Rosneft could accelerate global expansion in 2017, WoodMac says

By Rakteem Katakey on 12/19/2016

EDINBURGH, Scotland (Bloomberg) -- Rosneft PJSC has the opportunity to accelerate its international expansion next year as the political environment becomes more favorable for the state-run Russian oil producer.

U.S. President-elect Donald Trump’s “Russia-friendly rhetoric” and the appointment of Exxon Mobil Corp. CEO Rex Tillerson as Secretary of State “are likely to have a profound impact on the way Russia is perceived by the West,” according to consultant Wood Mackenzie Ltd. Rosneft has recent international success to build upon—its $1.1-billion purchase of a stake in an Egyptian gas field and the Russian government’s sale of 19.5% of the company to Glencore Plc and Qatar’s sovereign wealth fund.

That share sale signaled “a tectonic shift in the way the country is perceived by investors,” Valentina Kretzschmar, an analyst at Wood Mackenzie, said in a report. “At the same time, Rosneft has made a breakthrough in its international strategy.”

Rosneft’s ambition to be a major international player like Exxon or Royal Dutch Shell has been hampered by sanctions imposed after Russia’s incursion into Ukraine in 2014. Almost all of its oil production—the largest among the world’s publicly traded companies—is in its home country, compared with just a fifth for Exxon. The company made $8 billion of overseas acquisitions this year, the most in at least 12 years and comprising almost half its $17 billion deals total, according to data compiled by Bloomberg.

Rosneft’s press service declined to comment on its international plans.

Rosneft, run by President Vladimir Putin’s close associate Igor Sechin, surpassed Exxon as the world’s largest listed producer in 2012 when it acquired TNK-BP, a BP joint venture with a group of billionaires. Yet its geographical focus on Russia and the effect of sanctions means its market value is just $69 billion, compared with about $378 billion for Exxon. PetroChina Co., which is also state-run company but has a greater international presence, has a market value of about $193 billion.

Earlier this month Rosneft agreed to buy as much as 35% of a natural-gas field off Egypt, joining Eni SpA and BP in the largest discovery in the Mediterranean Sea. In October, the Russian company said it would take a 49% stake in India’s Essar Oil Ltd., giving it access to the world’s fastest-growing oil consumer market. Rosneft has also expanded domestically, buying a majority share in Bashneft PJSC from the Russian government for $5.3 billion.

“Rosneft’s recent deals, helped by the more positive political climate, could inject life into the company’s dormant strategic alliances with” major oil companies, Kretzschmar said. Rosneft has agreements with Exxon to invest in fields in Russia and the U.S. BP owns about 20% of Rosneft and drills in fields in Russia. BP CEO Bob Dudley endorsed Sechin’s international strategy in October.

All of this has taken place in the shadow of U.S. and European Union sanctions on Russia over the annexation of Crimea. They prevent foreign companies from investing in some Russian assets like shale oil fields and hinder state-run companies’ ability to access global debt markets.

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