UAE fund eyes stake in Gazprom Neft unit
Thursday, Feb 22, 2018
Abu Dhabi’s Mubadala national wealth fund is reportedly nearing a deal to invest in a Gazprom Neft subsidiary based in Western Siberia. The transaction, if closed, would mark the investment vehicle’s foray into Russia’s upstream sector.

Citing sources, Russian business daily Kommersant reported last week that Mubadala and the Russian Direct Investment Fund (RDIF) were eyeing a 49% stake in Gazpromneft-Vostok, the owner of oilfields in the Tomsk region. The pair agreed on the main terms of the purchase, valued at US$325 million, in December, the sources said. RDIF is expected to contribute US$14 million of this sum, with the remainder covered by Mubadala.

Gazpromneft-Vostok controls seven subsoil licences in Tomsk and the neighbouring Omsk region, containing both mature and undeveloped oilfields. Its proven and probable reserves stand at 296 million boe, of which over 80% is crude oil. According to the Russian energy ministry, the company produced 1.64 million tonnes (33,000 bpd) of oil in 2017, down 3% year on year.

Mubadala has made several unsuccessful attempts to enter the Russian upstream sector. In 2016, it teamed up with RDIF, Gazprom Neft and Gazprombank to bid for the Nazymsky block in Western Siberia’s Khanty-Mansiysk region, but the licence was handed instead to Russia’s largest oil company, Rosneft.

The following year, reports emerged that Mubadala had partnered up with Gazprom Neft once again to secure rights to the giant Erginskoye oilfield, also in Khanty-Mansiysk. However, foreign investors were barred from participating in the auction at the request of Rosneft, which later acquired the field for 20.7 billion rubles (US$367 million).

Gazprom Neft, the oil arm of Russia’s state gas giant Gazprom, has sought a partner at Gazpromneft-Vostok since 2016. According to Kommersant, talks have been held with a number of investors since then, including companies from Japan and South Korea. But the highest offer came from Mubadala, sources said.

Gazprom is looking to divest stakes in non-core assets to pay for its capital-intensive projects in the Arctic, namely the East-Messoyakhinskoye, Novoportovskoye and Prirazlomnoye oilfields.

In February, the company reportedly sold the West-Noyabrskoye field in Yamalo-Nenets to an unnamed buyer, and it is also looking to unload stakes in the Neptune oilfield off the coast of Sakhalin and the Chonsky project in Eastern Siberia. Gazprom Neft reported free cash flow of 65 billion rubles (US$1.15 billion) at the end of 2017, versus a negative value a year earlier.

Gazpromneft-Vostok holds rights to the Archinsky, Parabelsky, Shinginsky, South-Pudinsky, Urmansky and West-Luginetsky licence areas in Tomsk and the Krapivinsky licence area in Omsk. It controls five brownfields, discovered between 1971 and 1990, where an increasingly large share of oil production is classified as hard-to-recover. However, the company also operates eight greenfields, most of which are undeveloped, as well as unexplored acreage.

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