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. Last Updated: 07/27/2016

Yukos Says Eastern Merger in Works




Oil holding company Yukos on Monday said it will merge Eastern Oil Co. into its fold within the next three months after acquiring a majority stake, creating what will be Russia's biggest oil company by proven reserves.


Although some analysts questioned the wisdom of the merger, the news sent Yukos' stock soaring to close at $3.0, from $2.7 on Friday, an 11 percent jump. Yukos is part of the Rosprom financial-industrial group which includes Bank Menatep and is headed by Mikhail Khodorkovsky.


"I wonder whether it is a question of Menatep grabbing what it can and deciding what to do with it afterward," said one oil analyst who asked not to be identified.


Yukos on Friday acquired a 45 percent stake in Eastern for 4.8 trillion rubles ($800 million) at a cash auction in which 50 percent-minus-one share of Eastern was put on the block, Yukos sources said. Most analysts said Yukos paid a fair price for the stake.


Yet Russia's Federal Property Fund on Monday still had not confirmed the news, saying it would announce the auction results Tuesday.


Yukos now controls 54 percent of Eastern, having earlier bought up 9 percent of the company's shares on the open market. A Yukos source said the company will participate in an investment tender for an additional 34 percent of Eastern, expected in January, which would push total ownership up to 88 percent.


The combined Yukos-Eastern company will beat LUKoil for total proven oil reserves within Russia, boasting 12 billion to 13 billion barrels compared with LUKoil's 11.2 billion barrels.


The new company would be Russia's second largest oil company by production, behind LUKoil, and its largest oil company by refining capacity.


A Yukos source said the company will review operations at Eastern and its subsidiaries.


"Yukos specialists plan in the near future to analyze Eastern's budget for 1998 and take steps to synchronize the activities of Eastern and Yukos," the source said.


Yukos' oil production unit Yuganskneftegaz is located in Western Siberia while a second crude producer, Samaraneftegaz, and three oil refineries are all situated in the Volga region. Eastern's operations -- oil producer Tomskneft and the Achinsk refinery -- are in Central Siberia.


"This was the only possible company that could be bought by Menatep," said one analyst.


He said state oil company Rosneft, which is due to be auctioned off in 1998, would be too large for Yukos to manage. The combined company will save on administrative costs and will be able to borrow funds more cheaply on international capital markets, he added.


Analysts have criticized Menatep's management style with Yukos, saying the holding company has squeezed profits out of its subsidiaries by buying their crude at low prices and refining and selling the oil itself for higher prices.


That strategy has pushed down the stock prices of Yukos oil producers Yuganskneftegaz and Samaraneftegaz and could affect the price of Eastern's Tomskneft as well.