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. Last Updated: 07/27/2016

Oil Giant Put Up for Voucher Auction

One of the world's largest oil companies is going on the auction block next month and hopes to boost production by attracting investors, a company executive said Wednesday.


Yuganskneftegaz, which produces oil in Western Siberia, will start selling 12. 05 percent of its shares at interregional auctions on Oct. 25, its deputy director, Pavel Fyodorov, said in a telephone interview.


Yuganskneftegaz will be the world's fifth largest private oil production firm, Fyodorov said, with reserves including a 700 million ton field that it plans to exploit with the U. S. oil company Amoco. Royal Dutch Shell, the world's largest oil company, has reserves of about 930 million tons, according to a Shell report.


Profits of Yuganskneftegaz for 1992 amounted to 32. 4 billion rubles, or roughly $160 million at 1992 exchange rates, but annual production has dropped to 31. 6 million tons, down 60 percent since 1990.


With a charter capital of 10. 7 billion rubles ($9 billion), Yuganskneftegaz is the first large oil company, and the largest Russian enterprise, to sell shares since privatization started in December 1992, according to Dmitry Skorduli, director of the All-Russian Coordinating Center set up by the government to auction off large enterprises.


About 7, 000 of 13, 000 medium-size and large firms have already been sold off, but lobby groups have managed to hold up the privatization of Russia's largest industries. In most cases, only a minority of shares are sold to the public, with most shares obtained by employees, directors and government agencies before auctions start.


Alexander Bichkov, manager of voucher investments at MMM Invest, said that Yuganskneftegaz would draw high bids at the auctions but would have to compete for attention with a range of major firms, including the state gas monopoly Gazprom, other oil companies and more than 20 hotels expected to go on sale in November.


"It's hard to choose", he said, adding that after a lull in privatization in August and September, a wave of major auctions is coming up.


Yuganskneftegaz will sell almost 1. 3 million shares, or 12. 05 percent of total stock, at auctions throughout the country. The shares will be exchanged for privatization vouchers and will not provide cash for the company, but Fyodorov said Yuganskneftegaz would sell more shares later to attract investors that could help reverse the drop in production.


Energy Minister Yury Shafranik told a Russian business magazine that the country's oil production would fall even faster than expected this year, to 350 million tons from 398 million tons in 1992, according to Reuters. The government would need to raise oil prices to world levels and secure investments to prevent a further decrease, Shafranik said.


Fyodorov warned that the output of Yuganskneftegaz could fall to less than 10 million tons annually unless investments increased and taxes were cut.


"We have huge reserves, but we need investments to tap them", he said, adding: "If the country needs oil, it needs to provide tax cuts".


Still, the company will try to prevent big investors getting large share packages in the first emission by selling shares at many different auction centers, Fyodorov said. Like many state firms, Yuganskneftegaz fears private firms will push for lay-offs and spending cuts without putting in investment, he said.


The workers and managers have already bought 43. 7 percent of the shares at reduced rates, the government keeps 38 percent for three years in all oil industries, and 6. 2 percent will be offered at a closed auction to indigenous peoples and employees of supply industries in the region, Fyodorov said.


But although nearly 88 percent of the shares have already been allocated, the 12 percent remaining will give outside investors, including foreigners, a major say in how the company is run. In time, they could theoretically increase their stake to full control.


While all other large enterprises have been sold off by the State Property Fund, Yuganskneftegaz is officially selling itself. President Boris Yeltsin has offered this option to big firms to assuage fears that employees could lose control of their factories, but Yuganskneftegaz is the first to use it. This means the directors of Yuganskneftegaz might obtain insider information on the auctions and be able to get shares cheaply, warned Boris Bakal, consultant to the International Finance Corporation.


"One of the shareholders should not be put in charge of the process of selling shares", he said.


In many privatized enterprises, the employees and directors have managed to obtain a majority share and have blocked necessary cost cutting.


"Giving the majority share to the employees does not promote more efficient enterprise", Bakal said.


As the government rarely uses its share in enterprises to influence management, the worker collective already has de facto control of Yuganskneftegaz, Bakal added.


Yuganskneftegaz is negotiating with Amoco for joint exploitation of a field in the Khanty-Mansiisk region that may yield 700 million tons, according to Amoco representative Anders Morland. It will not start producing for another few years, but this project might help restore output, Fyodorov said.