The US sanctions imposed onRosneftlast
week will throw the company’s ambitious growth plans into doubt and make life
yet more uncomfortable for the western majors that have clinched high-profile
deals with the Russian oil group, notes a Financial Times article by Jack
Farchy in Moscow and Guy Chazan in London.
Asthe stand-off between the west and Russia over
Ukraineworsened, the US government slapped sanctions on Rosneft that will
restrict its access to long-term US dollar financing markets.
They come just a few weeks after Rosneft, already the world’s largest listed oil producer, laid out a world-conquering plan to double its oil and gas production in the next 20 years. Now its future looks a lot murkier.
"The closure of external debt markets to the company would seriously jeopardise
its large-scale investment plans,” said Alexander Kornilov, oil and gas analyst
at Alfa-Bank in Moscow.
Vladimir Putin, Russia’s president, hinted at potential
problems. "We gave this major American company the opportunity to work on the
shelf,” he said, referring toExxonMobil’s joint venture with Rosneft to
explore for oil in the Arctic Sea, which is due to drill its first well this
summer. "So, what, the United States does not want it to work there now?”
In addition to Exxon,BP, which holds a 19.75 per
cent stake in the Russian company,Statoil, andEniall have
joint ventures with Rosneft. The Russian oil group also recently became the
largest shareholder inPirelli, the tyremaker, and is in talks to buyMorgan
Stanley’s oil trading business.
The US sanctions only narrowly proscribe Rosneft from
receiving new long-term loans from US banks and investors, and so do not block
the joint ventures.
But one western lawyer with long experience of Russia said the sanctions could make it extremely difficult for the ventures to finance their projects, particularly the large, capital-intensive ones such as Exxon’s in Russia’s South Kara Sea.
"These companies will be scratching their heads
wondering how to fund the big prospects without reference to US entities,
whether they are US shareholders or banks,” he said. "You’re basically cutting
off international finance for a particular category of project.”
Publicly at least, Rosneft’s western partners were
reacting calmly. Exxon said its plans to drill in the Arctic were unaffected.
BP said it was studying the sanctions, but that their narrow focus would not
have any bearing on its business. Statoil and Eni declined to comment.
But the sanctions are bound to make westerners more
cautious in their dealings with the targeted groups. John Whittaker, head of
commodities at Clyde & Co, a law firm, said: "Even though these sanctions
are not on the face of it particularly restricting, they nonetheless will create
an uncomfortable landscape for anyone doing business with these companies.”
Rosneft shares fell by 4.3 per cent on Thursday. Led
by Igor Sechin, a Putin ally on whom the US imposed personal sanctions in
April, Rosneft has built up a $20bn cash pile on its balance sheet since the
start of the year, which the company told the FT couldcover its
refinancing needsfor the next twelve months.
Still, Rosneft is highly indebted after spending $55bn
to buyTNK-BPlast year, with net debt of 1.5tn roubles ($44bn) at
the end of March. Add to that its ambitious spending plans – in the Arctic, on
shale oil deposits, in eastern Siberia and on new gas projects – and the
sanctions could hamper the company’s ability to finance itself in the longer
term, analysts said.
"It’s going to strangle them financially,” said one
executive at a western oil company in a venture with Rosneft.
In particular, the sanctions may restrict Rosneft’s
ability to strike so-called "prepayment” deals with western traders, such as a
$10bn deal withGlencoreand
Vitol last year.
Bankers, lawyers and traders told the FT that it was unclear whether traders would be able to strike new deals of this kind since the advance payment is traditionally financed by western banks. "Definitely this is not good news [for Rosneft],” said the head of commodities finance at one major European bank.
Bankers said Rosneft – as well asNovatek, the
other energy company on which the US imposed sanctions on Wednesday – were
likely to increase their borrowings from Asian banks, as well as turning to
euros and other currencies for funding.
Gennady Timchenko, a top shareholder of Novatek who is also personally subject to US sanctions, told Itar-Tass on Thursday that the sanctions would "complicate the company’s financing plans”, although Novatek said it had sufficient cash flows to fund its projects, service its debts and pay dividends.
For his part, Mr Sechin invoked a higher authority than the bond markets. "I believe God sees everything and will put everything right,” he said.
