Gazprom appears to have an insatiable appetite

Friday, January 15, 2021

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Days after the Kremlin officially gained majority control of the company, Gazprom may now have set its sights on the country’s fifth largest oil producer, Sibneft, owned by billionaire Roman Abramovich. Speculation that Abramovich is preparing to sell Sibneft intensified Monday when the company announced its plans to pay out a record $2.29 billion in dividends to shareholders, a payout larger than Sibneft's entire 2003 profit of $2.28 billion. Earlier the company announced it would not pay a dividend for 2004 due to complicated legal issues related to the failed merger with what was the oil giant Yukos. Oil major Rosneft, another state-owned entity, may also enter the fray to take control of Sibneft. Competition in Russia’s oil patch is fading, with the political elite again locking horns to control Russia’s vast energy resources. Abramovich appears to want to avoid a fight with the authorities - and has given himself a lavish bonus by way of compensation. Unconfirmed rumors claim Gazprom, in partnership with Royal Dutch/Shell, intends to purchase majority ownership of Sibneft in a deal that would leave Abramovich - currently governor of the remote far-northeast region of Chukhotka - a minority shareholder from his current position of holding a 57.5% stake in the company. Based on its current market capitalization, a majority position in Sibneft could cost as much as $8 billion. The expected scenario has Gazprom and Royal Dutch/Shell purchase a majority stake in Sibneft. Gazprom will then include Sibneft in a future asset-swap arrangement with Royal Dutch/Shell for its North Sea assets and a stake in the enormous Sakhalin-2 gas project in Russia’s Far East. It is expected that Gazprom will purchase Royal Dutch/Shell’s stake in the project using revenues ($6.35 billion) it will receive by December from the sale of its 10.74% Sibneft stake to state-owned Rosneftegaz. Rumors also claim that Gazprom is in direct talks with Abramovich’s investment company, Millhouse, and Andrei Gorodilov, currently deputy governor of Chukotka and thought to be one of Sibneft's significant co-owners. Gorodilov has stated that he is aware of Gazprom-Sibneft negotiations, although he has denied knowledge of the details and, significantly, whether Sibneft shareholders would be paid for their stakes in cash - a politically sensitive issue. For Gazprom, Sibneft would be an ideal purchase. The company’s CEO, Alexei Miller, has stated that he intends to increase Gazprom’s oil production to 55 percent of sales. Sibneft's main production division, Noyabrskneftegaz, could meet Miller’s requirements. Gazprom’s hook-up with Royal Dutch/Shell would also give the gas giant international exposure to compete with BP, Chevron, and ExxonMobile. Market analysts speculate that the dividend payment is essentially Abramovich’s announcement that Sibneft is up for sale. By paying Sibneft shareholders - primarily himself - such a lavish dividend is a form of company de-capitalization, as well as a possible early-exit bonus for himself. Abramovich’s dividend could also be seen as his selling the company at a discount. Gazprom is not the only potential state-owned company interested in Sibneft. Rosneft is also rumored to be interested in the Sibneft stake as a means to build itself into an energy heavyweight in the wake of its acquisition of Yukos’ main production subsidiary, Yuganskneftegaz, last December. It is believed that Rosneft’s strategy is to capture Sibneft in order to take advantage of continuing legal woes related to the failed merger with Yukos. 35% of Sibneft’s shares are either in Yukos’ hands or have been frozen by the authorities in their tax evasion investigation against Yukos. Technically, Rosneft could be awarded Yukos' Sibneft shares to settle multibillion-dollar claims involving Yuganskneftegaz. However, Rosneft is itself grappling with debts estimated at over $20 billion. Its only significant advantage is that it was once suggested that Sibneft assets be left with Rosneft before Sibneft’s privatization in 1995. Re-integrating the company back into Rosneft would be relatively seamless. As a competitor, Rosneft has little interest in seeing Gazprom succeed in developing a strong relationship with Royal Dutch/Shell. Who is best poised to win control of Sibneft? Beyond the business issues, who ends up with Sibneft will mostly likely be a political issue. Presidential Administration head Dmitry Medvedev, Gazprom boss Miller, and deputy Presidential Administration head Igor Sechin - who is also chairman of Rosneft - will have to lobby President Vladimir Putin to decide. Gazprom and its allies are expected to promote a diversified oil and gas company with strong international partners. Rosneft, on the other hand, is expected to promote a Russian national oil champion and closer links with Chinese oil companies. Abramovich himself is probably unimportant. The struggle between two state-owned companies over Sibneft could become nasty, but Abramovich has guaranteed that he will be paid first - before the Kremlin titans collide

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