Russia's Oil and Gas Industry Consolidation: A Roadmap for State Control

Strategic Insights -

President Vladimir Putin has laid out the roadmap for Russia's oil and gas industry, with a focus on state control and international expansion. State-owned Rosneft is set to follow Gazprom in becoming an international major, with private oil companies to be developed "in accordance with market conditions." Putin's statements come amid growing speculation about the state's plans for consolidation, with Surgutneftegas, Slavneft, and TNK-BP's remaining assets identified as potential takeover targets. The move is seen as part of a broader effort to increase the government's control over the industry, with up to 60% of Russia's crude production potentially in state hands by the end of 2006.

Key Takeaways:

  • Rosneft will become an international major, following Gazprom's lead, through a planned initial public offering (IPO) on a major stock market.
  • Private oil companies, including Lukoil, Surgutneftegas, and TNK-BP, will not be nationalized, but will be developed "in accordance with market conditions."
  • The government plans to control up to 60% of Russia's crude production by the end of 2006, up from barely 15% just a few years ago.
  • The consolidation process is driven by a desire to increase the government's financial muscle, with plans to put this muscle to good use in the country's economy before the parliamentary and presidential elections in 2008.
  • The takeover of Surgutneftegas by Rosneft would nearly double Rosneft's crude production to about 2.8 million barrels per day, making it a top-ranking world major.
  • The potential takeover of Surgutneftegas by Rosneft is seen as a logical move, as the company has plenty of cash but no comprehensible plans for the future.
  • Julie Gumbel, chief executive officer of TNK-BP, rejected rumors of a sale of the company's 50% stake in Slavneft to Gazprom (NC Jan. 19, p 1).

Statistics:

  • Up to 60% of Russia's crude production could be controlled by the government by the end of 2006.
  • Gazprom's share in the oil and gas sector is around 40% (NC Jan. 19, p 1).
  • Rosneft's planned IPO is expected to take place on one of the world's biggest stock markets.
  • The government's takeover of Surgutneftegas would nearly double Rosneft's crude production to about 2.8 million barrels per day.
  • The remaining assets of Yukos, valued at over $15 billion, could be acquired by Rosneft in lieu of debt.
  • TNK-BP's 50% stake in Slavneft will be free to sell out in 2007.

Sources:

  • Putin, Vladimir. (2006). Annual meeting with journalists in the Kremlin.
  • Putin, Vladimir. (2006). Interview with Nelli Sharushkina, Moscow.