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Page added on October 5, 2015
Russia Oil Giant Selling Assets
A refinery went to the Chinese. A stake in a Siberian oil field went to BP. And a large regional oil company widely expected to be gobbled up by Rosneft, the Russian state oil giant, remained on the balance of a government agency instead.
With a powerful ally of President Vladimir V. Putin at the helm, Rosneft has for more than a decade grown rapaciously inside Russia and abroad, as a company coming to symbolize the wealth and might of Russia during the oil boom.
But that changed this year. Rosneft, though still the world’s largest publicly traded oil company when measured by production, has been unloading assets while struggling to pay down debt.
“The government is really facing tough times,” said Ildar Davletshin, an energy analyst at Renaissance Capital, a Moscow investment bank.
The average price of Ural blend oil, the main Russian export grade, was $97 a barrel last year, but it has averaged just $57 in the first half of this year, and has been selling for even less this fall.
Starting this summer, some analysts have been seeing a pivot away from the economic model of recent years, when political allies such as Rosneft’s president, Igor I. Sechin, led large state companies toward a new emphasis on efficiency and even competition.
Though it is too early to gauge the seriousness of this shift, the effects are already being felt in the oil industry. Mr. Sechin, once an unassailable figure in Russian politics and, like Mr. Putin, a former Soviet intelligence agent, has suffered slights that whittle away at his stature. So far this year, however, there has been only one high-profile, politically hued dismissal of an executive in the industry.
After the regional oil company Bashneft was renationalized last year after a legal battle, the asset was not immediately amalgamated into Rosneft, as expected. Then, Rosneft was refused bailout funds to repay debt; it has been forced instead to shed assets and offer China equity stakes in Siberian petroleum projects, something Russia had resisted until now.
Rosneft and the China National Chemical Corporation traded in September a stake in a refinery under construction in the Russian far east for shares in refineries inside China, a deal that transfers to the Chinese the up-front investment in the Russian refinery.
“They have to adjust the old model,” Mr. Davletshin said. “The old model was based on the large state companies. I doubt Putin will change this in the middle of the crisis. But if they use this model, they have to ensure it works,” and does not drain money from state coffers.
Just two years after buying BP’s joint venture in Russia, TNK-BP, in what was seen as another step toward the consolidation of the industry in state hands, Rosneft turned around this spring and sold a 20 percent stake in the Taas-Yuryakh field in eastern Siberia to BP.
In August, the company formally rescinded its request for a bailout from one of Russia’s sovereign wealth funds, leaving it few options but to divest itself of assets. Rosneft executives say its strategy is “deleveraging” the debt taken on in the TNK-BP purchase. About $25 billion of syndicated loan debt to large Western banks, including Barclays and Bank of America, comes due in the next six months.
Back in a high oil price environment, BP sold its TNK-BP joint venture here at a price that valued reserves at about $4.50 per barrel. Then this year, it paid about $2 per barrel for its share in the new field. Having sold dear and bought cheap from Rosneft, BP’s president in Russia, David Campbell, said at the signing ceremony in St. Petersburg in June, “I’m pleased we have been able to conclude this transaction.”
There’s no such pleasure being expressed by the Russian government over what senior officials are now openly suggesting is bungled management of the large state enterprises, though Rosneft has not been singled out.
After the president of the Russian railway monopoly, Vladimir I. Yakunin, another longtime associate of Mr. Putin and reputed former K.G.B. agent, resigned, the economy minister, Alexei Ulyukayev, said the railroad management had returned to “the realm of reality.” Executives were no longer asking for a 140-billion-ruble, or $2 billion, bailout, and could cut costs instead, Mr. Ulyukayev said.
The government, said Alexander Abramov, an economist at the Higher School of Economics, is grappling with the problem of its own making of the past decade in forming gigantic, inefficient state monopolies, a hallmark of Mr. Putin’s economic policies.
Not surprisingly, waste and inefficiency flourished. Rosneft’s capitalization is now less on the London Stock Exchange, about $38 billion, than the $56 billion the company paid for the TNK-BP subsidiary two years ago.
Rosneft, in a statement, drew attention to the company’s exceptionally low production costs from currently pumping fields, and high profit margin. Rosneft’s outlay of $3 per barrel produced is the lowest among major oil companies, for example. “The company is constantly working on boosting efficiency,” Rosneft said in the statement. Rosneft shares rose slightly this year, while international competitors fell as much as 27 percent, for Shell.
