MOSCOW – In an eleventh-hour move, the Yukos oil company has filed for bankruptcy in a United States Court and is demanding the cancellation of this weekend's auction of its main production unit.
While the filing is a dramatic challenge to the Russian government to enter arbitration proceedings, analysts doubt the appeal will stay what is being called a Kremlin-sponsored carve-up of the nation's largest oil producer.
Yukos (search) filed for bankruptcy under Chapter 11 in Houston on Tuesday. The company maintains that the auction of its main production subsidiary Yuganskneftegaz by Russian authorities is illegal. It asked the court for an order halting the sale scheduled for Sunday.
"If the auction is consummated, Yukos will be permanently, severely and irreparably damaged," the company said in its injunction request filed with the U.S. Bankruptcy Court for the Southern District of Texas.
The court has scheduled a hearing on Wednesday.
CEO Steven Theede called the move "the only resort" left for Yukos, which the Russian government has targeted in a relentless legal campaign that has sent the company's value plunging.
The campaign against Yukos and its owners, including former CEO Mikhail Khodorkovsky (search), has been seen as a Kremlin-inspired effort to punish Khodorkovsky's perceived political ambitions, including his funding of opposition parties.
President Vladimir Putin has cast the case as part of official crackdown on shady bookkeeping and corruption.
Khodorkovsky, who has been in jail for 14 months, is being tried on charges including fraud and tax evasion.
Tax authorities say Yukos owes them $27.8 billion. Yuganskneftegaz is scheduled for auction to cover a part of the bill and observers suggest the tax claims have been engineered to transfer the unit, which produces some 60 percent of Yukos' oil, to a Kremlin-connected company —most likely state gas giant Gazprom (search).
Yuganskneftegaz's proposed starting price of $8.6 billion is lower than even the most conservative valuation commissioned from a Western investment bank.
In court documents, Yukos said it believes the auction "will not be conducted in a commercially reasonable fashion" and that it fears Gazprom will snap up Yuganskneftegaz at a price substantially below its value.
"The management of Yukos has worked tirelessly and in good faith over the past year to establish a dialogue with the Russian authorities in an attempt to work out a compromise that would have prevented today's reorganization filing," Theede said in a Yukos statement. "We have submitted more than 70 settlement offers and publicly stated that reorganization was a distinct possibility if a reasonable resolution was not reached. It is regrettable that we did not receive one substantive response."
Mikhail Berger, a prominent Russian economic analyst, told Ekho Moskvy radio that the bankruptcy filing did not come as a surprise, since the state's scheduling of the Yuganskneftegaz auction one day before Yukos' shareholders' meeting —when the company could have decided to apply for bankruptcy protection in Russia —left Yukos with no other way out.
"They appealed to an American and not a Russian court because that would be useless ... nothing that could help Yukos could be ruled by a Russian court," Berger said.
"Now we'll see what's more important for the Russian authorities: to punish Khodorkovsky as an example for everybody or to act like any state that respects the law, including international law."
But even if the Houston court hears the case on the grounds that Yukos has assets or conducts part of its operations in Houston, and subsequently issues an injunction banning the auction, analysts doubted that the Russian government would have any qualms about ignoring it after a campaign that has made Russia's most promising company virtually worthless.
"Why do this when its stated purpose won't be realized?" said Ronald Smith, oil and gas analyst with the Renaissance Capital investment bank. Yukos, he said, is "playing a very limited hand."
Yukos asked the court for an emergency hearing to consider its appeals for bankruptcy and an injunction against the auction, as well as its request to force the Russian government to arbitrate the company's claims for billions of dollars in damages.
"U.S. bankruptcy law has worldwide jurisdiction over property of the debtor and the company is seeking a judiciary that will protect the value of all shareholders' investment in Yukos," the company said.
In its filing, Yukos said that as of Oct. 31, its total assets equaled approximately $12.276 billion and its total debts were about $30.79 billion, including "alleged taxes owed to the Russian government." It said it had from 200 to 999 creditors.
Yukos shares were down more than 7 percent at 75 cents Wednesday on Moscow's RTS change. Before Khodorkovsky's arrest, they were valued at $16 apiece.