Rosneft acquires stake in Eni's Shorouk concessionby Yasmin Helal on Dec 13, 2016
Following Glencore and Qatar’s acquisition of 19.5% of the company, Rosneft PJSC agreed to buy as much as 35% of a natural-gas project off Egypt, joining Eni SpA and BP Plc in the largest discovery in the Mediterranean Sea.
The Russian company will pay Eni $1.13bn for an initial 30% stake in the Shorouk concession, which includes the Zohr find, the company said in an announcement.
Rosneft will add about $450mn to cover past costs and has an option to acquire a further 5%, which would also require cost payments, Eni said.
Rosneft’s acquisitions at home and abroad amount to more than $15bn this year, according to data compiled by Bloomberg. The Moscow-based company, which pumps more than 40% of Russia’s crude and over 10% of its gas, has planned to expand its gas business for years. It has sought assets and contracts overseas, while at home challenging the piped-gas export monopoly of state-run Gazprom PJSC.
Rosneft valued the Shorouk deal at as much as $2.8bn in a filing early this week, without explaining how that figure was calculated. Its shares climbed 4.7% to 388.15 rubles in Moscow, bringing this year’s gain to 53%. Eni rose 3.9% in Milan.
Rosneft itself is currently the subject of an acquisition, with Glencore Plc and the Qatar Investment Authority agreeing to buy a 19.5% stake from the Russian government for $11bn. The Egyptian project could make sense for a Rosneft venture with Glencore and the QIA because they both have expertise in natural gas, according to Ildar Davletshin, an analyst at Renaissance Capital.
Rosneft, which had more than $20bn of cash at the end of September, sold 600bn rubles ($9.8bn) of 10-year bonds last week to refinance loans and fund development abroad. It’s set to pay back $3.8bn of debt in the fourth quarter and $12.9bn next year, according to its website.
The company may feel it has some “spare money” as the stake acquisition by Glencore and Qatar means Russia’s biggest oil producer won’t have to finance a buyback of its own shares, another option that was under consideration, according to Alexey Bulgakov, a fixed-income analyst at Sberbank CIB.
Rosneft is already involved in Egypt’s gas trade, supplying four liquefied natural gas cargoes to the country this year, the Russian state-run Tass news service reported this week, citing chief executive officer Igor Sechin. Sechin sees interest from the country in extending the contract, according to Tass.
Egypt has said it will keep all of Zohr’s reserves for domestic use, allowing the country to cut LNG imports. Eni discovered the field last year, estimating its resources at about 30tn cubic feet. It expects the first gas to flow in late 2017.
BP, Rosneft’s largest shareholder after the Russian government, agreed to buy a 10% interest in the Zohr field from Eni in November for $375mn. It will also refund some past costs once the deal closes and has an option to purchase a further 5% before the end of next year.
Rosneft will get a 15% share of a joint venture with IEOC Production BV and Egyptian Natural Gas Holding Co., which operate the Shorouk project, according to its filing. It has an option to buy a further 2.5% in the venture.
The Shorouk deal has been “committed to paper” and financing will take into consideration the company’s “financial responsibility,” Tass reported, citing Sechin.
The price “is reasonable for big fields in an attractive location,” RenCap’s Davletshin said.