Yukos Executive Says Oil Still Being Pumped
Reports of Imminent Shutdown Disputed
By Peter Baker
Washington Post Foreign Service
Thursday, July 29, 2004; Page A18
NIZHNEVARTOVSK, Russia, July 28 -- The top manager of Yukos Oil Co., Russia's largest oil producer, said Wednesday that the company was continuing production, despite news reports that drove up world oil prices by suggesting that the government had ordered it to turn off its pumps.
Steven M. Theede, Yukos's chief executive, called the situation a misunderstanding. Speaking with reporters traveling with him to tour some of the firm's Siberian facilities, Theede said that the company's production subsidiaries had received a government notice last week forbidding them to sell property and that Yukos's attorneys were trying to determine whether that included crude oil.
"We're just trying to get clarification," he said aboard a chartered jet returning to Moscow. "It's nothing new. We're continuing to produce."
Theede said he did not believe that the government notice included a prohibition on crude sales. "It's not logical that this would be the intent," he said.
World oil prices shot to a record high and Yukos's stock price continued its dive after the initial report surfaced. The reaction highlighted the stakes involved in the political, legal and economic battle that has brought Yukos to the brink of bankruptcy and sent jitters through international energy markets. As the oil industry here has rebounded from its post-Soviet collapse, Russia has become the second-largest exporter in the world, behind Saudi Arabia, and no Russian company sells more crude abroad than Yukos.
The state has imprisoned or indicted major Yukos shareholders, hit the company with nearly $7 billion in back-tax bills and plans to seize and sell its core production unit -- all part of what analysts consider a power struggle between President Vladimir Putin and Mikhail Khodorkovsky, an oil baron who is on trial in Moscow on charges of fraud and tax evasion.
The latest twist sent crude oil futures as high as $43.05 on the New York Mercantile Exchange, the highest since trading began in 1983. The price closed at $42.90. Investors continued to bail out of Yukos stock, pushing it down another 20 percent, to $2.87, the sixth double-digit percent loss since the state announced July 20 that it would seize the company's Yuganskneftegaz production unit.
All told, Yukos stock has plunged 63 percent in a week and 81 percent since the state escalated actions against the company in April.
The state has frozen Yukos's assets and bank accounts as part of its effort to collect on back-tax claims, which were generated by reopening past audits and reinterpreting tax shelter law to rule out practices that another state agency still considers legal. Unless the state grants the company access to its frozen bank accounts, Yukos will have to shut down production soon. The only question is when.
Theede said the first impact would be felt at the end of next week, when Yukos will no longer be able to pay for rail shipments of oil to China. With no rail service available, the company will be able to continue pumping here for a maximum of three days, until its storage facilities are full. That would effectively shut down about half of the production by the company's Tomskneft subsidiary here in the western Siberian region of Tomsk and about 25 percent of the company's overall production of 1.7 million barrels a day.
By the end of the second week in August, the company would no longer have money to pay for pipeline shipments, either, Theede said. At that point, the rest of production would begin shutting down.
That timetable roughly corresponds with previous Yukos statements, but a Yukos letter made public Wednesday seemed to warn of more imminent problems. The letter, leaked to the Russian news agency Interfax, said Tomskneft, Yuganskneftegaz and a third Yukos subsidiary, Samaraneftegaz, received a court order July 21 commanding them to stop any sale of property, just as its parent company has had its assets frozen. But the letter suggested for the first time that the latest asset freeze might include oil sales.
"Halting the operations of the three companies mentioned will lead to almost 15,000 employees of the production companies and auxiliary service companies being left without work," said the letter, sent by Yukos attorney Dmitri Golobov to Justice Minister Yuri Chaika. "A few days later the refineries will stop and another several thousand workers in various regions in the country" will be idled.
"In global terms," it added, "halting supplies of oil . . . to the market will result in immediate growth in price for oil and oil products."
Theede's comments, however, suggested that the letter may have overestimated the effect of the court order. "My assumption is that it was a misinterpretation," he said. "If they truly are saying we can't sell production, we would have to shut production down. I would be very surprised if that's the case, but obviously I can't rule it out."
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