Tuesday, April 22, 2003

New oil colossus emerges A merger between Russian oil companies Yukos and Sibneft will have major impact on the oil industry. While you (like me) may never have heard of these companies, they control a major part of the immense oil and natural gas reserves in Russia. The combined companies now pump over 2 million barrels of oil a day, on a par with what Kuwait produces. The merger would immediately make the new company #6 among world oil firms. The top five are familiar names, though combined as a result of recent mergers: ExxonMobil Royal Dutch/Shell BP ChevronTexaco TotalFinaElf   Moreover, the Russian companies are expanding production, at a double-digit rate.  They also have access to over 20 billion gallons of known oil reserves, plus they have a low cost of production. As a result, experts think they will soon the world's #4 oil company. The companies are both majority owned by Russians, and they are quite new. Yukos was founded in 1993, Sibneft in 1995. Both are  based on privatized government industrial combines. Aside from pumping oil and gas, each firm has refineries and service stations (in Eastern Europe).  Sibneft has itself acquired several companies over the last few years and recently spun off some non-core resources such as a brick factory, a publishng house, and an apparel factory, so it can concentrate on oil and gas. There are already rumors that one of the Western oil companies, either Shell or Total wants to buy into the new company. In fact, they were courting both firms individually until the merger.  BP already this year bought a 50% stake in the 3rd-largest Russian oil company, TNK. And Lukoil, the pre-merger #1 Russian firm is still available for acquisition or merger.  This oil industry is in the throes of a five -year consolidation, going from a dozen major firms a few years ago to a half-dozen now, and that roll up looks likely to accelerate. Bigger companies have more control over their destinies, influencing governments and markets with a loud voice. Now a Russian company can push its weight around, too. 8:47:07 PM

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