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Reuters: Bets on Gazprom in Russian oil consolidation

Wed Sep 12, 2007 1:42PM EDT
By Amie Ferris-Rotman

MOSCOW (Reuters) – Russia’s oil industry is set for further consolidation with state and gas giant Gazprom (GAZP.MM: Quote, Profile, Research) seen taking centre stage from rival Rosneft (ROSN.MM: Quote, Profile, Research), officials and executives told the Reuters Russia Investment Summit.

The Kremlin has regained control of over a third of the Russian oil industry — the world’s second largest — since President Putin came to power in 2000.

While Russian steps for denationalization have varied little from other resource-rich nations, it differs in that two state players — Gazprom and Rosneft — often try to outdo each other.

Shares of private Surgutneftegas (SNGS.MM: Quote, Profile, Research), Russia’s fourth biggest oil company, have risen since early August on rumors the Kremlin is considering creating a new state oil major by wrapping assets of Rosneft with Surgut and other firms.

But the idea was dismissed by industry experts this week.

“Something has to happen around Surgut … There is probably a fit with Gazprom,” Boris Jordan, president and chief executive of equity firm and advisory firm Sputnik Group, said, who sees a merger of Surgut and Rosneft creating “a too bigger company”.

His comments were echoed by Mark Gyetvay, chief financial officer of Russia’s number two gas firm Novatek (GAZP.MM: Quote, Profile, Research), in which Gazprom has a 19.4 percent stake.

“Surgut is the most likely candidate for a takeover … It’s Kremlin-friendly … Gazprom wants to create as much (of) a balance between oil and gas as it can,” said Gyetvay.

Their views were bolstered by Rosneft CFO Peter O’Brien, who told Reuters the main focus of Russia’s biggest oil firm is to optimize and digest recent acquisitions rather than continue swallowing smaller rivals.

Top Kremlin aide Arkady Dvorkovich likewise denied the suggestion of a state oil major headed by Rosneft.

“I don’t have such information,” he said. Surgut has repeatedly denied it was in merger talks.

SMALLER PLAYS

If bets on Surgut do not go much beyond rumors, two mid-sized firms are already poised for ownership changes. Tax officials filed to courts to renationalize Bashkiria oil assets and the owner of mid-sized firm Russneft agreed to sell his company after months of state pressure.

But with smaller players, the Kremlin might be not that keen to guarantee total state control.

Kremlin-friendly metals magnate Oleg Deripaska has filed for permission to buy Russneft, while Russian conglomerate Sistema (SSAq.L: Quote, Profile, Research) still hopes to be allowed to gain control over the $7 billion Bashkiria oil assets in Russia’s Urals region.

“I’m in the middle of this fight … We will have to either sell the assets or buy out the entire stock,” Sistema’s chairman Vladimir Yevtushenkov told Reuters. Sistema owns minority stakes in Bashkiria oil assets.

O’Brien said Rosneft would consider buying some refineries in Bashkiria if and when they were offered for sale, but said Russneft was of no interest to it.

Over the past year Gazprom has obtained controlling stakes in the Sakhalin-2 oil and gas project, formerly led by Royal Dutch Shell (RDSa.L: Quote, Profile, Research), and in the huge Kovykta gas field in East Siberia, previously run by TNK-BP (TNBPI.RTS: Quote, Profile, Research), half owned by oil major BP (BP.L: Quote, Profile, Research).

While both deals involved months of battling, Rosneft managed to absorb all of bankrupt Russian oil firm YUKOS without much trouble, becoming Russia’s top oil producer and refiner.

© Reuters 2007. All rights reserved.

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