Russ Oil-Gas

July 2006 RBC News&Analysis - The gas giant wants to buy a stake in Gazprom Neft from embattled oil firm YUKOS at a large discount
Gazprom wants to buy a 20 percent stake in Gazprom Neft from oil company YUKOS for $1.3 billion to $1.9 billion, which is 2.2–3.2 times less than the real market price. Analysts do not expect YUKOS to sell the shares at a discount of more than 50 percent, at most. Gazprom controls 75.68 percent of Gazprom Neft (the former Sibneft), and YUKOS holds a 20 percent stake. Last year Gazprom Neft produced 33 million tonnes of oil (46 million tonnes together with its 50 percent stake in Slavneft). The court put YUKOS under external supervision in March 2006, and the company's accounts and assets in the Russian Federation have been frozen. YUKOS's confirmed debt stands at RUR 491.6 billion. Its revenue was RUR 2.77 billion in 2005, and net profit was RUR 95.4 billion. YUKOS managers developed a financial recovery plan offering to settle most of the company's debts through selling its non-core assets, including a 20 percent stake in Gazprom Neft. Back in spring Gazprom Deputy CEO Alexander Ryazanov said the company could bid for the 20 percent stake in Gazprom Neft if it was put up for sale. He said his company would pay less that it had paid for Sibneft shares (Gazprom purchased a 72.7 percent stake in Sibneft for $13 billion). On July 19, one day before the meeting of YUKOS's creditors, Gazprom sent a letter to YUKOS CEO Steven Theede offering to buy YUKOS's stake in Gazprom Neft. Observers say Gazprom wants to complete the acquisition before the shares are put up for auction. After the creditors' meeting it became clear that YUKOS's days are numbered and the company is facing bankruptcy. YUKOS values its holding in Gazprom Neft at $4.2 billion. Analysts say this is a fair price. But Eduard Rebgun, YUKOS's court-appointed receiver, estimated the asset at $3.4 billion. After reports came that Gazprom sent a letter to YUKOS offering to buy the stake, analysts have been wondering whether Gazprom would want a 30 or 50 percent discount. But Gazprom's offer surprised everyone. The gas giant wants to pay $1.3 billion to $1.9 billion, which is 3.2-2.2 times less than the real price. Quoting sources close to Gazprom, Russian media reported on Friday that Gazprom defended its pricing by referring to the acquisition of a 7.59 percent holding in LUKoil by US energy giant ConocoPhillips for $1.928 billion in 2004. The sources, though, could not explain Gazprom's reasoning behind this comparison saying it was not apparent from the letter. Gazprom and YUKOS spokesmen were unavailable for comment on Friday. Analysts agree that the offered price of $1.3 billion to $1.9 billion is too low. "Gazprom's appraisers should have explained their reasons for the low price. The only explanation seems to be that this is a minority stake," says Denis Borisov, at IFD Solid. Andrei Gromadin, an analyst with MDM Bank, thinks Gazprom will buy the shares for about $3 billion. The gas giant wants to complete the deal before YUKOS's bankruptcy as the price will depend on the number of bidders, Gromadin believes. "This is a minority stake but it is large enough, and many companies would like to have it," he said. Borisov, on the contrary, says Gazprom does not expect strong competition for the asset, with few companies willing to become Gazprom's minority shareholders.