Rosneft scraps purchase of Morgan Stanley's oil trading business

BP's Rosneft stake exposed for what it is Turmoil in Russia will hurt BP’s accounts via its 20 percent stake in Rosneft, at least on paper. But in cash terms, the impact looks manageable. This is a financial holding which provides BP with limited dividend income. Any strategic value looks very long term at best. * Rosneft makes loan payment, calls off Morgan Stanley deal MOUNTING PROBLEMS Mounting evidence suggested that Russia's economic pain and isolation were starting to bite. The country announced plans to impose a heavy tax on grain exports since rouble volatility and high global prices have caused exports to spike: Russian news agencies reported Prime Minister Dmitry Medvedev told a meeting with officials that the country needed to hang on to its stocks. And Russia's central bank said it would have to bail out mid-sized Trust Bank with 30 billion roubles ($540 million) to stop it going bankrupt. Trust held 145 billion roubles ($2.63 billion) in private personal deposits as of Dec. 1, according to its accounts The country's largest lender Sberbank was forced to deny a report from RIA news agency that it had suspended taking new requests for auto loans and mortgages. Though Russia's biggest oil firm Rosneft partially eased some worries by saying it had made a $7 billion debt repayment from its own cash reserves -- investors had been concerned it could default because the sanctions cut off its access to Western finance -- it announced separately that a deal to acquire an oil trading business from Morgan Stanley had been terminated due to a refusal by regulators in the United States to clear it. The termination of the deal is another blow for Rosneft after its partners including ExxonMobil withdrew from projects to develop Arctic offshore oil deposits after the sanctions were introduced. Kudrin forecast a series of defaults among both medium and large companies -- though he said banks would probably be supported by the state -- which was likely to result in rating agencies downgrading Russia's debt to "junk" status. Most agencies have put Russia this year one notch above junk status. "Russia will get a downgrade," Kudrin said. "It will enter the 'junk' territory." == WRAPUP 1-Ex-minister Kudrin warns of "full-fledged crisis" in Russia Mon, Dec 22 10:51 AM EST (Adds Putin in talks, Reuters poll, Sberbank denial, Rosneft calling off Morgan Stanley purchase) * Kudrin: Russia didn't tackle problems fast enough * Russia to be downgraded to 'junk' status next year * Putin to talk to Western leaders on Ukraine * Government announces tax on grain exports * Central bank moves to shore up Trust Bank * Rosneft makes loan payment, calls off Morgan Stanley deal * Sees 2015 inflation at 12-15 per cent By Darya Korsunskaya, Lidia Kelly and Katya Golubkova MOSCOW, Dec 22 (Reuters) - Russia's government has pushed the country into an economic crisis by not tackling its financial problems fast enough, former finance minister Alexei Kudrin said on Monday, as evidence mounted of trouble spreading through the economy. As he spoke President Vladimir Putin prepared to hold emergency talks with Western leaders to try to resolve the stand-off over Ukraine, the central bank bailed out its first victim of the collapsing currency and authorities announced a tax on grain exports to protect domestic stocks. A Reuters poll of 11 economists predicted that Russia's gross domestic product would fall 3.6 percent next year, after only 0.5 percent growth this year. Russia has been hit by what Economy Minister Alexei Ulyukayev recently called a "perfect storm" of plummeting oil prices, sanctions related to its military action in Ukraine, and a flight of investors' capital -- made worse by a lack of structural reforms that means the economy is overwhelmingly dependent on oil revenues.. Government officials have tried to minimise the impact of sanctions on the country and its rouble currency, which plunged 80 percent against the dollar last week despite a hike in interest rates to 17 percent. Putin has claimed "external factors" like oil were the key culprit behind the country's "tough times". But Kudrin -- a darling of investors who is credited with building Russia's $170 billion sovereign wealth funds -- asserted that sanctions over Ukraine, not falling oil prices, were primarily behind the collapse of the rouble, and warned that Russia risked having its debt downgraded to junk status in 2015. "Today, I can say that we have entered or are entering a real, full-fledged economic crisis. Next year we will feel it clearly," the former minister told a news conference. "The government has not been quick enough to address the