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In 2-3 years time Rosnefts shares may change hands with benefit to everyone

Alexander Khurshudov, expert Oil and Gas Information Agency
December 12, 2016/ 10:49

I didn’t feel like writing about Rosneft shares sale. The details of the deal are not revealed. The shares were sold a little cheaper their market value, but 2 years ago it was 1.5 times higher than it is today.

Rosneft is a record-holder among public oil companies. It possesses the largest oil reserves, and it produces more oil than the others. Last year Rosneft’s net cash flow amounted to 14% of its revenue, even with the oil price decreasing twofold, which caused losses to other companies. To illustrate this I compared Rosneft’s key indicators with those of two foreign  companies (see the table). They are taken from the companies’ end-of-year reports.

Rosneft’s indicators many-fold exceed those of BP, but the stock exchange values the Russian company TWICE as low. Alas, this has long ago become a pattern. For example, market capitalization of Surgutneftegaz equals $21.4 billion, while there are $35 billion of spare money on the company’s accounts. All the company’s other assets including oil reserves, pipelines and plants are considered a negative value by the stock exchange.

It’s time for our companies to think about leaving the western stock exchanges. The show is run there by highly qualified swindlers. Having huge money and a powerful brain-washing network, they created a system of manipulation on the stock exchange for robbing the developing countries. I’d like to remind you, that BP only, having invested $3.5 billion into our oil, received over $60 billion profit. This didn’t help the company: it has been retreating for the last few years. I am sure that it will be taken over by its growing competitors in 5-7 years.     

At the same time we will have to limit the presence of foreigners on Russian market. Russia is not the USA, so a half of the population will never gamble on the stock exchange, there will always remain 0.2%. So, there is no reason to keep this casino for casual cheats. Let them fool their own simpletons.

Though, let’s go back to the price of Rosneft. Its reserves of oil and gas cost over $150 billion, so the current price of 19.5% of its shares is at least 2.5 times lower their real value. It is true that a higher price is impossible to get now. They simply shouldn’t have sold the shares. Budget deficit urged the sale, but let’s not forget that the Cabinet included it into the privatization plan as long as 3 years ago.

For some time I couldn’t understand why our liberal ministers bend over backwards to sell mineral resource companies. They are drumming into the ears from the West that private companies work better. But this is a lie. Efficiency of the producing industry depends, first of all, on the amount and the quality of reserves. That is why the national Chinese CNPC is rapidly progressing, but the private BP is decaying. More than half of its reserves is its share in Rosneft.

I think the ministers are so enthusiastic about selling, because they don’t know how to do anything else. They have never built factories from scratch, never won new markets, nobody has even managed to develop a small bank. But selling, for half price especially, is easy and pleasant. If there is no national company, there are no problems, but there is money in the pocket, which can be buried in the Field of Miracles…

But, it turns out, they don’t know even how to sell companies. How do people do it all over the world? They announce a bidding, let the buyers familiarize themselves with the assets and the documents, then a bidding committee collects the bids and announce the winner. Did any one do it? No, they didn’t. Neither the Ministry of Finance, nor Federal Property Management  Agency. Only the ex-minister Ulyukaev was worried about the deal, but only because he was concerned about his office-holders. I pity them: they burn out at work, while their children at home are probably starving.  I hope that now the ex-minister will have a chance to pine for them for about ten more years…

The time was pressing, so Rosneft had to sell itself. First, it offered to buy back its own shares, luckily having twice as much money as needed in its accounts. But legal technicalities did not allow doing this. Such (reacquired) shares mustn’t be kept for more than a year, and it would be difficult to sell them for a higher price within a year. Then Rosneft team found two foreign buyers in unbelievably little time.

The Swiss company Glencore, a commodity trader with the annual turnover of $170.5 billion already has 30% shares of Russian Russneft. Last year because of the commodity prices decrease the company had $5 billion losses. The large trader is interested in access to Rosneft’s export; as a bonus it has already received the right to sell 220 thousand bpd for 5 years, which amounts to 5.3% of the company’s production.

Qatar Investment Authority is one of the largest investment funds with the $256 billion worth of assets. This is rather a portfolio investor, interested in dividends and the shares value growth. Some media cherish hopes for the cooperation between the Authority and Rosneft in gas fields in Qatar; to my mind, they are far from reality. However, joint gas projects are possible in other countries, for example offshore Egypt. 

The partners are making a consortium, to finance the deal a group of banks led by a large Italian bank Intesa is engaged. Rosneftegaz, the shareholder signed the purchase agreement back on Wednesday, 7 December, though the news was published later. 

Now analysts are making guesses based on the reports of anonymous sources. The officials, as is right and proper, show their deep satisfaction. I’ll risk making my own guess: in 2-3 years’ time the sold shares will change hands with a good benefit for all the participants.

Finally, I can’t make no mention of the events at the oil market. Here they are:

1. Eleven countries not belonging to OPEC will decrease oil production by 558 thousand bpd starting from January 2017. Russia will decrease the production by 300 thousand bpd. A substantial contribution will be made by Mexico, Oman, Azerbaijan and Kazakhstan. An implementation control committee is appointed (which is important!). Russia, Oman, Venezuela, Algeria and Kuwait being the members. 

2. All Russian oil companies support the decision to reduce oil production in terms of the cooperation with OPEC. This is a nice unanimity, which speaks for the availability of reserves for financial stability.

3.Donald Trump’s policy in terms of energy will include the withdrawal from the Paris Climate Agreement, extending exploration for oil and gas, including operations in the Chukchee Sea, simplification of LNG terminals construction.

I applaud for the refusal to finance the European climate pork barrel. As far as exploration in the Northern seas is concerned, there may not be volunteers under the current circumstances. It is too long and too expensive.  

4.Commercial crude stocks in the USA decreased by 2.4 million barrels during the week, the weekly import increased by 0.8 million barrels.  Gasoline stocks grew by 3.4 million barrels, diesel for 2.5 million barrels. According to recent reports, oil production has been floating around 8.69 million bpd for the last 5 weeks. The OPEC decision caused a rapid increase of the count of active drilling rigs, in the USA by 27 units, with the total of 601, in Canada by 30 units, with the total of 230. 

5.Brent prices reached $55.2 for a barrel, followed by a profit taking up to $52.8; the week closed with $54.34 (see the picture).

Daily charts show a weakly growing trend. The chance is high that on Monday morning there will be a surge to about $56-58, but equally probable is the chance that the price will decline back to the trend channel. I expect an intensive growth of the price only after a significant decrease of stocks, in May the earliest, and in the summer we will surely witness new maximums of about $70.  

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