Issue 2001/ 5

New partner to Williams International

The ways of business are unknown

The most important event in the economical life of the last year most probably was the agreement of our non-profitable strategic investor, concern Williams International with the Russian oil company Yukos.
Well-known to us LUKoil, that has a well-developed network of petrol stations (more than 100), four oil terminals and controls about 40% of oil-products market appears to be drawn back aside. Though managing oil refinery in Bulgaria, which is similar to our oil refinery Mazeikiu nafta, they are doing it rather successfully. But it is considered that the claims of Yukos were much more modest and namely they were awarded a contract for buying 26.85% of Mazeikiai refinery for 75 million US dollars.
One cannot deny that the deal was made a little bit in a hurry and the possibility was lost “to sit on the peak of a mountain and to watch three tigers` fight in the valley”, as the Chinese say. Namely three ones, because according to the Russian newspaper The Latest News, “Tiumen oil company appeared on the stage, which had openly declared that it was ready to offer Lithuania better terms than Yukos.”
Yukos pledged during the period of ten years to deliver to the refinery 4.8 million tons of oil each year (LUKoil guaranteed 6 million tons) and 4 million tons more to the export terminal in Butinge and to open a credit line of 75 million US dollars for the refinery. It should be reminded that in 1999 for the same sum of money and credit Williams not only acquired 33% of shares, but also was given the right any time to increase the packet of shares up to controlling level.
In addition, the Government of Lithuania also opened a credit to the refinery and gave the right to Williams to take loans with the state guarantee.
So, the present deal with Yukos one cannot consider being a successful one. On the other hand, the managers of the company cannot be called shortsighted.
Let’s get acquainted with the company - as our terminal in Butinge will be working with it during the coming ten years. At one of the meetings in May this year the president of LUKoil V.Alkiperov was asked: “Will the terminal in Butinge be able to compete with Ventspils, if LUKoil is out of Lithuanian oil business?” And Vagit Yusufovic answered that our terminal was already competing with Ventspils as the oil handling tariffs are almost the same. But… “I am sure, that this competition will become stronger when the Baltic pipeline network is developed and the Russian port of Primorsk is constructed”.
But lets come back to Yukos.

Look who has come…

Three big daughter companies Yuganskneftegaz, Samarneftegaz and Tomskneft, numerous small enterprises and a great number of shares of other companies make oil company Yukos. In September last year Yukos bought a big packet of shares of East-Siberian oil company and got the right to manage the assets of Angara oil company. We will come back to these deals.
In order to get a general picture of the company we will say that, for instance, only Yuganskneftegaz is working on 26 licensed areas in Hantymansiysk district and last year got 30.2 million tons of oil. Industrial resources in this region are evaluated to 1.6 billion tons. Last year the company obtained 56.5 million tons and Yukos became a leader according to the volumes of growth (11.4%).
Though Yukos obtains less oil than LUKoil, it exports more oil by percentage. On the whole, according to a number of parameters, the policy of Alkiperov seems to be more rational. So, Yukos has got twice as many idle borings as LUKoil, and according to capital investments it lags behind more than in two times, but all the non-industrial expenditures are transferred to municipality. According to prospecting borings it is also at the bottom of the list of Russian companies. Nevertheless, looking at the rating of oil companies Yukos takes the third place after Surgutneft and LUKoil.
The authorized capital of Yukos last May was 1.71 billion US dollars but in stock exchange market it did not work (22 deals while LUKoil had 628).
The impression is that Yukos is accumulating forces - “the lion is getting ready for a jump”.
And probably such “jump” of Mr. M.Khodorkovskiy will be the pipeline from Agarsk to China. Yukos presented this project at the end of 1999 and at the same time set the partnership relations with Transneft and China National Oil Corporation. Becoming a real owner of VSNK and ANXK and having paid all the credits and at the same time making its financial flows free from serious obligations, Yukos can dictate its terms. Transneft pipeline ends – or begins – in Angarsk and further on it will go to Dacin and Beijing. According to the data of China National Oil Corporati on the import of oil to China makes 75 million tons and by 2005 it will reach 120 million tons. In its import China is not going to be always dependent on Persian sheikhs. They need from Yukos in the first stage about 20 million tons of oil per year.
Against such a background of grand perspectives it is not so clear why Yukos needed an agreement with Williams on the conditions that were not so favourable to them. Maybe, trying to open the gate to China, Mr. M.Khodorkovskiy wants to make a small outlet to America.