RussNeft pushes forward
Moscow. RussNeft, by means of tough economy, intends to pay off its debts three years ahead of time – by 2017. But it will be hard for the Company to increase production having investments of $500 million per year, experts warn. RussNeft approved a strategy that provides for redemption of all debts (summing currently up to $4.8 billion) by 2017 given the oil price of $90/barrel, Mikhail Gutseriev, President and owner of 49% of the Company, stated.
The Company had previously informed that it would pay the creditors off by 2020.
Most of the debt (90%) of RussNeft is to Sberbank and Glencore. “Zero debt will be to Sberbank by 2015, and zero debt will be to Glencore by 2017”, the businessman said (quoted from “Prime”). The previous plan was to pay off the former by 2017 and the latter – by 2020.
RussNeft has already paid $1.8 billion to the creditors since the beginning of 2011, and it intends to reduce the debt by other $500 million down to $4.3 billion, Gutseriev highlighted.
According to the businessman, the strategy of RussNeft provides for a minimal volume of investments, i.e. not more than $500 million per year. The money will be invested purposively, i.e. into fields and highly productive wells, to ensure a production increment of at least 1 million tons per year. The Company produced 13 million tons in 2011, and the expected production by 2017 is 13 million tons, Gutseriev stated.
The top-manager previously promised that RussNeft would allocate all free funds to redeem the debts and savings would be by means of the production cost reduction and development of highly effective wells in Udmurtia and West Siberia. Another source of economy is no expansion in Russia and abroad, Gutseriev said yesterday: “There is no financial ability to buy assets before 2015”. But he did not exclude that RussNeft would borrow again after paying Sberbank off.
It is quite possible to redeem the debt within five years, since the Company will get a free cash flow of $1 billion per year given the oil price of $90/barrel, Denis Borisov, analyst of Nomos-bank, comments. But it is difficult to increase production with capital expenses of $500 million, Borisov warns: in average, the Russian companies spend $8-$10 for production of 1 barrel, and RussNeft seems to expect $5.
Sistema JSFC, which owns 49% of RussNeft, also participated in the discussion and approval of the Company’s strategy, as pointed out by a representative of the corporation: the strategy provides for progressive advance of RussNeft which has a reduction of the debt burden as a primary need. Vladimir Evtushenkov, main owner of Sistema, previously stated that given reduction of RussNeft’s debt to $4 billion, a merger of the Company with controllable Bashneft will be considered. But Gutseriev said last week that the debt target value hereof was brought down to $3 billion, and Evtushenkov added that even if a merger is discussed, the discussion will not be before H2 2013. Reduction of RussNeft’s debt is one but not the only key advisability criterion for a merger of the two companies, Sistmea representative emphasized.
MATTER OF PRICE
Glencore did not propose a suitable price for conversion of the shares in RussNeft’s subsidiaries into shares of the parent company, Gutseriev said. Ivan Glazenberg, Glencore Director General, stated last week that the company is happy with the investments in RussNeft and does intend to sell its shares in the JV with the Company.