Presentation on theme: "1 Conclusions of the Specialist S. Wesley Haun. 2 QUESTIONS PRESENTED How does the concept of vertical integration apply in the world wide oil and gas."— Presentation transcript:
2 QUESTIONS PRESENTED How does the concept of vertical integration apply in the world wide oil and gas business? Where did Yukos Oil Company fit in the context of the Russian and world wide oil and gas industry as it evolved from 1997 to 2004? How does the Yukos Oil Company vertically integrated structure as it evolved between 1997 and 2004 compare to the operations of major oil companies based in Russia and other countries? Did Yukos Oil Company sell oil from its exploration and production companies to its marketing companies in the same manner that other international vertically integrated oil and gas companies would have been expected to sell their crude oil?
3 Khodorkovsky’s actions were consistent with those of company leadership intent on building a model company that would achieve sustained growth and long term profitability. Yukos was comparable to other Russian & International vertically integrated oil and gas companies in both structure and operations. Yukos adopted stringent accounting practices, became more transparent, and publicly presented its past performance and future plans. CONCLUSIONS
4 The wellhead price of oil differs greatly with multiple bench mark or actual end-purchaser prices. To compare the wellhead price to the end user price, in essence, is to compare apples to oranges. The manner by which the marketing or trading companies within Yukos purchased oil from the exploration and production companies was consistent with industry standards, custom, and practice.
5 CONCLUSIONS The charges are contradicted by the facts. Khodorkovsky’s leadership and Yukos’ performance do not reflect a plan to embezzle the company’s oil production. Khodorkovsky’s failure to implement these management practices would have been contrary to the interest of all shareholders, as well as of the Russian Federation.
6 VERTICALLY INTEGRATED OIL & GAS COMPANIES Upstream – exploration and production Midstream – processing/treating and pipeline Downstream – refining and marketing petrochemicals and petroleum products
7 SPECIFIC CHARACTERISTICS OF THE OIL & GAS INDUSTRY Capital intensive Cash flow driven Need for free cash flow High risk World-wide market
8 SPECIFIC CHARACTERISTICS OF THE OIL & GAS INDUSTRY World-wide prices reflect supply and demand OPEC’s impact Expansion/merger – economies of scale VIO&GCs – use of foreign entities
9 YUKOS AND ITS RUSSIAN PEERS TOP VIO&GCs COMPARABLE STRATEGY AND OBJECTIVES
12 Source: Presentation TNK-BP: “Optimization of the Integrated Value Chain within TNK-BP”, Aspen World Conference, October 10-15, 2004, www.tnk-bp.com.
13 Source: Economics of Worldwide Petroleum Production, page 87.
14 ORGANIZATION Yukos was a vertically integrated oil and gas company first organized by the Russian Government Khodorkovsky organized Yukos in a manner similar to other VIOGCs: –Operating companies E&P R&M –Centralized corporate management shared services
15 Source: Yukos Presentation, “Yuganskneftegaz Open JSC”, 2003.
25 Company19981999200020012002 1998-2002 Change2003 ExxonMobil58,00656,79555,36655,94655,218-2,788-5% Shell54,33352,84750,34251,61353,438-895-2% BP32,76735,52643,51846,17348,78916,02249% PetroChina22,33624,60232,53333,10238,81716,48174% TotalFinaElf18,32520,25320,76521,92921,5753,25018% Chevron15,82017,16317,84415,41019,3353,51522% ConocoPhillips12,45212,50614,58712,44816,0403,58829% Yukos1,7542,2702,4482,4846,9705,216297%8,761 Unocal5,6756,1186,0396,3496,55588016% Apache2,1322,3523,3844,0054,0551,92390% Amerada2,3352,1812,1272,8812,4771426% Marathon4,0693,7873,0942,8582,993-1,076-26% Natural Gas (Bcf) Sources: Company financial statements, annual reports and SEC filings.
26 Crude oil output in millions of metric tons per year million tons 2000200120022003 Lukoil*74.2676.7078.1278.91 YUKOS49.7858.1169.5080.75 Surgutneftegaz40.6244.0349.2154.03 TNKBP**29.2535.0337.8861.57 Sibneft17.2020.5926.3331.39 Tatneft24.3424.61 24.67 Bashneft11.9411.8611.9712.05 Rosneft13.4714.9416.1119.57 Slavneft12.2713.5414.7018.10 SIDANCO10.6915.6316.26 ** Gazprom10.0110.2110.7711.02 Other31.4725.6926.6229.33 Russia total323.22348.07379.63421.38 Source: “Russian Oil Sector: Fueled by Strong Prices...But Taxing Times Ahead” Troika Dialogue (February 9, 2004), p. 4 E&P RESULTS
27 YUKOS versus Lukoil: free cash flow, dollars per bbl Source: “Russian Oil Sector: Fueled by Strong Prices... But Taxing Times Ahead” Troika Dialogue (February 9, 2004).
