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. Last Updated: 07/27/2016

Ex-TNK Boss Takes Control of Yukos

Embattled Yukos said Tuesday it had appointed a new chief executive to replace Mikhail Khodorkovsky, who has been jailed on charges of fraud and tax evasion since Oct. 25.

Simon Kukes, formerly president and chief executive officer of the Tyumen Oil Company, or TNK, was given the job. A Russian-born U.S. citizen, he was elected chairman of Yukos' board of directors in June.

Khodorkovsky resigned Monday, saying he wants to deflect the blows from his company, and Yukos said Khodorkovsky would not seek any executive position within YukosSibneft, the world's fourth-largest oil company, which will be created by Yukos' agreed takeover of Sibneft.

In accepting the job Tuesday, Kukes vowed to carry on Khodorkovsky's policies and mapped out his plans for the company as President Vladimir Putin headed off to Europe to calm foreign investor worries.

"We don't plan any changes in company behavior because the company is behaving normally. Everything stays intact and we have a strong team," Kukes told a news conference to present the company's new seven-member executive committee.

The company also appointed Steven Theede, an American, as executive director of Yukos-Moscow, a subsidiary under which many of Yukos' central corporate functions are incorporated. Bruce Misamore, also a U.S. citizen, remains the group's chief financial officer.

Russian members of the new management board include deputy chief executive Yury Beilin, vice president for refining and marketing Mikhail Brudno, and Yukos-Moskva vice presidents Alexander Temerko and Mikhail Trushin.

The appointment of foreigners was seen as a further attempt to protect Yukos from Russian prosecutors. Prosecutors on Thursday froze a 44 percent stake in Yukos they said was controlled by Khodorkovsky, but later freed a 4 percent stake.

Kukes will need to balance the demands of two shareholder groups: one led by Khodorkovsky, the other by Roman Abramovich, which obtained a 26 percent stake when it sold Sibneft to Yukos. As president of TNK, Kukes helped negotiate the sale of a $6.35 billion stake to a BP venture this year. He previously worked at Phillips Petroleum Co. and Amoco Corp.

"Kukes is a balancing weight, a swing vote," said Ivan Mazalov, who helps manage $450 million at Prosperity Capital Management. "He's American, but he's really Russian. He isn't part of any group, he's a hired employee. Yukos' CEO needs more of a political gut feeling than industry expertise."

The appointment may help end the distractions caused by investigations into Khodorkovsky, allowing Kukes to focus on the potential sale of a stake to an international oil company, investors said.

The Prosecutor General's Office has been investigating Yukos for possible tax evasion since July, when prosecutors arrested Platon Lebedev, chairman of the company's biggest shareholder, Group Menatep, and charged him with theft and tax evasion. Khodorkovsky and Lebedev have denied the charges.

Putin said Tuesday that the investigations into Khodorkovsky were initiated by prosecutors and he cannot interfere with judicial proceedings. He told the Italian daily Corriere della Serra that he will presume Khodorkovsky is innocent until a trial proves otherwise, though he described the charges against the former Yukos head as "very serious."

Theede, a former ConocoPhillips executive, is part of a team of U.S. oil men that Khodorkovsky has hired in recent years. Misamore, who worked for PennzEnergy Co. before joining Yukos, was brought in 2 1/2 years ago to help the company improve its corporate governance and financial reporting.

Yukos' shares surged 12 percent Monday after Khodorkovsky's resignation was announced, recovering part of a 22 percent drop last week that erased $8.7 billion in market value.

Born in Moscow, Kukes was educated at the Mendeleyev Chemical Technology Institute, the same university where Khodorkovsky would earn his degree a decade later. Kukes left Russia in the 1970s to become a postdoctoral fellow at Rice University in Houston. Kukes holds 130 U.S. patents, Yukos said on its web site.

"He's bright, able and extremely knowledgeable about the oil industry," said Sarah Carey, a Washington lawyer and member of Yukos' board since June 2001. "He's an oil scientist, not just somebody who's been in the business."

Kukes returned to Russia in 1996 as vice president of Yukos. He became president of Tyumen in 1998.

At Tyumen, Kukes overhauled domestic marketing operations by setting up a network of gasoline stations, and helped conduct talks with Western lenders, including the U.S. Export-Import Bank, from which Tyumen borrowed $500 million in 2000. Tyumen shareholders German Khan and Viktor Vekselberg, who are also senior executives, ran the crude oil production.

"Kukes doesn't belong to any inside groups at Yukos and he showed at TNK he could balance between Khan and Vekselberg," said Svetlana Legall, who manages $120 million at Clariden Investments Ltd. in Zurich, including Yukos shares. "With his experience at TNK, negotiating with the U.S. Eximbank and BP, he will be able to continue what Khodorkovsky planned to do with Yukos -- make it a global player."

During his years at Tyumen, Kukes reversed a decline in production, gained control of a smaller oil producer from BP and later teamed up with the London-based company.

Earlier this year, TNK's owners, Alfa Group and Access/Renova, agreed to create a joint venture with BP in exchange for $6.75 billion in cash and stock, the biggest ever foreign investment in Russia. After Kukes left to join Yukos, BP dropped the price for the TNK stake to $6.35 billion and then agreed to buy a quarter of Slavneft from TNK's owners for $1.35 billion.

Kukes left TNK after the agreement with BP was reached and roles in the venture were divided between executives of BP, Alfa and Access/Renova.

Khodorkovsky in June said he expected Yukos to benefit from Kukes' experience in the Russian and Western oil industries.

Kukes has been a member of the board at Parker Drilling Co., a Houston-based oil and gas drilling contractor. He is also a member of the U.S.-Russia Business Council, which promotes trade between the two countries.

Khodorkovsky previously said he intended to turn Yukos into an international company, either through a merger or by buying assets in other countries.

"I am confident that the extremely professional, close-knit team of highly experienced managers, supported by the board of directors, will successfully handle the challenge of the globalization," Khodorkovsky said in his resignation statement.