Russia's Tyumen Oil Company, owner of Ukraine's largest oil refinery and a growing network of gasoline filling stations, is seeking a Western investor in the hope of keeping its expanding business network afloat.
nding business network afloat.
If such a deal does work out, it would signal the first major Western investment (admittedly indirect) in Ukraine’s petroleum industry – an industry presently dominated by Russian oil firms.
Tyumen Oil, which also does business as TNK, bought Ukraine’s Lysychansk Oil Refinery (LiNOS) in July 2000. LiNOS has since increased its production by 70 percent to more than 4.1 million tons per year, an amount equal to 35 percent of the country’s entire refining capacity.
Depressed worldwide oil prices and expenses incurred during expansion have placed TNK in a cash-flow crisis the company believes would best be solved by the entrance of a Western partner. While the identity of the Western firm or the size of the stake in TNK being offered is not immediately clear, what is known is that the buyer would obtain access to a healthy slice of the petroleum markets in Russia and Ukraine.
Publicly, TNK officials are downplaying the significance of any potential deal.
“This kind of investor is needed all the time in the oil business,” a representative of TNK’s press service told the Post. “A Western investor could help our company further realize existing projects and improve access to Western markets.”
TNK would neither confirm nor deny reports that the company is already holding talks with potential investors. It did, however, identify BP (formerly British Petroleum) as one potential investor.
If Western oil companies are interested in TNK, they aren’t talking about it.
BP’s Moscow spokesperson Peter Henshaw said his company has no plans to buy TNK. But, he added, BP’s interest might be piqued if the price was right.
“We speak with TNK all the time about a whole lot of things, but there is no deal for BP to purchase any part of the company now,” he said.
BP used to own two gasoline stations in Ukraine, but closed its commercial operations in the country earlier this year.
ChevronTexaco, a new corporation formed this fall with the merger of Chevron and Texaco, is another oil giant that could invest into TNK. It currently owns half of TNK-Texaco, a joint venture with TNK that supplies lubricants in the CIS.
A Western oil company buying into TNK would acquire a stake in a vertically integrated corporation that owns oil and gas fields, refineries with stable supplies of oil and a growing chain of gas stations throughout the CIS.
TNK is owned by Alfa Group and Access Industries/Renova. Together, they own more than 99 percent of TNK. Alfa Group, the more influential shareholder, is a Russian holding company with interests in various sectors including energy and telecommunications.
While oil prices were higher, TNK spent millions to acquire oil companies and to expand its business. Today’s lower prices have left the company with less cash for investment in projects already underway.
Those projects include plans to build 90 Western-style mini-mart gas stations over the next two years – 60 in the Moscow region and 30 in metropolitan Kyiv – as part of its partnership with ChevronTexaco. Among the other major TNK investment projects are a $300 million upgrade to the Ryazan Refinery, located southeast of Moscow, and a promised $60 million investments in the LiNOS refinery.
“[TNK] assumed that oil prices would remain high for awhile. Now, they don’t have enough money on hand to complete their investment projects,” said Andry Bespyatov, an oil and gas analyst at Dragon Capital. “That leaves TNK with two options: Either sell assets to raise money or freeze the investment projects.”
Serhy Oleksiyenko, head of research at Kyiv’s Sinkom securities firm, said that if a deal to sell a stake in TNK is reached, the buyers will demand a controlling interest. But Oleksiyenko said a deal would be unlikely for at least another six months – the time it will take for TNK to feel the financial crunch lower oil prices will bring. Western oil companies would have more leverage then, he said.
If TNK fails to attract the investment it needs, the LiNOS refinery would likely continue to receive adequate supplies of oil, but TNK’s plans to expand its network of service stations in Ukraine could fall by the wayside, the analysts said.
Russia is the world’s second major oil producer. It produces about 6.7 million barrels per day – slightly less than Saudi Arabia’s 7.9 million barrels and more than the 6.1 million barrels the U.S. produces.
TNK controls more than 8.2 billion barrels of proven crude oil reserves. It refines more than 500,000 barrels per day and ranks second among Russian oil companies by reserves and fourth by production. TNK either owns or franchises close to 1,000 filling stations.
