Mon Aug 23, 2004
By Dmitry Zhdannikov

MOSCOW (Reuters) - Russia's top oil exporter YUKOS cut its crude output forecast for 2004 on Monday due to a tax dispute with the state, in a move analysts said was a sign that Russia's prolific oil growth was set to slow down.

YUKOS said it would produce 86 million tonnes (1.72 million barrels per day), down 4.5 percent from its previous forecast of 90 million tonnes. The firm produced 1.62 million bpd in 2003 and was pumping 1.76 million bpd on Sunday.

YUKOS also said it would cut capital expenditure by $700 million this year from an initial target of $1.9 billion.

"Despite numerous requests to allow legal access to our bank accounts in order for YUKOS to continue normal operations, collection orders remain in place and no cash is available to the company from those accounts," the statement quoted YUKOS chief executive Steven Theede as saying.

"This means that half of our monthly revenue is not available to us to meet our day-to-day operating costs."

YUKOS must pay $3.4 billion in back taxes for 2000 by August 30, something the firm says it cannot do as it lacks spare cash and is banned from selling non-core assets. It also argues the freezing of bank accounts disrupts its daily operations.

YUKOS's troubles are part of a broader judicial campaign, seen by many analysts as orchestrated by the Kremlin to punish the firm's politically ambitious founder Mikhail Khodorkovsky, who is on trial on charges of fraud and tax evasion.

Troika Dialog analyst Valery Nesterov said YUKOS's move was predictable and could help push prices even closer to $50 per barrel on fears of supply disruptions from Russia.

"The YUKOS story may have a very negative impact on Russian oil output growth rates," Nesterov said, adding that he still expected the country to boost production by seven percent this year due to higher-than-expected growth rates at other firms.

Russia, the world's No 2 oil exporter, has boosted output by half to 9.3 million bpd since 1999. Fears the country, which produces every eighth barrel of crude in the world, may cut exports helped push oil prices to record levels in past weeks.

SHARES PLUNGE

Shares of YUKOS reacted mildly on the news as they were already nearly 10 percent down intraday amid growing fears that YUKOS's key Siberian unit would be sold cheaply after a deadline to pay back taxes expires next week.
The Financial Times reported that state authorities were considering launching a $3 billion tax demand against YUKOS's main producing unit Yugansk.

"The aim of this new tax demand appears to be to reduce the value of Yugansk to enable some of state companies to acquire it," UFG brokerage said in a note.

Bailiffs threaten to sell Yugansk, which accounts for 60 percent of output of Russia's top oil exporter, to cover the back tax bill as YUKOS says it is able to generate only $1.7 billion by the deadline. The government has hired investment bank Dresdner Kleinwort Wasserstein to value Yugansk.

Tax officials have said YUKOS may be presented with a new tax evasion claim for a total of $3.4 billion for 2001. UFG said it expected all tax claims to amount to $10 billion, while Renaissance Capital said they could rise to $14-$15 billion.

Many analysts said that pushing the total back tax bill to as high as possible was the only strategy left for the government in a situation where Dresdner was likely to announce a high starting price for Yugansk.

Many analysts say a fair price for Yugansk would be at least $15 billion and only a Western major or a Chinese firm could afford to buy it.

"We reiterate our belief that no foreign company will be allowed to bid for Yugansk," said Raiffeisenbank, which values Yugansk at $16 billion.

"The latest move may be designed both to reduce the value of the main production subsidiary and to dissuade Western bidders from taking part in any future auction," UFG concluded.

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