situation ... I am yet to hear ... its clear assessment of the current situation." Kudrin, one of few to criticise President Vladimir Putin, quit in 2011 in protest at proposals to increase defence spending, though the two men are still believed to be close. He has also criticised Putin's response to Western sanctions imposed following Russia's annexation of Ukraine's Crimea region and its subsequent support for loyalist fighters. The Kremlin's foreign policy adviser said Putin would hold phone talks with the leaders of France, Germany and Ukraine on Monday that would "focus on the current crisis situation and prospects for the next meeting of the contact group." MISTRUST The rouble firmed against the dollar on Monday, with exporters responding to Putin's urge to sell their foreign currency revenues on the market, and Brent crude prices stood close to $60 a barrel. While the currency, down some 45 percent against the dollar so far this year, may stabilise in the first quarter of next year, its decline will likely help to push inflation to a rate of 12-15 percent in 2015, Kudrin said. The central bank envisages next year's inflation at around 8 percent. Economists polled by Reuters see it at 9.2 percent. Kudrin said he believed that between 25 and 35 percent of the decline in the rouble could be attributed to sanctions. The rest, he said, was down to a stronger dollar and investors' mistrust of Russian authorities and their actions. His outlook for the economy next year was bleak: Even if the price of oil rose to $80 per barrel, gross domestic product was still likely to fall by more than 2 percent in 2015, Kudrin said. At $60 per barrel GDP would decline by 4 percent or more, he added, echoing the central bank's latest assessment, published last week. (Additional reporting by Vladimir Soldatkin, Oksana Kobzeva and Polina Devitt; Editing by Sophie Walker) ======== ========= #Iraq; #ISIS also launched another failed attack on Haditha this morning. Iraqi Army detonated a suicide car bomb southwest of the district.  Haidar Sumeri ‏@SumerRising · 38s38 seconds ago #Iraq; the Iraqi Army backed by local tribesmen managed to kill an #ISIS commander (named Abu Abdullah Al-Saddawi) in western Ramadi today.

Petrodollars: how the 3 will maintain investment levels and meet refinancing obligations ?

Yamal, Russia's gas megaplan, becomes symbol of sanctions defiance Fri, Sep 19 07:09 AM EDT image 1 of 3 By Katya Golubkova and Dmitry Zhdannikov MOSCOW (Reuters) - Dozens of Russian energy ventures are in jeopardy due to Western sanctions on technology and funding. Looming over them all, a giant project the Kremlin is bent on saving no matter what. The Yamal plan, a $27 billion investment to tap vast natural gas reserves in northwest Siberia, aims to double Russia's stake in the fast-growing market for liquefied natural gas. If it stays on track, it will also show the West that the world's largest energy industry is not cracking under sanctions. Russia has said it will make sure Yamal has the resources it needs to keep building. But that pledge will be tested: Yamal's gas is so far in the Arctic North that it requires specialised technology often provided by Western partners - many of which will not be able to operate because of the restrictions. And while Yamal's shareholders have already invested $6 billion in it, U.S. and EU action has now effectively cut off the Russian energy firm's access to Western lending. Nonetheless, bankers and analysts returning from a recent trip to Yamal said they were impressed by the project's status. Some said it was hard to tell that Yamal's controlling shareholder, gas firm Novatek, and its billionaire co-owner Gennady Timchenko were subject to some of the most severe U.S. and EU sanctions targeting Putin after he annexed Crimea in eastern Ukraine and lent backing to pro-Russia separatists. "I was astonished by the pace and amount of work that has been done," said Maxim Moshkov, oil analyst at UBS. Some 6,000 people are currently working on the project and the number will rise to 15,000 next year. "They work day and night... Having been there, I realised the project will most likely become a reality," Moshkov said. Andrey Polishchuk from Raiffeisen bank said: "They are building a new airport, storage tanks. Ships are coming to a nearby port one after another. Some are unloading goods, some are waiting to unload". POWERFUL PARTNERS Yamal has powerful partners - French oil major Total and China's CNPC. Total said this week that despite the sanctions it would not be stopping work on Yamal and has suggested that, given Europe relies on Russia for a third of its gas, it would be risky to slow down the project. Yamal will start exports from 2018 