I came back to the office early on Saturday morning and started to leaf through analyst reports and articles to see if I could learn anything about Sidanco, but there wasn’t anything in our files. As soon as my team arrived on Monday morning, I called Clive over to my desk. «I’ve been looking for information on Sidanco, but couldn’t find anything. Can you call around and see if any of our brokers have something?»
He said he’d get right on it.
I left for a series of meetings and when I returned around noon I asked Clive if he’d learned anything — but he hadn’t. There were no research reports, articles, data, or even reliable gossip. There was nothing on Sidanco.
This was frustrating, but it made sense. A company like Lukoil, which had 67 percent of its shares trading in the market, was a liquid stock and generated lots of commissions for brokers. These commissions paid for research analysts to write reports for investors looking at the shares. Conversely, in the case of Sidanco, which had only 4 percent of its shares trading in the market, there weren’t going to be enough commissions to compel any analyst to waste time writing research reports.
«Well, I guess we’ll just have to go and get the information ourselves, then», I said.
Going after information in Russia was like hurtling down the rabbit hole. Ask a question, get a riddle. Track a lead, hit a wall. Nothing was self-evident or clear. After seventy years of KGB-instilled paranoia, Russians were careful to guard their information. Even inquiring after a person’s health could feel like asking someone to reveal a state secret, and I knew that asking about the condition of a company would prove exponentially more difficult.
I was undaunted, though. As I got started, I remembered that one of my classmates at Stanford ran a monthly trade magazine about oil and gas. Maybe he would have some information on Sidanco. I called him up, but instead of talking about Sidanco, he tried to get me to sign up for a subscription. «It’s only ten thousand dollars!» he said cheerfully.
I had no interest in subscribing. «That’s a little out of my price range».
He laughed. «Tell you what, Bill. Since we were at Stanford together, I’ll send you some back issues for free».
«Great. Thanks».
Next, I turned to the pile of business cards on my desk. If I’d been a London investment banker, my Rolodex would have been bursting with embossed cards on thick stock. In Russia, my collection was humbler. Some were printed on cardboard. Others were orange or green or light blue. Some looked as if they’d been printed on a home computer. Two cards were stuck together because of cheap ink. Still, I went through them.
I peeled a couple of cards apart and discovered someone I’d forgotten: Dmitry Severov, a consultant at a Russian finance company. I’d met Dmitry while still at Salomon Brothers and remembered that he was in the business of advising Russian oil companies on how to get bank loans. I figured he would know something about Sidanco. I picked up the phone, called his office, and asked for a meeting. He didn’t seem to be a man in demand and readily agreed.
Dmitry’s office was in a residential apartment building on a quiet side street north of the Kremlin, which was one of the most desirable neighborhoods in Moscow. A single guard was sitting in a security booth at the entrance, smoking a cigarette, dressed in an all-black uniform. He could have passed for a Special Forces soldier were it not for his rubber sandals. Without even looking up, he waved me through to the elevator.
I pulled out the address Svetlana had written down and frowned. Dmitry’s office was located on the fifth-and-a-half floor. I had no idea what that meant. Did I take the elevator to the fifth floor and walk up, or the sixth and walk down?
A man brushed past me and hit the call button. The elevator was slow to arrive and was as narrow as a telephone booth. I had to squeeze in next to the man or risk waiting another ten minutes. He hit 5 and eyed me suspiciously. I looked at the floor and said nothing.
We exited the elevator and went our separate ways. I followed a trail of cigarette butts up a half flight of stairs. There, a round, elderly woman let me into the apartment and I wondered if she was Dmitry’s mother or his secretary. She told me he was having lunch and directed me to the kitchen.
«Sit! Sit!» he said when I entered, pushing aside a basket of gray bread and a glass jar full of sugar. I sat in a vinyl chair opposite him and tried not to watch as he sopped up his cabbage soup with the bread. «What can I do for you?» he asked between mouthfuls.
«I’m researching oil companies».
«Good! You came to the right place».
«Can you tell me anything about Sidanco?»
«Of course. I know everything about Sidanco». He got up and left the kitchen, and in a moment he was back with a large spreadsheet. «What do you want to know?»
«How about their reserves, for a start».
We looked through the spreadsheet together and he pointed to a column. According to his data, Sidanco had six billion barrels of oil reserves. By multiplying the price of the 4 percent block by twenty-five I got the price of the whole company: $915 million. I divided that by the number of barrels of oil in the ground, which told me that Sidanco was trading at $0.15 per barrel of oil reserves in the ground, which was crazy because at the time the market price for a barrel of oil was $20.
I frowned. Something wasn’t right. If these numbers were even close to correct, Sidanco was cheap beyond belief.
«Unbelievable», I said under my breath.
I thanked Dmitry and left. When I got back to the office, I had Clive figure out the valuation for Lukoil, the most widely followed Russian oil company. After hanging up with a broker, Clive passed me his calculation.
I stared at the figures for several seconds. «These can’t be right».
«These are the numbers the broker gave me», he said defensively.
What didn’t seem right was that Lukoil was trading at a price six times higher than that of Sidanco per barrel of oil reserves, yet they appeared to be comparable companies.
«Why would Lukoil’s valuation be so much higher?»
Clive narrowed his eyes. «Maybe there’s something wrong with Sidanco?»
«Maybe. But what if there isn’t? It really could just be cheaper».
«That would be brilliant. But how can we know for sure?»
«We’re going to ask them. And if they won’t tell us, we’ll ask someone else until we figure it out».
The following day, we began our investigation.
We started with Sidanco. Its offices were located in a former czar’s mansion on the western embankment of the Moscow River, not far from the British ambassador’s residence. Svetlana came with me. A pretty secretary with long blond hair and pencil-thin heels met us in reception and ushered us into a seventies-era conference room with wood-veneer sideboards and a faded velveteen sofa. She told us that a manager would be with us shortly.
We were made to wait for half an hour before an executive in the strategic development department entered the room. He carried himself with the air of a board chairman who’d been shuttling between meetings all morning. He was tall and thin, in his early thirties, and already balding. He mumbled something in Russian, which I did not understand.
«He is sorry to keep you waiting», Svetlana translated. «He asks what can he help you with?»
«Pozhalujsta», the man said. «Chai?»
«He wants to know if you would like tea», Svetlana said, awkwardly sitting on a leather chair between the two of us.
The man checked his watch. The clock was ticking. I turned down his offer of tea.