Financial Times: Sibir set to seal deal with Gazprom

By Toby Shelley
Published: July 5 2007 03:00 | Last updated: July 5 2007 03:00

Sibir Energy looks set to seal a deal this autumn with Gazprom, creating an enlarged company that will combine its assets with the Russian state-controlled behemoth’s stake in a refinery and a disputed oil field.

Stuard Detmer, downstream director of Sibir, said talks along these lines had resumed after a break last year caused by senior management changes at Gazpromneft, Gazprom’s oil-producing arm.

The incentives for Sibir are powerful. The deal would be a vehicle for solving long-running disagreements over control of Moscow Refinery and another dispute over the South Priobskoye oil field in western Siberia. It would also mitigate the perceived political risk that weighs on Sibir’s share price.

The move would also provide Gazpromneft with an international arm with access to capital markets.

Sibneft – the oil company that was sold by Roman Abramovich, the Chelsea football club owner, to Gazprom in 2005 for $13bn, creating Gazpromneft – fought a long-running battle with Sibir and Moscow city council over control of the refinery. The companies were also involved in a legal fight after Sibir’s 50 per cent interest in the Sibneft Yugra oil field development venture with Sibneft was diluted to just 1 per cent in 2002. Gazpromneft inherited these disputes.

Mr Detmer said Gazpromneft wanted to control the Moscow Refinery and that Sibir would not stand inits way given the right circumstances, one of which is resolution of the Yugra issue.

What Sibir does have to ensure is that its oil has access to a Russian refinery and Russian markets. It is only permitted to export 40 per cent of its crude output and production is increasing from the Salym joint venture with Shell. Sibir’s current stake in the Moscow Refinery gives it access to 45,000 barrels a day of refining capacity but it will need 75,000 b/d of capacity as its crude production heads towards 100,000 b/d in 2009.

It aims to buy the additional capacity from Moscow city council, the other leading stakeholder. However, Mr Detmer said Sibir was anxious for Moscow to hang on to a stake because its presence diluted perceived political risk, which remains a significant issue for Sibir.

Late in June Sibir announced a maiden dividend, a sevenfold rise in earnings before interest, tax, depreciation and amortisation to £87m and a threefold rise in output, exceeding analysts’ forecasts. However, its advocates say it is greatly undervalued.

The price “has lost all rational connection with the performance, potential and intrinsic value of its underlying operations”, according to Cazenove’s Fred Lucas in a note to clients, adding that it “carries an extreme and excessive penalty for Russian risk”.

Sibir is majority-owned by Russian businessmen and has good relations with the influential and recently reappointed mayor ofMoscow.

However, as another analyst notes, the fact that the company has to point this out only highlights the importance of alliances with powerful individuals and, by implication, the risks if they were to fall from grace.

A tie-up with Gazpromneft might give Sibir something much more abiding – a structural link with an institution at the heart of the Russian state and energy sector.

Copyright The Financial Times Limited 2007

 

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