and has already pre-sold most of its future output to buyers in Europe and Asia. It will ultimately export 16.5 million tonnes of LNG a year - equal to 6 months of French gas consumption. Novatek, along with gas monopoly Gazprom, has so far escaped European sanctions, but the fact that it is on the U.S. sanctions list makes it almost impossible for it to raise money for the project. So Total is still clear to participate in Yamal. But its ability to finance its share in it through U.S. or European banks has been drastically limited. "Can we live without Russian gas in Europe? The answer is no. Are there any reasons to live without it? I think - and I'm not defending the interests of Total in Russia - it is a no," Total boss Christophe De Margerie told Reuters. Timchenko, co-owner of Novatek, is also a force to be reckoned with - his closeness to Russian President Vladimir Putin giving him heft even as it makes him a target for sanctions. In March 2014, the United States slapped the first round of sanctions on him, explaining: "Timchenko's activities in the energy sector have been directly linked to Putin". Putin subsequently made Timchenko Russia's point person for business relations - including the development of key gas projects - with China. Timchenko has said China, which has a 20 percent stake in Yamal through CNPC, has agreed to lend $20 billion before the end of 2014. But there is still work to do to win that loan. "We have had communications from higher management over compliances that we shall strictly follow international rules," a Chinese banking executive told Reuters on condition of anonymity given the delicate nature of the negotiations. "Basic principles are - we shall not deal with entities that are sanctioned...We don't want the U.S. to find excuses to give us trouble." SUPPORT FROM HOME If China can't put up the money, Putin is likely to. The Russian government, which has accumulated the world's third largest forex reserves of $460 billion, has said it will invest money in profitable projects which can guarantee hefty payouts to state coffers in the future. Various officials have pledged support to Gazprom, state oil firm Rosneft and pipeline and railway monopolies Transneft and RZhD. And Prime Minister Dmitry Medvedev told Novatek's chief and co-owner Leonid Mikhelson that Russia would support other companies too, irrespective of their ownership structure. "Should (their Chinese lending) plan fail, they can count on state support. The government has made it clear it will not allow it to fail," said a Western oil executive close to the project. The crunch point for Yamal will come next year when France's engineering firm Technip needs to deliver the core liquefaction plant - technology that Russia is lacking. Technip told Reuters this week it was moving forward with the project. It had earlier warned about the risks to its income from sanctions on Russia. If Technip should run into difficulties - the pace at which sanctions have evolved in the past months suggests more could yet be in the offing - Russia might be able to source the technology from China, which has in recent years become able to design and build large LNG plants. "There might be an opportunity lurking in terms of supplying our own gas liquefaction technology," said an engineering executive at CNPC. (Additional reporting by Aizhu Chen, Vladimir Soldatkin, Denis Pinchuk and Sandrine Bradley; Editing by Sophie Walker) ============ Sanctions against Russia could spur $150 oil – Former BP chief Published time: September 15, 2014 08:53 Edited time: September 15, 2014 11:53 Get short URL Reuters/Stefano Rellandini Oil, Russia and the global economy, Sanctions Western sanctions against Russia, coupled with ongoing political instability in Libya and the advance of ISIS militants in Iraq, could leave the global oil supply exposed and push up oil prices to $150 per barrel, former BP chief Tony Hayward has warned.

The former CEO of BP and now chairman of Glencore Xstrata said the recent boom in US shale production has painted an unrealistic image of the world’s global oil supply, and created a false sense in energy security. “The world has been lulled into a false sense of security because of what’s going on in the US,” Hayward said in an interview with the Financial Times. The hydraulic fracturing boom in the US began in 2008 and has increased US crude output by 60 percent, but Hayward warned it could wane. “When US supply peaks, where will the new supply come from?” Hayward said. Instability in oil producing countries in the Middle East, such as Libya and Iraq, in theory would have driven up oil prices to $150 per barrel, had it not been for the new supply from North America.

