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Shell’s rush for Russia dampens stock debut

Financial Times: Shell’s rush for Russia dampens stock debut

“Investors yesterday were queueing to buy shares in Russian gas company Novatek and to dump the new unified Royal Dutch Shell on their London market debuts.”: “The reason behind this odd reversal of roles is that Shell must still convince the markets it can resolve its reserve problems, along with the $10bn additional hit it is taking on its flagship Russian gas project.”: “If these difficulties persist, they are likely to revive talk of a Total-Shell mega-merger as the best way forward.”

Thursday 21 July 2005

By Paul Betts

Published: July 21 2005

Investors yesterday were queueing to buy shares in Russian gas company Novatek and to dump the new unified Royal Dutch Shell on their London market debuts.

This may seem puzzling, given Moscow’s efforts to regain control of its energy industry and what should have been a red-letter day for the Anglo-Dutch major.

The reason behind this odd reversal of roles is that Shell must still convince the markets it can resolve its reserve problems, along with the $10bn additional hit it is taking on its flagship Russian gas project.

As for Novatek, whose $1bn share offer has been 10 times oversubscribed, it is regarded as one of the fastest-growing and most profitable Russian energy companies.

Yet some investors are far from enthusiastic over the Russian IPO, especially Total. The Novatek share offer is likely to reduce even further the French major’s chances of acquiring a 25 per cent stake in the Russian company.

Total is still waiting for clearance from the Moscow authorities to complete the deal, announced last year. It has warned it would probably walk away in the event an IPO left insufficient shares to close its transaction.

Without Novatek, Total risks missing its 4 per cent average annual production growth targets. Its difficulties point to the obstacles all the majors are encountering in their attempts to buy smaller companies in a high oil price environment. If these difficulties persist, they are likely to revive talk of a Total-Shell mega-merger as the best way forward.

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