Williams teams up with Yukos instead of LUKoil

VILNIUS - Yukos and Williams International, respectively the Russian and American oil companies, signed June 14 an agreement of cooperation to pursue Yukos' participation in the equity of the Lithuanian oil company Mazeikiu Nafta as well as long-term crude supplies. The transaction should be completed by mid-September.

Yukos will purchase new Mazeikiu Nafta share equity for a total of $75 million and provide a $75 million credit line to Mazeikiu Nafta for modernization purposes.

After approval by the Lithuanian government, Williams and Yukos will become equal financial partners and each hold a 26.85 percent share in Mazeikiu Nafta. The transaction also includes an agreement on a 10-year supply of approximately 5 million tons of crude oil per year. Deliveries are scheduled to start next month.

Yukos is currently the largest supplier of crude to the Mazeikiu Nafta refinery and Butinge oil terminal. Last year Yukos provided over 38 percent of Mazeikiu Nafta's refinery supplies.

Under an already effective agreement Yukos is to supply 4 million tons of crude oil per year to the terminal, which has an annual export capacity of 8 million tons.

Lithuanian President Valdas Adamkus expressed his support for the agreement in a meeting with Prime Minister Rolandas Paksas, Economy Minister Eugenijus Gentvilas, Randy Majors, managing director of the international unit of Williams and Mazeikiu Nafta board chairman, James Sheel, managing director of Mazeikiu Nafta, Mikhail Brudno, first deputy president of Yukos, and other representatives of the Russian company.

"Williams has always been open to having a strong and experienced Russian partner interested in contributing to the modernization, profitability and overall success of Mazeikiu Nafta," said Majors while introducing the deal to journalists. "Yukos is just such a partner. We look forward to completing this transaction and beginning the joint work necessary to turn Mazeikiu Nafta into the most successful oil company in the region."

The government formed a working group that should submit conclusions and recommendations about the deal by June 29.

Another Russian company, LUKoil, does not intend to give up its plans for cooperation with the Mazeikiai company. This statement was made by Ivan Paleychik, head of LUKoil Baltija, the Russian company's local subsidiary.

The company received a government offer to purchase 33 percent of shares in Mazeikiu Nafta, but after the agreement with Yukos prospects for further talks with LUKoil are dim.

New impetus to these developments are expected after the political changes now underway within the Lithuanian government come to a conclusion. The left-wing Social Democrats led by former President Algirdas Brazauskas, who may be invited to join the next government, were backed by LUKoil Baltija in parliamentary elections last October.

Meanwhile the feud between Williams and LUKoil continues. According to a statement issued by Mazeikiu Nafta on June 13, LUKoil Baltija continues to hinder Mazeikiu Nafta operations.

"According to recent comments in the Lithuanian media, LUKoil Baltija Chairman Ivan Paleichik has incorrectly accused Mazeikiu Nafta of demagoguery in its explanations of LUKoil Baltija's role in manipulating crude supplies to Lithuania and causing financial losses to the company," says Randy Majors in the statement.

"Mr. Paleichik's accusations are simply another blatant attempt to distort the truth and hamper Mazeikiu Nafta's improved relations with other Russian oil companies. Accusations of demagoguery are ridiculous following Mr. Paleichik's recent threats to Mazeikiu Nafta executives that he will do everything possible to block more direct sales of crude oil to the company," the statement continues.

Mazeikiu Nafta reported a 34 million litas profit ($8.5 million), according to generally accepted accounting principles in April. Preliminary figures for May have yet to be calculated and reported to the Lithuanian Stock Exchange, though company officials expect to post a profit for the month.

"Crude oil prices are currently increasing on world markets. This should lead to an increase in product prices in Europe and North America in the near future and obviously affect the financial results of both refiners and product retailers. However, it is still unclear in which direction," said Majors.

Profitable operations at Mazeikiu Nafta in large part depend on the refinery's ability to purchase crude supplies directly from Russian suppliers at transparent world market prices.