Page 16 - RUSRptOct18

to average over $65 in the first quarter and rose again in the second to over $75 a barrel.
That has catapulted state-owned oil major Rosneft to the top of the tree as Russia’s most valuable company. The company earned more money in the first quarter of this year than in all of 2017 and its market cap has jumped to a high of $71bn as of the start of August from $55bn a year earlier.
The company is determined to increase its market cap even further and launched an investor relations charm offensive earlier this year, promising to pay down debt and increase dividends. However, after the company launched its first every share buy bank two months ago it seems that CEO Igor Sechin balked at actually parting with any cash. He complained the company was undervalued; Rosneft’s market cap has fallen again on the back of fears of new sanctions being imposed by the US government this autumn to $58.6bn as of the last week of September, whereas Sechin says the company should be worth at least $130bn.
Rosneft and Sechin are in the front line of the sanctions assult as they are very close to Putin, making the company’s stock volatile. Gazprom has also suffered and while the company’s shares have outperformed in September, closing almost all the gap with its sister company Rosneft, most of that growth has been driven by the gas giant’s oil subsidiary Gazprom Neft (based on Sibneft oil assets its bought from oligarch Roman Abramovich several years ago). The oil subsidiary is now worth as much as the gas producing parts of Gazprom, say analysts.
Russia’s economy has long been dominated by the state-owned companies but two privately owned companies have entered the fray in the last year: independent gas producer Novatek and privately owned Lukoil . With a market cap of $38.4bn $48bn respectively, both companies are in spitting distance of becoming the most valuable company in Russia.
Lukoil is highly regarded by investors and its market cap has risen faster and further than those of its state-owned peers, adding $15bn in a year to reach a peak of $50bn in August this year. The company almost surpassed Rosneft despite have less reserves and lower production levels. But investors like its management and the company’s good corporate governance. Also in August Lukoil launched a $3bn share buy back programme, and unlike Sechin, the owners didn't quibble about the price of its stock.
Novatek has also won itself a strong reputation for good management. It is the least valuable of the big five, but its market cap has been creeping up relentlessly and reached $48bn in September, putting itself within a stone’s throw of second place in the ranking.
Nominally privately owned, Novatek is clearly very close to the Kremlin and has been put in charge of developing Russia’s liquid natural gas (LNG) capacity, for which is received a special export licence – the only other energy company in Russia other than Gazprom that can export gas.
So far the company has done a sterling job having delivered on the construction of a $10bn LNG processing plant on Russia’s western seaboard earlier this year on time and under budget. To an extent it has taken over Gazprom’s mantel as “tool of foreign policy,” as the Kremlin works to use energy as a diplomatic monkey wrench. Work on a second LNG plant was immediately launched and Novatek is already set to become a major player in the global LNG business that will extend Russia’s European pipeline politics to the rest of the world.
16 RUSSIA Country Report October 2018 www.intellinews.com