Much ado about nyet...
Category: Economy & Business...
Posted Tuesday, April 22, 2003 at 08:25 PM [GMT-6]

From today's edition of the Moscow Times comes this report of the merger between two Russian oil companies, Yukos and Sibneft, creating the second largest petroleum reserves ownership, behind only ExxonMobil and presumably limited to publicly traded companies.

Nineteen billion BOE (barrels of oil equivalent) is a healthy hunk of hydrocarbon, in anyone's book. But I learned a long time ago that it's not the barrels, it's the cash — and it's not the revenue, it's the profit — that counts.

The new company (creatively named YukosSibneft...must've used an American merger consultant for that) will have a market value of $36B. Compare that to the other market caps of the other companies mentioned in the article: ExxonMobil - $234B; BP - $145B; TotalFinaElf - $88B; ChevronTexaco - $68B (all values based on their stock/ADR prices at the close of the market on 4/22). The numbers seem to indicate that either the Russian oil is not that profitable, management is not that competent, or the reserves estimates are not that credible. Or, perhaps, a combination of all three.

Again, comparing the new Russian company to ExxonMobil, we see that the former's reserves are valued at $1.89/BOE, while the latter's 72B of reserves is valued at $3.25/BOE (simply dividing market cap by reserves volume). That's a hard gap to close.

It's probably only coincidental that another headline on the same page reads:

Russia is world's 2nd largest seller of fake products

China is in the lead, but, as in the oil business, I suspect that Russian companies are doing their best to catch up.