Page 7 - FSUOGM Week 21

FSUOGM COMMENTARY FSUOGM
having forced BP to sell its shares in TNK-BP. In the years preceding the sale, TNK-BP was presented with onerous back-tax demands and threatened with legal action. Its offices were bugged and raided, and staff reported encoun- tering visa problems.
BP was paid in part in Rosneft shares, boost- ing its stake in the Russian oil company to 19.75%. Rosneft also acquired private gas firm Itera in two stages in 2012 and 2013.
After borrowing heavily for these deals, Rosneft’s net debt had climbed to more than $57.3bn by the end of 2013. Then came the 2014 oil price crash, and Rosneft was forced to issue RUB625bn ($10.1bn) in bonds that it then swapped for dollars to settle some of its debts.
Despite the downturn, Rosneft did not change its spending habits. In 2016 it took a 50% stake in mid-sized regional oil producer Bash- neft for $5.2bn. The company was previously owned by private conglomerate Sistema, but was nationalised in 2014 after a court ruled that its 2003 privatisation was illegal.
Bashneft was meant to be re-privatised, and so Rosneft’s bid for the producer irked some in government. One influential figure to speak out was then economy minister Alexey Ulyukayev. In November 2016, a month after Rosneft’s offer was approved, Ulyukayev was arrested on charges of taking a $2mn bribe, following a sting operation at Rosneft’s offices.
While the Bashneft takeover drew a line under Rosneft’s buying spree in Russia, it con- tinued to plough funding into international ventures, including in Venezuela. The company partnered with Venezuela’s state-owned PDVSA at oil and gas projects and lent the company
billions of dollars.
Venezuela’s economic crisis steadily wors-
ened and much of the investment Rosneft sank into the country has ultimately been lost. Earlier this year the US also imposed sanctions on two Rosneft subsidiaries it accused of trading Ven- ezuelan oil. The company then sold its entire Venezuelan business to another Russian state entity in the hope that Washington would lift the sanctions.
As part of this transaction, Russian state hold- ing company Rosneftegaz relinquished its con- trolling stake in Rosneft, with its share falling from just over 50% to 40.4%.
Difficult times
The strategy that Rosneft has pursued over the years has been seen as deeply value-destructive. The company’s current market valuation is
$53bn, less than what it paid to buy TNK-BP seven years ago. And Sechin himself may face criticism for his role in OPEC+ talks breaking down in early March.
Sechin was reportedly a driving force behind Russia’s decision to reject further output cuts proposed by the OPEC+ group. That decision triggered the steepest single-day fall in oil prices in almost three decades. Russia returned to the negotiating stable within weeks, reaching a deal on far deeper cuts than were earlier suggested.
Rosneft itself is under considerable strain as a result of the market downturn, posting its first quarterly net loss since in 2012 for January to March. Sechin now faces the challenge of steering Rosneft through what could be several years of unprecedented hardship for the global oil industry.™
Rosneft CEO Igor Sechin meeting with Russian President Vladimir Putin. Source: Kremlin.ru
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