While most Russian oil tycoons and Kremlin energy officials are calculating billions of losses that could result from Western sanctions, one of them is counting his blessings.
Vladimir Bogdanov’s Surgutneftegas has no Western debts, no foreign partners on its huge Siberian fields and uses no Western drilling technology, making it virtually immune to sanctions imposed on Russia to try and persuade it to change course over Ukraine.
Bogdanov, 63, has been running Russia’s third largest oil producer since 1984 and has been repeatedly described as a ‘dinosaur’ by his rivals, who embraced Western technology, loans and accounting rules.
But in today’s Russia it could be a winning strategy as the country run by President Vladimir Putin drifts towards increased isolation from the West.
The United States and the European Union have imposed wide-ranging sanctions on Russia, including on the energy and military sectors, dozens of state officials and businessmen close to Putin to punish the Kremlin for its incursion in Ukraine and the annexation of Crimea.
“Regarding the ban on foreign companies and technologies, I would suggest you take Surgut as an example,” Russian Energy Minister Alexander Novak, told reporters last week.
“Today, this company uses Russian contractors, Russian equipment and is not dependent in any way on Western service companies. De facto, those sanctions are irrelevant for Surgut.”
A spokesman for Surgutneftegas declined to comment on the story and said that Bogdanov also had no comment.
Named after the Siberian city of Surgut, where it employs a third of the 300,000 inhabitants, Surgut pumps a steady 1.2 million barrels per day or 12 percent of production of the world’s second largest oil-exporting country.
Over the past decade, the company has been so profitable it has an estimated $35 billion in Russian bank deposits and has spent little on acquisitions.
“Only Father Frost can have impact on our jobs in Siberia, not sanctions,” media-shy Bogdanov said earlier this year.
The United States put Surgut as well as Lukoil, Novatek and state firms Gazprom, Gazprom Neft and Rosneft on the sanctions list in September, effectively freezing access to foreign technology and banning Western firms from cooperating in Arctic, shale and deep-water drilling.
“Surgut relies almost fully on its in-house drilling servicing arm and has pioneer status in tight oil development. The latest sanctions could possibly impact its tight oil output, but, given the marginal scale of these operations, it would be rather mediocre,” said Alfa Bank analyst Alexander Kornilov.
Surgut, which sells its oil to thousands of clients in Russia and trades with major European companies such as Eni and Total posted a net profit of $4 billion in the first half of this year down 20 percent from record numbers last year due to higher expenses.
The political crisis over Ukraine has hurt the Russian rouble and the economy and Surgut will likely benefit from selling oil abroad in dollars. Its share price in rouble has barely changed since the beginning of the year, outperforming its peers and the broader Russia index, although in dollar terms it has weakened.
Surgut was privatized in the early 1990s and its exact ownership structure is difficult to pin down.
Bogdanov, who now owns 0.3 percent in Surgut, has said repeatedly that company documents show it is owned by over 33,800 shareholders, including employees – a rare arrangement in Russia, where the economy is dominated by state giants and oligarchs.
Some 40 percent of Surgut was sold to the firm’s pension fund during the first privatization wave in 1995. The pension fund no longer holds such a large stake, according to company disclosures.
By early 2000, the firm was entirely privatized resulting in 38 percent of shares being freely traded while about 62 percent was held by the pension fund and dozens of other affiliates with cross-ownership.
Several investors including Bill Browder, chief executive and co-founder of Hermitage Capital, once the biggest foreign funds in Russia and a former minority shareholder in Surgut, tried to find out how the ownership structure worked.
“I was expelled from Russia approximately a week before a constitutional court hearing about the cancelation of treasury shares at Surgut that we initiated. Many people attributed my expulsion to our activism,” said Browder, who was denied Russian entry in 2006 and later accused of tax evasion.
“Nearly a decade later the situation is just as vague and untransparent as it was then,” said Browder.
Born in Siberia, Bogdanov began his career as an assistant-driller and by 33 he was already in charge of Surgut.
During the chaotic privatizations of the 1990s, Russia sold off over a half of the Soviet Union’s oil industry, including the biggest Siberian units – Surgut, Lukoil and Yukos.
Vagit Alekperov and financier Mikhail Khodorkovsky bought the largest chunks of Lukoil and Yukos respectively and implemented Western practices at their firms.
Khodorkovsky was later jailed for tax evasion and Yukos was nationalized in what Khodorkovsky said was a Kremlin revenge for his political ambitions.
Alekperov stayed out of politics but embarked on a major buying spree, adding U.S. filling stations and refineries in Europe to his portfolio.
By contrast, Bogdanov keeps a low profile, living a modest lifestyle, only recently moving to a house from a flat near his office. Forbes estimates his wealth at $2.6 billion but he has repeatedly denied being wealthy.
He holidays in Russia and sometimes in the Czech spa resort of Karlovy Vary – away from the glitz of the French coast or ski resorts that are so popular with his peers.
St Petersburg link
He has also stayed out of politics and expansion – his company’s only major asset outside Siberia is the Kirishi refinery near St Petersburg.
It is the St Petersburg connection which Putin’s critics say is a sign of possible business connections between Bogdanov and the Kremlin. Putin denies having any business interests.
When Putin was deputy mayor of St Petersburg in the 1990s, Kirishi exported large amounts of refined products via a trading house which belonged to Putin’s friend Gennady Timchenko.
The U.S. Treasury said this year that “Timchenko activities in the energy sector have been directly linked to Putin.” It gave no details but put Timchenko on the sanction list.
Putin has said he never helped Timchenko build his business empire.
Timchenko’s name became known to the public for the first time in 2004, when politician Ivan Rybkin said Putin was Russia’s richest man and Surgut was indirectly controlled by Putin and Timchenko. Rybkin did not present any evidence.
In 2008, Boris Nemtsov and Vladimir Milov, once government members who later joined the opposition, also asked Surgut to reveal its ownership structure as part of their report about friends of Putin, who became billionaires during his rule.
Putin and Timchenko have repeatedly denied having any involvement in Surgut.
“Of course not,” said Putin’s spokesman Dmitry Peskov when asked this week if Putin had interest in Surgut.
A spokesman for Timchenko’s holding company Volga Group said: “Gennady Timchenko and Volga Group are not shareholders in Surgut and have no business links with the company.”