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The Sunday Telegraph: ‘It is a great honour to get an LSE listing’

EXTRACT: If he has a final message for Western investors concerned about putting their money into Russia, given the demise of Yukos, it is, of course, a positive one. He reels off recent examples of Western oil companies that have committed hard cash to Russia, from BP, Royal Dutch Shell and America’s ConocoPhillips to Asian companies.


(Filed: 23/07/2006)

The flotation of Rosneft was surrounded by controversy but Sergey Bogdanchikov, its chief executive, tells Sylvia Pfeifer that investors’ concerns are unfounded

The public face of Rosneft, the controversial Russian oil giant, is a slim man with swept back hair and deep-set blue eyes. But Sergey Bogdanchikov, the president and chief executive of Rosneft, is a heavyweight among his peers. Over the past eight years he has forged a reputation for doing things his way, turning Rosneft into one of the world’s biggest oil companies in the process.

Last week he pulled off the greatest coup of his career to date, one that many people thought would never – and critics said should never – happen: the listing of Rosneft’s shares on the London Stock Exchange.
How does he feel? “Frankly speaking, as every normal human being would, very good,” he says in rapid Russian through his interpreter.

“The LSE is the number one of all the international institutions worldwide and I consider it a great honour to get a listing on the LSE,” he adds.

For many Western observers, it is an honour too far.

Rosneft owes much of its $80bn (£43.2bn) market value to a subsidiary previously owned by its rival Yukos. Once the largest Russian oil company, Yukos was crippled by a succession of -billion–dollar tax demands, which it claims were part of a political campaign against Mikhail Khodorkovsky, its founder, who is now serving an eight-year prison sentence in Siberia. The company claims its main oil production unit, Yuganskneftegas, was illegally expropriated and transferred to Rosneft more than two years ago.

Critics, including George Soros, the billionaire investor, have questioned the morality of the float, with many arguing that its success would legitimise the events of the past. An eleventh-hour bid by Yukos to seek an injunction in the High Court in London to stop the offering failed on Tuesday, leaving the way open for one of the largest flotations in recent years.

Rosneft raised $10.4bn in London and Moscow, giving it a market value of almost $80bn.

Sitting in his adviser’s central London offices, Bogdanchikov seems unfazed by the controversy that has surrounded him in recent months. He says he “never once” contemplated that the float might not happen. And while he concedes that during the roadshow some investors asked about the provenance of Rosneft’s assets, he says that “to my surprise there were very few questions of that kind”.

He adds: “It is logical that when we invest money, we want to assess everything. However, as the IPO showed, the demand for our shares was more than $15bn. If we take the demand from institutional foreign investors and foreign strategic investors, their aggregate demand was about $9bn. It indicated a big interest.”

Arguably, the biggest interest came from strategic investors, notably Malaysia’s Petronas, China’s CNPC and, most importantly, Britain’s BP. Together, the three invested $2.6bn in the float. The rest was made up of international investors from outside Russia, who committed $5.8bn, Russian institutions and other big investors, which committed $5.8bn, and some $750m from the country’s retail investors.

Did the Russian government have a hand in persuading the strategic investors, notably BP, which has ploughed a lot of money into Russia via its TNK-BP venture, to invest in the float?

None whatsoever, Bogdanchikov insists. He is effusive in his praise for BP, describing it as “our esteemed and long-term partner”.

“We consider it our honour to co-operate with BP. We have a huge project on Sakhalin 5 [one of the licences in the giant oilfield off the Siberian coast] which is progressing quite successfully. Currently, we are at the stage of entering into another serious project with BP and we consider it quite logical that BP has the intention to have a certain stake in our company,” he says.

Despite failing to stop the float, Yukos has vowed to appeal against the High Court’s decision in the next few days. Bogdanchikov, however, says he is not worried. He appears to feel little empathy with the fate of his rival, whose chief executive, Steven Theede, resigned on Thursday ahead of a creditors’ meeting, saying he could do nothing more to prevent the company’s liquidation. Instead, Bogdanchikov draws parallels with some of the biggest business scandals in the West.

“They are appealing the legality of acquiring Yuganskneftegas. Let’s go back. What are they accused of? They were not paying taxes, so it’s a fraud, it’s tax evasion. So what are the penalties in the West? If we take WorldCom, Enron or Parmalat, the penalties really are severe and Russia is not different now.”

He adds that Rosneft’s “legal positions are quite strong”.

So where does he see Rosneft going from here? The company plans to increase its oil production from 80m tonnes this year to 140m tonnes by 2015, solely through organic growth. But it is its refining and marketing operations that need bulking up. Bogdanchikov admits: “We lack the capacities and we don’t have enough refineries and retail stations.” He is looking to buy refineries and does not rule out buying those of Yukos, which owns five that supply about 16 per cent of Russia’s fuel.

What of his own ambitions? He has invested both personal and financial capital in the company. He joined Rosneft straight from the Ufa Petroleum Institute in the Urals and spent the past 25 years fighting his way through the ranks to the top job in 1998. He invested just under $1m in the float and the elder of his two sons, Alexey, works in the investor relations department of Rosneft.

Does he feel hampered by the Russian government’s majority stake? And how much involvement does Igor Sechin, his chairman and the deputy chief of staff at the Kremlin, have?

Bogdanchikov makes clear that he sees himself as master of his own destiny. “In the past eight years we have had several chairmen of the board of directors. They did what they were supposed to do, so they approved business plans, they listened to our quarterly reports on our performance, they approved our large-scale transactions, but they are very far away from day-to-day management. They are very busy with their main job and I don’t think they are looking for some extra work to do.”

Would he like to become like a Lord Browne or Lee Raymond, the former chef executive of Exxon-Mobil? He grins but declines to compare himself with either of these two industry heavyweights just yet.

“These are great people and it’s a long way for me to catch up with them. They have established perfect, world-class companies that are well appreciated by the market. For example, the value of ExxonMobil is about $400bn. We managed to sell our company only for $80bn. So it’s a long way ahead of us,” he says.

Nevertheless, he is nothing if not ambitious, noting that “we have a big enough resource base to produce oil at the level of BP or ExxonMobil”.

If he has a final message for Western investors concerned about putting their money into Russia, given the demise of Yukos, it is, of course, a positive one. He reels off recent examples of Western oil companies that have committed hard cash to Russia, from BP, Royal Dutch Shell and America’s ConocoPhillips to Asian companies.

“There might be some reasonable issues and questions and it’s normal to have those asked,” he counters. “But the facts are that Russia is an attractive place, you can work in Russia and you can make good money in Russia.” and its also non-profit sister websites,,,,, and are all owned by John Donovan. There is also a Wikipedia article.

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