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. Last Updated: 07/27/2016

Yukos in Default on Oil Export Contracts

Yukos suspended some crude export contracts after its main production unit, which was sold by the government last month, stopped supplying crude to its main trading company.

Yukos' Geneva-based trading unit, Petroval, said it was declaring force majeure because Yukos' main oil-producing unit was sold last month, slashing oil output at what was once the country's biggest oil exporter.

"We have issued force majeure notices on some long-term crude contracts," John Lush, Petroval chief executive said by telephone Thursday from Geneva. "This is due to the fact that the main oil-producing unit is not fulfilling its supply obligations to us."

Lush, who said the move would take force immediately, declined to say how much oil and which companies or countries were involved, citing confidentiality clauses in the contracts.

A force majeure clause stipulates that neither party should be deemed responsible for a breach of contract caused by acts of Acts of God, insurrection, breakdown of refinery operations, supplies to the seller and other emergencies.

Petroval is the main trader for Yukos' crude exports, which totaled 46.6 million tons in 2003, mostly to Europe. The largest crude export volumes went to Lithuania, Italy, the Netherlands, Hungary, Poland, Slovakia, Greece and Sweden, according to Yukos.

The government sale of Yukos' main production unit, Yuganskneftegaz, last month to cover billions of dollars of tax claims, ripped out nearly two-thirds of Yukos' crude production as the oil producer spirals toward collapse.

The battle between the Kremlin and former CEO Mikhail Khodorkovsky has left the company a shadow of its former self. State-owned Rosneft took control of Yugansk after buying Baikal Finance Group, a mystery company that bid $9.3 billion for the unit at the auction.

Exports from Russia, the second-largest oil producer after Saudi Arabia, will continue, despite the announcement from Yukos, said a spokesman for the Industry and Energy Ministry.

"Rosneft is exporting Yugansk oil now," Stanislav Naumov, a spokesman for Russia's Industry and Energy Ministry told Bloomberg. "It's only a problem between Yukos and Petroval."

Hungary's MOL, which buys more than half of its oil from Yukos, said Thursday it had signed a five-year contract with LUKoil for oil deliveries while OMV, Austria's largest oil refiner, said it would find alternative Russian supplies should Yukos fail to honor its 10-year contract.

Lithuania said Wednesday that it was seeking new oil suppliers for its Mazeikiu Nafta refinery, Reuters reported, citing Economy Minister Viktor Uspaskich, who said Yukos was falling behind schedule in supplying crude to the Baltic coast oil complex.

As Yukos fails to deliver oil that it no longer has, other Russian oil exporters, including Rosneft, are expected to step in, analysts said.

"Yukos may now break these contracts as they don't have the oil. One would expect Rosneft officials to get on to the same customers, to sell them the same oil on the same route," said Chris Weafer, chief strategist at Alfa Bank. "In practical terms there should be no disruption to Russia's oil supply."