So far, Brent crude has fallen from about $108 a barrel at the start of the year to about $97 today. Hayward said oil supplies from the North Sea and Alaska are nearing maturity, and the world oil supply is dependent on new wells in places such as Russia, Iraq, and Canada. Rosneft's Bazhenov field may be even larger than the North Dakota Bakken shale shelf, which currently produces 1 million barrels of oil per day and has brought about the shale revolution in the America. Sanctions may stymie output Russia, the world’s second-largest oil producer, outputs about 10.5 million barrels of oil per day, shy of the record from the Soviet era. His comments followed decisions from the EU and US to widen sanctions against Russia on Friday, targeting state-run and private oil and gas companies, including Gazprom, Rosneft, Transneft, and Lukoil. They can no long obtain US or EU technology or equipment for extracting deep water, Arctic, or shale oil. Analysts believe there will be no sudden shock to the Russian oil and gas industry, but that future projects and long-term development are at risk. “Because of financial sanctions, the big gorillas are going to start cutting their activities,” Hayward said, speaking about Russian companies. The sanctions will also create problems for Western companies like Exxon Mobil, BP, Shell and others, who have joint ventures worth billions in Russia. ExxonMobil, for example, has a joint venture with Rosneft to explore Russia’s Arctic, and also owns a 19.75 percent stake in the company. ======== Petrodollars: What do Russian oil companies do in the wake of sanctions? By Rosemary Griffin | September 15, 2014 12:01 AM Comments (0) Sanctions against Russia are moving closer to the country’s big oil companies. In this week’s Oilgram News column Petrodollars, Rosemary Griffin looks at the choices that companies such as Rosneft face. ——————————- EU sanctions introduced Friday limit some state-owned Russian oil companies’ access to European financing in a move that could drive Rosneft, Transneft and Gazprom Neft to look to alternative sources. The US added to the Russian oil sector’s woes later in the day, by further restricting Rosneft’s access to US financing, as well as blocking its four biggest crude producers from accessing technology essential to Arctic, deepwater and shale oil technology. In the short term, analysts see the latest measures as unlikely to significantly change the financial profile of the big three oil companies targeted, as previous sanctions had already seriously restricted Russian companies’ access to Western capital markets. But the measures have fuelled debate on how the three will maintain investment levels and meet refinancing obligations going forward. Company representatives declined initial comment, but analysts’ see Rosneft, with its significant debt portfolio as the most exposed to the latest restrictions. Rosneft has been on something of a spending spree in the past two years, most significantly swallowing up what was Russia’s third largest crude producer TNK-BP in 2013, in a mega-deal which saw Rosneft hand over a combined total of over $30 billion to former shareholders AAR and BP. Analysts estimate that Rosneft needs to refinance around $29 billion over 2014 and 2015. It has around $18 billion in cash to cover refinancing this year if necessary, and is expecting its cash flow to be boosted by pre-payments coming in next year. Rosneft holds a key position in the Russian economy, with the government highly likely to intervene if it seems to be in any kind of trouble, something officials have confirmed in recent weeks. Russian Prime Minister Dmitry Medvedev said that the government is looking into ways to support the company to maintain investment and production levels. Rosneft already asked for a massive Rb1.5 trillion (around $42 billion) injection from the state’s national welfare fund in mid-August, but whether the government will stretch quite so far, or promise to underpin all of the company’s ambitious capex plans, remains to be seen. ——————————- Meanwhile, analysts estimate that Transneft needs to refinance around $3 billion of debt in 2014/2015. The company has around $10 billion on its books, and some analysts have pointed to its smooth repayment schedule of around $1.4-$1.5 billion/year over the next few years, as well as its relative flexibility to cut investment compared to most other majors, as key advantages in dealing with the latest restrictions. If it does get into trouble, Transneft is likely to follow Rosneft’s approach. As the company responsible for crude and oil products shipments across Russia, it is a priority for the Russian government to build out infrastructure, particularly to boost crude movements to China. If the government balks at direct cash injections, it could also grant the company greater flexibility in imposing tariffs on its transportation services, although the government has attempted to limit state-owned companies’ tariffs in recent years. The two state-owned giants could also look to Asian partners to meet any shortfall in financing. Rosneft has already offered Chinese partners a direct stake in its most promising greenfield project in East Siberia Vankor, which analysts see as a direct consequence of financial pressure from Western sanctions. Asian investors are already present in many Russian projects and have said they are interested in opportunities arising from Russia’s shift in focus to Asian markets. They are likely to drive a hard bargain though, if Russian companies seem desperate to sell off stakes in their prize assets in return for financing. For Gazprom Neft the situation is slightly different. Some analysts see the company as less exposed as its refinancing requirements in 2014/2015 are estimated to be the smallest of the three, at $2 billion. The company has an estimated $3 billion in cash. Furthermore Gazprom was planning to scale back its investment program from next year, initially by around 10% year on year in 2015. There are indications that company is concerned about how sanctions could impact its financial operations, however. Gazprom took a significant hit from currency conversion rates this year, suffering a Rb5.3 billion (around $143 million) loss on its dollar-denominated debt in the first half, more than double equivalent losses in the same period of 2013. Some analysts believe restricted access to Western capital markets could drive the company’s bid to raise the proportion of its ruble-denominated debt and turn to domestic lenders. In the summer it was also the first Russian oil company to raise the prospect of shifting supply contracts away from the dollar to other currencies, such as the ruble or the euro if the situation continues to worsen.— Rosemary Griffin in Moscow

