Moscow Times
September 30, 2005
Sibneft Deal May Just Be the Start
By Valeria Korchagina
Staff Writer
Although Gazprom's $13 billion takeover of Sibneft is the largest in Russian history, it is unlikely to significantly affect Gazprom -- at least in terms of reserves or output. The buyout does, however, indicate that the Kremlin is pursuing more civilized acquisition tactics and signal that Gazprom could soon become a major player in the oil industry.
Gazprom, when the deal is formally closed, will become the nation's No. 5 oil producer. For Gazprom to match Western majors with large-scale oil as well as gas production, it would have to buy the rest of the Russian oil sector, United Financial Group said Thursday. Acquiring Sibneft, however, means that the gas giant would be able to compete for new oil projects in Eastern Siberia and the Far East.
But the deal, which came as no surprise to industry and market insiders, left analysts divided over whether the buy was a straight gain for Gazprom.
"This is a non-deal for Gazprom," said Adam Landes, oil and gas analyst at Renaissance Capital investment bank. "It doesn't add anything economically, while it adds yet another priority among the many other priorities it has."
Gazprom is already swamped with several large-scale projects, including recently announced plans to build a gas pipeline to Germany under the Baltic Sea and the multibillion-dollar development of the Shtokman offshore Arctic gas fields, which sometime after 2010 are to supply North American markets with liquefied natural gas.
Andrei Illarionov, President Vladimir Putin's outspoken economic adviser, on Thursday expressed surprise that the government appeared to have been left out of the decision-making, at least formally, despite controlling a majority of Gazprom's shares.
"The board of directors is an important institution, but the government as the representative of the public should also look at this issue," he said, Interfax reported. Illarionov also said that the deal was not in line with Gazprom's 2005 investment program, which had not foreseen such a major purchase.
Chris Weafer, chief strategist at Alfa Bank, said that the move into major-league oil production outweighed the relative insignificance of the deal, which represents about 10 percent of Gazprom's annual hydrocarbons output.
Also, the way the acquisition is being handled -- at a fair price and without the state applying any force -- shows that the Kremlin has learned some lessons, Weafer said.
The Sibneft deal comes just nine months after Yukos' main production unit, Yuganskneftegaz, was acquired by Rosneft for $9.4 billion, as a result of $28 billion in back tax demands against Yukos.
"Last year, the state didn't care. Now, they do. ... The deal is a start of a peace treaty, or at least better relations between the state and the private sector," Weafer said.
"The government has learned the lesson of cases like Yukos and will continue to try to avoid any events that might damage investment flows. For the market overall, this is a very positive development," he said.
Weafer said the change had also been noticed by the private sector. Unlike former Yukos owner Mikhail Khodorkovsky, now languishing in jail after last week losing the appeal of his conviction on tax evasion and fraud charges, Sibneft owner Roman Abramovich is not known to pose any political threat to the current leadership, and for that reason he appears to have gotten a fair price for his company, Weafer said.
The $100 million paid for Sibneft in 1995 has been parlayed into about $20 billion for its current owners: through the $13 billion sale, a series of generous dividend payouts and another $3 billion received from Yukos in a failed merger in 2003. In mathematical terms, the returns on $100 million are roughly equal to 4.6 percent compound monthly interest paid over 10 years, or 60 percent annual interest.
Energy analysts on Thursday said the Kremlin's drive to increase its grip over the oil sector was unlikely to stop at Sibneft. With Gazprom's purchase, the state will control about 30 percent of Russia's total oil output.
One way to increase the state's share of the pie would be through the acquisition of Yukos' Tomskneft and Samaraneftegaz production units, which could well change owners before long. If they end up in the hands of state-owned Rosneft, the state will control about 33 percent of the country's oil output -- well in excess of the 20 percent share government officials said they wanted to see ahead of the Yugansk sale last year.
Valery Nesterov, oil and gas analyst at Troika Dialog, said that such an increase in state control would hardly come as a surprise.
"It would still be bearable, as long as private ownership dominates and gives a competitive push to the state companies," Nesterov said. "And besides, worldwide, it is mostly state-owned companies that pump oil, be it in Saudi Arabia, Iran, Algeria or Mexico."
Staff Writer Catherine Belton contributed to this report.