RUSSIA - AO Siberian Far-Eastern Oil Company (Sidanco)

Founded on May 5, 1994, this is the largest refining group. It consists of four big oil producing firms, including the promising Chernogorneft, and three refineries with total capacity of 750,000 b/d. To overcome major technical and funding difficulties, with its production having fallen more than 20% in a year to about 450,000 b/d, Sidanco in November 1997 sold a 10% equity to BP and struck a strategic alliance with the British major. The sale was made by Uneximbank, which has the majority of Sidanco shares. LUKoil had wanted to acquire Sidanco. BP paid $571m for the equity. In mid-1998 it was said the acquisition caused BP a loss of $20m because of falling oil prices. But BP's chief executive Sir John Browne was on Aug. 10 quoted as saying those losses were "a temporary phenomenon". He said things in Sidanco were "improving". On Aug. 11, 1998 BP acquired Amoco in the world's biggest industrial merger.

An important component of the November 1997 deal is BP's acquisition of 45% of Sidanco's 60% interest in Russia Petroleum, a company based in east Siberia's Irkutsk region whose assets include the Kovykta gas field discovered in 1987. This has 870 BCM of gas reserves in place and 1.6 bn barrels of recoverable condensates near the Mongolian border. The field would require more than $12 bn to develop, with 20 BCM/year of gas to be supplied to China, South Korea and Japan by pipeline under an agreement signed in 1997 by Moscow and Beijing. Equally important, BP got voting rights of 20% and a seat on Sidanco's board. To improve its management, Sidanco also gave BP the right to nominate its executives to key positions, such as the CEO and the heads of planning and finance. BP's Alastair Graham is head of strategic planning at Sidanco, for example. In June 1998 he was quoted as saying: "The tax burden is very severe", while very low oil prices have badly affected Sidanco. "On our new projects the government is taking over 80% of the net revenue. That compares to some of the toughest fiscal regimes internationally".

In October 1995, Sidanco accepted a comprehensive programme for the development of its production facilities, to be completed by 2000. This envisions stabilisation and then an increase in oil production to 22.9m t/y and refining to 31m t/y.

Structure: Sidanco consists of four producers in Siberia and the Far East: Vareganneftegaz, Kondpetroleum, Chernogorneft, Udmurtneft, and Saratovneftegaz. Its refining units are: the heavily indebted Angara Petrochemical Co., which has a complex in Iskutsk including a 460,000 b/d plant with the group to cut 180,000 b/d of its capacity by end-1998; the

Saratov refinery, run by Sovietsk Oil Refining Co.; and the Khabarovsk refinery. Its marketing units include Sakhalinnefteprodukt (on far eastern island of Sakhalin), Kamchatkanefteprodukt, Magadannefteprodukt, Neftemarket, Khabarovsknefteprodukt, Amurnefteprodukt, Buryatnefteprodukt, Rostov- nefteprodukt, Primornefteprodukt, Bamnefteprodukt, Irkutsknefteprodukt, Saratov-nefteprodukt and Chukotkanefteprodukt. Other Sidanco companies are Rostovnefte-produktavtomatika, Angarskneftekhimproekt, Neftekhimzapchast and Neftemash.

Sidanco is controlled by Uneximbank, of powerful Vladimir Potanin, 36, which holds 41% through its International Finance Corp., with another 10% sold to BP. A 51% holding was in 1995 taken in a loan-for-shares auction worth a mere $130m. Menatep bank holds 4% in Sidanco.

Siberian Oil Co. (Sibneft): Founded by a special presidential decree in September 1994, Sibneft's top management has been well connected with the Kremlin and the influential banker and power broker Boris Berezovsky. Berezovsky's bank, Stolichny Bank Sberezhny holds 51% of the group's share for which it paid a mere $100.3m in late 1995 (see who's who in Part 4).

The core of this group is the large oil producing firm Noyabrskneftegaz, which was unexpectedly transferred from Rosneft. In addition to this, Sibneft acquired the Omsk refinery, the largest and most advanced in Russia, with a usable capacity of 566,000 b/d which is now running at about 70% compared to 80% in mid-1996. Noyabrskneftegaz is one of the biggest extraction firms in Russia, with oil/condensate output averaging 400,000 b/d. It began work in the 1980s.

The Omsk refinery is undergoing a comprehensive revamp, which will allow it to produce non-ethylated gasoline by 2000. At the end of 1995, the refinery's management decided to invest $100-$110m of its own funds for this project.

Sibneft has a very active marketing company, Omsknefteprodukt. Its geological unit Noyabrskneftegazgeofizika is conducting exploration in the group's areas. In late 1997 Sibneft agreed to merge with Yukos by end-June 1998 but the merger plan collapsed in May. Elf has an option of buying equity in Sibneft, with its March 1998 deal to get 5% in Yuksi having fallen through (see Yukos' profile above).

Tyumen Oil Company (TNK): Founded on Aug.15, 1995, TNK aroused great interest because of its large oil producing units, most notably Nizhnevartovskneftegaz, and the Ryazan refinery close to Moscow. But soon after the group was formed, it became known Nizhnevartovskneftegaz had huge debts from outstanding taxes, which resulted in a complaint filed with the prosecutor general's commission in Nizhnevartovsk. However, the latter did not find TNK's management to have violated the law.

The group's fields in Nizhnevartovsk are depleting, with production having fallen seven times in the last nine years. Oil processing at the Ryazan refinery has fallen two times in the last four years, the funds are exhausted, and capacity utilisation is only 54% of 360,000 b/d. In February 1998 TNK secured a $500m from the US ExIm Bank to upgrade the refinery and rehabilitate the Samotlor field. The financial position of the company is complex, with analysis revealing unequal efficiency in management. Because of falling oil

prices, TNK's profit in the first quarter of 1998 fell to $2.5m, from $28.9m in the first quarter of 1997. In late 1997 the government revived the sale of 48.68% in TNK in a cash auction postponed for the third time in November. In mid-1997, Alfa Bank had bought 40% of TNK.