Russian leader Vladimir Putin took another step forward Wednesday in his apparent effort to create a state-controlled energy company to rival Saudi Arabia's Aramco and the giants of the Western world such as Exxon Mobil (NYSE:XOM), BP (NYSE:BP), and Royal Dutch Shell (NYSE:RD). Gazprom (NASDAQ:OGZPF) announced that it had reached an agreement to acquire a controlling stake (75.7% in total) in Sibneft for just more than $13 billion.
Gazprom is Russia's dominant natural gas producer and controls about 25% of the world's reported natural gas reserves. Gazprom itself is largely controlled by the Russian government, which upped its stake to more than 50% in June. With this deal in place, the company will control about 30% of the country's crude oil and have a truly east-to-west profile.
Sibneft is the fifth-largest oil company in Russia. In addition to about 1,200 service stations in Siberia, the company has two refineries and at least 2.4 billion barrels of oil equivalent in proven reserves. Shortly after its privatization back in 1996, Roman Abramovich purchased a controlling stake and had held that stake until this deal with Gazprom.
From the looks of it, Gazprom is getting a good deal. The transaction would appear to value Sibneft at about $8 per barrel of proven reserves -- less than half of Exxon's current valuation in the neighborhood of $18 per barrel and also below recent deals such as Chevron (NYSE:CVX)-Unocal and PetroKazakhstan (NYSE:PKZ)-CNPCI. Keep in mind, though, that Russian companies have almost always traded at relatively low per-barrel valuations -- a discount that I believe is due in large part to the sometimes volatile and uncertain economic, political, and legal conditions in that country.
I also find it interesting that the West is largely financing the deal. A consortium of banks led by ABN Amro (NYSE:ABN) is writing $12 billion in loans to finance the deal, with the leader putting out $5 billion in bridge loan financing. So that offers up an interesting conundrum -- Russian oil companies like Lukoil (NASDAQ:LUKOY) trade cheap in part because of the risks of the Russian economy and market, but banks see enough promise in the newly enlarged Gazprom to take the risk.
From The Motley Fool with love, here are more takes on Russia:
- Cleaning House at Russia's Banks
- LUKOIL Is Slick
- From Russia, With Ringtone
- Investing in Russia? Try Funds
Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).
