Rosneft and its failed merger with Gazprom
In 2005, several major events transformed the oil and gas industry in Russia. In September 2004, Gazprom announced plans to acquire, via a share swap, the 100 percent state-owned oil company, Rosneft. A completed Rosneft-Gazprom merger would have put the new company into competition with Lukoil, the countrys largest oil producer. By 2005, however it was apparent that the merger would not be completed successfully due to Gazproms fears that a merger would leave it open to litigation targeted towards Rosneft as a result of the Yukos Affair.
On October 25, 2003, the Russian government arrested Mikhail Khodorkovsky, the CEO of Yukos, Russias top oil producer, on charges of fraud and tax evasion. Since that time, the Russian government has arrested numerous other shareholders and top-level executives in the company for similar reasons. The government sought to recoup the cost of some of the allegedly questionable tax schemes used by Yukos by auctioning off 76.8 percent of the companys prime asset, Yuganskneftegaz, in late 2004. The subsidiary, which produces approximately 1 percent of the worlds oil supply and 11 percent of Russias oil supply, was auctioned off to an unknown company called Baikal Finans Group (BFG). A week later Rosneft, the state oil company, announced it would buy BFG for $9.35 billion (with a loan partly financed by Chinese National Petroleum Corporation). Financial analysts concluded this price was far less than the units fair market value.
Another merger in the Russian energy industry introduced the participation of a new major Western oil company. In September 2004, ConocoPhillips announced a $2.0 billion strategic alliance with OAO Lukoil, under which ConocoPhillips will buy a 7.6 percent stake in the Russian oil company and get a share in joint projects. Through stock purchases, ConocoPhillips increased its share of the company to 10 percent by November 2004, enough for it to receive one seat on the 11-member board of directors of Lukoil. The deal will provide ConocoPhillips access to Russias oil and natural gas reserves and opens a possible avenue for it to become the first Western petroleum producer to return to Iraq. Under the strategic alliance, ConocoPhillips can opt to raise its stake to 20 percent within two to three years, which would cost about $3 billion at current prices.
The combination of Gazproms acquisition of Sibneft and Rosnefts acquisition of Yuganskneftegaz puts approximately 25 percent of Russias oil production into state hands.
In 2003, British Petroleum (BP) completed its merger with the Russian oil company, Tyumen Oil Company, creating a new company called TNK-BP. The company holds oil reserves of 8 billion barrels (SEC estimate, others vary) and produced 1.5 million bbl/d from January-October 2005, making it Russias second-largest oil producer (behind Lukoil). The deal also includes retail outlets in Russia and Ukraine. The company is also an equal partner with Gazprom in Slavneft, which currently produces roughly 500,000 bbl/d.