Gazprom's prospects improved by Rosneft, Baikal deals

Gazprom's prospects improved by Rosneft, Baikal deals: analysts

Russia's Gazprom is likely to have improved its chances of skipping around legal traps set by Yukos in the US, through maneuvering its oil assets and units via Rosneft, analysts and lawyers said Thursday ahead of a possible decision by Gazprom's board to approve a merger with the state-owned oil firm. Gazprom "sold" its Gazpromneft oil unit to Rosneft ahead of Sunday's auction of Yukos unit Yuganskneftegaz, it emerged earlier this week. But Gazprom was quick to stress its plans to develop its oil business were unchanged. Rosneft's announcement in the early hours of Thursday Moscow time that it had acquired Baikal Finance Group, the winner of the auction, "neatly brings us full circle to the Gazprom-Rosneft-Yuganskneftegaz combination originally envisioned," as investment bank Renaissance Capital said in a research note Thursday. Gazprom was to swallow up Rosneft by the end of this year, according to the government's timetable. Russian media reported that a Gazprom board meeting later Thursday was likely to discuss that issue.

A Gazprom spokesman did not deny that was possible, but said he could not confirm that the subject would be on the agenda. Investment bank Dresdner Kleinwort Wasserstein has yet to present its final evaluation of Rosneft, the spokesman noted. The government needs Rosneft to be worth at least 10.7% of Gazprom, so that the deal increases the state's direct ownership of Gazprom to a controlling one--a precondition that the government has set for the removal of restrictions on trade in the gas giant's shares. Earlier assessments of the value of the two companies by Morgan Stanley seemed to pave the way for the deal to go through smoothly, despite the fact that the bank's valuation of Rosneft was thought overly generous by other analysts. Rosneft would be merged into a new Gazprom unit that has yet to be named. It could be Gazpromneftedobycha (Gazprom oil production), or a firm with any other name out of many possible, a Gazprom source was quoted by Itar-Tass as saying.

The move was likely to increase the chances that Gazprom would avoid legal repercussions from the eventual takeover of Yuganskneftegaz, lawyers said Thursday. Yukos last week won a temporary injunction against those companies--including Gazpromneft--that planned to take part in the auction. But the chances of extending that order indefinitely, as part of Yukos' application for US Chapter 11 Bankruptcy protection were lower, said Douglas Stinemetz, a partner at law firm Haynes and Boon in Houston. Stinemetz said he believed the complex dealings surrounding the auction were "clearly designed to get around potential complications in the US." But he added that "despite the fact that it is heavy-handed, it appears to me to be successful." Gazprom lawyers last week attempted to argue that the US court did not have jurisdiction over Yukos, which only just has sufficient US assets to file for bankruptcy there. And Stinemetz said the Gazprom-Rosneft-Baikal machinations could take the issue "one step further away from the jurisdiction of the bankruptcy court."

Analysts at Renaissance Capital agreed. Gazprom could still be "in some legal trouble for having even shown up at the auction," Adam Landes wrote in a research note. But he suggested the argument that Gazprom had "participated" in the auction despite not bidding may be "a bit shaky," and added that the company "still seems to be on much firmer ground than it was just a couple of days ago." Financing the acquisition still remained an issue, however. Rosneft already carries substantial debts. The firm is assumed to have to pay around $9.35-bil, the price Baikal bid for Yuganskneftegaz, to acquire Baikal. The payment deadline is officially Jan 2, although given that the first nine days of Jan are public holidays in Russia, the company is likely to have until Jan 10. Landes said Gazprom would have to be careful not to try to help Rosneft finance the deal before the Gazprom-Rosneft deal was completed. But he wrote: "We have little doubt that Rosneft's financing problem will be solved, and will be interested to see just how it works in the end."

One of the ironies of the ongoing hearing in Houston is that Yukos has previously benefited from a US court's decision that it did not have jurisdiction over Yukos or Yuganskneftegaz, lawyers note. In 2002, Cayman Islands-registered Dardana attempted to claim around $17-mil, the proceeds of the sale of a cargo of Yuganskneftegaz oil to ExxonMobil. Dardana was the assignee of a contract signed by Yukos with oilfield services company PetroAlliance. A Swedish court had initially ruled in Dardana's favor. But in August 2002, Yukos was able to release a statement saying it was "extremely pleased that the US District Court in Houston has dismissed the case against Yukos and has also refused to grant Dardana's federal court attempt to garnish $17-mil owed by ExxonMobil to [Yukos trader] Petroval... Yukos prevailed in this case because the federal court held there was no jurisdiction over Yukos." Ahead of Sunday's auction, Yukos shareholder Group Menatep threatened to try to have arrested any oil produced by Yuganskneftegaz' new owners.

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