Rosneft’s tilt towards investors prompted Qatar stake increase

QIA in biggest deal since start of gulf boycott

LONDON/MOSCOW/DUBAI, May 10, (RTRS): When Qatar negotiated a deal to increase its holding in Rosneft it told the Russian oil company it wanted higher returns on its existing stake before it bought more, three sources familiar with the deal said.

Qatars request was one of the triggers which prompted Igor Sechin, Rosneft’s boss and a close ally of President Vladimir Putin, to propose last week a $2 billion share buyback and an $8 billion debt reduction, marking a significant shift in the oil companys strategy.

Days later, Qatars sovereign wealth fund Qatar Investment Authority, one of the worlds largest, raised its stake in state-controlled Rosneft to just under 19 percent from 4.8 percent bringing the value of its total investment to 10 billion euros.

The pledge to reduce debts and embark on a buyback was taken by Rosneft’s directors as part of preparations for Qatar’s investment, one of the three sources familiar with the talks, said.

Rosneft and the QIA declined to comment.

Rosneft’s shift to focus on shareholder returns and debt reduction is its biggest in years after a decade of expansion which turned the group into Russias most indebted company with borrowings of more than $90 billion as of the end of 2017.

This has had an impact in terms of Rosneft’s valuation versus its rivals.

Rosneft’s market value is currently around $65 billion, while its production is at more than 5 million barrels of oil equivalent per day. ExxonMobil, the worlds biggest oil company by market value, has a market cap of $330 billion while producing less than 4 million boe.

Investors say this partly reflects the impact of Rosneft’s heavy debts.

Rosneft is just plain cheap. Look at where it value stands versus peers and compare it with its production, one of the sources involved in negotiation told Reuter’s asking not to be named as the matter is not public.

Rosneft’s shares were also hit by sanctions on many Russian companies after Moscows annexation of Crimea and incursion in east Ukraine.

Sechin travelled to Doha in March together with his right hand man, first vice-president Pavel Fyodorov, who spent days negotiating the Qatar deal, according to two sources close to the talks.

The new partnership could also help Rosneft expand its gas projects around the world, possibly in cooperation with Qatar Petroleum, the worlds largest producer of liquefied gas.

For Qatar, the deal showed the countrys return to making large scale investments nearly a year after a boycott by its Gulf neighbours.

The Rosneft deal would help Qatar guarantee long-term access to good gas assets, a Doha-based industry source said: Qatar is thinking long-term game. By long-term they mean decades, when their own gas reserves could start depleting.