  |
With Kremlin backing, Rosneft turns to investors
By Andrew E. Kramer
The New York Times
MURMANSK
Petroleumworld.com 06 09 06MURMANSK, Russia: In this small bay on the Barents Sea, far to the north of Moscow, Russia finally is realizing an ambition to build a world class oil port in the Arctic.
But first, the authorities had to nudge aside an earlier tenant: a strategic nuclear submarine base.
To accommodate the needs of Rosneft, the Russian state oil company, the boundaries of the Severodvinsk base were shifted about five nautical miles. Now, where submarines once maneuvered, Rosneft has parked a red and Day-Glo green supertanker as long as three American football fields, to serve as a floating terminal.
"It's a great asset," said Rosneft's American chief financial officer, Peter O'Brian, a former Morgan Stanley banker, describing the tanker, which bobbed in the waves a few hundred yards from an aircraft carrier.
Rosneft is a company quickly growing bigger and richer, even by the standards of the oil industry in the era of high gasoline prices, acquiring new fields, export terminals and exploration licenses at a dizzying pace.
While private companies in Russia are hemmed in, or nearly shut down, state-owned Rosneft is on an explosive growth spurt.
Here in Murmansk, 900 miles north of Moscow, the company is benefiting from a tanker terminal in the only major northern port that doesn't freeze in the winter.
Elsewhere, Rosneft picked up promising fields when it bought the Northern Oil company in 2002, bringing a mini- gusher on the tundra onto its balance sheets, though critics said the auction was fixed.
Two years later, Rosneft won its largest subsidiary, accounting for two thirds of its production, when the authorities seized property from Yukos in a protracted and politically tinged tax dispute. Mikhail Khodorkovsky, the Yukos chairman, had funded opposition political parties. He is now serving an eight year sentence in a Siberian penal colony.
Rosneft, meanwhile, bought the Yugansk production unit from a shell company that a few days earlier won the multi-billion dollar oil fields at an auction with only one bidder, forming the core of its assets now presented to investors.
Rosneft is patronized by a faction in the Kremlin known as the siloviki, or members of the military and secret police, led by Igor Sechin, a deputy director of the presidential administration, analysts say. Sechin is also chairman of Rosneft's board of directors.
Now Rosneft also wants the support of investors.
The initial public offering is planned for mid-July on Russia's MICEX and the London Stock Exchange, the government-run RIA news agency reported Wednesday, without specifying a date.
The offering will be a chance for investors to buy into the heart of the Kremlin's oil machine - a potentially profitable enterprise. Yet it is one closely entwined with Russian state goals such as balancing energy exports between China and the West, which may run counter to U.S. and European interests.
Rosneft is coming to the market six months after Gazprom briefly halted natural gas supplies to Ukraine in a dispute ostensibly over pricing, though with the effect of punishing a pro-Western democracy on its border; Western investors bought Gazprom stock regardless.
Still, signs that energy will be used as an instrument of Moscow's emboldened foreign policy, to regain lost influence in the former Soviet Union and beyond, has given investors pause.
The financier George Soros argued in a letter to the Financial Times newspaper last month that subscribing to the Rosneft IPO would underwrite the Kremlin's foreign policy.
"If the Rosneft IPO went forward, it would consolidate and legitimize a state of affairs that is detrimental to Europe's energy security," Soros wrote.
The British fund manager Foreign & Colonial questioned in a note to investors whether Rosneft, before clarifying the process of obtaining Yugansk, should be allowed to list on the London Stock Exchange.
Still, after the nationalizations of oil fields in Middle Eastern countries including Kuwait and Saudi Arabia in the 1970s, the oil companies that lost property continued to do business in those countries. Investors may have even shorter memories.
Rosneft holds nearly the same reserves as Exxon Mobil, the largest U.S. energy company, but is more aptly compared with state giants like Saudi Arabia's Aramco, CNPC of China or Petróleos de Venezuela.
Rosneft is marketing itself on the basis of growth potential. The company is pushing for higher valuations during the share offering that would make sense only if it continues to grow quickly.
After a few years of so-called brown- field growth, or increases in production at existing oil fields, future gains in oil output in Russia depend on acquiring new reserves. That will mean winning licenses from the government.
Rosneft, the argument goes, is well positioned to do just that.
As with the Bolivian state energy company, YPFB, which could benefit from a nationalization of that country's natural gas fields, Rosneft rose from obscurity two years ago with the nationalization of Yukos.
Murky, government run and often fueling authoritarian and populist governments, the government oil companies nonetheless have a grip on most of the world's remaining oil under ground, an advantage over private energy firms.
Some are also open for investors. CNPC of China and ONGC of India are both minority held by private investors.
Though Russian state companies bring a hangover of cronyism and theft from Soviet times, they can be better bets than private companies run by oligarchs possibly out of favor with the Kremlin.
As the IPO approaches, the debate is framed in Moscow as weighing "oligarch risk" against "government risk." One argument in favor of government risk is that the Kremlin cannot nationalize what it already owns.
The state has awarded Rosneft exploration licenses in eastern Siberia, while others have come away empty handed. Rosneft will debut on the stock market with 18.9 billion barrels in audited reserves compared to Exxon's 21.5 billion.
Rosneft is approaching its initial public offering as state control has proved itself, paradoxically, as a successful formula with Moscow's other large energy company, Gazprom, at least in the short-term stock price.
Rosneft is clearly hoping its formula of using the palace corridors to make profitable business deals - such as placing the supertanker close to a naval base - will appeal to investors eager to buy in at the ground floor.
The initial public offering comes as the latest step in a complicated series of deals to absorb Yukos assets and bring Gazprom under majority state control, while opening both Gazprom and Rosneft to minority investors.
The IPO proceeds will repay a $7 billion loan to a consortium of Western banks. Rosneft used the money in 2005 to buy Gazprom stock to boost the state share in that competing company beyond 51 percent.
Critics say inefficiency inherent in state control dim Gazprom's - and Rosneft's - long-term prospects.
Derek Butter, who heads the corporate analysis group at Wood Mackenzie, an oil consultancy based in Edinburgh, said Rosneft's close ties to the Kremlin were an asset within Russia but a detriment abroad because of lawsuits by former Yukos owners.
That does not mean Rosneft's influence will stop at the border.
Murmansk harbor has been a base for projecting Russian power for half a century.
Now, both military and economic prowess are on display. Rosneft's new oil terminal, a permanently anchored supertanker called Belokamenka, has a capacity of 400,000 barrels per day, about the same as the exports from the Gulf island of Bahrain.
In another sign of the harbor's changing character, the military plans to open the closed town of Vedayeva and convert its port to a liquefied natural gas terminal for Gazprom.
Until Belokamenka arrived two years ago, the military controlled two thirds of Kola Bay, a fjord that is boxed in by stony hills carpeted in tundra and stunted evergreen trees.
Now, smaller ships carrying oil from the port at Arkhangelsk to the south unload into the terminal while ocean-going vessels fill up for trips to Europe or the United States, tracing a route traveled by prowling submarines during the Cold War.
The New York Times 06 07 06
Copyright © 2006 The New York Times. All Rights Reserved.
Your
feedback is important to us!
We invite all our readers to share with us
their views and comments about this article.
Write to editor@petroleumworld.com
Any
question or suggestions, please write to:
editor@petroleumworld.com
Best
Viewed with IE
5.01+
Windows
NT 4.0, '95, '98 and ME +/ 800x600 pixels