Publicly traded Russian oil companies are embracing Western-style business practices, but their current stock valuations are a fraction of that of their U.S. peers. This duality paves the way for Western oil majors to profit handsomely through corporate-level investments in Russia. The bargains may not last forever, however. As Western companies such as BP and, perhaps, ExxonMobil, give their stamp of approval to Russian investments, it will boost Russian companies' reputations, and eventually, their valuation. These are some observations by attorneys at Akin, Gump, Strauss, Hauer & Feld, who gathered in Houston last week to give their clients and the business media a glimpse into the happenings at last month's second annual U.S.-Russia Commercial Energy Summit in St. Petersburg, Russia. At that event, the two countries progressed in their relations from the first summit, which took place in Houston. The Americans didn't lecture the Russians, and the Russians were more sophisticated in their discussions with the Americans, says James Collins, senior international advisor at Akin Gump. Collins was U.S. ambassador to the Russian Federation from 1997 to 2001. There is every reason to be bullish, Collins says, noting that there is the highest level of political endorsement from Russia and the U.S. for energy cooperation, which is a must if there is to be significant private investment. Western oil companies have recognized this, and are trying to carve a place for themselves in Russia. BP jumped ahead of the pack when it offered to pay $6.75 billion to buy a 50% stake in TNK earlier this year, and ExxonMobil is in talks to buy up to 40% of Russia's largest oil company, YukosSibneft, which was formed by a recent merger. ChevronTexaco also is vying for a piece of YukosSibneft, according to rumors. Ten years ago, it would have been unthinkable for a U.S. company to consider deals such as these. During the first capital markets deal that Akin Gump did with a Russian oil company, the firm had to include a notice stating that the company had no financial statements that were meaningful, remembers Rick Burdick, chairman, business transactions, Akin Gump. But today, these companies follow international accounting standards and have audited reserve reports. This is the only way for them to close the gap between their valuations and those of U.S. companies, says James Langdon, partner and chairman of the firm's Russia/CIS division. "That's a very powerful incentive to do the right thing." And the country itself is being seen as less of an investment risk than in the past. Russia recently received a vote of confidence from Moody's Investors Service, which raised the country's credit rating to investment grade. The move will surely help Russia's efforts to attract foreign investment. The upgrade reflects "the strengthening of the government's commitment to prudent fiscal- and debt-management policies, significant improvements in debt and liquidity ratios, the formation of a 'stabilization fund' to deal with any downturn in commodity prices and government revenues, and a diminution of sovereign political risk," Moody's reported. As for asset-level investments, there is plenty of opportunity for Western companies in Russia as well, the Akin Gump attorneys say. However, the production sharing agreements that many Western companies have been pushing for are pretty much dead, they add. This is not necessarily a bad thing, though, as Russia's subsurface resource law and its tax law have been revised and improved. And, the Duma is discussing the implementation of a licensing regime that would offer foreign investors civil protections, says Todd Gremillion, partner, project development and finance. -Jodi Wetuski