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New Zealand Herald: Rosneft to boost output after IPO

Tuesday July 18, 2006
By Tom Miles
ST PETERSBURG – Russian state oil firm Rosneft will vastly expand its refining and boost output with the help of new equity partners after fund managers said Rosneft’s record IPO had overvalued the company.

Rosneft’s CEO Sergei Bogdanchikov said his firm would spend US$3 billion ($4.8 billion) on refining and US$15 billion on production by 2010 and expand ties with new partners and buyers of its IPO – Britain’s BP, Malaysia’s Petronas and China’s CNPC.
Rosneft placed around 13 per cent of stock and raised US$10.4 billion last week in Russia’s largest and the world’s fifth-biggest initial public offering on the eve of the G8 summit, which Russia is hosting for the first time.
By sharing Rosneft with the likes of BP, analysts say President Vladimir Putin wants to allay concerns that the Kremlin is tightening its grip over oil assets amid global fears over energy security.
Although oil majors were keen to invest in the Kremlin’s oil firm, many fund managers spurned the placement, which they said made Rosneft the world’s most expensive big-oil stock.
Bogdanchikov sought to calm those fears, saying Rosneft’s current 1.6 million barrel-per-day output would grow to 2.0 million by 2010 and 2.4 million by 2015, without new acquisitions, to stand at one fifth of Russia’s total.
He said the key to growth would be refining. Rosneft, Russia’s No 3 oil firm, could boost profitability if it added to its scant processing capacity.
“Some of the Yukos refineries can be bought,” he said.
Rosneft says Yukos, which is facing possible bankruptcy, owes it US$3.2 billion, which could rise to US$4.5 billion.
“We expect to get our money back,” he said.
Bogdanchikov added that Rosneft would also consider buying refineries in the Volga region of Bashkortostan if they came on the market, as well as assets in southeastern Europe. Yukos says the Kremlin has used a massive campaign of back-tax bills and intimidation to cripple it and force it to sell its main production asset, which Rosneft subsequently bought, propelling itself into energy’s major league.
Yukos’ owners promised “a lifetime of litigation” to any buyer of Yugansk, including Rosneft, and Yukos is trying to halt the market debut of Rosneft in London, planned for this week.
But Bogdanchikov said he expected the move to fail as Yukos has so far lost all of its suits in Russia and abroad.
The suits did little to stop major oil firms investing in the IPO with BP buying US$1 billion worth of stock, Petronas US$1.1 billion and CNPC US$500 million.
Bogdanchikov did not confirm that India’s ONGC or Royal Dutch Shell had also bid nor did he name the fourth large buyer and only said that a bank bought a stake: “They paid about US$3 billion,” he said.
He said Rosneft would continue to seek tie-ups such as the ventures with BP on the Pacific island of Sakhalin.
BP controls half of Russia’s No 2 oil firm TNK-BP, but it works directly with Rosneft on several projects on the island.
“As for Petronas, we had a meeting. This is one of the leaders of the energy industry in Asia Pacific.
“We have no concrete projects but given that Rosneft’s role in this region is growing, we may well have some,” he said.
He said Rosneft and CNPC would jointly bid for assets, firms and deposits in Russia like Rosneft did in June with another Chinese firm, Sinopec. The two teamed up to buy mid-sized producer Udmurtneft from TNK-BP for US$3.5 billion.
CNPC already buys nine million tonnes of crude and three million tonnes of oil products a year from Rosneft.
He added Rosneft would pay 10 per cent of net profit on dividends in the coming years, much lower than its Russian and global peers, as it has to proceed with huge investments.
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