What Are The Reasons For The Yukos-Sibneft Merger?

Market speculations were confirmed as Yukos and Sibneft announced their merger on Tuesday, creating a mayor global oil producing company.

Yuko?s shareholder will control over 70 % of the new company. The core shareholder of Sibneft will receive the opportunity to sell a 20 % Sibneft-stake for $3 billion. The rest of the shares will be exchanged, giving the Sibneft shareholders a blocking stake of 26 % in the new entity. The minority shareholders of Sibneft, potentially owning only 2 %-3 % in the new entitiy, were assured to receive a fair offer for their stake.

The combined company, to be known as YukosSibneft Oil Co., will pump 2.3 million barrels per day of oil, almost 30 % of the countries production. The joint reserves of oil equivalents would amount to 19.4 billion barrels, taken the third place worldwide, behind Exxon Mobil and Royal Dutch but ahead of BP. In oil production, it would be fourth, behind BP, Exxon, and Shell, but ahead of ChevronTexaco and Total Fina Elf.

According to Yukos, the new company will have the means to tackle the most complicated upstream projects in Russia and the Caspian Sea shelf. However, it is noted that Russian companies have to expand outside the Russian border into the downstream distribution business. For that, the new merger will not bring any advantages and the cooperation with a foreign partner, like TNK with BP would have been more appropriate.

However, the market capitalization of around $ 35 billion will make it much easier to get access to international capital markets, the base for new projects. Additionally, if further deals with global companies will be necessary, the Yukos / Sibneft entity will be accepted as an equal partner.

The deal could also have wide political implications. The new company will be able to hinder a further push of Western oil companies into the Russian market and gaining access to Russian oil reserves which are second after Saudi Arabia?s. Sibneft itself declared that it could be bought when the price was right. It was assumed that either Total Fina Elf, Royal Dutch/Shell or Exxon Mobil could have been potential buyers.

As one of the most powerful representative of Russia, the company could become very powerful during Vladmir Putin?s second term. However, it first has to be observed whether it can shape the political agenda on energy issues.

It will also be interesting to see how the corporate governance of the new company will look like. Yukos, which was for years a model for Russia?s increased corporate governance could see a decrease in its reputation caused by the merger. After all, Sibneft was part of an insider deal not 2 years ago and also at the center of the scandalous Slavneft privatization. It can be hoped, that the high standards of Yukos will apply to the whole company and not the other way round. The way how it has been dealt with minority investors of Sibneft which do not receive the same treatment as the majority shareholders can already be interpreted as a disappointing sign.

However, the official announcements concerning the merger have been questioned and further reasons for the cooperation have been suggested. It is said that the whole deal takes place, only to ensure high cash payouts to core shareholders. The timing is perfect, just shortly ahead of the Russian elections and the estimated decrease in world oil prices. Furthermore, Sibneft could have agreed to the Russian merger because it has failed to find a foreign investor, who was willing to pay its required price, more than the $1.8 per barrel BP paid for its stake in TNK.

Furthermore, Mikhail Khodorkovsky, who will be the Chief Executive Officer of the new company is said to aspire for a political function after stepping down from his post in 2007. Being the head of one of the most powerful Russian companies is of course a good springboard.


Author: Andreas Wild