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Gulf-Times (Qatar): Gazprom seeks to quadruple value to $1tn

Published: Tuesday, 10 April, 2007, 07:53 AM Doha Time
 
Moscow: Gazprom, Russia’s natural gas export monopoly, aims to quadruple its market value to $1tn within a decade and become the world’s biggest company.

“We will reach a $1tn market capitalisation in a period of seven to 10 years,” Deputy chief executive officer Alexander Medvedev, 51, said in a Moscow interview on April 6. “We’d like to be the most valued and most capitalised company in the world.”

The goal would be more than twice today’s $439.6bn market value of ExxonMobil Corp, the world’s largest publicly traded company, and would exceed Russia’s 2006 economic output of $975bn. It would also surpass the gross domestic product of countries including the Netherlands, Australia and South Korea.

Gazprom, the world’s biggest gas producer, has more than eight times ExxonMobil’s total reserves and is seeking more. The state-run company took control last year of Royal Dutch Shell Sakhalin-2 venture, which plans to start shipping liquefied natural gas in 2008. It is also developing the Shtokman project in the Arctic, Russia’s largest untapped deposit of the fuel.

“I believe it’s a reasonable target that we’ll double our market cap” from its current $244bn in five years, Medvedev said. The company’s shares in London climbed 60% last year, outpacing a 36% increase for ExxonMobil.

President Vladimir Putin has used Gazprom, in which the government owns more than 50%, to bolster the state’s control of the economy and expand Russia’s influence abroad.

Gazprom chief executive officer Alexei Miller was in Doha, Qatar, yesterday for a meeting with gas-producing nations including Iran, which has the world’s second-biggest gas reserves after Russia, under the Gas Exporting Countries Forum.

Moscow-based Gazprom, which controls about 17% of the world’s gas, had 184.5bn barrels of oil equivalent in reserves as of 2004, according to filings. A $1tn figure would value those reserves at about $5.50 a barrel.

ExxonMobil had reserves of about 21bn barrels of oil equivalent as of 2004 and 22.1bn last year. The 2006 figure values the Irving, Texas-based company’s reserves at almost $20 a barrel. Gazprom shares advanced 0.7% to 270.15 rubles as of 2.40pm in Moscow.

Gazprom’s reserves compare with the recoverable oil in Saudi Arabia, the world’s biggest oil exporter, estimated last year at 259bn barrels, according to the Canadian Association of Petroleum Producers.

“Gazprom does have the potential if the management were willing to implement reforms and cost-cutting,” said Steven Dashevsky, head of research at Aton Capital in Moscow. “You can see very little of what the Gazprom management has done to make the business more valuable.”

Gazprom, which supplies a quarter of Europe’s gas, has benefited from rising exports and higher prices for former Soviet republics. Gazprom plans to begin selling gas to East Asian customers next year from Sakhalin.

Gazprom plans to produce as much as 20mn metric tonnes of LNG within seven years, from nothing today, equal to about 13% of global consumption last year.
“I believe 15 to 20mn tonnes is the minimum to be a serious player,” Medvedev said.

Qatar is the world’s largest LNG exporter and plans to expand capacity to 77mn metric tonnes by the end of the decade, accounting for a third of world LNG supply in 2010, RasGas said last month.

LNG demand was about 158mn tonnes last year, according to Andy Flower, an independent LNG consultant in the UK.

The company is renewing talks with possible partners for the Shtokman field, and plans to start LNG output by 2014, Medvedev said. In October, Gazprom said it would develop the project alone.

“I don’t exclude that the list of potential participants could be extended,” said Medvedev, who oversees oil and gas exports.

Gazprom’s original shortlist comprised Total, Chevron Corp, ConocoPhillips, Norsk Hydro and Statoil. Future partners probably would be allowed to book some of Shtokman’s reserves, estimated at 3.7tn cu m of gas, in exchange for sharing technology and investment risks, Medvedev said.

The delays at Shtokman make it unlikely the field will be producing LNG by 2014, said Mikhail Korchemkin, director of Malvern, Pennsylvania-based East European Gas Analysis, which analyses production and pipeline projects in the former Soviet Union.

A more likely start date would be 2016 or 2017, he said. “Gazprom has no experience in drilling offshore,” he said. “They haven’t started anything at Shtokman yet.”
Another source of gas for export is the Kovykta field in eastern Siberia, with the licence held by BP’s Russian unit, TNK- BP. Gazprom and BP are in “permanent contact” over Kovykta, which would probably supply China, Medvedev said.

TNK-BP, the only major oil producer in Russia that is 50% owned by a foreign company, provided most of BP’s production and reserve growth since being set up in 2003. BP and its Russian partners,billionaires Mikhail Fridman, Viktor Vekselberg and Leonid Blavatnik, agreed when setting up the venture not to sell stakes in TNK-BP until the end of 2007. “We would be interested in looking at this,” Medvedev said in his Moscow office on April 6. “Today it’s premature to speak about.” – Bloomberg

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