Russia's king of crude
'Almost everything was perfect...'
A few minutes befoer my first meeting with Alekperov, his aide, a large older man with thick shoulders and a soldier's stride, walked up, looked me up and down, and put his face near mine. Then he started yelling in Russian. My petite translator jumped. "He says, 'No small talk,'" she translated. "'Mr. Alekperov doesn't like small talk. Do you understand? Ask your questions one after another. Do you understand? Mr. Alekperov is very important and very busy. Do you understand?'"
The aide took one step backward, turned around, and led me into a small meeting room in Lukoil's imposing glass and steel Moscow headquarters. Inside was a bronze statue of cowboys lassoing a bull, a gift from ConocoPhillips (COP, Fortune 500) CEO Jim Mulva, whose company owns 20% of Lukoil. A shelf held photos of Alekperov with President Dmitry Medvedev, Orthodox Patriarch Alexy II, and Prime Minister Vladimir Putin - Russia's holy troika.
At exactly ten the door whirred open and Alekperov entered. He is 58 years old - he was 41 when he took over Lukoil - and has short, spiky gray hair. Maybe it was the collapse of the price of oil or the meltdown in the Russian stock market, but on this day Alekperov looked extremely annoyed. "Almost everything was perfect in the whole world, and then this happened," he said through a translator. "There are these great chances to develop and acquire new assets and to expand and develop our business. But we have to be careful. We could become bankrupt as well."
Alekperov was born in Baku in Azerbaijan, then under Soviet control and the capital of its petroleum empire. He graduated from the Azerbaijan Institute of Oil and Petrochemistry and soon went to work on the Oily Rocks, a storied offshore city on the coast of the Caspian Sea. The conditions there were famously treacherous. Once, during a storm, a blowout on his drilling rig sent him flying into the high seas, and he had to swim for his life. Years later he was supervising an oilfield in remote western Siberia when a fuel pipe ruptured. His repairmen refused to go near it, fearing an explosion, and legend has it that Alekperov walked up to the pipe, sat on it, and told the men to get to work.
He wasn't just brave - he was smart. And soon the Kremlin recognized it, appointing him, at age 40, the youngest deputy oil minister in Soviet history. The timing couldn't have been better. It was 1989, and Mikhail Gorbachev was opening the door to Western investment. Oilmen from around the world flocked to Moscow, hoping for their share of the prize. (The country's proven reserves are estimated at 80 billion barrels today, according to BP, and Russia is thought to have triple that still to be discovered - another Saudi Arabia.)
While the international petro-giants were circling the imploding Soviet Union, its top bureaucrats were looking ahead to its demise. Alekperov flew around the world, taking notes from the top executives at companies like BP and ENI (E), the Italian giant. He came to believe the only way Russians could compete against Western companies was to copy their business model. That meant vertically integrating the three branches of the industry - exploration, refining, and distribution - that were strictly separate under the old Soviet system. (Alekperov's official biography is aptly titled Vertical.)
The Kremlin's Council of Ministers formed Lukoil in November 1991, just weeks before the USSR collapsed. The company combined three of the largest fields of the Soviet industry - Langepas, Urai, and Kogalym - as well as several refineries. (Its name derives from the first letter of each field.) Alekperov, stepping down from his evaporating job as acting Soviet oil minister, became its president.
At first Lukoil remained the property of the state. But in 1993 it was "privatized," and ownership vouchers were distributed to Lukoil employees, among others. It wasn't until 2002, when the company began trading on the London Stock Exchange, that Alekperov disclosed he owned a 10% stake. (No one is really sure how he accumulated it.) Today he holds 20%.
Almost two decades later, Alekperov, who was said last year to be worth more than $10 billion, is one of the few oligarchs still in business. How did he stay in control of Lukoil when other ambitious Russian CEOs found themselves in jail? One clue is his office. It's large, but sparsely furnished with understated red and white leather chairs. (Red and white are the official corporate colors.) Behind his glass desk is the double-headed eagle, which is Russia's coat of arms, and photos of Medvedev and Putin. Replace the eagle with a hammer and sickle and substitute a photograph of Nikita Khrushchev, and you could be back in the USSR. "We are first and foremost a Russian company," he says. "I am very thankful to both the president and the prime minister. They provide great support to our business."
They also seem to look the other way at the company's penchant for self-dealing. It is well known in Russia that the company's senior management owns many of Lukoil's suppliers and contractors. But sometimes the self-dealing seems obvious. Last March, Lukoil bought 30% of the TGK-8 utility from IFD Kapital for $1 billion. In November, Lukoil acquired an 82% interest in another Russian power company, South Generation, from IFD Kapital, for an estimated $2.8 billion. IFD's majority owners are Alekperov and Leonid Fedun, a Lukoil vice president.
Asked about allegations of corruption at Lukoil, Alekperov told me "everything the company does is transparent." He added, "But this is Russia. And in Russia there is a problem called corruption. We are trying to create obstacles to corruption. In Russia, our company is the least corrupted. Of course, I am not going to say that we are not corrupted at all, but we know these problems and we fight them."
