Install

Get the latest updates as we post them — right on your browser

. Last Updated: 07/27/2016

EDITORIAL: Size Won't Make Yuksi World-Class




The Yukos-Sibneft oil merger has created a new company, Yuksi, which will leapfrog over LUKoil to become Russia's biggest oil concern and which company directors claim is the third largest oil company in the world.


Yukos chief Mikhail Khodorkovsky said this week that the deal created a "world-scale and world-class integrated oil company.''


Khodorkovsky and his shadowy partners in the deal will have to realize that big is not necessarily beautiful and that, despite its huge size, Yuksi is very far short of what financial markets consider "world-class." After all, many of Russia's biggest companies are badly managed, unprofitable nightmares.


Yukos and Sibneft have a reputation as disparate and badly integrated conglomerates with little central planning.


Yuksi can boast of its huge size, but the world will be skeptical so long as Sibneft and Yukos remain among Russia's most secretive companies. Their financial flows are a complete mystery, their books have never been publicly audited and even their claims of proven oil reserves are questionable.


Sibneft won't even reveal who its major shareholder is. Khodorkovsky obliquely confirmed the open secret that it is financier Boris Berezovsky.


Sibneft was still playing games Tuesday, issuing a statement denying that Berezovsky was a shareholder, although admitting he had been invited to "participate in the establishment of the new company" by shareholders "to show their gratitude for the support that Mr. Berezovsky gave them during th e establishment and development of Sibneft."


Unlike LUKoil, which has formed long-term cooperation deals with strategic partners, neither Sibneft nor Yukos has established a reputation in the world oil industry. Indeed, after years of negotiations, Yukos mysteriously broke off a deal with Amoco last year to develop a huge Siberian oil field.


The secrecy shown by both companies reflect the shadowy circumstances under which they were privatized. Control of Sibneft and Yukos was handed out under the terms of the scandalous shares-for-loans deals of 1995-96. As a result of these deals, shares in both companies are tightly held and barely trade.


Khodorkovsky may claim Yuksi is world-size, but its market capitalization will still pale compared to world oil giants and will even rank well below LUKoil.


Khodorkovsky plans to raise $2 billion on international markets. He is dreaming if he thinks size alone will be enough to convince investors to put up the money.


Yuksi faces a big job improving its reputation and streamlining the cumbersome and inefficient managements of Yukos and Sibneft before it can truly claim its place on world markets.