To Live up to 100 Million Tons, promises Mikhail Gutseriev

RussNeft contains 30 companies engaged in developing oilfields with more than 600 million tons of recoverable reserves, two refineries Orsknefteorgsintez and Krasnodarekoneft whose total annual capacity comes to nearly 10 million tons of crude oil, 300 gas-filling stations in five regions of Russia and a lubes refinery in the Orenburg region. Currently the annual oil output of the company is 16.5 million tons of crude oil. Its 2004 receipts in terms of Russia’s standards of business accounting come to 27.4 billion rubles and the net profit to 4.7 billion rubles.
RussNeft is the most dynamically developing oil company of this country. Starting practically from zero point three year ago, Gutseriev has been able to make it one among the ten leaders of the industry through buying out small oil producers in Khanty-Mansiysk okrug, Tomsk and Volga regions. According to the company’s record, it cost $2 billion. International trader Glencore provided financial support to RussNeft and got in return from Gutseriev shares at some of the acquired assets.
At the press-conference yesterday Gutseriev announced the company’s strategic goal was to raise the oil output to 100 million tons of crude oil a year. He explained to Vedomosti that in Russia the company was going to produce 25 million tons. “It is true, I already know how and at whose expense. I have a plan and money for it,” said Gutseriev. Production volumes above the 25 million tons are to be obtained from abroad. “In Mauritania we are going to get 3 million tons, another 3 millions in Yemen, 5 millions in Libya, which will make 11 million tons. Iraq is going to get opened, Iran, Kazakhstan, Algeria. It’s a long term program. I don’t say I‘ll get to 100 million tons. I say that before getting to 100 million tons I’ll make a company,” – clarified Gutseriev adding that his intention was to be making a corporation “during his whole life”.  Speaking about raising funds in order to increase the oil production he specifically mentioned the recently floated interior bond issue to 7 billion rubles and also informed that RussNeft was preparing a Eurobond issue to $500 million to be floated next spring or summer in London.
Dmitry Tsaregorodtsev, an analyst of investment company IM Securities assumes there is nothing impossible in Gutseriev’s plans but he pointed out that the growth reserves in Russia were limited. “Only in case there is an open sale of Yukos,” – he commented. Director of ‘Aton’ Investment Group’s Analytical Service Steven Dashevsky also thinks it’ll be extremely difficult for RussNeft to raise its oil production in Russia to 25 million tons only through acquisition of small independent oil producers. To do this one must buy nearly half of all the small companies. The challenge can be mounted though provided there is at least one big acquisition. In the opinion of Dashevsky, it may be Udmurtneft producing 5.7 million tons of crude oil a year of whose likely sale TNK-BP has already spoken.
And Valery Nesterov of Troyka Dialogue has no doubts as to practicability of Gutseriev’s plans. He estimates the increase of oil production up to 100 million tons in Russia may cost $40 billion. “But purchases will have to be done abroad and it’s going to be two or three times more expensive,” said Nesterov. The expert doesn’t rule out that Gutseriev’s statement is a PR move in the context of preparation for IPO. A representative of a big oil company is surprised at the statement made by Gutseriev. “Whenever a company management announce their plans they usually specify time limits for their implementation. In the given case there is only a bare figure,” said he. The representative estimates the cost of Gutseriev’s plans as equal to $80-120 billion.
A trader well familiar with Mikhail Gutseriev assumes that the head of RussNeft is exaggerating the extent of his abilities. “At the most RussNeft may obtain 30-40 million tons of crude a year,” said he. The trader also pointed out that Gutseriev had always been apt to make ambitious statements.