28 VIO&GC Intracompany Pricing Pricing factors for transactions between E&P and R&M –Transportation –Logistics –Other costs Supply and demand E&P sale price ≠ downstream delivered price Consistent with Russian and International VIO&GCs
31 Source: Rosneft Public Disclosures http://rosneft.ru/company/disclosure/ung-quarterly.html
32 SUMMARY MBK turned Yukos into a successful, growing, sustainable, long-term company –Centralized Management –Engage International Professionals –Increase Production and Cut Costs –Enhance Corporate Governance – Independent Board of Directors –Acquire International Assets –Increase Shareholder Value
33 SUMMARY Yukos: –collected revenues for the sale of oil and gas –paid billions of dollars in operating expenses –paid billions of dollars in taxes –spent billions of dollars on capital expenditures, dividends, and stock purchases –spent billions of dollars to grow subsidiary businesses through investments and acquisitions, and –had billions of dollars in cash in its accounts
34 Yukos Operational Statistics (Values in Millions of US dollars) Year 1998 1999 2000 2001 2002 2003 Total Revenues 3,140 4,177 9,032 9,461 11,373 16,522 53,705 Total Operating Expenses excluding taxes, goodwill, depreciation and amortization* 1,881 1,465 2,828 3,434 4,255 6,264 20,127 Taxes including income tax 1,311 1,192 2,453 2,777 3,833 5,509 17,075 Net - Profit (837) 1,152 3,724 3,156 3,058 4,700 14,953 Capital Expenditures**, net 221 174 589 954 1,263 1,549 4,750 Other Long - term investments *** and Treasury Stock purchases, net 192 497 82 586 1,019 6,785 9,161 Cash & cash equivalents at Dec 31 yearend 202 447 1,939 1,409 1,647 1,294 x Stock Dividends 0 0 105 473 280 1,724 2,582 Financial data is from 1999, 2001, 2002 and 2003 Yukos US GAAP consolidated financial statements. *Also excluding write-offs of property and investments **Additions to Property, Plant and Equipment ***Includes purchases of additional shares of subsidiaries and advances to investment dealers
35 Acquisitions by Yukos Oil Company (in millions of USD)* 1998 1999 2000 2001 2002 2003 Total Sibneft** 6690 VNK*** 300 510 256 32 1098 Arcticgaz 274.3 Yuganskneftegaz 120.4 31 49 200.4 AB Mazeikiu Nafta 164 ZAO Rospan International (part of acquisition began in 2001) 133 Angarsk Petrochemical Company 32 74 106 John Brown Hydrocarbons Limited and Davy Process technology limited 100 OAO Neftegaztechnologiya 97 Tomskneft VNK 49 10 17 76 OOO Geoilbent 75 ZAO Urengoil (part of acquisition began in 2001) 75 Transpetrol 74 Samaraneftegaz 54.8 7 11 72.8 Eastern Siberian Oil and Gas Company 65 4 69 Sakhaneftegaz 50 Kvaerner ASA 37.5 Achinsk refinery 2 25 27 Novokuibyshevsk refinery 6 4 10 Syzran refinery 3 4 7 Kuibyshev refinery 4 3 7 Other 27.4 52.8 80.2 Total 300 734.2 187.4 381.3 1026.3 6894 9523.2 *Acquisitions are compilations from the Notes to the Consolidated US GAAP reports and MD&A and may not include every acquisition **includes the loans and 2003 treasury stock purchases for purposes of exchanging for Sibneft shares ***includes the loans for 53.3% acquisition in 98-99
36 SUMMARY Oil production and revenues accounted for in Yukos financial reporting Embezzlement is associated with secretive, hidden taking of assets. Yukos performance was publicly disclosed, there were no objections to their accuracy by the auditors, government agencies, or investment institutions. Khodorkovsky made Yukos more transparent
37 SUMMARY Khodorkovsky’s reorganization and management of Yukos benefited all of the Yukos shareholders and the production subsidiaries and the Russian Federation.