Sibneft, which leapt up the rankings last year when it snapped up Russia's last major state-owned oil concern Slavneft, is being bought by Russian number two Yukos.

The new concern will control reserves totalling 20 billion barrels - not including Slavneft's - which outstrips the UK's entire North Sea reserves or the Prudhoe Bay fields in Alaska, the pair said in a statement.

Yukos tried the same buyout five years ago, but the merger fell apart as oil prices dropped and the two companies' bosses fell out over who should occupy which seat at the boardroom table.

This time, Yukos chief executive and biggest shareholder Mikhail Khodorkovsky will take the top job in the new company, with Subneft chief president Eugene Shvidler becoming chairman.

Yukos' current market value is $24.7bn, while Sibneft's is about $11.2bn, making for a combined company with by far Russia's biggest market capitalisation.

'Some more equal than others'

The deal continues the consolidation that has been running through the Russian oil industry.

Aside from the two companies' abortive merger attempt in 1998, British group BP sank $7bn earlier this year into a joint venture with the TNK groups' Russian owners.

A initial $3bn cash payment will secure 20% of Sibneft, with a full takeover - leaving Sibneft shareholders owning about 36% of Yukos - to follow.

TOP OIL COMPANIES (ranked by daily output) BP ExxonMobil Royal Dutch/Shell YukosSibneft (projected) ChevronTexaco TotalFinaElf

In effect, Sibneft's top five shareholders are giving up day-to-day control in favour of an effective veto right over the big decisions.

This structure is reinforced by the premium of about 4% attracted by the initial tranche over the remainder, said Stephen O'Sullivan, head of research at United Financial Group.

These shares, he said, would probably be those sold by Sibneft's head, Roman Abramovich.

"You might say that some shareholders are getting treated better than others," he said.

Big player

The deal is set to be completed by the end of this year if all goes according to plan.

Once it comes off, the new entity will dislodge Lukoil from its position at the top of the Russian oil business.

Apart from the massive reserves, the combined outfit would have 2,500 filling stations and 10 refineries in Russia, Lithuania and Belarus.

Daily output from the two firms combined totals 2.3 million barrels a day, amounting to 29% of Russia's oil flow and equivalent to the output of Kuwait.