Under Mr. Sechin, the company said, reserves grew 40 percent and the company has made a profit for the past 13 consecutive quarters. The longer outlook is less certain.
Output is projected to fall by 1.1 percent this year in the start of a long, slow slide not only for Rosneft but the oil industry as a whole, as onshore fields in Siberia are peaking and declining.
Before tensions flared in the Ukraine crisis, Rosneft had planned to stabilize output by taking the industry offshore.
Sanctions have indefinitely delayed those plans. For now, the company says its strategy to keep Russia in oil is to drill more intensively in already producing fields in western Siberia.
“We reached a decision, so as not to lose market share, to correct the business plan toward pumping from already active fields,” Mr. Sechin told Prime Minister Dmitri A. Medvedev at a meeting in August. Mr. Sechin told Mr. Medvedev he would also shake up the leadership of underperforming subsidiaries.
Rosneft will pay about $23 billion less in taxes this year compared to last because of the oil price collapse, unseating Rosneft as the country’s largest taxpayer. Gazprom has again assumed that role. Rosneft will be treading water at best to hold its current output volumes. “Flat would be a real good result” for the coming year, Mr. Davletshin said.
15 Comments on "Russia Oil Giant Selling Assets"
Plantagenet on Mon, 5th Oct 2015 5:45 pm
Maybe Obama will drop the sanctions on Russia now that they are bombing the Syrian rebels backed by Obama and US allies in the EU
Or maybe Obama and the EU will intensity the sanctions on Russia.
Time will tell.
Cheers!
makati1 on Mon, 5th Oct 2015 7:44 pm
INYT, the international propaganda mill for the Empire. Not mentioning the fire sale of many US oil company assets and the on-going consolidation there as they struggle to survive the ongoing collapse. The fraking bankruptcies in the making. The tanking of the American economy. Etc.
More Russia/China bashing by the dying Empire.
makati1 on Mon, 5th Oct 2015 7:48 pm
Plant, I don’t think the EU has the stomach for more ‘sanctions’ that hurt the EU more than Russia. If you haven’t noticed, the EU is moving East along with the rest of the world, minus America. The Empire is fast losing it’s allies as they realize that they are being used and abused by their American ‘partners’.
Davy on Mon, 5th Oct 2015 8:17 pm
Yeap, reality sets in for the bric lover. I remember 6 months ago how wonderful the brics were. Now they are going broke and their self proclaimed leader is wadding into a quagmire while not out of another quagmire. I told you so dog paw. What’s in your glass? Kool Aid.
Bloomer on Mon, 5th Oct 2015 11:10 pm
Dumping underperforming assets is what companies do all the time to survive.
Suncor is set to gobble up Canadian Oil Sands, so why wouldn’t large Russia companies take over struggling junior firms.
The table is set for oil prices to run up again as the small fish get swallow by the big sharks. The bottom in oil prices is in.
makati1 on Tue, 6th Oct 2015 1:42 am
Don’t you wish, Bloomer, but I’m afraid you are in for a shock.
ulenspiegel on Tue, 6th Oct 2015 2:20 am
Makati “INYT, the international propaganda mill for the Empire. Not mentioning the fire sale of many US oil company assets and the on-going consolidation there as they struggle to survive the ongoing collapse. The fraking bankruptcies in the making. The tanking of the American economy. Etc.”
The crucial differece is that the US assets are non-conventionla, Russia runs in trouble with her conventional assets.
” I don’t think the EU has the stomach for more ‘sanctions’ that hurt the EU more than Russia.”
Wrong, there is no more need for sanctions. The current are working. Russia knows it, Brüssel too.
“The Empire is fast losing it’s allies as they realize that they are being used and abused by their American ‘partners’.”
Here I would agree. The US foreign politics is dysfunctional and some countries indeed try to seperate themselves from the mess.
makati1 on Tue, 6th Oct 2015 5:51 am
ulen, you too are smoking the good joint. I hope it is enough to take the pain away that is coming. The US has no “assets”. None. Zero. They have trillion upon trillions of debt sinking the ship of state. $200+ trillion at last count. A losing military and a leadership deep in insanity.
Does it seem like Russia is hurting? They are still buying gold by the ton. You don’t even know if the Us has ANY gold. The powers that be won’t allow anyone to find out. That proves that there is none. It has been draining back to the countries that own it and the US has sold all of it’s reserves. Prove that they didn’t.
