New deals to supply hydrocarbons to China that were signed last week during the visit to Moscow by Chinese President Xi Jinping are positive developments for Gazprom and Rosneft, says Fitch Ratings.
The Agency believes that diversification of Russian oil and gas exports to the Asia-Pacific region will further strengthen Russia's position as a key energy supplier in the region while improving the business profile of the two companies.
Last week, Gazprom and China National Petroleum Company (CNPC) signed a 30-year memorandum to supply 38 billion cubic meters (bcm) to 60bcm of natural gas from Eastern Siberian fields from 2018. This represents a major step forward even if there are still tough negotiations ahead: a legally binding agreement must be signed by June and final documents by the end of the year, covering pricing and prepayment terms.
To start gas supplies to China, Gazprom would need to complete significant additional investments, including a full field development of Eastern Siberia's Kovykta and Chayanda and construction of a gas pipeline to the Chinese border.
The agreement with CNPC is the latest in a string of investments by Gazprom that will dramatically improve its position in Asian gas markets, which is currently represented only by a 50% share in the 9.6 million tons per annum (mtpa) Sakhalin-2 project. Earlier this year, Gazprom approved a decision to construct a three-train, 15mtpa LNG plant in the Russian Far East near Vladivostok, with the first train to be commissioned in 2018, and plans to supply LNG from there to Asian markets.
Rosneft, which last week completed the acquisition of TNK-BP, has negotiated an increase in its oil shipments to China from the current 15mtpa to as much as 31mtpa in exchange for a pre-payment, and agreed on a number of joint projects in exploration, refining and chemicals production with China National Petroleum Company and Sinopec.
The company also announced that it raised an additional USD2bn loan from the China Development Bank under the existing 25-year agreement signed in 2009. Rosneft is said to be considering various shipment options for additional volumes of crude oil, including transits via, or swaps with, Kazakhstan.
Fitch views higher expected sales of Rosneft's crude oil to China as yet another sign of its improving business profile through better diversification. However, the nearly USD35bn in new borrowings raised to finance the acquisition of TNK-BP remains a concern. The Agency would need to ascertain that Rosneft has a clear plan to reduce leverage over the next two to three years to remove its ratings from Rating Watch Negative.
Gazprom (tax number: 7736050003) is the world's biggest gas company. Its authorized capital is RUB 118.367 billion represented by 23,673,512,900 common shares at par value of 5 rubles. The Russian Federation is Gazprom’s controlling shareholder. In 2012, Gazprom reduced gas production by 5.1% to 482.251 billion cubic meters.
Net profit (IFRS) of OJSC Gazprom for H1 2012 decreased by 33% year-on-year to RUB 525.526 billion from RUB 785.202 billion the year before. The group's revenue decreased by 5% to RUB 2.23 trillion. In particular, net revenue from gas sales decreased by 15% to RUB 1.245 trillion. Net revenue from gas sales to Europe and other countries decreased by 1% to RUB 731.316 billion. This change was primarily due to the decreasing gas sales by 10% or 8.7 bcm, which was partially compensated by the increase of average realized prices.
According to the information and retrieval system DataCapital, net profit (RAS) of OJSC Gazprom for 9 months 2012 decreased by 7.6% to RUB 510.249 billion from RUB 552.814 billion for 9 montsh 2011. Revenue increased by 3.9% to RUB 2.632 trillion from RUB 2.534 trillion. In particular, gas sales revenue amounted to RUB 2.021 trillion against RUB 2.013 trillion for 9 months 2011.
OJSC Rosneft (tax number: 7706107510) is the largest oil company and largest tax payer in the Russian Federation. Rosneft's proved SEC compliant reserves as of December 31, 2011 were 17.618 billion barrels of oil equivalent. In 2011, Rosneft ramped up production of hydrocarbons to 2.586 barrels per day.
The company's authorized capital is RUB 105.981 million. This amount is represented by 10,598,177,810 common shares at par value of RUB 0.01. The company's largest shareholder is the state-owned company Rosneftegaz securing 75.16% of its authorized capital.
Net profit (IFRS) of Rosneft Oil Company for 2012 increased by 7.2% to RUB 342 billion from RUB 319 billion. Revenue increased by 13.2% to RUB 3.078 trillion from RUB 2.718 trillion for 2011. EBITDA decreased by 8% to RUB 609 billion from RUB 662 billion. Capex amounted to RUB 466 billion, FCF was RUB 45 billion.
According to the information and retrieval system DataCapital, net profit of Rosneft for 2012 as per RAS increased by 27.8% to RUB 302.501 billion. Revenue grew by 28.2% to RUB 2.596 trillion from RUB 2.025 trillion, pre-tax profit by 21% to RUB 345.561 billion from RUB 285.07 billion