BP, Rosneft set up $25 billion-plus TNK-BP deal

BP, Rosneft set up $25 billion-plus TNK-BP deal Mon, Oct 22 02:48 AM EDT By Andrew Callus and Alexei Anishchuk LONDON/MOSCOW (Reuters) - Rosneft and BP are preparing to announce a deal worth over $25 billion that could give the British oil company a stake of between 16 and 20 percent in the state-controlled Russian energy firm, sources familiar with the situation said. The agreement, which has yet to be finalised but which could be made public on Monday or Tuesday, folds BP's half of TNK-BP, Russia's third-largest oil company, into Rosneft, in exchange for cash and Rosneft stock. It allows BP to end a stormy relationship with its partners in the venture, AAR, and to pursue closer ties to a Russian government that exerts a much tighter hold on the oil industry than in it did in the 1990s when BP first invested there. TNK-BP is highly profitable and provides a quarter of BP's total production, but its fields are mature, and the Soviet-born business tycoons who own the other half through AAR were in the way of BP's search for growth in oil-rich Russia through closer ties with Rosneft and its powerful boss. Should the deal be finalised and survive a months-long Russian government approval process, BP's overall exposure to Russian barrels would be lower, but the holding could secure it seats on the Rosneft board and closer ties than any of its rivals to Igor Sechin, the chief executive of Rosneft, who has a significant say in energy policy. In a statement on Monday confirming the offer from Rosneft for the first time, BP said "no agreement has yet been reached." Rosneft is already the top producing company in Russia. If, as looks likely, it buys out AAR's half of TNK-BP as well, it will control approaching half the country's output and be pumping more oil and gas than Exxon Mobil, the world's top international oil company. The deal gives Rosneft extra output and cash flow to finance exploration of Russia's vast reserves to replace ageing and depleting fields. It keeps BP's expertise in Russia and provides the "quality" private shareholder President Vladimir Putin has been looking for to show his critics he is pursuing a privatization program. SOURCING THE STOCK The deal can be described as having two steps for a single transaction worth in excess of $25 billion, according to one source familiar with a proposal that was put to BP by Rosneft last week. Under step one, BP will receive a 13.4 percent holding of Rosneft's shares that belongs at present to Rosneft in the form of so-called "treasury stock", and which is nominally worth about $10 billion based on a tiny free-float of Rosneft shares that put the value of the company at around $73.5 billion. It will also receive an amount of cash. Under step two, BP will use some of that cash to buy more Rosneft stock, as it promised to do at a recent meeting between Sechin and BP's chief executive Bob Dudley. That would most likely to be sourced from the 75.2 percent holding of Rosneftegaz OAO, a state energy holding company which is also headed by Sechin. The price and amount of shares was still being hammered out, but based on a total deal value of $25 billion, a Rosneft stake of 16-20 percent would be worth about $12-$15 billion, leaving $10-$13 billion in cash, some of which shareholders hope will be returned to them. "There's still stuff going on so it's best not to get too specific," said the source, speaking at the weekend. Those shareholders have seen little capital growth in recent years while rivals have benefited from strong oil prices. This has been mainly due to the 2010 U.S. Gulf oil spill, but the increasingly bitter wrangles with AAR have played their part too. PUTIN'S PROGRESS Putin has been regaining state control of assets that passed cheaply to a small group of businessmen when privatised in a hurry in the 1990s. Rosneft's absorption of another oil firm, Yukos, and the imprisonment of its former owner Mikhail Khodorkovsky, in the mid-2000s was the biggest step in this process until now. That was also masterminded by Sechin, who was deputy chief of staff at the Kremlin - Putin's gatekeeper - at the time. Sechin was in London last week to help push through the deal with BP, whose CEO Dudley is himself a veteran of BP's Russian activities. If Sechin also buys out AAR tycoons Mikhail Fridman, German Khan, Viktor Vekselberg and Len Blavatnik, his combined Rosneft-TNK-BP would produce well over 4 million barrels of oil and gas a day, although bankers said finding more than a total of 20 billion in cash could be a stretch for the group. On the financing side, about $15 billion could be met by a loan Rosneft has been negotiating with international banks. It could get another $3 billion from Russian banks. Sources have also said that the AAR side of the deal could involve deferred payments over a number of years, and the TNK-BP business itself could be leveraged up. It has strong cashflow and little debt, allowing the partners to rake off $4 billion a year in dividends in recent times. Bankers told ThomsonReutersLPC a total of 10 banks have already joined the deal and the loan could be concluded in three to four weeks. Rosneft has declined to comment. (Additional reporting by Douglas Busvine, Melissa Akin, and Vladimir Soldatkin in Moscow and Sophie Sassard in London, Editing by Rosalind Russell) ===================