Gazprom to Buy Sibneft Stake for $13.01B (nationalization)

MOSCOW Sep 28, 2005 — Gazprom, the world's largest natural-gas producer, has agreed to buy a majority stake in the Sibneft oil company for $13.01 billion in a deal that will significantly further the state-controlled company's stature in the oil sector as Russian President Vladimir Putin moves to recapture government influence in the lucrative energy industry.

Gazprom, which came under state control in June when the government increased its stake to above 50 percent, has long been groomed as a state energy company to rival Saudi Arabia's Aramco.

The companies said an agreement was signed Wednesday between Gazprom and Sibneft's owner, Millhouse Capital, a holding company controlled by Roman Abramovich, the billionaire owner of the Chelsea soccer club in Great Britain.

The deal provides for Gazprom to purchase 72.663 percent of Sibneft shares, the companies said in a statement.

Western banks are reportedly ready to offer a $12 billion loan to fund the deal the largest such loan in Russia's post-Soviet history.

Gazprom shares gained 1 percent to 150.1 rubles ($5.26) on the Russian stock exchange.

The purchase of Sibneft will realize Gazprom's long-held aim of expanding further into oil production. The company also announced it had previously purchased 3.016 percent of Sibneft shares from Gazprom's banking wing, Gazprombank, meaning Wednesday's deal seals the gas monopoly's control of 75.679 percent of shares.

"It's a mutually beneficial deal," said Valery Nesterov of the Troika Dialog investment bank. "Sibneft's owners managed to sell for a high price when the negotiations started the whole company was worth $15 billion."

"It is a political and strategic victory and shows that Gazprom has good support in the Kremlin. They have immediately become a medium-sized oil company," he said.

According to Nesterov's calculations, after the purchase Gazprom's oil output will soar from some 13.1 million tons to about 57 million tons per year (1.165 million barrels a day), ranking it 6th in Russia.

The agreement came on the same day that Russia's benchmark stock-exchange index broke through the 1,000 point mark for the first time in its 10-year history. Over the past three months, the Russian Trading System, or RTS, has risen by 45 percent, rallying through the normally quiet summer season.

Fueled in part by an oil-driven consumer boom, the rally was also sparked by rising investor confidence. The former owner of the Yukos oil company, Mikhail Khodorkovsky, was sentenced in May to nine years in prison on tax evasion and fraud charges, bringing closure to a politically charged case that has kept fears over the rule of law at the forefront of investors' minds.

Khodorkovsky, whose sentence was reduced to eight years by an appeal court last week, sponsored opposition parties in the run-up to parliamentary elections in October 2003 a move observers say put Russia's once-richest man on a collision course with the Kremlin.

In December, state-owned oil company Rosneft acquired the Yukos oil company's main production unit, which turned out 1 million barrels per day, after a disputed, government-ordered auction.

Rosneft had been slated to merge with Gazprom as part of the government's attempt to increase its stake in the gas company to a controlling interest. But after the purchase of the Yukos unit, Rosneft fought the merger tooth and claw. Eventually the state agreed to pay over $7 billion to take control of Gazprom, a key precursor for foreigners to be given full access to shares in the company.

In contrast to Khodorkovsky, Abramovich has kept a low profile and is believed to be among a handful of tycoons on good terms with the Kremlin. He lives mainly in London, although he is governor of the remote Russian Arctic province of Chukhotka. The 38-year-old, who has taken Khodorkovsky's place as Russia's richest man with an estimated $13.3 billion fortune, gained worldwide attention when he purchased Britain's Chelsea soccer team two years ago.

"As a former president, Putin will logically only settle for the highest and most influential Russian business position - that is Gazprom's boss. Putin's ascent to oversee Gazprom makes sense in many ways. During his entire time in office, he has been at the forefront of recasting business-state relations in Russia's vast energy sectors. Gazprom is Russia's most important business concern and it is only getting bigger, as well as being the nexus of the country's foreign economic policy.

"In terms of domestic politics, the current balance among Kremlin elites would be preserved. By the time Putin leaves office, Sibneft will have already become part of Gazprom's portfolio, and Rosneft, Gazprom competitor in Russia's oil patch, will have likely acquired Yukos' remaining assets. Both events will all but put an end to Russia's "oil wars," and only Putin will have the stature to maintain the peace." - Peter Lavelle, RIA Novosti

This really make sense and coming form the author who is getting cash from Kremlin. Gazprom boss is not the position in which I would like to see Putin in the future :)

Schroeder in Gazprom, under boss Putin? :) Read post #2

If they share their home in a nice sibirian hut on the Kamchatka Peninsula while searching for oil or gas - why not??? There they can even lay pipelines without disturbing our relations.

A wonderful place volcanoes, grass, snow - big, wide, open and empty.

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