Install

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

. Last Updated: 07/27/2016

LUKoil Thrown to the Dogs

On Monday, Iraq announced that it would welcome any Russian oil company other than LUKoil into the consortium hired to develop its West Qurna field. Iraq broke its $3.7 billion contract with Russia's largest crude producer in mid-December. The announcement was just the latest in LUKoil's long list of mishaps in Iraq. Saddam Hussein seems to have realized that Russia is on the brink of a new industrial war and that the grand prize will be LUKoil. The company is weak and is in no position to promote Iraq's interests in Russia.

Everything has been going wrong for LUKoil.

In July of last year Ryazan resident Irina Yegorova, the owner of five shares in LUKoil, an investment currently worth about $75, successfully filed a petition in a Ryazan court to have any export-related orders issued by LUKoil president Vagit Alekperov declared null and void. As a result, pipeline monopoly Transneft halted LUKoil exports for two days, costing the company $1 million.

This past summer, LUKoil got into a fight with Vladimir Butov, governor of the oil-rich Nenets autonomous district in the Far North. Butov, obviously with approval from on high, welshed on commitments he had made to LUKoil, which he may have already been paid for. At one point the governor was at the center of six criminal investigations. Butov blamed everything on LUKoil, and the company found itself cast as a troublemaker encroaching on the federal government's turf.

Then LUKoil's chief financial officer, Sergei Kukura, went missing. The consensus is that he was kidnapped with the aim of pumping him for his vast knowledge of the company. This couldn't have been carried out without permission from the highest levels.

At the time, LUKoil was building a new oil-product terminal on Vysotsky Island near St. Petersburg. Earlier this month construction was forbidden, ostensibly on ecological grounds, but only after LUKoil had already sunk huge sums into the project.

To Our Readers

Has something you've read here startled you? Are you angry, excited, puzzled or pleased? Do you have ideas to improve our coverage?
Then please write to us.
All we ask is that you include your full name, the name of the city from which you are writing and a contact telephone number in case we need to get in touch.
We look forward to hearing from you.

Email the Opinion Page Editor

And last weekend, LUKoil announced that it will sell its 10 percent stake in Azerbaijan's Azeri-Chirag-Guneshli oil field to Japan's unlisted Inpex for $1.375 billion. But Alekperov is more than just a Baku native. It's well known that he was being considered by the Kremlin and in Azerbaijan as a possible successor to President Heidar Aliyev. The sale of LUKoil's share in the Azeri oil field was as much a political as a commercial retreat.

Any Russian industrial war has three components: a weak target company, deadly enemies and a blessing from on high.

LUKoil is the worst-run oil company in Russia. The rest -- Yukos, Sibneft, TNK -- centralized their operations long ago. Oil industry insiders say that only at LUKoil will you find private wells drilled by mid-level managers with money stolen from the company. At Yukos they'd rip your head off for something like that. Alekperov has no shortage of enemies, mostly former executives who helped build the company and were later squeezed out. These people were useless as managers and therefore harmless as enemies.

But the LUKoil chief does face more serious opposition in the person of Semyon Vainshtok, current head of Transneft. Vainshtok was a founder of LUKoil who was later forced out of the company. Vainshtok was responsible for boosting LUKoil's production. He once headed Kogalymneftegaz, and there were no private wells on his watch. Vainshtok's success in Kogalym turned out to be so dangerous that he was summoned to Moscow and charged with unifying LUKoil's production structure in western Siberia. The task was practically impossible, but Vainshtok pulled it off. As a result, he was forced out of LUKoil and quickly found himself -- thanks to the good graces of oligarch Roman Abramovich -- in charge of Transneft. In Russia, people of Vainshtok's caliber don't forgive or forget.

Last but not least -- sanction from on high. Everything that has happened with LUKoil to this point is just reconnaissance in force. Will an attack follow? Russia has a system of checks and balances in business as well as politics. If there's an attacker -- in the form of the Yeltsin-era "family" -- then defenders are not far behind: the St. Petersburg chekists. So LUKoil isn't necessarily bound for the chopping block. But its revenues are sure to be redistributed -- between the aggressors and the defenders.

Yulia Latynina is author and host of "Yest Mneniye" on TVS.