YukosSibneft to orbit Russia as global player

YukosSibneft to orbit Russia as global player

Bernard Besserglik, Agence France-Presse, Moscow

Russian officials are talking up the creation of the oil supermajor YukosSibneft in the merger last week of Russia's second- and fifth-ranked hydrocarbons producers as a sign of the country's growing competitiveness in the global economy.

With January-March oil production up 11 percent from a year earlier, according to unofficial figures reported on Wednesday, and plans for two new export pipelines to be announced shortly, the oil industry is seen as the Russian economy's best bet for a long-term success story.

"This is a significant event," Prime Minister Mikhail Kasyanov said on learning of the Yukos-Sibneft merger that creates the world's fourth-largest private hydrocarbons producer with a market capitalization of US$35 billion (32 billion euros).

Russia needs giant companies as flagships of its economy, he said, praising the "aggressive management" of the merged companies, a consideration he said would help the new oil giant to stake out a greater share of world markets.

Analysts have generally approved the $15 billion merger, arguing that Russia's possession of a strategic player in the global oil industry will give its businesses greater clout worldwide.

Semyon Vainshtok, head of the Transneft company that controls Russia's huge system of oil pipelines, noted that the advantages of the new company would include the slashing of production costs, technology upgrades, an increase in oil productivity and a boost to scientific research.

"The new company will be the most energetic business in Russia, and technologically the most aggressive," he said, as quoted by the ITAR-TASS news agency.

Although the immediate objective may have been defensive, with Yukos aiming to prevent Sibneft being acquired by an international major, Troika Dialog analyst Valery Nesterov told AFP, the merger "come at the right time, boosting the economy as a whole."

The new company "will be able to influence global oil policy," he noted, while analyst Bulat Karimov with the Aton brokerage group believed the merger meant "the Russian oil industry will be seen differently now."

The consolidation of the Russian oil industry is proceeding apace, analysts agreed, Pavel Kushnir of United Financial Group predicting that there would eventually be just three Russian majors: YukosSibneft, the BP-TNK joint venture formed following BP's $6.75 billion investment in February, and LUKoil.

However the Russian oil industry had yet even to catch up with the power it enjoyed in the Soviet era, Kushnir warned.

"Its main problem is the lack of export infrastructure," he noted.

The Russian authorities have been seeking foreign investment to upgrade infrastructure, and in November LUKoil, Yukos, TNK, and Sibneft signed an initial agreement to build an Arctic export terminal at the northwestern port of Murmansk that would allow them to boost shipments to the United States.

The oil ministry is due shortly to finalize plans for the construction of two new pipelines to Asia, one to China and the other to the Sea of Japan, although the details are pending the results of a feasibility study to be announced by the end of this month.

Yukos has until now argued for priority to be given to the pipeline from Angarsk, the easternmost point of the Russian oil pipeline complex, to the Chinese city of Daqang, although the route to Nakhodka, on the Pacific coast, would boost prospects of oil sales to Japan.

Both Asian countries are keen to increase the flow of Russian oil in order to reduce their dependence on supplies from the Middle East.

The Nakhodka route would also open up the prospect of increased sales to the United States, which currently takes less than one percent of its total imports from Russia.

The Murmansk route could raise this figure to as much as 10 percent, and the Nakhodka pipeline raise this even further.

Already owning the world's third-biggest proven oil and gas reserves, YukosSibneft will be virtually immune from hostile takeover and free to develop new upstream projects such as exploring for new deposits in eastern Siberia and in the Caspian Sea region.