Russneft’s sale

As rumored, Oleg Deripaska’s investment firm “Basic Element” will purchase a controlling stake in Russneft, pushing Mikhail Gutseriev out of the successful oil company he cobbled together from various smaller production units since 2002. Gutseriev, however, had recently run afoul of Russian tax regulators, likely stemming from a contentious relationship with a Kremlin higher-up. From Kommersant:

Oleg Deripaska’s Basic Element holding and Mikhail Gutseriev’s Russneft will officially announce the sale-purchase of Russneft today. Gutseriev will receive $3-3.3 billion for leaving one of Russia’s largest oil companies and, it seems, criminal charges against him and the general directors of Russneft subsidiaries will be dropped.

The sale is confirmed by a press release on Russneft’s website (.doc), pursuant to (expected) approval by Russia’s anti-monopoly regulators.

The press release states Gutseriev “temporarily suspends his business activity, resigns from all the business projects and is going to devote himself to scientific activity,” removing himself from the operations of Russneft while leaving his vice president Oleg Gordeyev as acting head of the company, Russia’s seventh largest oil firm.

According to the Kommersant article, Gutseriev made enemies with FSB general Murat Zyazikov while running for a State Duma spot from Ingushetia, the semi-autonomous region where Zyazikov is president. Gutseriev also apparently clashed with Chechyan president Ramzan Kadyrov over Gutseriev’s plan to create a free economic zone within the the conflict-ridden republic . Russneft had also bought assets from Yukos while Khodorkovsky’s company was being shackled by tax evasion accusations, drawing ire from the Kremlin by becoming involved with the black-listed oil firm. Russneft denies directly purchasing (.doc) any of Yukos’ assets, however.

Gutseriev was an ambitious businessman, and his insistence on entering the political sphere and propensity to make powerful enemies, combined with his unwillingness to kowtow to the Kremlin’s unwritten rules governing the behavior of companies within “strategic” sectors, led to his removal from the oil company he almost single-handily constructed.

Deripaska has a more Kremlin-friendly reputation, which will likely lead to a closer adherence to expected behavior within the oil sector. However, it seems that the major concern with the company was not with its overall performance, but rather with the single figure at its top. With Gutseriev gone, operations are expected to continue largely as they had before. However, while under investigation for tax fraud, Russneft’s investment and development operations apparently suffered, likely leading to a necessary influx from Basic Element before production levels can regain–and maintain–their past levels.

Glencore, Gutseriev’s key financing partner while he was acquiring the various facets that would become Russneft, is still owed about $2.5 billion, a debt that will be assumed by Basic Element, along with the nearly $1 billion in possible tax penalties (though the tax charges will likely be dropped, or at least significantly reduced).

Glencore holds the rights to export the oil from Russneft through 2014, and maintains holdings in some of the companies subsidiaries. Glencore has a previous relationship with Deripaska through last year’s giant aluminum merger, which included Deripaska’s Rusal and aluminum assets of Glencore. The Swiss commodities trader allegedly had input on the sale of Russneft to Basic Element, suggesting that the new ownership structure will not unduly affect their relationship with the “new” Russneft. Much of the past cooperation between the two firms, however, was apparently centered on Gutseriev personally, rather than the company as a whole, so some restructuring of the relationship could be expected.

This story is getting far less Western media attention than the Yukos affair, likely because it lacks some of the more flashy elements. Gutseriev is only the 40th richest man in Russia, after all, rather than at the top of the list as Khodorkovsky was. But many of the basic elements between the two stories are similar. Essentially, the business leader was becoming too “political,” and refused to fall into line with the Kremlin. Economic crimes from the past were dredged up and used as a lever to exact some revenge. While there may very well have been some sort of “wrong-doing” on the part of Gutseriev around the creation of Russneft–he was, after all, the former head of Slavneft where many of the new company’s assets derived from–lately, the firm had been strictly following all tax and governmental regulations. Regardless, (and unsurprisingly) those who opposed Gutseriev and his operations were able to find ways to force him out in the end.

