26-04-01 Buoyed by high oil prices and strong earnings, Russia's second largest oil company by output, Yukos, expects to announce one or two alliances with western investors this year, a company official said. Yury Beylin, president of exploration and production for Yukos, said partnerships could involve undeveloped oil fields in Russia, or projects outside the country. Yukos hopes to generate 15 % of its revenue outside Russia by the year 2005, Beylin said.
Beylin was speaking on the sidelines of a conference of the International Association of Oil and Gas Producers in London. Only 48 % of Yukos' oil reserves are currently under development, but improving that ratio is only one reason to partner with western firms, Beylin said. Yukos has 11.4 bn barrels of proven oil reserves, and 1.55 tcf of gas reserves.
"I'm sure this year there will be one or two major announcements," Beylin said. "This is the issue of gaining necessary experience working alliances with our partners. It's the issue of becoming an international oil company." Beylin also detailed plans for a new crude pipeline to China, and development of newly acquired reserves in Eastern Siberia.

In 1998, with oil prices down and concern over the Russian economy up, attracting foreign capital was a much tougher proposition, Beylin said. But in three short years, Beylin said, the situation "has completely changed." For starters, oil prices recovered in 1999, reached 10-year peaks in 2000, and are on-track to remain at historically high levels this year.
In June, Yukos expects to report net profit of $ 2.5 bn for 2000 and $ 8 bn in revenue, compared with $ 1.5 bn in profits and $ 4.18 bn in sales for 1999. Along the way, Yukos has sought to lower its production costs, which Beylin said are the lowest of any Russian oil company, around $ 6 a barrel, including capital expenditure.
Increasing crude production may be one of Yukos' long-term goals, but attracting foreign investment with better margins will take the company there, Beylin said. "In 1998 it was tough because of low oil prices and the crisis in Russia at that point; we weren't strong enough to become a good partner for any foreign investor," Beylin said. "Now Yukos is the company with the lowest production costs, with very good margins. We believe it's just the right time to become involved in partnerships."

Yukos is also in better shape technically thanks to its two-year-old alliance with oil field service company Schlumberger, Beylin said. Schlumberger's expertise has helped Yukos increase production rates at certain wells 30 % to 200 %. Yukos hopes to raise crude production to 1.65 mm bpd in five years from current output of 1.1 mm bpd. Initial gains will come from higher returns at existing fields, with development of new assets coming later, Beylin said.
Among those is Yukos' recent purchase of a 68 % stake in the East Siberian Oil Co. Eastern Siberian's production assets will provide a resource base for exports into Eastern and South-eastern Asian markets, including a planned $ 1.7 bn pipeline to China. The goal is to build the pipeline in partnership with China by the year 2005, and to bring it up to its capacity of 30 mm tpy of oil by 2010, Beylin said. "We're negotiating now two major issues," Beylin said. "Possible pipeline routes and the price of Russian oil, and the second issue is more important." Beylin said talks on the pipeline could conclude this year.