In the papers, on the news and in the minds of most Americans are Iraq, the war, Bush and Kerry. That's pretty much what's been on minds for the past few years. No mention of the mammoth oil happenings in Russia. Right now there is huge news in Russia over an oil company called Yukos.
I have been researching Russian oil companies and have found some interesting things. Yukos came out of curiosity about Halliburton and its subsidiaries. They have companies all over the world that handle software and the drilling for and refining of hydrocarbons. I found out that Landmark, a Halliburton software company, recently did a trade show in Moscow. Landmark is going to aid Exxon Neftegas in drilling in Russia. Exxon Neftegas signed a deal in 2002 to start drilling by 2005. (7)
I read about a company called Yukos, the second largest oil company in Russia. Mikhail Khodorkovsky is the person who owns the most shares of Yukos. Russia's richest man is now in jail for tax evasion and fraud, along with his business partner, Platon Lebedev. "Yukos, once lauded as a model of corporate transparency (the full, accurate, and timely disclosure of information) in Russia's murky business world, has been under legal assault since July." (4) The murky business world comment refers to the fact that the Kremlin intentionally stayed out of regulating Russia's largest companies. The post-communist giant-turned capitalist now has very specific interests in Yukos. The Kremlin claims that their investigation is purely criminal. Others think that the Kremlin wants a piece of the oil action. The Kremlin allows businesses to be privatized through foreign investors. For example, take Gazprom, Russia's equivalent to Halliburton. Gazprom's business tactics aren't exactly orthodox: "Most of Gazprom's problems pre-date the Putin regime. Past managers were allowed by the Kremlin to engage in what can only be called an orgy of stealing. Under President Boris Yeltsin, they transferred ownership of 18.4 billion cubic meters of gas reserves to a shadowy Florida-based company called Itera for little or no consideration. This allowed Itera to grow from scratch to something larger than Chevron Texaco in less than five years." (2) Gazprom sold a shitload of oil to Itera for about 10% of what it would have paid for from ExxonNefte Limited (about $.66 per barrel compared to $13 with ExxonNefte). Russia sold oil to us and we sold it back to ourselves for a higher price.
Back to Yukos. Yukos owes back taxes from 2000 in excess of $3.4 billion, not to mention another $3 billion for 2001 (three million USD is equivalent to about 99 billion Rubles.) Records show that Yukos dividends went from 300 million in 2000 to 2 billion USD by the beginning of 2003. (8) As mentioned beforehand, a Russian company could get deep into corruption and debt is because of the privatization of these companies, which could point to the new capitalist Kremlin seeking control of Yukos. Many people think that the Kremlin wants to infringe upon the political agenda for Lebedev and Khodorkovsky. The Kremlin has frozen Yukos' assets so that Yukos cannot sell shares to pay off the debt. "The charges by the Kremlin are being seen by some as an assault that many analysts see as an attempt to punish former CEO Mikhail Khodorkovsky for backing opposition political parties and challenging President Vladimir Putin's grip on power." (5) "The case… has been widely seen as a trial for the country's transition to capitalism, which saw some like Khodorkovsky win vast fortunes while the majority of Russians were plunged into poverty." (3) Khodorkovsky's lawyers refer to his trial as "private property on trial" (5). There has been evidence so far that Exxon, Mobil and BP may help bail out Yukos of the hole, which brings me to the next item.
The West is interested in privatizing oil from politically unstable regions like the Middle East. The U.S.-backed war in Iraq is a bloody conquest for the control of the oil fields and the privatization of them. If there were pipelines in Russia to Export oil to Texas, where the Iraqi oil is going, the U.S. could increase its oil consumption by about 10%. In fact, a pipeline from the eastern Russian coast is chortst and more cost efficient to export oil to Texas. "However, Russian infrastructure, including ports and pipelines, must be upgraded and expanded. First, a private pipeline should be built from the oil fields in Western Siberia to Murmansk--an Arctic port that is ice-free year-round--along with a deepwater oil terminal in Murmansk capable of servicing tankers with deadweight capacities of 500,000 tons. Through the Murmansk terminal alone, Russia could export 1-2 million barrels per day. Russia could also export oil to the U.S. through several Baltic Sea terminals or from Sakhalin Island (near Japan) via Nakhodka, a port on the Pacific Ocean." (6) Exxon Neftegas already signed contracts to drill on the coastal regions, which means that pipelines are pretty much gratuitous. Sakhalin-1 is the complex which was built to furnish this excursion. "It is worth mentioning that Sakhalin-1 is a major project based on the attraction of foreign investments in the economy of Russia. It covers three major oil and gas fields and will ensure the production of 2.3bn barrels (307m tons) of oil and 485bn cubic meters of gas. Oil production is supposed to be started in 2005." (7)
More pipelines? All I've been hearing about is the big one from the Caspian Sea down through the Middle East. Oddly enough, the president of Kazakhstan has invited his landlocked country along with some Middle East countries and Russia to form a sort of partnership in sharing oil exporting. This would privatize companies like Gazprom and Yukos, if it survives, into the hands of off shore investors. "Russia should become a major exporter of oil to the U.S. The political commitment is already in place. The best way to accomplish this goal is by harnessing private-sector expertise and financing to build the Siberia-Murmansk pipeline and the oil terminal in Murmansk." (6) This is big news that we ought to follow, but don't since we never hear about it.
As of July 20, 2004, Yukos has sold their largest stock, Yuganskneftegaz, which "accounts for 60 percent of production at Yukos, which as a whole pumps a fifth of Russia's oil (9)". The odd thing about this case is that Yukos, even while Khordokvsky is in jail, Yukos had the assets to pay off their taxes. "Yukos had offered to pay $1.3 billion and has a stake in Sibneft worth $2.5 to $3 billion." (9) (Sibneft is a stock package Yukos has invested in.) There is the real possibility that The Kremlin will allow investors to literally loot the company's assets if Yukos goes into bankruptcy.
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Yukos was just given the go ahead to start pumping again.
Posted by: get on a bike at August 1, 2004 02:32 PM