Page 68 - BNE_magazine_06_2020 Growers

68 Opinion
bne June 2020
Mattias Westman, chief executive of Prosperity Capital Management. INTERVIEW:
Prosperity Capital CEO forecasts Russian oil majors will survive as rivals go bust
Jason Corcoran in Dublin
Mattias Westman, chief executive of Prosperity Capital Management, predicts Russian oil will survive
an impending bloodbath which may eliminate multinationals such as BP and Exxon Mobil.
Westman, whose firm is the most successful portfolio investor in Russia and the former Soviet Union, believes the whole energy landscape will be transformed by a collapse in demand caused by the coronavirus pandemic.
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“In principle, hardly any major producer can survive with
the exception of Russia,” Westman told bne IntelliNews in an interview. “There can be no shale oil, there can be no deep sea, no offshore. You can still produce in the Middle East but over time their budgets are going to completely implode at $30.”
Besides specialist shale producers which are already going under, Westman thinks oil majors, such as BP and Exxon, are in serious trouble due to their large debts and negative cashflows. “These prices will destroy a lot of supply and at this price even BP and Exxon would be in serious trouble as going concerns,” he said. “But I don’t think Russia is more exposed than others. Maybe less!”
Westman thinks Aramco, Saudi Arabia’s state-controlled behemoth, will be fine itself although the Saudi budget will be in deep deficit.
Global oil prices fell to 21-year lows last month before the world’s largest oil-producing countries, led by Saudi Arabia struck a deal with Russia to limit global production from May to help drain the glut of crude in the global market. Both economies have reserves in the region of $500bn and can live with low oil prices but Russia’s $40 budget breakeven price is half that of Saudi Arabia’s.
“Russian companies will be fine,” added Westman. “The Russian budget will also be in deficit but much less than Middle East’s budgets.”
Russia's oil industry is being forced to cut output by 8.4% to its lowest level since 1994. as a result of a new deal to reduce production of OPEC + countries announced on April 10th. The load will fall on the seven largest companies with Rosneft bearing the brunt with about 49% of the overall reduction.
Rosneft responded by announcing it will slash its investment programme this year by $10.2bn while Lukoil, the nation’s second-biggest producer, plans to trim their investments
by $1.5bn.
Led by the mercurial Igor Sechin, Rosneft has already gone cap in hand to President Vladimir Putin asking for access to credit and tax holidays.
“Rosneft is also the only [Russian oil] company with significant debt,” said Westman."I guess if you are going to produce less you will invest less. Sure, there are tough times but much easier [for Russia] in relative terms."
Russia’s typically high dividend yield ,may also be an important differentiator for investors as Western multinationals announce plans to curb payouts. Exxon Mobil froze its dividend for the first time in 13 years while BP said it will make a review every quarter after its profits plunged and leverage soared. Royal Dutch Shell Plc, Britain’s most valuable company, said on April 30 it is reducing its payout to shareholders for the first time since at least the Second World War.