Yukos will cut production due to lack of funds

Embattled Russian energy firm Yukos said yesterday that it would not produce as much oil as expected this year because bailiffs were bleeding its bank accounts to pay a disputed and potentially ruinous tax bill.

"As a result of the capital expenditures reduction, the annual production target for Yukos Oil Company will be reduced from 90 million tonnes to 86 million tonnes for 2004," Russia's biggest oil producer said in a statement.

"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," said chief executive Mr Steven Theede. "This means that half of our monthly revenue is not available to us to meet our day-to-day operating costs."

The revised production target was still 6 per cent higher than Yukos's output in 2003, but marked the latest blow to a company that was seen as Russia's most efficient and transparent until founder Mr Mikhail Khodorkovsky was seized on fraud and tax evasion charges last October.

"Basically it means that production will plateau - they won't do any new drilling or well-workovers," said Mr Ronald Smith, oil and gas analyst at Renaissance Capital. "Its not that black given everything else that's flying around."

The arrest of Mr Khodorkovsky - which supporters say was masterminded by a Kremlin angered by his criticism, political ambitions and plans to sell a stake in the firm to a US major - prompted a string of similar accusations against other company executives before Yukos itself was hit with a $3.4 billion (€2.8 billion) bill for unpaid taxes.

The firm said it had already paid $700 million of its tax bill for 2000, and bailiffs had siphoned off another $800 million from bank accounts.

Yukos shares slipped again in Moscow after the Financial Times reported that officials were preparing to present Yukos's main operating unit, Yuganskneftegaz, with a separate bill for $3 billion in tax arrears.

Bailiffs have threatened to sell the subsidiary, which accounts for about 60 per cent of Yukos's total output, to pay the company's tax arrears. Analysts fear its value is being eroded to bring it within reach of a Kremlin-friendly Russian buyer.

"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," said the United Financial Group.