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Russneft’s future in the air

After a Russian arbitration court today upheld the government’s claims of $145 million in back taxes owed by the 300,000 bpd oil firm Russneft, the company’s head, Mikhail Gutseriyev, is said to be in talks to sell to a Kremlin-friendly entity. Gutseriyev denies that he is planning to sell, however, suggesting his company is worth $8-9 billion, more than the $6.5 rumored to be offered by Oleg Deripaska’s investment firm Basic Element. Rosneft has also been suggested as a potential buyer, based on oil major’s recent acquisitions.

Gutseriyev, the former head of Slavneft, went on to create Russneft from a collection of small acquisitions around 5 years ago, made with the help of financing from the Swiss commodities firm Glencore. This winter, Russneft came under pressure from the Kremlin over back taxes owed by the company, culminating in a raid of its Moscow office in May followed by the tax charges.

Some say the accusations stem from Russneft’s association with the foreign firm Glencore. Others suggest that it has more to do with the manner in which Gutseriyev was able to so cheaply acquire the assets, particularly from Slavneft and the embattled Yukos. Indeed, it would seem that the Kremlin’s displeasure would derive more from the spirit of the deals, rather than their actual content, as Russneft remains a relatively small player in the Russian oil scene, accounting for about 3% of the country’s total production. However, Rosneft and Kremlin-controlled firms are inching their way towards 50% control of Russia’s oil sector, so any additions would add to that cause.

A press release by Russneft says that it “did not enter in any negotiations as to the sale of the holding’s shares and does not have any intention to. OAO NK “RussNeft” is not sold.”   It goes on to call the rumors of the impending sale as “a provocative act.”

Total gets Shtokman

Update (7/17): Vladimir Socor’s overview at Eurasia Daily Monitor gets into a few more of the specifics and possible future implications, including Total’s expectation to spend $15 billion on the first stage (of four) alone.  That stage calls for 23 Bcm of gas per year by 2013, with the eventual total reaching 94 Bcm per year by the fourth stage.

Total will form a consortium with Gazprom to develop the giant 3.7 Tcm Shtokman gas field. From the New York Times:

In the agreement announced Thursday, Total will be a junior partner while the Kremlin will retain control. The deal gives Total no claim to the underlying reserves of natural gas. Instead, the French company will own 25 percent of the operating company that will develop the area, the Shtokman field, about 340 miles north of Russia’s Arctic coast.

The project is expected to be online by 2013, but that seems optimistic according to many outside observers. This probably is the most challenging gas field ever to be attempted to be developed, with its Arctic location outside of typical helicopter travel range. Some Western companies competing for the project had pulled out, likely due to the expected difficulties, along with the unsettled history of IOCs involved in major Russian energy projects. (See Sakhalin-II, Kovykta)

Rosneft’s deal with Prana ties up a few loose ends

Prana, the mysterious company which won a May 2007 auction for the last remaining assets of Yukos, sold those assets to Rosneft earlier this month, closing out a few loose ends stemming from the unexpected ending of the Yukos saga. Rosneft apparently paid $3.4 billion for the assets, which included Yukos’ former Moscow office building, as well as a series of shell companies rumored to contain billions of dollars in their accounts (whether in debts or liquidity is unknown). This value was unknown to nearly everyone going into the May auction, but the high sale price (about $4 billion, nearly 5 times larger than originally expected) immediately caused interest and closer observation, which I wrote about earlier.

According to the Moscow Times article, Rosneft got the money by selling a 50% stake in its newly-acquired Tomskneft production unit–also bought at auction from Yukos this spring. Rosneft sold the stake to the state-owned Vneshekonombank for $3.4 billion, the exact same amount given to Prana for the last of the Yukos assets.

While this ties up parts of the Yukos saga–particularly symbolically, as Rosneft now literally owns the disintegrated company’s former headquarters–questions remain. Namely, who owns Prana? And why are they willing to part with the assets they bought two months ago for $500 million less than they paid? It still seems like something fishy is going on, and we’ll have to see who exactly is benefiting the most.