TNK named best oil company in the world
by Ben Aris
The Financial Times named Russia's Tyumenneft (TNK) the best oil company in the world. Afterwards, FSU Oil & Gas
Monitor went to talk with TNK's chairman, Simon Kukes.
It was only a year ago that TNK was all but a pariah, the latest addition to the long list of Russian corporate rights abusers. The company had previously been one of the better-behaved oil companies in Russia's rough-and-tumble corporate world, but its reputation was dragged through the mud last year.
In an attempt to settle old scores, TNK's owners, the oligarchs Mikhail Fridman and Pytor Aven, used TNK to snatch Chernogorneft, the star production company in oil major Sidanco, away from the rival oligarch Vladimir Potanin. Fridman has said the attack was launched not so much out of business considerations but for "revenge." Potanin had cheated Fridman's Alfa Group out of at least three big deals during the loans-for-shares privatisations of the mid-1990s.
The problem was that BP-Amoco owns 10 % of Sidanco, Chernogorneft's parent company, and raised a hue and cry of such proportions over the snatching of Chernogorneft as to deal Russia's investment image a severe bloody nose. President Vladimir Putin is rumoured to have interceded personally to put an end to the row.
Oligarchs own most of the big Russian oil companies, although TNK is unusual in that its chairman, Kukes, has no
shares in the company himself and was hired as a professional manager. Both Kukes and Fridman say that the principle
that the Alfa Group is run on is to hand control over the various companies to professional managers and introduce
Chinese walls between the businesses; that is, one business is not used to subsidize the others. The Chernogorneft
fight was an exception, Kukes says, pointing to TNK's links with Alfa Bank as an example of the "normal relations"
with the rest of the group.
"We use all the banks. Fridman never forced a bank actively on me. Our owners believe that the biggest capitalization can be reached throughthe independent development of the company. They believe that if we are tied to one side of the business this will impede the development of the whole," says Kukes.
A year is a long time in Russia. As mentioned above, FT-Energy gave TNK its "Best Oil and Gas Company of 2000" award in a New York ceremony, saying TNK had shown "phenomenal growth in the past year, breaking into the world's top 15 oil firms and showing remarkable entrepreneurial spirit in extremely trying circumstances."
In accepting the award, Kukes, a Russian-born former executive at the US Amoco, said the honour was "a vote of
confidence not just for TNK, but for the whole Russian oil industry and the Russian government's efforts to improve
the investment climate."
The award was a major PR coup for TNK, which has aspirations of striking a strategic alliance deal with a major international company as some time in the future. It is increasing its transparency and plans to launch both an ADR (American Depository Receipt) program and float a Eurobond in 2001 -- not so much to raise capital (although Kukes says long-term financing would be useful), but to get foreigners involved so that they have a chance to learn about the company.
"We don't overestimate the role of foreign investors in Russia in the oil sector. It is still very tiny. It has never been our goal to sign a big deal, we just want potential partners to learn about us. It will take time and there is always the Russian risk factor," says Kukes.
The fight with BP-Amoco over Chernogorneft is in the past, and Kukes says the two sides have come to an amicable settlement with which "they are happy". Meanwhile, resuscitating TNK's image is part of Kukes' long-term strategy.
"Russian oil companies at this level will not be able to develop to a serious international standard of oil company. If you want to be just another crude producer, then that is another question. If you want to be an international class company then you need to cook in the same soup as international companies and you need to work with world-class companies," says Kukes. "With the ADRs, the ultimate goal is that our company will merge with some other serious company when we reach the ceiling. You can buy technology, but there is a limit to what you can do and then the question becomes: How do you enter the international markets? We don't have this knowledge."
TNK recently went into a joint venture with Texaco to produce motor oil lubricant for sale on the domestic market.
Kukes showed off a plastics bottle of the oil proudly, pointing out that this was the first time that Texaco allowed
its logo to appear alongside that of another company. TNK is also opening up new gasoline filling stations to
strengthen the company's domestic retail distribution network.
Many Russian oil companies have also launched similar projects in the first step of building up both retail expertise and long-term relations with foreign companies. But cooperation is not just for foreign companies. The resolution of the Chernogorneft fight will end up with cooperation between Sidanco and TNK.
There is a growing trend of cooperation between Russian oil companies. Following TNK's purchase of 85 % of state-owned Onako for $ 1.08 bn earlier this autumn, TNK agreed to jointly run Orenburgneft, Onako's star production unit, with Sibneft, another Russian oil major, which owns 40 % of the company.
"We will convert TNK to a single share at the end of next year, then put Sibneft on the board. Sibneft's share in Onako will be about 30 %," says Kukes. Sibneft's chairman Yevgeny Shvidler says that cooperation between Russian oil companies will become "the trend of the year".
Kukes agrees. "There are a lot of small kingdoms and we need to break the boarders, share the risk, enter into new markets together and work together. In four to five months, you will see the results," Kukes says. "There will be mergers and consolidations as there are too many companies around to attract investors. Mergers will move faster with Putin in power because of the transparency he forcing on us. It makes it easier to calculate the benefits."
Onako was the last acquisition TNK is planning for a while. There are several other state-owned oil companies that
have yet to be privatised -- Rosneft is probably the most significant -- and Kukes said that TNK will look at them if
they go under the gavel. But for the meantime Onako will allow TNK to fulfil its immediate goals.
"Our strategy is to reach production of 800,000 bpd and then increase gas equivalent to reach about 1 mm bpd. Before we bought Onako, we were producing about 500,000 bpd and after it went up to 650,000 bpd. In three years, we hope to reach production level of 800,000 bpd without having to make any more acquisitions," says Kukes.