seek to pay the bill in full to prevent destruction of the company.

The government's $3.4 billion tax claim against Yukos for 2001 is yet to be considered by a court.

Yukos's production rose 8.5 percent in the first eight months of 2004 from a year earlier, averaging 1.74 million barrels a day in August, the Russian Energy and Industry Ministry said. That compares to 1.73 million barrels a day the company was producing in December last year.

``Yukos increased production significantly in the second half of 2003,'' Smith said. ``Now, they aren't yet losing, but they aren't gaining either.''

Russia boosted crude oil output 9.9 percent in the first eight months of 2004 to 302.6 million tons, (9.1 million barrels a day). In August, Russia extracted 39.6 million tons of crude, an average of 9.37 million barrels a day.

Yukos employs a total of about 50,000 people at Yuganskneftegaz and Tomskneft, Yukos spokesman Alexander Shadrin said.

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