LOOKING AHEAD: Russia uses privatization to boost role of Rosneft

• Date: 01 May 2017
• Published date: 01 May 2017
• DOI: http://doi.org/10.1111/oet.12480

LOOKING AHEAD

Russia uses privatization to boost role of Rosneft

e recent sale of part of the state’s shareholding in Rus-

sia’s largest oil company, Rosne, which was described

as a way to help reduce the government’s budget decit,

now looks as if its aim was to boost Rosne itself. e

company is engaged in a bout of spending that appears

designed to transform the once mainly domestic com-

pany into a diversied international oil company. Plans

include acquiring shareholdings in foreign reneries,

along with explorat ion and development in frontier area s

such as the Russian Arctic. Several projects are in Asia,

including the acquisition of a large Indian rener.

Despite being partly privately owned, Rosne acts

in many ways more like a state oil company. Its grow-

ing international presence east of Suez is in line with

Moscow’s policy of shiing Russia’s international eco-

nomic relati ons away from western mark ets, where there

is increasing hostility to Russia, in favor of Asia and the

Middle East, where Russia is establishing a growing com-

mercial and str ategic presence [1].

e eastward dri in Rosne’s activities is likely to

prove costlyand the proceeds of the recent privatization

of part of the company will not be sucient to fund all

of its future expenditure. Rosne, however, is engaged in

raising more capital from a sset sales, having already so ld

stakes in some of its oil-producing ventures in Russia,

with more set to follow.

Privatizing Rosneft

In December 2016, the government sold a 19.5% of

Rosne for an estimated $11bn. e buyers were

reported to be the oil trading company, Glencore, and

the Qatar Investment Authority (QIA), which manages

the sovereign wealth fund of the Middle Eastern coun-

try. QIA is also a shareholder in Glencore. e sale was

widelyreportedatthetimetobeaimedatboostingthe

government’s coers, thereby enabling it to reduce the

presentbudgetdecit.isseemsalittleunlikely,since

the decit is quite small in international terms. e

Finance Ministry estimates that 2016’s budget decit

was just under 3.6% of Russian GDP, and it appears to

be on schedule to go to zero on an annual basis by 2018,

partly in respons e to the present recover y in global

oil prices. Rosne therefore looks to be a more likely

destination for most of the money rais ed by the sale.

One question still to be answered, however, is the

source of the funds involved in the purchase of the

shareholding in Rosne. Just under half the $11bn paid

for the shares is reported to have been provided in the

form of what was intended to be a loan to Glencore and

QIAbyagroupofbanksledbyItaly’sBancaIntesa.Itis

not known which banks participated in the syndication;

Table M

Russia: Oil Prole, 2016

Proven Reserves 80.0 bn bbl∗

Reserves Remaining 19.7 years†

(mn bpd)

Production 11.1

Consumption 3.1

Net Exports 8.0

∗As of 1.1.17

†Based on 2016 production

Figures include NGL

Totals rounded

Source: (Reserves) Oil & Gas Journal

(Other) OET estimate

but there is speculation that some were Russian state

banks [2] such that the Russian government may have

privatized Rosne in part with its own money.

In October 2016, in a deal also described as a “pri-

vatization,” Rosne paid the government $5.3 bn for a

50% stake in Russia’s sixth-largest oil producer, Bash-

ne, giving Rosne access to an additional 420,000 bpd

of production and raisingits total output to 4.5 bpd: 41%

of Russia’s total product ion of crude oil and natural gas

liquids (NGL) (see Tab le M) .

Growth threatened

Forallitsrecentexpansion,Rosneisnotyetona

guaranteed path to growth. Its commercia l activities are

circumscribedbothbynanceandgeology.Manyofits

older elds are in long-term decline, which impels it

towards a strategy of acquisitions of exist ing oil produc-

ers and the exploration of new areas, such as oshore

in the Arctic where it has licenses to explore 28 blocks.

Someofthiscanonlybecarriedoutbydebtnancing,

adding to what some obser vers see as worrying amounts

of existing debt.

A further proble m is the imposition of sanctions by

the EU and US over Russia’s involvement in Ukraine,

which aects Rosne’s access both to Western nance

and some advanced technology. US sanctions have

prevented American companies from participating

in a number of oil and gas joint-ventures in Russia.

ExxonMobil has been forced to suspend its activities

in some joint-ventures with Rosne in Arctic projects

in the Kara Sea. Rosne meanwhile is seeking greater

involvement in upstream developments in Russia from

countries not involved in Western sanctions, such as

India and China. It will also need to nd more money

for its activities, and assets ales look set to continue.

In looking for partnerships with Indian, Chinese, and

other Asian countries, Rosne is pursuing the Russian

© 2017 John Wiley& Sons Ltd