Russian oil merger deals blow to Shell

Shell's prospects of following in BP's footsteps and bagging a Russian oil company were dealt a blow yesterday after two of the country's biggest oil producers unveiled a $35bn (£22.2bn) merger.

Yukos, Russia's second-biggest oil company, is buying Sibneft, the fifth largest, in a deal which will create the world's fourth-largest privately owned producer and help protect the Russian oil industry from further foreign takeovers.

Shell along with Exxon-Mobil and TotalFinaElf is rumoured to be interested in buying into the Russian oil industry following BP's $6.75bn purchase of a 50 per cent stake in the country's third-biggest oil producer in February. The Yukos-Sibneft deal narrows Shell's options unless it chooses to bid for Lukoil which, until yesterday, was Russia's biggest oil company.

In a complex deal, Yukos is paying $3bn in cash for 20 per cent of Sibneft and swallowing up the remainder of the company through a share swap which roughly involves issuing one new share for every three Sibneft shares. Yukos shareholders, led by its chief executive Mikhail Khodorkovsky, will emerge with a 71 per cent stake in the enlarged business.

The price being paid by Yukos represents a small premium to that paid by BP when it bought its half share in the merged Sidanko-TKN oil company earlier this year. The combined Yukos-Sibneft company will produce 2.3 million barrels of crude a day – equivalent to 29 per cent of Russia's oil output and the entire production of Kuwait – putting it behind only Exxon, Shell and BP. In terms of reserves, it will by the world's third-biggest oil company with 19.4 billion barrels, putting it ahead of BP but behind Exxon and Shell.