Page 12 - FSUOGMWeek 10 2020

FSUOGM INVESTMENT FSUOGM
Shares in Russian oil majors collapse after OPEC+ talks break down
RUSSIA
Russian oil producers have long been calling for Moscow to pull out of OPEC+ talks, but their share prices suffered for this move.
SHARES in Russia’s top oil and gas firms tanked on March 9, in the wake of Moscow’s decision to reject an oil production pact with Saudi Arabia.
Oil and gas markets were already reeling from the impact of the coronavirus (COVID-19) epi- demic on demand when Russia late last week refused to commit to further OPEC+ cuts. Saudi Arabia had wanted the alliance of producers to extend an existing cut of 2.1mn barrels per day beyond March, while also taking an additional 1.5mn bpd of supply offline. Russia opposed both proposals, and talks broke down.
Saudi Aramco responded by cutting its export oil prices by almost 10% on March 7, while also pledging to ramp up production, in order to flood the market. Its goal is to bring Russia back to the negotiating table.
State-owned oil giant Rosneft saw a 25% drop in its share price in London to $4.32 when trad- ing began on March 9. By the end of the day the price had stabilised at around $4.5, down 22% from the close of last week.
Rosneft’s sales in Europe will be affected by Saudi Aramco’s slashing of prices to refiners in a bid for extra market share. It is also a major oil supplier to China, where demand has slumped as a result of Beijing’s efforts to contain COVID-19.
The ESPO blend of oil that Rosneft delivers to China is the main feedstock bought by refiners on the spot market, making it more vulnerable
to drops in consumption.
Stock in national gas firm Gazprom mean-
while slumped more than 27% when the market opened, recovering to 15% below the closing level on March 6.
Russia’s private oil and gas majors also took a beating, with London-listed shares in Novatek, the country’s top LNG exporter, dipping to almost 35% below market close on March 6, and stabilising at 15% below at the close of play. Novatek is set to sell most of its LNG this year under long-term contracts to consumers in the Asia-Pacific region, where the coronavirus out- break has sapped gas demand.
Markets in Russia were closed for a public holiday on March 9, but will re-open on March
10.
Despite the immediate impact, many of Rus-
sia’s leading oil producers have been lobbying for years to Moscow to break ties with OPEC+. One of the most vocal opponents of the alliance has been Rosneft CEO Igor Sechin, who argues that supply quotas simply hand market share over to US shale companies.
Russian producers enjoy lower costs than their US and Saudi counterparts, making them better able to withstand bearish market con- ditions. Moscow’s breakeven oil price for the budget, meanwhile, is only $42 per barrel, versus $85 for Saudi Arabia. ™
Ukraine’s JKX sheds oil assets in Hungary
UKRAINE
JKX began seeking a buyer for its Hungarian business in 2018 in order to focus more
on its core activities in Ukraine.
LONDON-LISTED JKX Oil & Gas has agreed to sell its Hungarian subsidiary in order to focus more on its core operations in eastern Ukraine.
In a statement on March 9, the junior pro- ducer said it had reached a terms agreement for the sale of 100% of Folyopart Energia KFT (Riverside Energy KFT) to a Cyprus-registered firm called Starhol Holding for $2.9mn. The deal should be closed after consent from Ukrainian antitrust regulators, which it expects to get in four to eight weeks.
“I am pleased that we are demonstrably exe- cuting our previously announced strategy and taking steps to focus our portfolio on our most prospective opportunities,” JKX CEO Victor Gladun said in a statement.
Riverside has rights to six undeveloped oil and gas concessions. The subsidiary had gross assets valued at HUF950mn ($3.3mn) at the end
of December. Its disposal will help simplify JKX’s structure and reduce costs, with proceeds to be spent on ongoing operations in Ukraine.
JKX revealed plans to quit Hungary in 2018, stating it wanted to concentrate on its core fields in Ukraine’s Poltava region. It enjoyed a bumper year in 2019, reporting a 52% growth in produc- tion in Ukraine to 5,584 barrels of oil equivalent per day (boepd) and a surge in net cash reserves. The company typically publishes its full annual results in April, but for much of the year it achieved higher earnings thanks to production growth, which more than offset a steep fall in gas prices.
In February, the company stated it had become debt free, after making a final $5.8mn bond repayment. CFO Ben Fraser also said he would be leaving the company at the end of March. ™
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