RusEnergy

April 13, 2005 By Maxim Filimonov Reuters LONDON - Basic Element, controlled by metals tycoon Oleg Deripaska, wants to set up its own independent oil company over the next two years and float its shares in London, the head of the company said. Russia's oil market, shaken by the Kremlin's breakup of former market leader Yukos, is dominated by a number of big companies. The role of the state in the strategic sector is only growing, making startups difficult. "We don't want to compete with [state oil firm] Rosneft or LUKoil. We want to buy deposits to serve our petrol stations and become an independent company," Basic Element's managing director David Geovanis said in an interview. He said the new company would eventually have annual oil production of 4 million tons (80,000 barrels per day) and around 80 million tons in reserves. By comparison, oil major LUKoil produced 1.69 million bpd last year. Basic Element's biggest asset in Russia is RusAl -- the world's No. 3 primary aluminum producer, with ambitious expansion plans. It also has a timber business. "I think Russia has three driving forces worth developing: oil and gas, metals, and timber," Geovanis said. "In metals we've already got RusAl, in timber we're building up the Soyuzbumaga holding company, but in oil we haven't had anything so far." Basic Element has already made cautious steps into the oil sector: It has acquired the relatively minor Afipskoye refinery and a small network of petrol stations in southern Russia. Geovanis said the company's goal for the moment was to establish its own raw materials base. It is eyeing deposits in Western Siberia, as well as in the Urals and in Kazakhstan. The firm had already bid unsuccessfully in several tenders for oil assets but the company based its investment case on a $25 oil price, meaning its offers of 70 cents per barrel of reserves were trumped by winning bids of up to $3, he said. With oil prices running above $50 per barrel, the firm might now have to double the amount it is prepared to pay, he said. After the company is up and running, at least 20 percent to 25 percent of it will be offered in an initial public offering on the London Stock Exchange to raise money for the firm's further development, he said. "Our aim is to get access to cheap Western money," Geovanis said. He added the oil company may also tie up with a foreign firm to develop oil in Russia, adding that Basic Element was currently in talks with at least two foreign companies.