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. Last Updated: 07/27/2016

Yukos Chief: Time to Buy Russian Oil Firms Is Now

WASHINGTON -- Foreign companies keen to tap Russia's plentiful energy supplies should seek to buy firms outright rather than wait for sweeter terms on production-sharing agreements, the head of the nation's second-largest oil producer, Yukos, said Friday.

"I feel that the window of opportunity for [PSAs] has practically closed already, because the oil industry doesn't need investors today, it needs markets," Yukos CEO Mikhail Khodorkovsky said at a Carnegie Institute event.

In past years, firms like ExxonMobil and BP have tapped Russian reserves by inking PSAs. Under these agreements, foreign companies shared development costs for specific drilling projects with Russian national firms and took a share of oil production as payment.

In past years, these politically controversial agreements have been held up in the State Duma. But patience could pay off handsomely.

Russia produces 9 percent of the world's oil and holds a third of its natural gas reserves. While PSA opportunities are drying up, mergers and acquisitions could be an attractive strategy, he said.

"Russian oil companies right now are cheap," he said, although he refrained from listing fire-sale candidates specifically.

Earlier last week, Khodorkovsky said Yukos would boost its international presence with $4 billion in projects abroad by 2005. Those investments would be "oriented primarily toward expanding our customer base" through European asset purchases, he said.

Yukos is "interested" in international upstream projects, but will take "very modest steps in this direction and then only in partnership with experienced majors," he said Friday.

Khodorkovsky also supports plans by a multi-national consortium to build a $3 billion pipeline from Baku in Azerbaijan to the Turkish port of Ceyhan, which would completely bypass Russian soil.

The United States has strongly supported additional pipelines to transport oil and gas from the energy-rich Caspian Sea to oil markets.

"Personally, I am for the Baku-Ceyhan pipeline. In recent times, the Russian government has looked somewhat more favorably on this project," he said.

Without the pipeline, Caspian crude oil would flow north into the Black Sea region and flood the market there, he said.

But Khodorkovsky expressed doubts about the economic viability of the project. "I am not convinced of the economic soundness of the Baku-Ceyhan pipeline," he said.

At the right price, Russian producers could be significant suppliers to U.S. markets, but would never eclipse the Middle East suppliers he said. "Russia is not going to replace Saudi Arabia," he said.

"Russia is capable of playing the role of a back-up source for the United States [when crude oil prices rise above $25 per barrel]. At this point, Russian oil can begin appearing on U.S. markets, thereby smoothing the price peak."