Beliye Nochi in Moscow.

Currently there are 160 independent oil and gas producers over the territory of Russia. The similarity between them is first of all conditioned by their weak points, including small volumes of their production (averaging 200 thousand tons per year) and absence of transportation and refining facilities. Their hatred to the flat scale of the Mining Operations Tax also makes them alike. However in this motley crowd one can’t help noticing rather remarkable companies from the point of view of their development strategies.
As an example of transformation of a moderate means company into a big oil producer may serve RussNeft. Only recently this company, established less than three years ago, looked like an ugly duckling having hastily ventured to swim in the same pool with hardened drakes. But already then the figure of founder and president of the company inspired optimism in in those observing.
In the first years of this century the businessman having founded an industrial financial corporation called BIN and having worked as a deputy of the State Duma, was put in charge of the state company Slavneft. Gutseriev did not remain President of Slavneft for a long time though. In 2002 he left the office. The dismissal was likely to be due to the coming privatization of Slavneft. The procedure might have been complicated by the active disposition of the disagreeable leader of the state company.
Somehow or other it was in 2002 that Russneft appeared having inherited core production assets from Slavneft. It was Varieganneft (1.8 million tons in 2002) which the state oil company had bought from Nafta-Moskva, and then in the beginning of 2003 sold to the private entrepreneur Gutseriev. And also a few oil producing companies in Ulyanovsk (with total production volume of 0.6 million tons in 2002) were bought in summer 2003 from a Slavneft affiliate. This was the foundation to which later acquisitions were attached, namely Khanty-Mansiysk Goloil in September 2003, Udmurt  Belkamneft a few months later,  Khanty-Mansiysk Aki-Otyr  and Beliye Nochi in summer 2004.

In the period of the most active acquisition the head of RussNeft was holding a high public post. As president of the Small and Medium-Scale Oil Producers Association Assoneft he became very well familiar with the situation in the small-scale oil business and definitely used this information in his consolidation activity. Buying from his junior colleagues Gutseriev relied on the support of a rich Swiss trader named Glencore International. In August 2005 it was announced that Glencore became a co-owner of the oil producer having bought stakes in RussNeft’s affiliates (Varieganneft, Ulyanovskneft and Nafta-Ulyanovsk). With an international company as a partner whose turnover equals $60 billion and possessing dozens of small companies with total production volume exceeding 10 million tons a year and 600 million ton reserves Gutseriev is not afraid of fighting for assets with the industry leaders (as it was in the recent and already settled dispute with Lukoil related to Geoilbent) and is trying to establish a full-value vertically integrated oil company. RussNeft already has its own retail network with approximately 90 petrol stations in Moscow bought in spring 2005, previously called Grand and using Slavneft’s trade mark basing on the concession agreement. Transportation of RussNeft’s oil is done by RussNeftTransport that disposes of 2000 rail cars and is capable of handling about 5 million tons of crude oil per year. The same transshipment capacity is ensured by the railway terminal commissioned by RussNeft in June 2005 in the Bryansk region. The only missing section in the projected empire of Gutseriev is oil refining. Though according to Stanislav Fomenko, a Fiman analyst, absence of refining is not always a negative factor. The analyst has noted that according to the results of 2004 the profitability of RussNeft’s invested capital approximated 20 %. It is quite a good level when taking into account that at Lukoil it is about 18-19%, Sibneft - 23% and Tatneft -14%.
“When the profitability of the refining assets invested capital is lower than the current profitability of Russneft, it will unfavorably affect the efficiency of the entire holding,” – explains Fomenko. Presently RussNeft is no longer a medium-scale business. Its investment program for the current year is $260 million, and the yearly production volume approximates the one Slavneft had three years ago when Gutseriev’s company existed only in the head of its founder.