Rosneft

Overview

Rosneft conducts oil and gas exploration and production activities on Sakhalin island, Siberia, Timan-Pechora field and in southern Russia, including Chechnya. It owns and operates two refineries. The refinery in Tuapse, on the Black Sea, focuses on refining high-gravity oil from western Siberia. Another plant in Komsomolsk-on-Amur is the easternmost refinery in Russia. The Komsomolsk Refinery benefits from its technological integration with Nakhodkanefteprodukt, while the Tuapse Refinery is noted for its favorable location on the Black Sea coast and is part of an integrated complex with Tuapsenefteprodukt. Rosneft operates shipping (Arkhangelsknefteprodukt), pipeline and marketing companies. As of 29 December 2006, the company's market value was US$83.908 billion. Rosneft net income fell 20% for the first quarter of 2009 from $2.56 billion to $2.06 billion due to the weakness of oil price. Rosneft is 75.16% owned by the Russian state, BP a British multinational oil and gas company headquartered in London, England, United Kingdom owns a 19.75% stake while around 5% of the shares are in free float. On December 7, 2016, 19.5% of the company was sold to an anonymous buyer.

Origin

Rosneft was established in 1993 as a unitary enterprise with assets previously held by Rosneftegaz, the successor to the Soviet Union's Ministry of Oil and Gas. During the early 1990s almost all Russian oil companies and refineries were extracted from Rosneft to form ten integrated companies. Later their number was halved as a result of acquisitions. On 29 September 1995, an Order of the Government of Russia №971 transformed Rosneft into an open joint stock company. In October 1998, the Russian government appointed Sergey Bogdanchikov as president. The company owned two obsolete refineries and several low-productive and poorly managed oil-producing assets. In the late 1990s, plans for Rosneft's privatization in Russia were made, but due to competition with equally influential pretenders they were not carried out. In 2001, the company became Russia's official representative on projects with production sharing agreements. In 2003, Rosneft began oil production at the Aday block in the Atyrau Region near the Caspian Sea in Western Kazakhstan. In 2004 Rosneft had increased oil output from 98.56 million bbl (13.47 million tonnes) in 2001 to 148.26 million bbl (20.27 million tonnes). In the same year Rosneft agreed to merge with Gazprom but plans were discarded in May 2005. It is alleged that Bogdanchikov did not wish to take a lesser role in the integrated company answering to Gazprom CEO Alexei Miller.

Yukos auctions, 2004 and 2007

Starting in 2004, the Russian government organized a series of auctions to sell oil giant's Yukos assets, of which Rosneft won the majority. On 22 December 2004, Rosneft had purchased a then little known Russian oil company called Baikal Finance Group. Three days earlier, the previously unheard-of Baikal Group had purchased Yukos main asset Yuganskneftegaz (Yugansk) at a state-run auction for 9.35 billion dollars (6.9 billion euros), supposedly to satisfy tax debts. Many viewed this as a de facto nationalization of Yugansk. Andrei Illarionov, then a senior Putin economic advisor, denounced it as "the scam of the year". With the addition of Yungansk Rosneft became Russia's second-largest producer of oil and gas by 2005, with an average output of 1.69 million bpd.

In March 2007 Rosneft had announced it hoped to increase production from 80 million tonnes in 2006 to 103  million tonnes by the end of 2007, wanted to extract 140 million tonnes of oil by 2012 and become a global top three energy company. In June 2007, Rosneft paid $731 million for the transportation assets of Yukos, which had declared bankrupt in August 2006 after three years of litigation over tax arrears. In August 2007 Bogdanchikov said that although the Yukos acquisitions had increased Rosnefts debt to $US 26 billion, he planned to reduce debt to 30% of total assets by 2010 by tripling refining capacity and expand into China.

