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. Last Updated: 07/27/2016

Sibneft Courting New Investors




Two weeks after calling off a merger attempt that would have created the world's third largest private oil company, Sibneft is making the rounds at investment banks, advertising its cost-cutting measures and 1997 profitability.


Analysts say the move is tied to the oil company's increasing need to raise money abroad, and Sibneft has publicized plans to issue a level-one American Depository Receipt later this year, with a listing on the New York Stock Exchange planned for next year.


"We have the same goals we did before [the merger attempt], but we want to reach them more intensively," First Vice President and Chief Financial Officer Eugene Shvidler said in an interview this week.


Sibneft, the country's seventh largest oil company, called off plans to join with the Yukos oil company to form Yuksi, a giant that would have been Russia's largest oil company and the third largest private company worldwide.


Shvidler, who served as CFO of Yuksi while the merger was still underway, would not comment on Sibneft's divorce from Yukos.


"That's life. There was an intention, and it didn't work," Shvidler said.


Analysts were not so kind. "Its abrupt slalom into and out of Yuksi within six months ... leaves some room for credibility-building," Robert Fleming Securities analyst Ken Kasriel wrote in a report.


Kasriel and other analysts did, however, give Sibneft credit for having issued three years of accounts under U.S. Generally Accepted Accounting Principles, or GAAP, saying it showed a commitment to transparency.


On one matter of disclosure, however, Sibneft continues to deny widespread market belief that financier Boris Berezovsky controls the company. "He is not a shareholder in Sibneft," Shvidler said.


Sibneft's ambitious list of post-Yuksi plans include cutting labor costs by 25 percent in 1998, searching for new oil reserves overseas, improving cash collection and spinning off profit-draining social assets such as kindergartens and housing.


Shvidler said the company's ongoing restructuring program allowed it to register its first year of profit since the company's founding. Sibneft's GAAP accounts show 1997 net profit of $68.2 million, up from a loss of $6 million the previous year.


"I think it does appear from the results they are turning the company around," CSFB oil analyst Stuart Amor said.


Along with other Russian oil majors, Sibneft has been accused of stripping assets from its subsidiaries in an effort to drive down share prices and make consolidation easier. Sibneft owns controlling stakes in oil producer Noyabrskneftegaz and the Omsk Refinery, and plans to consolidate its subsidiaries into one holding company share next year.


In one case, a group of minority shareholders owning 13.9 percent of Noyabrskneftegaz say Sibneft has stripped the value of their stock by siphoning off Noyabrskneftegaz's oil at below-market prices.


While such complaints of shareholder abuse will certainly cast a cloud over Sibneft's new image campaign, analysts say it is difficult to judge the claims just by examining the accounts.


"You just don't know," Amor said. Shvidler said Noyabrskneftegaz made a profit of $78 million under GAAP standards, although the figure is not noted in the accounts. Under Russian accounting standards, he said, Noyabrskneftegaz registered a loss.


The minority investors, led by U.S. investor Kenneth Dart, will also bring Sibneft to court June 16 to dispute a September 1997 share issue that allegedly diluted their stake. Sibneft bought the new Noyabrskneftegaz shares in a closed issue as a way to increase its control over the subsidiary.