Russia cements state control of energy as Gazprom to buy Abramovich’s Sibneft | VailDaily.com

Russia cements state control of energy as Gazprom to buy Abramovich’s Sibneft

Associated Press

MOSCOW – Russia’s state gas monopoly Gazprom struck a deal Wednesday to pay $13.01 billion for control of the private Sibneft oil company, consolidating the government’s grip over the strategic energy industry.The biggest purchase in Russian corporate history will give President Vladimir Putin’s administration authority over about a third of the nation’s crude oil output – a total that has soared since the Yukos oil giant was largely renationalized last year.Gazprom signed the agreement Wednesday with Sibneft’s owner, Millhouse Capital – a holding company controlled by Chelsea soccer club owner, billionaire Roman Abramovich, believed to be among a handful of tycoons on good terms with the Kremlin.”This fulfills the Kremlin’s fairly obvious ambition to restore state control over the energy sector,” said Chris Weafer, chief strategist at Alfa Bank. “The state will now be directly responsible for a third of Russia’s daily oil output.”Until last December, the government’s main oil asset consisted of Rosneft, the country’s eighth largest oil producer. Most of the industry was privatized in controversial deals after the breakup of the Soviet Union.The deal will realize Gazprom’s long-held aim of expanding further into oil production. The world’s largest natural gas producer, long groomed as a state energy giant to rival Saudi Arabia’s Aramco, came under state control in June when the government raised its stake above 50 percent.Gazprom will purchase 72.663 percent of Sibneft shares. It said Wednesday that it previously held 3.016 percent of Sibneft – meaning the agreement seals the gas monopoly’s control of a 75.679 percent stake.”The deal was concluded on a transparent, market basis,” said Dmitry Medvedev, the Kremlin’s chief of staff who is also chairman of the Gazprom board. “It will enable Gazprom to expand its presence in the oil sector of the Russian economy.”Western banks have been reported to be ready to offer a $12 billion loan to fund the deal – the largest such loan in Russia’s post-Soviet history.Gazprom shares gained 0.8 percent to 149.72 rubles ($5.25) on the Russian stock exchange, as Russia’s benchmark stock exchange index broke through the 1,000 point mark for the first time in its 10-year history.”It is a political and strategic victory and shows that Gazprom has good support in the Kremlin,” said Valery Nesterov of the Troika Dialog investment bank. “They have immediately become a medium-sized oil company.”According to Nesterov’s calculations, Gazprom will see its oil output soar with the purchase, from some 13.1 million tons (270,000 barrels a day) to about 57 million tons per year (1.165 million barrels a day), ranking it sixth in Russia.The deal follows December’s acquisition by state-owned Rosneft of the main production unit of the No. 1 Russian oil producer Yukos, which came to 1 million barrels per day, after a disputed, government-ordered auction to claim billions of dollars in back taxes.Rosneft had previously been slated to merge with Gazprom but after getting control of the lucrative Yukos unit, Rosneft fought to stay separate. Eventually the state agreed to pay more than $7 billion to increase its stake in Gazprom to above 50 percent.Fueled in part by an oil-driven consumer boom, the Russian Trading System, or RTS, has risen by 45 percent in the past three months, rallying through the normally quiet summer season. The surge was also sparked by rising investor confidence.The former Yukos owner, Mikhail Khodorkovsky, was sentenced in May to nine years in prison on tax evasion and fraud charges, bringing closure to a politically charged case that has kept fears over the rule of law at the forefront of investors’ minds.Khodorkovsky, whose sentence was reduced to eight years by an appeal court last week, sponsored opposition parties in the run-up to parliamentary elections in October 2003 – a move observers say put Russia’s once-richest man on a collision course with the Kremlin.In contrast, Abramovich – who lives mainly in London although he is governor of the remote Russian Arctic province of Chukhotka – has kept a low profile.The 38-year-old, who after the fall of Khodorkovsky was listed this year by Forbes magazine as Russia’s richest man with an estimated worth of $13.3 billion, gained worldwide attention when he purchased Britain’s Chelsea soccer team two years ago.His exact shareholding in Millhouse is not public knowledge but analysts estimated that Abramovich, notorious for his fleet of yachts and private jets and high-spending lifestyle, would get between 75 and 80 percent of the $13 billion payout.Sibneft’s market capitalization stood at just over $17 billion on Wednesday.Vail, Colorado