Oil Show
// Editor’s column
The oil industry is still one of the most volatile in the Russian economy. Tax claims are put forward against the companies that account for a substantial part of the extraction. Meanwhile, head of oil companies seriously consider the change of the subject of their work. The gas production is now a safer business in terms of taxes in Russia.
The Change of Scenery
I visited Nefteyugansk in February. There is the headquarters of Yuganskneftegaz company that used to be an extractive subsidiary of YUKOS. It is a neat northern town with 50,000 population and one main street (which bears the name of Lenin, of course) where there is the company’s office that gives jobs to the most of the town’s residents. When I came there, I still could see a triangle blot on the wall of the building left from the YUKOS logo, though at that time there was already a sign board of Rosneft, a symbolic black and gold drill, hanging. The same changes swept oil fields that surround the town. Old sign boards had been taken off, accommodation spaces and other premises were painted in other colors. YUKOS’ green and yellow combination widely spread at the end of the year, has become nearly forbidden now. The town was getting ready for the first visit of Sergey Bogdanchikov, president of Rosneft and a new boss of Yuganskneftegaz, and, consequently, of the town.
Battles raging in Moscow around YUKOS have not affected Nefteyugansk. The appearance of the mysterious Baikal Finance Group that won the auction for Yuganskneftegas, courts of arbitration that upheld all major tax claims for YUKOS, the trial of Khodorkovksy and Lebedev – none of these events caused any stir in the town. People got apprehensive only when Yuganskneftegaz found itself unable to pay salaries, Nefteyugansk’s residents on the verge of being left broke.
This is the reason why the town’s residents welcomed the emergence of Rosneft with great relief. We know that, as we say in Russia, new bosses have their own rules. The old director general was replaced by a new one, and a criminal case on misappropriation was initiated against the town’s mayor. But the point is the rest of the town kept their jobs.
While having my dinner at a local restaurant, I paid attention to one jolly company going on the spree. Of course, they work for Yuganskneftegas, some executive staff. “What is important for us? Guaranties that we won’t be sacked and get out salaries. We do feel sorry for Khodorkovsky, and this shady YUKOS case. But it’s the business of those in Moscow, and we’re down here,” they answered my questions on the life in Nefteyugansk.
Sergey Bogdanchikov met workers of Yuganskneftegaz the following day. The people I talked to are sure to have been there too. The president of Rosneft promised them stability. Now nothing threatens Nefteyugansk.
Behind the Scenes
An intrigue concerning Rosneft’s absorption by Gazprom was developing at that time. A month after Sergey Bogdanchikov’s visit to Nefteyugansk, Gazprom CEO Alexey Miller told NTV and the First Channel that Yuganskneftegaz would be apportioned into a separate state-owned company to be headed by Sergey Bogdanchikov, and all the rest of Rosneft would merge into Gazprom. It looked like they had given Sergey Bogdanchikov Yuganskneftegaz as smart money for him not to hinder Alexey Miller carring out a state-important creation of an oil and gas company with a state-owned stake on the basis of Gazprom with the liberalized secondary market of stocks.
It turned out, though, that this scheme did not suit Sergey Bogdanchikov who used all conceivable tools (including meetings with President Vladimir Putin)to influence the situation so as to keep both Rosneft and Yuganskneftegaz for himself. In the upshot, Bogdanchikov outdid Mr. Miller since Rosneft will remain a state-owned company. Some 40 or 49 percent of it will be sold to exterior investors, though, so that the state could purchase with this money 10.7 stake in Gazprom needed to hold its controlling package. Thus, Russia will have two powerful state-owned gas and oil companies.
One can certainly speak about the victory of the state-oriented approach to the strategic sector of economy, and some people do. But I suppose that the development of the plot with the failed Gazprom and Rosneft merger looked like a competition the two managers and their patrons from the Kremlin, Dmitry Medvedev, the head of the presidential staff and head of the board of Gazprom and Igor Sechin, Medvedev’s deputy and Rosneft chairman of the board.
It is highly unlikely that the companies’ management will feel any affection towards each other. But Rosneft has many other things to do apart from the matter with Gazprom. Shortly after Rosneft became the owner of Yuganskneftegas, the Siberian sub-unit immediately sued its former associated company for billions of dollars. There are no doubts that soon after the trial Rosneft will own the largest part of YUKOS’ property, and primarily its extractive units such as Samaraneftegaz and Tomskneft. After signboards are replaced there too, Sergey Bogdanchikov will surely call at the offices of new Rosneft subsidiaries and reassure the staff: “Work as you did before and boost the production. There will be enough work for everyone.”
At the Checkroom
There are some more oil companies eager to be friends with Gazprom alongside Rosneft. However, the gas monopolist does not always respond to the offers of mutually beneficial partnership.
TNK-BP has tried to offer it for a long time. The company needs to involve Gazprom in the project of the development of Kovyktinsky gas condensate field, largest of the undeveloped deposits in the continental Russia. Rusia Petrolium, operator of the Kovykty development project, may not launch gas extraction as it is unable to ship and export gas without the gas monopoly. The delay in the production start-up was the reason for the claims from the Russian Ministry of Natural Resources to Rusia Petrolium threatening to call off its license.
TNK-BP, a major shareholder of Rusia Petrolium, has lately put forward another partnership pattern to Gazprom. TNK-BP development manager Nick Pogson announced that the company offered Gazprom to create a joint venture that would include its share in Rusia Petrolium. He believes that Gazprom could contribute its license for Chayandinskoye gas condensate. However, Mr. Pogson oversaw the fact that the field was in the indisposed fund of bowels and did not pertain to the monopolist.
Gazprom responded it is interested in Chayadinkoye field but the final decision will be taken only after the auction results are announced. Commenting on the statement of Nick Pogson, they say at Gazprom said that “the proposals of TNK-BP may be considered but it would be wrong to speak about it until the issue of the license of Kovykty is settled”. Commenting on the proportion of shares in the joint venture, a representative of Gazprom said that a gas monopoly “rarely owns minor shares of its profile business”.
It is really astounding that TNK-BP is willing to throw up its operator and major shareholder roles of the Kovykty project, if only any prospects in gas extraction are promised to it. After all, why do gas projects attract oil companies?
LUKOIL, company has been “friends” with Gazprom for ages, answered this question. The president of LUKOIL Vagit Alikperov and vice-president Leonid Fedun mentioned at a recent meeting with their US investors that “expenses on extraction and the level of taxation are times lower” in the gas industry, compared to the oil one. LUKOIL forecasts the growth in the revenues of the gas industry following the liberalization of the market and the rise in domestic gas prices provided for by the agreements between Russian and the WTO. Mr. Fedun supposes that the tax burden on the gas industry will not be increased within the next years. LUKOIL vice-president explained his forecast by “the financial state of Gazprom”.
That is why oil companies now desperately needs gas. Its extraction enables the companies to reduce the oil constituent of their business that has become risky.
If only Gazprom allows it.
Petr Sapozhnikov, editor-in-chief of Business Guide-Neft
All the Article in Russian as of June 16, 2005
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