Yukos to cut capital expenditures, oil production

Sept. 6, 2004
OAO Yukos announced "stringent cash conservation measures" Aug. 23, including cutting capital expenditures and trimming its 2004 oil production target from 90 million tonnes to 86 million tonnes, the company said.

OAO Yukos announced "stringent cash conservation measures" Aug. 23, including cutting capital expenditures and trimming its 2004 oil production target from 90 million tonnes to 86 million tonnes, the company said.

Regarding legal battles with the Russian government over back taxes, Yukos CEO Steven Theede said, "Half of our monthly revenue is not available to us to meet our day-to-day operating costs. The management has considered all options open to it and concluded that there is no other choice than to effect, immediately, a reduction in our capital and operating expenditures and deferral of certain current tax payments."

The Russian government has not allowed Yukos legal access to its own bank accounts and has continued to collect money amounting to half of the company's monthly revenues, he said. Yukos reportedly owes $3.4 billion in back taxes.

Meanwhile, Yukos continues to dispute the amount and basis for the tax charges, penalties, and interest, the company said.

Analyst reaction

"Nobody knows what is going to happen with Yukos," said Michael Lelyveld of the PFC Energy Caspian Business Intelligence Service. "We don't know, Yukos doesn't know, the potential investors don't know, and the Russian government doesn't know.

"The one person who really knows is Russian President Vladimir Putin. He is caught between a personal vendetta against former Yukos CEO Mikhail Khodorkovsky and against Yukos, and an impulse that he has to portray Russia as a real constitutional government in which wrongdoing is punished by an independent justice system. That system just doesn't really exist yet in Russia," Lelyveld told OGJ.

Consequently, Putin is trying to stand back and allow the judicial system to deal with Yukos, Lelyveld said. Meanwhile, the prosecutors "are acting as if they think they are doing the will of Putin to get Yukos.

"This is what has people running back and forth from one side of the ship to the other thinking they know what is going to happen," Lelyveld said.

He declined to comment specifically on Western and Russian media reports that Yukos is selling its 56% stake in Rospan International gas producer in Western Siberia to BP PLC-led TNK-BP.

TNK-BP, which already owned 44% interest in Rospan, has issued no comment on the subject. Yukos executives refused to comment, Russian newspapers Kommersant and Vremya Novostey reported. The newspapers reported that Yukos was to be paid $357 million in that deal.

Regarding potential asset divestitures by Yukos in general, Lelyveld said, "The reports that are coming out are pretty random. You see reports every day that contradict reports from the previous day."

At this point, Lelyveld said, it's impossible for potential investors to make decisions about Yukos because it's unclear if Yukos assets will be sold—much less which assets or when.

"We are still trying to figure out what it was that [President] Putin meant when he said that the government would do everything it could to avoid bankruptcy for Yukos. The events since then have not supported that statement. So, we don't know if there is a grand plan to save Yukos that is somewhere buried in the bowels of the government," Lelyveld said.