Russia's Gazprom-Rosneft Merger: Consolidating State Control and Expanding Oil and Gas Dominance

Strategic Insights -

Russia's largest state-controlled oil and gas company, Gazprom, is set to merge with Rosneft, creating a unified state oil and gas champion that will give the government even greater control over the nation's energy sector and a more powerful tool in foreign policy. The merger, which is expected to be finalized by year-end, will give Gazprom a significant presence in Sakhalin, allowing it to gain control over all East Siberian gas sales in the Pacific Basin. Foreign investors have welcomed the move, which marks a watershed for equity markets in Russia. By lifting the ban on foreigners buying locally traded Gazprom shares, it will establish the gas giant as Russia's new top blue chip stock.

Key Takeaways:

  • The merger between Gazprom and Rosneft will create a unified state oil and gas champion, giving the government greater control over the nation's energy sector.
  • The combined company will produce 678,000 barrels per day of crude oil, making it Russia's fifth-largest crude producer.
  • Gazprom will set up a new oil-producing subsidiary, Gazpromneft, which will unite Rosneft with Gazprom's oil assets. Gazpromneft will be run by current Rosneft president Sergei Bogdanchikov.
  • The merger will give Gazprom a significant presence in Sakhalin, allowing it to take over Rosneft's 20% stake in the Exxon Mobil-led Sakhalin-1 project and its 51% stake in a joint venture with BP.
  • Gazprom will also get a five-year exploration license for the Veninsky Block in the Sakhalin-3 area and take over Rosneft's 51% stake in a joint venture with BP on the Sakhalin-5 acreage.
  • The Sakhalin-1 consortium estimates that it will sell 2 billion to 3 billion cubic meters of associated gas to Russia's Khabarovsk region starting in 2005.
  • The merger will also consolidate Gazprom's role in projects that it was already pursuing jointly with Rosneft, including the joint venture Sevmorneftegas to develop the giant Shtokmanovskoye gas deposit in the Barents Sea.

Statistics:

  • Gazprom and Rosneft produced a combined 678,000 barrels per day of crude oil so far this year. (Source: Industry and Energy Ministry)
  • The merged company would instantly become Russia's fifth-largest crude producer, overtaking Sibneft, which produced 668,000 b/d over the same period.
  • Gazprom aims to nearly quadruple its crude and condensate output to 30 million-40 million tons (600,000 b/d-800,000 b/d) in the next few years.
  • Gazprom's stock soared 15% on September 14, its biggest movement in over three years, following the announcement of the merger.

Sources:

  • Industry and Energy Ministry
  • Reuters
  • Gazprom
  • Rosneft
  • Exxon Mobil
  • BP
  • Royal Dutch/Shell
  • Statoil