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. Last Updated: 07/27/2016

Gazprom, LUKoil to Buy Oil Assets

VedomostiAlexander Dyukov
Gazprom Neft and LUKoil will set up a joint venture aimed at acquiring assets at home and abroad, LUKoil CEO Vagit Alekperov said Thursday, one day after the head of Gazprom's oil arm was abruptly fired.

The deal could marry the political clout of Gazprom Neft's parent company, Gazprom, to LUKoil's proven track record in the oil industry, and may possibly tip the scales in the gas giant's favor as it battles for assets with arch rival Rosneft.

"We hope this joint venture becomes an active part of Russia's oil and gas business," Alekperov said in televised comments, adding that the deal "should be signed soon."

A LUKoil spokeswoman said Thursday that the joint venture with Gazprom Neft would be "a logical extension" of a decade-long strategic partnership agreement signed by Gazprom and LUKoil last year.

News of the deal came as Gazprom Neft was thrown into turmoil with the firing of company president Alexander Ryazanov. Ryazanov was also relieved of his post as deputy CEO of Gazprom.

Ryazanov, the highest-ranking Gazprom official to be fired since President Vladimir Putin appointed Alexei Miller CEO in 2001, said his dismissal was the result of a disagreement over Gazprom Neft's creeping dependence on its parent company.

"I was ready to head Gazprom Neft only if it was truly independent," Ryazanov told Kommersant. "I don't see the point in remaining with Gazprom Neft any longer."

Sibneft was renamed Gazprom Neft after Gazprom bought it for $13.1 billion from Roman Abramovich in September 2005. As head of the company, Ryazanov led Gazprom's foray into oil as it sought to expand into new sectors despite lagging gas production at home.

The company has been relatively separate from its parent until now, Standard and Poor's noted Thursday, adding that increased control could prompt it to raise Gazprom Neft's rating from BB+.

"Ryazanov was one of the three most powerful people inside Gazprom, along with Miller and [deputy CEO Alexander] Ananenkov. Each senior figure had his own camp, and Ryazanov's lost," a source familiar with the matter said.

"He got so strong that they didn't only get rid of him but of potential contenders, too, splitting his post in two," the source said.

Ryazanov was replaced as Gazprom deputy CEO by Valery Golubev, a former KGB agent who worked in the St. Petersburg mayor's office at the same time as Putin.

Alexander Dyukov, the head of Gazprom's petrochemical unit Sibur and another St. Petersburg native, has been tapped for the post of Gazprom Neft president. Shareholders are due to confirm the appointment at a Nov. 22 meeting.

Ryazanov, who was director of a Sibur gas treatment plant in Surgut, western Siberia, from 1988 to 1994, moved in 2001 to Gazprom, whose ranks became flush with Putin allies after Miller replaced Rem Vyakhirev as CEO in May 2001.

First Deputy Prime Minister Dmitry Medvedev, in the running to replace Putin as president in 2008, is Gazprom's chairman.

Gazprom has this year pushed hard to acquire new assets abroad, recently signing deals with Italy's Eni, Germany's E.On and the Netherlands' Gasunie. Yet the huge state-run monopoly is notoriously inefficient and has little experience in oil production.

LUKoil, which is almost 20 percent owned by U.S. oil major ConocoPhillips, has significant assets abroad, including a chain of gas stations in the United States.

Teaming up Gazprom Neft, the country's fifth-largest oil producer, with top oil producer LUKoil makes sense for both sides, analysts said.

Gazprom's star has risen to new heights under Putin, and many observers say privately owned LUKoil has been left relatively unscathed in the state's campaign to bring the oil and gas sector back under its control because it keeps on such good terms with the gas giant.

"The incentive for LUKoil is clearly political," said Alex Brooks, an oil and gas analyst at UFG. "And Gazprom's managerial skills have been repeatedly questioned and challenged. It has a successful history, but few recent successes."

Valery Nesterov, an oil and gas analyst at Troika Dialog, said: "For foreign ventures, LUKoil will need to be supported by Gazprom. Gazprom Neft was never interested in specific foreign projects, but times have changed. It is part of Gazprom, and Gazprom wants to go global."

At home, Gazprom has been battling state-run Rosneft for key assets as bankrupt oil firm Yukos is dismantled.

Gazprom owns 75.66 percent of Gazprom Neft. Another 20 percent stake belongs to Yukos and will be sold off by the state-appointed receiver along with Yukos' other assets next year.

Gazprom bought Sibneft after merger talks with Rosneft fell apart following Rosneft's victory in acquiring Yukos' main production unit, Yuganskneftegaz, in a bargain auction in December 2004. Both companies are hoping to scoop up Yukos' remaining assets, which include two oil production units and five refineries.

Rosneft's chairman is Igor Sechin, the deputy head of the presidential administration who is seen as the leader of the hard-line siloviki bloc in the Kremlin.

Also on Thursday, LUKoil vice president Ravil Maganov said the company was in talks with French oil major Total on taking a 20 percent share in the Arctic Kharyaga oil field, which is run under a production sharing agreement in the Nenets autonomous district, Itar-Tass reported.

The Kharyaga project has come under fire from the authorities amid a state-sponsored campaign to limit foreign involvement in the oil and gas sector. Total owns 50 percent of Kharyaga, while Norway's Norsk Hydro owns 40 percent. The Nenets regional government holds the remaining 10 percent.

LUKoil shares closed down 0.75 percent at $86.85 on the RTS and up 0.53 percent at 2,317 rubles on MICEX.

Gazprom shares were off 1.81 percent at $11.01 on the RTS and up 0.17 percent at 293.92 rubles on MICEX.

Gazprom Neft shares were down 0.5 percent at 112.25 rubles on MICEX.