Gazprom decides to bid for Yukos key oil unit

MOSCOW - Russia's Gazprom said on Tuesday it will bid for embattled oil firm Yukos' main unit next month, as the Kremlin seeks to turn the world's biggest gas producer into a major oil player.

Yukos warned it would challenge any buyer in the courts, while bankers said Gazprom would be able to tap debt markets to help raise the minimum asking price of US$8.7 ($12.31) billion in time for the December 19 auction, despite its US$15 billion debt load.

"The management board of Gazprom has decided that (oil unit) Gazpromneft will take part in the auction of Yuganskneftegaz," Sergei Bogdanchikov, head of Gazprom's oil unit Gazpromneft, told an energy conference.

"We hope we will be able to win the contest."

Gazprom confirmed Bogdanchikov's remarks in a later statement and said a final decision would be taken by Gazprom's state-controlled board of directors, which meets late Tuesday.

The state wants to sell Yugansk, which pumps 60 per cent of Yukos' total output of 1.7 million barrels per day (bpd) in its pursuit of back-tax claims of almost US$25 billion.

The tax troubles of Russia's top oil exporter are widely believed to have been orchestrated by the Kremlin to punish the company's founder Mikhail Khodorkovsky for political activities.

Khodorkovsky, who is now on trial for tax evasion and fraud, has repeatedly offered to give up his shares in the company but has been spurned by the Kremlin.

Yukos minority shareholders, who control 25 per cent of the company, have threatened to sue Russia for expropriation because they say the sale of Yugansk would destroy any residual value left in what was once Russia's most profitable company.

Yukos has said the sale of Yugansk at below a US$14 billion to US$17 billion selling price recommended to Moscow by investment bank Dresdner Kleinwort Wasserstein would be "state-organised theft".

"Selling Yuganskneftegaz is illegal under Russian law because Yuganzkneftegaz is the core asset," said Yukos Chief Executive Steven Theede in an interview with television channel CNBC in New York.

"We are ready to contest the auction results in court," Yukos' spokesman Alexander Shadrin said. Fearing persecution by the state, key Yukos executives left Russia last week.

Yukos's market value has collapsed to just US$2.4 billion from a peak of over US$40 billion, while buyers pile into Gazprom, whose rouble stock has more than doubled this year.

On Tuesday Yukos shares were 7.4 per cent down on the RTS bourse at US$1. Gazprom stock was up 1.5 per cent at 81.70 roubles.

Gazprom is due soon to take over state oil firm Rosneft in a merger that would increase the state's share in it from 39 per cent to over 50 per cent and remove two-tier trading in its shares to open them up to foreign investors.

After the Rosneft merger Gazpromneft will combine Gazprom's annual output of some 11 million tonnes of gas condensate with Rosneft's more than 20 million tonnes (400,000 bpd) of oil.

Buying Yugansk would make Gazprom a top Russian oil producer alongside LUKOIL, giving it an 18 per cent share of oil output in the world's second largest oil exporting nation.

Gazprom's adviser Deutsche Bank AG has recommended it go after every oil asset up for grabs if it wants to compete with western giants such as ExxonMobil, Royal Dutch/Shell and BP.

Bogdanchikov said Gazprom might tap international financial markets to finance the Yugansk bid, leading ratings agency Standard & Poor's to put Gazprom's BB- long-term corporate credit rating on review pending further developments.

Gazprom's benchmark Eurobond maturing in 2013 was down 1.105 points at 115.08, pushing the yield up to 7.167 per cent -- up from 6.706 per cent on Nov. 25.

Despite the selling pressure, bankers said Gazprom should be able to raise the funding it needs to buy Yugansk.

"The company should not have a problem financing (a bid)," said Marat Djafarov, corporate credit strategist at DrKW in London.

"They could borrow from banks and markets to fund this potential acquisition."

UBS Brunswick analyst Paul Collison calculated Gazprom had a total of US$10.1 billion of available funds as of the end of the second quarter of 2004, including US$3.5 billion of cash as well as marketable securities and unused structured export notes.

Although some western firms, including German utility group E.ON have expressed interest in Yukos assets, none have emerged as bidders or partners for a Russian-led bid.

Italy's Eni said on Monday it would not bid but might reconsider its position after an auction.

- REUTERS