Yukos CEO Asks Shareholders to Consider Bankruptcy

Nov. 3 (Bloomberg) -- OAO Yukos Oil Co., Russia's biggest oil exporter, will ask shareholders on Dec. 20 to consider declaring bankruptcy to protect assets from government demands for $14 billion in back taxes, more than the company's market value.

``The situation is unsustainable, we can't continue much longer,'' Chief Executive Steven Theede told journalists in Moscow. ``We essentially stopped drilling activity after Schlumberger Ltd. pulled out'' some equipment last month.

Yukos and OAO Yuganskneftegaz, its main oil-producing unit received additional tax claims totaling $9 billion, Yukos spokesman Alexander Shadrin said yesterday. The new bills bring the company's outstanding taxes and penalties to $14 billion. Moscow-based Yukos's market value stood at $11.3 billion before the new claims, which were first reported on Nov. 1 by Interfax news service.

The tax claims against Yukos, which expects to produce as much as 87 million tons of oil this year (1.74 million barrels a day) of oil, have raised concern about possible supply disruptions from Russia, the world's second-biggest oil exporter behind Saudi Arabia. Russia in July said the state may seize and sell Yugansk, which pumps 60 percent of Yukos's oil, to collect on tax bills.

The company's shares fell 2.54 rubles, or 2.7 percent, to 90.88 rubles, as of 12:26 p.m. in Moscow, valuing the company at $8.5 billion. The stock has dropped 25 percent this week.

Schlumberger, the world's second-largest oil-services company, on Oct. 22 said stopped drilling wells in Siberia and removed equipment on concern that Yukos may cease to operate.

If Yukos files for bankruptcy that may make it easier for the company to keep operating, because Russian law allows for a court- supervised two-year period when bankrupt companies can seek to agree on a schedule for repaying their debt.

``Declaring bankruptcy is clearly good because it will help to protect assets, or if need be, dispose of them in a more orderly fashion,'' said Alexander Branis, who helps manage $600 million in Russian assets at Prosperity Capital Management in Moscow including Yukos shares.

The company still owes $1.7 billion on $2.6 billion of loans that it borrowed last year, Theede said. The company borrowed $1.6 billion last year in a loan organized by Societe Generale SA and backed by Group Menatep, which holds 44 percent of Yukos. Yukos also borrowed $1 billion from banks including Citigroup Inc. and Societe Generale.

Yukos also may call an extraordinary shareholders meeting in January to consider changes to the company's supervisory board, Theede said.

(From Bloomberg, 3.11.2004)