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Analysis: Evans and Russia's oil patch

By PETER LAVELLE

MOSCOW, Dec. 13 (UPI) -- Former U.S. Commerce Secretary Don Evans, who is a close friend of U.S. President Bush, is reported to have been offered the job of chairman of the Russian state oil company Rosneft ahead of its initial public offering next year. Bringing Evans on board may help improve the oil giant's damaged reputation in the wake of the Yukos affair, but is it enough for investors?

The Russian business daily Kommersant Tuesday reported Evans met with several top Russian officials during a trip to Moscow last week, and with President Vladimir Putin on Dec. 7. The daily says Putin offered Evans the post of head of Rosneft's board of directors. At the time of writing, neither the company nor Evans commented on the report.

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If the news is confirmed and Evans takes up the post, his duties would apparently include improving Rosneft's attractiveness to the Western investment community and to potential shareholders. This will not be an easy task.

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A little over a year ago, Rosneft was the laggard of Russia's oil patch -- poorly run and opaque. All that changed when it bought Yuganskneftegaz, the core production unit of the embattled Yukos, at a forced state auction in December 2004, paying the knock-down price of $9.4 billion. Today, the company is valued at $50 billion to $58 billion, as it plans to float 49 percent of its shares in an IPO that could attract up to $15 billion, including a strategic investor.

The public offering is aimed at repaying the $7.5 billion loan for the complicated buyback of shares in natural gas monopoly Gazprom, leaving the state with majority holdings in both companies.

To attain control of Yukos' crown jewel, however, Rosneft finds itself facing complicated legal claims from Yuganskneftegaz's former owners, Menatep Group, and the question of how to best consolidate all its assets into a single share. Yukos still holds 23 percent of Yuganskneftegaz in the form of preferred shares valued at $2.7 billion -- or roughly 5 percent of Rosneft's total value.

Rosneft acquisition of Yuganskneftegaz did not include the preferred shares. Rosneft has the option to maintain Yuganskneftegaz as a separate and unconsolidated subsidiary, though this would leave the door open to potential Menatep Group legal claims for a return of the asset. This is something Rosneft, the Russian state and potential shareholders want to avoid.

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The Kremlin appears to be hoping Evans' appointment can improve the company's fortunes. According to the Center for Responsive Politics, he spent 25 years at Tom Brown Inc., a Denver-based oil and gas company. He was chairman and chief executive officer of the $1.2 billion company and sat on the board of TMBR/Sharp Drilling, an oil and gas drilling operation. The center also says prior to becoming commerce secretary in 2001, Evans assisted Bush with his two successful bids for governor of Texas and his race for the presidency. His reputation as a fundraiser is legendary -- he raised more than $100 million for Bush's 2000 presidential bid.

From a public relations standpoint, having Evans heading Rosneft's board would assure potential investors the company intends to be transparent and protect the interests of minority shareholders. Evans also could be a key player in attracting other oil majors to partner with Rosneft -- something the company lacks. His appointment, along with that of former German Chancellor Gerhard Schroeder to the chairmanship of the board of the north European Gas Pipeline Company last week, also demonstrates that the Kremlin is determined to improve investor confidence in Russia in the wake of the Yukos affair.

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The extent to which Evans' appointment, if and when confirmed, could affect the company's IPO valuation and post-IPO prospects is impossible for the market to judge at this point. However, there can be no doubt Rosneft's battered reputation is set for a face-lift.

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Peter Lavelle is Moscow-based and also writes analytical articles for RIA Novosti.

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