Yuganskneftegaz shares awarded to unknown Baikal Finance

Moscow (Platts)--20Dec2004

The auction of 76.8% of the shares in Yukos subsidiary Yuganskneftegaz finally
went ahead Sunday with a mystery company winning the stake with a bid of
Rb260.75-bil (around $9.3-bil). After a day of events that verged at times on
the chaotic, observers were left with more questions than answers. Russia's
federal property fund, the auction organizer, declared unknown company Baikal
Finance Group the winner. Baikal's bid, which was around Rb14-bil above the
starting price, eventually turned out to be the only one submitted. Gazprom
oil unit Gazpromneft, the only other participant in the auction, did not in
the end make a bid. The only detail the property fund was able to provide
about Baikal was that it was registered in the Russian city of Tver. Officials
from the property fund and justice ministry told a press conference that they
had not done any studies into Baikal, and that it was not their responsibility
to know who owned the company or whether it was capable of paying the bid
price within the next two weeks, as required by the auction regulations.

In spite of a denial from Gazprom, most observers still believed that either
the state gas monopoly or the Russian state was behind the winning bid. Calls
by Platts to representatives of both Gazprom and Gazpromneft went unanswered,
but Russian news agency Prime-Tass reported that an "official representative"
of Gazprom had said there was no link between the two firms. Still,
substantial circumstantial evidence, and a reluctance to believe that Gazprom
would take part in the auction without bidding, led analysts to believe that
Gazprom would still be getting control of Yuganskneftegaz' 1-mil b/d of
output. UFG analyst Christopher Granville cautioned that he "wouldn't jump to
any conclusions at this point." But he noted that a temporary restraining
order handed down by a Houston court last week prevented those firms already
registered for the auction from bidding--and then "surprise, surprise, another
firm appears," he said.

The auction, which went ahead in defiance of a temporary injunction issued by
a Houston court as Yukos sought to block the sale, arranged to help the
government collect tax arrears of nearly $30-bil from Yukos. Gazprom had been
expected to win and Granville saw little meaning in the fact that Gazprom said
it had no link to Baikal. Gazprom was not listed on any foreign stock markets,
and as such had no formal disclosure requirements, he said. The company could
"hide behind its identity until such time as it is legally safe to come out of
the closet," he said. That could be some time away yet, he noted. Alfa Bank
chief strategist Chris Weafer earlier said it was "at this stage fair to
speculate that the company is an alias either for Gazprom or the state, or a
group that combines Gazprom with one or more other companies." Other
possibilities appeared to remain for how Gazprom might directly get its hands
on the Yuganskneftegaz shares in the near future.

Alexander Buksman, a senior official at the justice ministry, said that if
Baikal, which had already paid a deposit of around $1.7-bil to participate in
the auction, did not pay up by the Jan 2 deadline then the shares could
potentially be transferred to the state. He also confirmed that the auction
had met regulations and that its result would stand. The lack of clarity over
the winner of the auction made no difference to the aggression demonstrated in
statements by Yukos and, in particular, by its chief shareholder Group
Menatep. Menatep began the day by issuing a warning that it would pursue
through the courts any participants--including the government itself--in the
auction of Yuganskneftegaz. Lawyers Sanford Sanders and John Pappalardo said
they excluded from legal action "neither foreign banks nor the government of
the Russian Federation," according to a statement issued through the press
office of Mikhail Khodorkovsky, the jailed Menatep shareholder.

"The government of a a foreign state, of course, has sovereign immunity, but
only insofar as it is not a participant in commercial dealings," the lawyers
said. "But giving credit to Gazprom, or any other help towards the
estrangement of assets from Yukos qualifies as commercial dealings and
consequently leads to a loss of immunity." The lawyers said the first claims
could be made immediately after the auction, Prime-Tass reported. The first
claims would be filed in the UK, with further claims to follow in Europe and
the US, the agency said. One of the roads open to Menatep could be an attempt
to have Yuganskneftegaz oil arrested, according to another Menatep lawyer,
Maria Logan of Washington based law-firm Greenberg Traurig. Claims on oil in
Russia were possible, according to Logan--there were precendents for Russia
recognizing international rulings such as that made in Houston, she said. But
if arrests in Russia proved impossible, oil would be arrested "in any country
that acts in accordance with international laws," she said.

"Oil is the same as any other asset." It was however too early to give any
further details of plans to attempt to seize oil produced or shipped by
Yuganskneftegaz, Logan said. Yukos said it intended to continue chasing
through the courts both the Russian government and Baikal. "We absolutely
maintain our position that this was an illegal auction," a Yukos spokeswoman
said. Yukos would take "every potential legal, political and commercial remedy
in every possible venue to hold the Russian authorities accountable for their
actions today" as well as for the "immeasurable harm" suffered by the
company's shareholders," she said. "It [the auction] should not have taken
place. An international court ruled that there should be a stay." Yukos has
said the seizure and sale of Yuganskneftegaz shares amounts to "expropriation"
by the state of its core assets. How Yuganskneftegaz was to operate and be
managed once the sale of the shares finally goes through remained unclear.
Yukos will be left with a stake of 23.2%, all of which preferred shares.

Those shares carry voting rights on issues such as the restructuring of the
company, but not on day-to-day matters. Whether the company would essentially
be left in charge of Yuganskneftegaz, or whether the management of the company
would be taken over by Baikal, or whether Yuganskneftegaz would be left to run
itself, remained an open question. Sergei Oganesyan, head of Russia's federal
energy agency, appeared to attempt to calm concerns over the possible effects
on the company's operations of a forced change of ownership by saying that the
agency would look to meet Baikal in the immediate future. Oganesyan said the
meeting would focus on maintaining the uninterrupted production,
transportation and export of Yuganskneftegaz oil. Oganesyan said he was
convinced that both sides would make every effort to ensure that
Yuganskneftegaz continued to produce normally.

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