But the company’s remarkable growth could pull it out of anonymity, and in doing so turn it into a takeover target. Over the past seven years, Surgutneftegas has been on a tear, showing remarkable growth in both production and market capitalization. It has recoverable reserves of 18.3 billion barrels of oil equivalent. In 2005 it produced 1.3 million barrels of oil per day along with 1.4 Bcf of natural gas. Its stock has risen almost thirty-fold since 1998. And over the past seven years, it has risen seven-fold, going from $10 to $70.

Surgutneftegas survived through the 1998 devaluation crisis, and was never subjected to a state assault as was Yukos. Because it didn’t demonstrate overt political ambitions, it was never merged or threatened with acquisition. Surgutneftegas has the support of the Kremlin, but the company’s CEO, Vladimir Bogdanov, keeps a very low profile. What is the recipe for the company’s success? Perhaps in today’s Russia it pays to just keep quiet.

Incorporated in 1992, Surgutneftegas now has a market capitalization of $32 billion, with 68 percent of the shares belonging to management and 32 percent to minority shareholders. Of the total shares, 24 percent are free-floating, with more than a half in western markets as ADRs. The company has five production units operating strategically important licenses in Western and Eastern Siberia, as well as four refineries.

The company is unique among Russian oil companies because it does not use foreign technologies, nor has it been outsourcing its field services. In this respect it is an ordinary ex-Soviet company, one that is completely self-sufficient and maintains its own in-house services. It is believed to be exploring fields just by drilling and not through expensive 3D seismic surveys. The company is also known for drilling the cheapest wells in Russia, about $200,000 for a deviated well – almost one fifth of the Russian average. And Surgutneftegas is the biggest driller in Russia – almost 1,000 wells per year (deviated and horizontal), versus an average of 500 per company in the rest of the Russian oil sector. Over the last four years, the company has grown by 10 percent per year – all through its own endeavors. That’s in sharp contrast when compared to Rosneft, which has grown only through takeovers.

One source tells us that Surgutneftegas’ most promising oil assets – the fields in Eastern Siberia, near the Eastern-Siberian Pipeline – will go to Rosneft, and that gas assets will be taken over by Gazprom. As a trade-off for a controlling stake, the Surgutneftegas management team will be transferred to the highest levels of Rosneft, where they will replace the slow-moving Rosneft staff. This scenario will becomes even more likely should Rosneft fail to raise its oil production over the next two years.

In short, it appears that Surgutneftegas’ success may ultimately prove its doom. It’s too profitable to remain outside the Kremlin’s sphere of influence. So while we’re not good at predicting the future, we’re betting that Surgutneftegas will soon be just another part of Kremlin Oil Inc.