Spring 1996 (4.1) Pages 38, 46 The Entrepreneurship of LUKoil Vahid Alakbarov, President of LUKoil, was recently featured in the prestigious U.S. business and investment magazine, "Forbes" (Jan 22, 1996). Alakbarov, 45, is an Azerbaijani who grew up in Baku. Forbes calls him "the John D. Rockefeller of modern Russia" because he heads LUKoil, one of the largest and most dynamic companies in that country. The article was entitled, "The Seven Sisters Have a Baby Brother." Sisters, of course, meaning the world's largest oil companies-Royal Dutch Shell, Exxon, British Petroleum, Mobil, Chevron, Amoco and Texaco. Left: Vahid Alakbarov, LUKoil's President. LUKoil may be "baby brother" in terms of age, as it only came into existence in 1991, and only began selling shares in 1993; but in reality, this company's birth is reminiscent of the ancient Greek myth in which Athena sprang full grown from the head of her father, Zeus. LUKoil is gigantic, not only because it grew out of the consolidation of three existing Russian oil companies - Langepasneftegas, Urayneftegas and Kogalimneftegas (the first letters of each company form the abbreviation "LUK") but because it has moved so quickly to expand beyond the borders of Russia. "We want to make LUKoil the largest oil company in the world-both in production and profits," admits Alakbarov. According to Vice President, Leonid Fedoun, LUKoil intends to be listed on the New York Stock Exchange by the end of 1996 and offer 15% of their stocks to foreigners in the coming years-a goal they consider possible as people get to know LUKoil better and gain more confidence in the political stability of Russia. In 1994, with a production of 416 million barrels, LUKoil pumped more oil than any other company in the world except Shell, Exxon and BP. Their reserves include approximately 2 billion tons which include 15% of all oil production and 10% of oil processing throughout Russia. They presently control 1/6 share of the oil market in Russia, the CIS and Baltics. LUKoil boasts a multi-faceted company capable of oil production, oil processing and oil product distribution. It is in the process of modernizing 1,000 old gas stations and building some 500 new ones in Russia. They've just opened their first gas station in Baku, (the first foreign gas station in Azerbaijan) and have plans to build the second one. They've also expanded into international markets with joint enterprises in Argentina, Denmark, Israel, Ireland, Cyprus, Turkey, Czech Republic and the USA. They are the largest exporter of oil and oil products in Russia with consumers mostly in Western European countries such as Italy, Greece, Germany, Scandinavia and Eastern European countries as well. In Azerbaijan, LUKoil is quickly becoming one of the dominant players in foreign oil investment. They have 10% of the Profit Sharing Agreement (PSA) in the Western Consortium which was signed in 1994 for the development of the Azeri, Chirag and deep-water Gunashli (ACG) Azerbaijanis refer to this contract with 11 foreign companies and six foreign nations as "The Contract of the Century" because of its estimated reserves of 4 billion barrels which should yield at least 700,000 barrels per day after the year 2000. LUKoil's effective share for the Karabakh field, which has just been ratified by the Azerbaijani Parliament this February, is 32.5% when their individual share of 7.5% is combined with the 50% share that they hold jointly (50-50) with Agip of Italy. Although the Karabakh field has not been explored, SOCAR (State Oil Company of Azerbaijan) expects it to be one of the most promising and prodigious offshore fields. In an interview with Azerbaijan International's correspondent, Svetlana Turyalay, Alakbarov indicated that LUKoil also anticipates a significant share in the Shah Deniz field although they are latecomers to the project. Shah Deniz is in its final stages of negotiations and is expected to be signed this spring. British Petroleum and Turkish Petroleum (TPAO) will also be involved in the exploration and development of this offshore field. Shah Deniz is expected to yield 1.4 billion barrels of oil and 500 billion cubic meters of gas. But Lukoil's wish list doesn't stop there. They also have their eye on other fields in the Caspian including Kapaz which lies east of the ACG close to the Caspian boundary line with Turkmenistan. Alakbarov admits that in his youth he never expected to become anything except an oil man. His father was involved with oil, too. In 1974, the younger Alakbarov completed his studies at the Azerbaijan Institute of Oil and Chemistry, focusing on mining engineering of oil and gas deposits. Like so many other Azerbaijanis, he gained much of his early experience in the oil fields of frigid Siberia. In 1990 Alekperov was brought back to Moscow and appointed Deputy Minister of Oil and Gas Industry. In 1991, he was named its First Deputy Minister. Between 1991 and 1993, he was the driving force that consolidated three separate oil concerns into LUKoil which operates out of Moscow as a semi-private concern (the Russian government has a 26% interest in LUKoil). Alakbarov tries to avoid the intrigue of politics, claiming that LUKoil is primarily an economic venture. But if he could have his way, Boris Yeltsin would win in the upcoming Russian Presidential elections in June. "Yeltsin brought reforms which transformed Russia. We want the reliability of these reforms and believe that the man who started them is most likely to continue carrying them out. Everyone, not just our company, feels the impact of these reforms," admitted Alakbarov. And if Yeltsin doesn't win? Alakbarov is not panicked; he's convinced that, for the most part, business will continue as usual. The economic engines have begun to turn according to Alakbarov. "Unlike the beginning of the 20th century, people have made up their minds about socialism. Even if a communist government were to return to power, it's unlikely that the economic policy would change much. They can only apply the brakes." Svetlana Turyalay contributed to this article. From Azerbaijan International (4.1) Spring 1996. © Azerbaijan International 1996. All rights reserved. Back to Index AI 4.1 (Spring 1996) AI Home | Magazine Choice | Topics | Store | Contact us