Friday, 27 July 2012

Rosneft aims for global reach

Rosneft’s bid to buy BP’s 50 percent stake in TNK-BP has the Russian oil giant’s head, Igor Sechin, poised not just for a comeback, but for a longrunning plan to turn the state corporation into a global conglomerate.
State-owned Rosneft’s announcement Tuesday that it was in talks with Britain’s BP about a possible share in TNK-BP, Russia’s thirdlargest oil company, came as little surprise. BP revealed in June that it was seeking an exit from the company due to disputes with its Russian partners, Alfa Access Renova, or AAR, which owns the other 50 percent in the venture.
If the negotiations succeed and Rosneft buys into TNK-BP, the result could be a major transnational oil company with a hefty government stake.
“If this happens, Rosneft will start producing twice as much oil as BP, controlling over 30 percent of oil production in the country,” Valery Nesterov, an analyst with Troika Dialog said,
“It will share BP’s number-two spot in terms of its total oil and gas production.”
Rosneft, which already has more oil reserves than any other public company in the world, could up daily oil output to 3.3 million barrels – well ahead of BP (2.3 million barrels) and ExxonMobil (2.2 million barrels), according to a recent Forbes rating.
The move, Nesterov said, is “symptomatic” of Sechin’s appointment to head Rosneft in May, when the company announced a new development strategy. Sechin was forced to leave the board of directors of the oil firm last year, due to a law forbidding government ministers from holding board posts.
“Now the question is, will Rosneft be privatized, or will the government retain a share,” Nesterov said.
Sechin, a key ally of President Vladimir Putin, was appointed to head a presidential energy commission almost immediately after Putin was inaugurated for a third term as president in May. The move handed Sechin considerable clout in the energy sector and raised speculation about statist efforts to thwart privatization in the lucrative energy sector, including in Rosneft.
Putin’s return to the Kremlin and Sechin’s departure from his post as first deputy prime minister spawned debates about where Sechin himself – deemed one of the most powerful men in the government – was headed.
If Rosneft succeeds in talks with BP, it looks poised to take the Kremlin’s oil and gas strategy to a transnational level.
“Most in the government support the idea – which came from the highest level – of a Gazpromtype company in the oil sector, and this is where Rosneft may be headed,” Nesterov said, suggesting there was more support for the government keeping a stake in the company. “With government support it will be gigantic, its capitalization will grow, this will expand its opportunities to get involved in foreign business.”
Vladimir Milov, a former deputy energy minister and president of the Institute for Energy Policy, wrote in an article published in Forbes on Wednesday that the deal heralds renewed nationalization efforts in the oil sector, which were halted shortly after the partition of Mikhail Khodorkovsky’s Yukos empire in 2004.
Rosneft became Russia’s largest oil company in no small part thanks to its 2004 acquisition of Yuganskneftegaz, a key production asset of Yukos that was auctioned off after Khodorkovsky was jailed on fraud and tax evasion charges.
But talks between Rosneft and BP are expected to continue for as long as six months, and a final deal is far from guaranteed, analysts say.
The talks between Rosneft and BP follow a series of complex dealings between the two oil majors and AAR. In 2011, Rosneft and BP signed a lucrative joint exploration deal in the Arctic, only to be blocked by AAR, which claimed the right to a share in BP’s Russian activities.
In May, just days before Sechin was appointed president of Rosneft, AAR’s billionaire head, Mikhail Fridman, stepped down from his post as TNK-BP’s CEO in an apparent bid to salvage the partnership.
Rosneft’s current interest may also turn out to be an attempt to put pressure on AAR, which is also seeking to buy a 25 percent stake in BP for a “market value” of $7 billion-$10 billion.
Rosneft’s move, in that scenario, would force AAR to raise its bidding price.
“Fridman’s departure was evidence of a serious crisis,” Mikhail Subbotin, an energy expert who heads the CRP consulting group informed.
He added that questions about whether Putin would run for a third term or allow Medvedev to run for a second clouded any solution to the TNK-BP shareholder standoff.
“By his presence alone, Putin protects Sechin’s activities, he cannot be harmed now,” Subbotin said. Still, he added, there is a limit to Sechin’s influence, as was demonstrated earlier this month when the government successfully curbed his powers as head of the presidential energy commission.
As for creating a transnational oil conglomerate controlled by the Kremlin, “there are people in our government who think exactly along those lines,” Subbotin said.

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