Skip to content
Subscriber Only

Rosneft: A Deal Both Tempting And Troubling

Oil giant Rosneft has vast reserves, but its controversial past has investors wary

Imagine an oil company that has in five years seen its annual production and profits grow to six times their former size, making it one of the world's largest energy giants, with more proven oil reserves than Exxon Mobil Corp (XOM ). Now, suppose that at a time of near-record oil prices the company plans to sell up to 49% of its shares in an initial public offering worth some $20 billion. Investors would be champing at the bit, right?

Not necessarily. The company is Rosneft, Russia's state-owned oil giant. While it looks mighty impressive on paper, Rosneft has some skeletons in its closet that may give investors pause. With close Kremlin ties (its chairman is President Vladimir V. Putin's deputy chief of staff), Rosneft shot to prominence in 2004 when it acquired key oil assets of Yukos, the company that was hobbled after then-Chairman Mikhail Khodorkovsky was jailed on charges that defenders claim were politically motivated. The affair wiped out the value of Yukos, costing investors billions of dollars.