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Wednesday, July 19, 2006

Gazprom, E.ON Swap Assets

July 2006 Kommersant - Russia’s gas monopoly Gazprom and German E.ON AG entered into a framework agreement on the asset swap Wednesday. E.ON gets 25 percent less a stock in Yuzhno Russkoe field, while Gazprom receives 50 percent less a stock in Hungarian E.ON Foldgaz Storage and E.ON Foldgaz Trade and 25 percent plus a stock in E.ON Hungaria. But U.S. Moncrief Oil International went to the German court to revive its title to 40 percent in Yuzhno Russkoe, rotting the energy union of Germany and Russia.
Gazprom and E.ON announced yesterday they made a framework agreement on the asset swap in production, trade and sale of gas and in electric power industry. The swap will enable E.ON to meet the requirements of German antimonopoly bodies in part of increasing its resource base, which E.ON promised to do when taking over Ruhrgas.
Yuzhno Russkoe field, Yamal-Nenets Autonomous District, is the main raw material base for the North European Gas Pipeline. The field has 700 billion cu meters of gas in proven reserves and its worth is estimated at $7.9 billion. Severneftegazprom is the license holder.
The first partner of Gazprom in Yuzhno Russkoe is German BASF. In April, Gazprom entered into an asset swap agreement with it, whereby the subsidiary of German consortium, Wintershall got 35 percent in Severneftegazprom (but only 25 percent of stocks are voting). So, even after the asset swap with German partners, Gazprom will vote by 50 percent plus two stocks in Severneftegazprom but profit only by 40 percent of the field’s gas.
The timing of the framework agreement between Gazprom and E.ON is interesting. Made on the eve of the G8 summit in St. Petersburg, it is more of political than of economic significance. But the future of energy union of Russia and Germany doesn’t look so rosy because of the Americans. On July 10, the U.S. Moncrief Oil International lodged a suit against BASF and Wintershal seeking the remedy for the loss of 40 percent in Yuzhno Russkoe. The suit against E.ON will follow in the near term, Moncrief President Jeffrey Miller promised.

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