Russia is Small for RussNeft
Rapidly growing RussNeft is going to make its next acquisition in Israel. The company of Mikhail Gutseriev has filed a preliminary application for acquiring a refinery in Ashdod whose cost is assessed as $380-500 million.
Last week RussNeft syndicated with Israeli company Financial Levers Ltd. submitted an application expressing its interest in buying from the government a refinery with processing capacity of 90 000 barrels of crude oil, the Israeli Financial Ministry said in its press-release. Financial Levers is engaged in real estate business. RussNeft owns 51% stake at the consortium and Financial Levers – 49%. Other five contenders are Israeli companies Delek Group, Dor Alon Energy in Israel, Ampal-American Israel, Paz Oil и Sonol Israel. Initially the consortium with RussNeft included Sonol Israel as well, however before the filing this company withdrew from the consortium.
RussNeft incorporates 30 enterprises developing oilfields with more than 600 million tons of recoverable reserves, two oil refineries Orsknefteorgsintez and Krasnodarekoneft with nearly 10 million ton crude oil annual capacity, 300 petrol stations in five regions of Russia. Currently the company’s crude oil production level is 16.5 million tons a year. According to Russia’s standards of business accounting, its 2004 proceeds amounted to RUR27.4 billion and net profit reached RUR4.7 billion.
The Government Companies Authority, or GCA, has received the application from RussNeft, a GCA official confirmed the Vedomosti. At RussNeft they declined to comment on the Israeli project.
In September 2005 the Government of Israel decided to split up state monopolist Oil Refineries Ltd. controlling two refineries in the country, one in Haifa with 180 000 barrels a day and the other in Ashdod. Both refineries are to be privatized.
GCA Director-General Eyal Gabbai said in the interview with Bloomberg, that they were planning to quickly and efficiently handle the contenders’ requests and provide the companies with information about the refinery so that they could submit final applications by the end of the first quarter. According to GCA’s site the sale procedure will include nine stages. Submission of contenders’ requests expressing their interest in the asset is only the second stage of the process to be followed by initial check-up of the contenders, due-diligence, final check-up of the contenders, drawing up a sale contract, registration of bids and completed with choosing the buyer.
Gabbai said that the growing crude oil prices have at the least doubled the cost of the Israeli refineries estimated in 2003 as equal to $570 million for both refineries. Consequently, the cost of the Ashdod Refinery may come to $380 million, Bloomberg wrote. According to Denis Borisov, a Solid analyst, it may even reach $500 million.
The interest in the Israeli refinery is in line with the policy of RussNeft. End of last year Gutseriev announced that in several years his company was going to produce 100 million tons of crude oil per year. Most of the crude oil would be obtained through projects abroad, Gutseriev explained: «We are planning to get 3 million tons from Mauritania, another 3 million from Yemen, and 5 million from Libya…Iraq will get opened, followed by Iran, Kazakhstan, Algeria.” Borisov assumes that RussNeft prefers to load the refinery with middle-east feed. “If RussNeft succeeds in obtaining assets in one of the five countries, it will definitely be better paying to deliver this crude oil to the refinery in Israel cutting down transport expenses and entering the sales market,” - says Borisov. “In 2007 the company plans IPO, and for the investors such asset will be of great importance. Therefore the refinery may become an extremely useful acquisition for RussNeft,” sums up Borisov.
The Ashdod Refinery will not become the first foreign acquisition of RussNeft. In the beginning of this month RussNeft contracted for the purchase of Slovakian Transpetrol from Yukos for $103 million.