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Oily Oligarchs Suffering from the Ukraine Influenza

March 10, 2022

I was on a call with a long-standing friend when I faced the question of “What is going on in Ukraine as you must know some of the people involved?” It was somewhat unexpected though I did spend some ten years in a Russian oil joint venture in the Urals. Her question caused me to have a look at some of the Russians with whom we partnered and how they had fared since the early 1990’s. The privatization of the State-owned oil industry began when Russian citizens were handed script shares in the individual oil and gas entities as a first step toward capitalism. The unsophisticated ones quickly unloaded their shares without any idea of their value for a few sausages as food was scarce.  Some of today’s oligarchs probably got their start as sausage traders. 

Years ago, another friend contacted me as Russia was beginning to open. He asked whether I was interested in retaining his US/Russian company of MD Seis to select a suitable Russian development project to acquire.  I told him that I would never feed the racehorse and bet on it at the same time. However, if he had an opportunity he liked, I would provide his company carried equity shares in the enterprise. He pulled out his bottom desk drawer and said, “I have just the one for us.”  That was the beginning of Permtex in central Russia. I first went to the dreary “closed” city of Perm in the Urals which was home to prison camps, armament factories and oil production. Alexander Djapharidze of MD Seis and I made the flight to Perm from Moscow in a very tired Russian plane with no seat belts and three plastic drinking cups serving tea while the attendant waited for the passenger to drink it. Most passengers were chugging their vodka in preparation for the cold we would all soon face. 

Upon landing, Djapharidze asked me what the awful smell was to which I responded – oil and it would make him rich. Little did I know how true that was. He is shown below as one of the oligarchs currently scrambling to keep everything together including finding a safe harbor for his yacht following the sanctions imposed as a result of Putin’s invasion of Ukraine. 

Another gentlemen by the name of Alexander Putilov was the General Director of Urayneftegaz which in 1993 was folded into the newly created public stock company, Lukoil. Lukoil is an acronym for three former State Oil companies, Langepas, Uray, and Kogalym with the English word oil added. Putilov was rewarded by being named the head of Rosneft which was more of a State administrative entity in Moscow as opposed to an operating oil company.  One of my Russian friends suggested I invite Putilov to Mongolia as he loved to hunt. I had some issues with the President of Mongolia who wanted me to contract a Russian rig to drill the first modern well in Mongolia while I firmly believed a Chinese rig was the only option. Putilov spent several days in Mongolia, shot a trophy elk, and told the Mongolian President that the Russians could not organize a luncheon in Mongolia much less move and operate a drilling rig there. 

Moreover, Putilov gave me advice on addressing Russian mafia death threats tied to bribery by countering with reciprocal “insurance policies” taken out on the mafia people delivering the ultimatums. Some years later Djapharidze and Putilov formed Eurasia Drilling and became oligarchs though, at this writing, I cannot confirm that Putilov is still around. We eventually sold our interest in Permtex to Lukoil and exited Russia with a sigh of deep relief. None of us were killed and none of our insurance policies were redeemed. Throughout this time, everything of significant commercial and strategic importance had Putin’s personal stamp of approval, or it did not happen. A good source told me that Putin once informed the three leaders of Lukoil that he was aware they were stealing $1,000,000 per day and that was a bit over the top.  

With our credentials in Russia properly burnished, we then formed a venture with the Russian entity Gazprom to pursue a joint venture in Libya. When I first met our Gazprom connection, Boris Ivanov in Moscow for breakfast, he had just landed from a trip to Yemen.  Interestingly, my company had a position in a very significant oil project in Yemen which we ultimately sold to the Chinese. Boris was clear that he carried a Gazprom business card, but he began his career in the Russian Ministry of Foreign Affairs as did many others, a.k.a., KGB. Boris is a great guy who went on to form Emiral Resources which is a mining exploration and development company focused on Africa. Boris, shown below, always appeared to have just walked out of a Saville Row tailor in London where he spent a lot of time. 

Rosneft has been transformed into the monolithic State Oil company of Russia which is headed by Igor Sechin who is a close personal advisor to Putin. Sechin, as a graduate of the KGB side of life, has been a confidante of Putin since the 1990s.  His reward for years of dutiful service is to be President, CEO and Chairman of the Management Board of Rosneft which has been a very lucrative position for him.  You must admit Sechin, as shown below, strikes a much different profile than the other oligarchs. The invasion of Ukraine has caused the principal drivers of Rosneft’s technology and exploration success such as BP and Exxon to flee and write off their investments as fast as they can. BP will take a $25 billion write-off relative to their 20% interest in Rosneft. Moreover, Sechin may be a bit sour as his massive yacht was recently seized in France. Vagit Alekperov, CEO of Lukoil, the largest independent oil company and one of the three individuals chastised by Putin years ago for lax cash management policies, comfortably moved his 70-meter yacht to the safe harbor of Montenegro. Nonetheless, he lost $6 billion on Lukoil shares the day Russia invaded Ukraine. 

Gazprom has grown tremendously since the early days when we were discussing our potential venture in Libya. Natural gas has caused this transformation ranging from supplies to China and to Germany.  China faces massive energy shortages which they are attempting to cover by increasing coal fired generators and accessing natural gas from nearby Russia. Putin is smiling in the background, as Alexy Miller with a PhD in economics and CEO of Gazprom, signed a $400 billion gas sales contract with China National Petroleum Company. 

We have talked about five Russian oligarchs but there is one German oligarch out there as well, Gerhard Schroeder, the former Chancellor of Germany from 1998 to 2005.  Schroeder serves as the Chairman of Rosneft and is slated to join the board of directors of Gazprom. Most Germans now agree that it is time Herr Schroeder backed down from his oligarch status given his conflict of interest. He was the ramrod and driver for Nord Stream 1 and Nord Stream 2 pipeline projects. Nord Stream 1 is currently keeping the lights on in Germany while Nord Stream 2 was slated to move increased gas volumes to Germany prior to the Ukraine invasion.  Recently, German Chancellor Olav Scholz called upon Schroeder to resign from his Russian board positions. As you can see below, Schroeder and Putin are quite close, as Putin adjusts Schroeder’s necktie. 

So, who are these oligarchs? Of the ones above, they are a combination of KGB officers which mirrors Putin’s background, some knowledgeable oil people, and economists. The most important requirement is absolute blind obedience to Putin. Perhaps that was easier in times when they were building massive wealth being Putin’s stooges.  However, life may not be the same when they are being led around on a leash as a Putin puppy. Moreover, one must keep an eye on the masses who will also suffer from the sanctions that are being showered on the country. The wealth of the country rests in its hydrocarbons but you must be able to sell them elsewhere to realize value. 

In honor of Ukraine's fight for freedom, we've selected The Elephant Story products that best represent the colors of the Ukrainian flag and their national flower, the sunflower.
The proceeds that would normally go to the Asian elephants will instead go to a Ukranian relief organization.

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