As for those allies jumping the good ship lollipop, who signed on to the new Chinese bank? Everyone but the US and Japan after the US tried to stop them. Even the Philippines is signed on. UK, Germany, etc. You might want to take a look at this map sometime.
http://thediplomat.com/2015/04/chinas-aiib-the-final-tally/
Follow the money, and the US sure doesn’t have any. Lots of Monopoly paper, but a shrinking economy propped up with lies and the printing press. Shades of Zimbabwe…lol.
Davy on Tue, 6th Oct 2015 7:13 am
Dog paw, you might ask ulen where he is from. I imagine he is from Germany. From previous post I picked that up. He has always been a responsible and effective commenter. Somebody lacking international credentials would not catch that. Somebody obsessed by agenda would miss that.
Your Bric lust has been crushed obviously but you still talk like the Chinese, Russian, and the many other commodity driven EM countries are whole and in one piece. Brics are duds. They have been crushed by a falling global economy. Being a banana type republic has consequences when commodities tank. Russia is dying economically and its leaders is wading into a quagmire he will never remove himself from. China is coming apart at the seams and everyone knows it. It is front page news. We know the mess the west is in, well, you have that covered right?
Dog paw you been drinking geriatric Kool Aid?
makati1 on Tue, 6th Oct 2015 7:18 am
Had to laugh at this one:
“There is a Russian joke currently making the rounds in Moscow. Russia’s Putin arrives back in the Kremlin after his September New York meeting with President Obama on Syria and other topics. A trusted aide asks how the talk with Obama went. Putin tells his aide that, in a bid to lower the temperature and calm the nerves before turning to grave topics like the wars in Syria and Ukraine, the Russian president proposed they first sit down to a game of chess. Putin tells his aide what it’s like playing chess with Obama. “It’s like playing with a pigeon. First it knocks over all the pieces, then it shits on the board and finally struts around like it won.”
http://journal-neo.org/2015/10/06/lies-and-truth-obama-s-unga-speech-dissected/
Davy on Tue, 6th Oct 2015 7:34 am
Here is one for the bric lovers:
http://www.zerohedge.com/sites/default/files/images/user92183/imageroot/2015/09/YuanUsage2.png
As we can see China is playing a much more important role in the global economy but still at the level of Japan. Yet, some here strut and crow how China is the world economic power now.
BobInget on Tue, 6th Oct 2015 11:13 am
I’ll share this here. From a reliable source I believe accurate.
Here are some numbers for OECD. Both IEA and OPEC have almost the same numbers (it better be-after all these are tank levels).
Between March 2015 to May 2105, the build up was from 2814.7 MM barrels to 2904.9 MM barrels. This is a gain of 90.2 MM barrels in inventory in 61 days or overproduction to the tune of 1.5 MM barrels/day.
Between May 2015 to July 2015, the build up was from 2904.9 MM barrels to 2923.5 MM barrels. This is a gain of 18.6 MM barrels/day or overproduction of only 300000 barrels/day.
Obviously, the demand had picked up sufficiently to wipe out 1.2 MM barrels/day of overproduction.
The supply and demand are within 0.33% of each other. This is very close and there is very little wiggle room even now. 300000 barrels/day of overproduction is nothing.
The build is roughly 430000 barrels/day in US with a corresponding shrinkage in other OECD countries.
US shale industry alone will wipe this out by December.
We are in for a supply shock. (30)
The facts are in. The world faces shortages in a recessionary period. That’s alarming to the max. As oil climes higher only a much weaker dollar will mitigate.
Isn’t it amazing how a ‘little’ corporate larceny
by VW changes an entire nation’s economic outlook?
BobInget on Tue, 6th Oct 2015 11:38 am
Davy, check out India’s consumption levels.
(far higher then China’s, percentage wise)
BTW, It’s time NOW to order diesel. I did.
You can take my previous post to the bank.
Wednesday’s EIA repore will, I feel, be bullish.
I’ll post it here about.
Kenz300 on Tue, 6th Oct 2015 12:31 pm
Fossil fuels are so last year……..
Wind, solar and second generation biofuels made from cellulose, algae and waste are the future…..
Climate Change is real….. fossil fuels are the cause…
Kenz300 on Tue, 6th Oct 2015 5:25 pm
A good article explaining the cost benefits of moving to wind and solar.
Solar and Wind Just Passed Another Big Turning Point
http://bloom.bg/1WK34MZ