WRAPUP 1-$15 billion question haunts Russian energy results

Tue Apr 30, 2013 1:12pm EDT

Related Topics

* Russian energy stocks trading at 40-50 pct discount

* Third-largest oil firm fails to disclose ownership

* Gazprom, Rosneft criticised for over-investing

* No signal to stranded TNK-BP minority shareholders

By Douglas Busvine and Vladimir Soldatkin

MOSCOW, April 30 (Reuters) - The mystery of who controls Russia's third-largest oil firm Surgutneftogas overshadowed results for its energy majors on Tuesday, underlining the lack of transparency that continues to weigh on the state-dominated sector.

Gas export monopoly Gazprom posted 2012 earnings of $38 billion - the world's third highest after ExxonMobil and Apple - but down 10 percent from a year earlier and flattered by a fourth-quarter accounting tweak.

Rosneft, the world's largest publicly traded oil firm by output, gave no clues on whether it would buy out minority shareholders in TNK-BP, the oil firm it bought for $55 billion in March in Russia's largest-ever takeover.

But it was Surgutneftegas, Russia's No.3 oil firm, that left analysts scratching their heads over the fate of a 40 percent stake held in treasury, which was last accounted for in 2001 and would be worth $15 billion today.

One of Russia's most secretive listed firms, Surgut did not disclose its ownership structure but did declare a cash pile of $29 billion in the first accounts to international standards it has published in over a decade.

Surgut has been run since 1984 by 61-year-old 'red director' Vladimir Bogdanov, who is believed by analysts to control most of the company's ordinary shares through what amounts to a circular ownership structure.

"We are waiting for the company to tell us where these shares have gone," said Alexander Kornilov, an analyst at Alfa Bank. Surgut shares fell by more than 4 percent.

KREMLIN CONTROL

Together, the results tell a story of corporate agendas controlled by the Kremlin or management with scant regard for whether capital is invested or, in Surgut's case, saved at 3 percent interest, in a way that benefits investors.

Russian energy stocks have underperformed this year as oil prices have weakened, declining by 9.4 percent.

Karen Kostanian, analyst at Bank of America Merrill Lynch in Moscow estimated the "corporate governance" discount on Russian energy stocks at 40-50 percent. Share prices are underpinned at low levels by a recent rule requiring state firms, like Gazprom and Rosneft, to distribute 25 percent of earnings as dividends.

That contrasts with a 40 percent payout ratio at Britain's BP, which increased its Rosneft stake through the sale of its one-half share in TNK-BP and published forecast-beating results on Tuesday.

Gazprom has faced criticism for doubling down its bets on a the weakening European export market, including through the South Stream pipeline which will connect its Siberian fields to southern Europe without passing through Ukraine.

Intensifying competition has forced Gazprom to offer rebates to European buyers seeking relief from contracts that tie purchase costs to the price of oil - a scarcer commodity than abundant natural gas.

But Gazprom flattered its results by revising down retroactive price adjustments with Europe in the fourth quarter to 103 billion roubles ($3.33 billion) from a previously-booked 133 billion roubles.

"South Stream has more of a political than an economic rationale - a new pipeline into the centre of an economic slowdown?" asked Bruce Bower, a partner at Moscow hedge fund Verno Capital, which does not own Gazprom stock.

LEARNING TO SHARE

Rosneft, too, has faced questions over whether it is over-reaching as CEO Igor Sechin seeks to integrate TNK-BP and manage a string of upstream deals with foreign oil majors led by Exxon.

First-quarter earnings fell by 13 percent, year-on-year, to 102 billion roubles ($3.3 billion). That beat expectations but was flattered by the inclusion of TNK-BP for the last 11 days of March after the deal closed.

Owners of the small free float in TNK-BP's listed unit have not received any firm offer of dividends or an exchange of their holdings into Rosneft shares. "The situation at TNK-BP is really bad - there is no way you can dress it up better," said Bower.

Prospects for a near-term re-rating of Russian energy stocks look doubtful. But there may be long-term value to be had.

"Equity investors have given up on Russia, but industry investors are moving in the opposite direction," said Oswald Clint, a senior energy analyst at Bernstein Research in London.

Clint notes that Exxon's shares trade at a multiple of around two times forecast 2013 book value. Gazprom, meanwhile, trades at a price/book ratio of just 0.3 and Rosneft at 0.8 - both less than the theoretical break-up value of the business.

With Exxon and other foreign oil majors teaming up with Rosneft to hunt for oil in Russia's Arctic offshore and tap reserves of 'tight' oil in Siberia, the transfer of technology and know-how could lift Russian energy stocks over time.

"The opportunity to think about is the influence of Western investors," said Clint. "Despite the politics and capital discipline issues you could see value being created." ($1 = 30.9212 Russian roubles) (Writing by Douglas Busvine; editing by Patrick Graham)

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