2006 IPO

On 14 July 2006, Rosneft conducted one of the largest initial public offerings in financial history, after placing nearly 15% of its shares on the Russian Trading System and the London Stock Exchange. The offering raised USD 10.7 billion. Shares were priced at $7.55, resulting in Rosneft being valued at $79.8 billion. Rosneft achieved its objective largely by arranging bilateral deals with strategic investors, such as British Petroleum, Petronas and CNPC, which bought almost $2.6 billion worth of shares during the IPO. Three oligarchs invested over $1 billion each on the LSE, namely Roman Abramovich, Vladimir Lisin, and Oleg Deripaska. Critics of the deal included financier George Soros, who called on investors to boycott it on ethical grounds, and Andrei Illarionov, who called the deal illegal and "a crime against the Russian people," because none of the proceeds would go into the state budget. The British Financial Services Authority authorised the flotation of Rosneft shares despite an appeal from Yukos, saying that to allow the Rosneft IPO would be tantamount to facilitating the sale of stolen goods.

Arctic shelf deals with BP and ExxonMobil

On 15 January 2011, Rosneft and British Petroleum (BP) announced a deal to develop the East-Prinovozemelsky field on the Russian arctic shelf between the Yamal Peninsula and Novaya Zemlya island. As part of the deal Rosneft was to receive 5% of BP's shares, worth approximately $7.8 billion, as of January 2011 and BP would get approximately 9.5% of Rosneft's shares in exchange. According to the deal, the two companies would create an Arctic technology centre in Russia to develop technologies and engineering practices for safe arctic hydrocarbons extraction. AAR, which represents four billionaires of Russian origin and is BP's Russian partner in the TNK-BP joint venture, blocked the BP–Rosneft deal in international courts, arguing it breached earlier contracts between BP and AAR. The TNK-BP partners had previously signed a shareholding agreement which stipulated that their Russian joint venture would be the primary corporate vehicle for BP's oil and gas operations in Russia. On 30 August 2011, Rosneft announced that instead of BP the partner for EPNZ-1, EPNZ-2 and EPNZ-3 in the Kara Sea will be ExxonMobil. In exchange, subject to approval by U.S. regulators, in addition to a share in oil production in Russian fields, Rosneft was granted participation in U.S. fields in Texas and the Gulf of Mexico.

Black sea shelf deal with ExxonMobil

On 27 January 2011, Rosneft and the American company ExxonMobil signed a deal to establish a joint venture for the purpose of prospecting and extracting oil from the Tuapse field deepwater area on the Black Sea shelf, near the coast of the Krasnodar Krai. The value of the deal is unknown, but ExxonMobil is expected to invest $1 billion in the project. The venture will be shared 50–50 between the companies during prospecting phase, and 2/3 – 1/3 in Rosneft's favour during the extraction phase. The Tuapse Trough is estimated to contain 7.2 billion barrels of oil equivalent. The first well could be drilled in 2012. The deal also contains options for additional cooperation, such as extended exploration and production, deliveries to Rosneft's oil refinery in Tuapse, development of transport infrastructure and research on offshore oil production technologies. According to analysts, offshore areas are central to Rosneft's expansionist plans, and the company is looking for foreign cooperation to bring in new technology and share risks.

TNK-BP acquisition

On 22 October 2012, it was announced that Rosneft will take over TNK-BP International, a parent company of TNK-BP Holding, which is the third largest oil company in Russia. BP will receive in exchange of its stake $12.3 billion of cash and 18.5% of Rosneft's share, while ARR will receive $28 billion in cash. According to Rosneft's CEO Igor Sechin, no discussion had been held on a buyout of minority shareholders in TNK-BP Holding. The deal was completed on 20 March 2013.

Government share sale

In August 2014, it was announced that preparations by the Russian government to sell a 19.5 percent stake in the company were underway and would most likely be sold in two tranches. Officially, the stake was split 50/50 between Glencore and Qatar, but Glencore contributed only 300 million euros and claims only a 0.54% stake. The ownership structure includes a Cayman Islands company, QHG Cayman Limited, whose ownership cannot be traced.

Essar Oil

In October 2016, Rosneft bought a 98% stake in Essar Oil of India, along with Russian investment fund United Capital, in a deal worth $13 billion.

Management

As of December 2006, notable members of the Rosneft Board of Directors consisted of: