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. Last Updated: 07/27/2016

Surgutneftegaz Turns to the Public

Surgutneftegaz, Russia's second largest oil company, announced Monday it will raise at least $50 million from the public to finance its investment program for 1995, saying foreign investors have been scared off by the country's political and economic instability.


The company will reserve as much as 200 billion rubles ($46.3 million) of an upcoming 282 billion ruble share issue for the public, officials said. The new issue, the company's third, will help raise some of the 8 trillion rubles ($1.8 billion) the company says it needs to finance its investment program this year, which includes the development of two new oil deposits.


"Our strategy is to attract maximum investment from individuals," Vladimir Bogdanov, Surgutneftegaz's general director, told a press conference.


Bogdanov gave no further details as to how the shares would be sold to the public, but in a press release the company said it will set up an interregional network of dealers and a computerized registration system.


Russian brokers will rarely make deals worth less than $20,000 and the country's registration system is rudimentary, with the registers of around half Russia's privatized companies held by their directors.


Such "pocket registers" have led to a series of well-publicized abuses including the deletion of a British firm's 20 percent stake in Kraskoyarsk Aluminum by the company's management.


Scandals like this and the war in Chechnya have made foreign investors wary of buying shares in Russia's privatized companies in recent months.


Foreign companies own 5 percent of Surgutneftegaz while the state holds a controlling share in the company.


Stock in Surgutneftegaz, which accounts for 11 percent of Russia's total oil and gas output, has a current market value of 470 rubles, but Bogdanov said that the company's shares were undervalued and a more realistic price would be about $13.


The company last year extracted 34.2 million tons of oil, Bogdanov said, down from 38.1 million tons in 1993. But Bogdanov said development of new oil fields would help the company increase production by 1997.


Despite the decline in output, Surgutneftegaz expects to export some 12 million tons of oil in 1995, the same amount as last year, he said.


Surgutneftegaz, which is already developing 21 oil deposits in western Siberia, has begun work on two deposits, Tyanskoye and Konitlorskoye, located in the oil-rich Tyumen region, Bogdanov said.


The Tyanskoye deposit holds more than 200 million tons of oil, while the Konitlorskoye deposit has reserves of some 100 million tons, according to Nikolai Medvedev, the company's director of geology. Surgutneftegaz plans to start pumping oil from both deposits by the end of the year, Bogdanov said.


Bogdanov did not say how the company intended to cover the remainder of its investment plans this year, but he acknowledged the company was holding talks with Western investment banks.Surgutneftegaz, which has more than 60 subsidiaries, is Russia's third-largest oil refiner. The company has six oil-producing units and several oil refineries.