As the rage continues in the Russian courts Yukos warned the global oil markets yesterday that it would be bankrupt by August if the Russian authorities went ahead with plans to seize and sell a key subsidiary.
Earlier this week investors and analysts were left reeling by news that the Russian Government is willing to wipe almost US$28 billion off the value of Yukos buy selling subsidiary Yuganskneftegaz at a massively reduced price.
The Justice Ministry announced the move among plans to dismantle the former oil giant in a bid to reclaim back tax debts. Despite its US$30 billion valuation the Government looks set to sell the Siberian producer to companies considered loyal to President Putin, such as Surgutneftegaz or gas utility Gazprom for as little as US$1.75 billion.
"The loss of Yugansk would be a very serious blow to the company, and would certainly put our ability to continue as a going concern under question," Yukos CEO Steven Theede said at a news conference.
Theede said that if Yukos is forced to stop production, the global market would be certain to feel the impact and "how long it will take for things to smooth out only time will tell."
Yuganskneftegaz provides more than 60% of Yukos' total oil output and is in the top 12 oil-producing companies in the world, its production ranking alongside that of a country such as Algeria.
Barring a government reprieve, Yukos warned it would be compelled to declare bankruptcy and stop operations if it lost the Yugansk operation. Yukos has warned of fuel shortages in Russia and increases in the price of oil if it is forced to stop production, because it exports 75% of its crude.
The threat had a lot of weight on international markets with contracts of U.S. light crude for September delivery climbing 78 cents to settle at US$41.36 a barrel Thursday on the New York Mercantile Exchange. London Brent crude rose 82 cents to US$37.98 a barrel.
However, further rises were stemmed by OPEC secretary general Purnomo Yusgiantoro saying the oil cartel was producing two million barrels a day above its quota to ensure the market was served and then committed the members states to a 10% boost in production capacity by 2005.
Despite the recent run of record prices OPEC has maintained that the official target price for its benchmark blend of crudes remains between US$22 and US$28 per barrel.
“A robust demand for oil imports from China and refining bottlenecks in other major importing countries have fanned ``unwarranted fears'' about possible crude shortages. To help calm a nervous and sensitive market, OPEC members are investing in their oil fields and facilities to add between 2.5 million and 3.5 million barrels of daily production capacity by the end of 2005,” said Purnomo.
“Today, what we feel is that they don't have much spare capacity.
“We in OPEC accept that this is a challenging time in the oil market, with an unusually powerful combination of forces that are currently dominating the market activities and adversely affecting its equilibrium,” Purnomo said.
