Yukos buys Kværner hydrocarbons and process technology

By the OGJ Online Staff

LONDON, Oct. 22 -- OAO Yukos Oil Co., Russia's second largest oil company, has paid $100 million to the Anglo-Norwegian company Kværner ASA for its hydrocarbons and process technology businesses on a debt free basis.

Kværner's directors, including those expected to be elected at its shareholders' meeting Nov. 2, must approve the deal.

The Oslo Stock Exchange was also due to issue a ruling later Monday on whether Yukos can increase its stake to 25% in the financially strained engineering firm, in which it already holds 12% (OGJ Online, Oct. 17, 2001).

Kværner Hydrocarbons provides engineering services mainly to onshore oil and gas projects. The business employs 600 people, most in London.

The sale of Kværner Process Technology includes Kværner Heurtey. They are engaged in research, development, testing, and sale of process technologies and equipment. These businesses employ 375 people located in the UK, Switzerland, France, and Italy.

Yukos initially acquired 10% of Kværner and has since obtained another 2% on the open market. Yukos last week offered Kværner shareholders 15 kroner, or $1.70/share (a 3% premium on last week's closing price), for the additional 13% stake it is after. Announcement of the $100 million proposal means that Kværner shareholders can withdraw any previous tender of their shares to Yukos if they notify the stock exchange.

The Russian company's main interest always focused on Kværner Hydrocarbons. Yukos accounts for 38% of all orders handled by that subsidiary, which is participating in development of Yukos' part of the Priobskoye oil field in western Siberia.

Yukos formed an alliance with Kværner last year to aid in developing Priobskoye, a lucrative oil field with proven reserves of 4.1 billion boe. Yukos officials estimate Priobskoye will provide 34% of its oil in 2005. The field now accounts for 10% of Yukos production.

In a statement issued in Moscow, Yukos said its investment is a commitment to a key business partner to ensure the continued smooth operation of Kværner's hydrocarbon-engineering business.

Yukos had already called for the Nov. 2 shareholders meeting to put a representative on Kværner's board of directors. Acquisition of a 25% stake in the company is certain to lead to further demands. Monday's announcement has preempted such moves, but the meeting could still end with Yukos having a seat on the main Kværner board.

Yukos may also try to acquire part of the engineering and construction division.

Yukos' obligation to purchase the businesses is subject to a number of conditions including: satisfactory completion of due diligence; the negotiation of satisfactory documentation; and the obtaining of all necessary corporate and regulatory approvals.

It is expected that the purchase and sale agreements will be completed in the second half of November.

Before the Yukos-inspired rally in Kværner shares late last week, the price had more than halved in the past month since the group announced an additional share issue and the impending departure of CEO Kjell Almskog.

In late September, Kværner said it had a severe cash-flow problem and needed to raise capital to save itself from bankruptcy.

Kværner said at the time it intended to make an extraordinary share issue, but the group has since said it expects to complete negotiations soon with its main lenders on loans to cover its anticipated short-term liquidity needs this fall. It is unclear whether the share issue will go ahead as planned, and Yukos has yet to say whether it will participate.

When Yukos first announced it had acquired 10% of Kværner in the market, company officials in Norway, said they were "very positive" about having a big shareholder that was also an important client.

Yukos declined to say how much that stake cost, but financial analysts have suggested a price tag of between $13 million and $16 million.