LONDON/MOSCOW: The Kremlin’s prized oil firm Rosneft is cutting staff and production and selling stakes in Siberian fields in the strongest evidence to date that Western sanctions are hurting what was the world’s fastest growing oil firm in recent years.
The sanctions imposed on Russia by the United States and Europe in response to its military action in Ukraine have cut Rosneft’s access to Western financing and technology, complicating the servicing of its $55bn debt and closing the way to cutting-edge industrial science it needs to keep developing its energy resources.
Few doubt that Rosneft will be able to withstand the pressure medium-term — its earnings amount to $30bn a year and billions more are still available via Chinese credit lines and Russian state coffers in case of emergency.
But the world’s biggest listed oil producer — which produces more oil than Opec members Iraq or Iran — faces unprecedented challenges to its long-term expansion and modernization plans.
Last week Rosneft said it would cut staff to reduce costs: Kommersant business daily said Rosneft’s Moscow headquarters would see cuts of up to 25 percent from the current 4,000.
These would be the first significant job losses at a company that swelled via the acquisition of rivals such as YUKOS, pushed into bankruptcy some ten years ago by the government of President Vladimir Putin.
Since then Rosneft’s output has risen 10-fold to exceed four million barrels per day or four percent of global supply. But last week it reported a 1.3 percent production drop in August, as production in West Siberia regions declines.
The firm, which alongside gas monopoly Gazprom is a top contributor to the Russian budget, needs to invest heavily to bring new east Siberian fields online — a costly endeavour now made more difficult by the sanctions squeeze.
In a sign of the challenge such a project now presents, Putin said last week Rosneft would welcome China buying a stake in the prized Siberian Vankor field. It was a major about-turn given the Kremlin’s long resistance to allowing its powerful neighbour access to such deposits.
“Rosneft’s decision to offer China a stake in the mega Vankor oil field in East Siberia signals that Moscow’s bargaining position has been further weakened by sanctions and that it needs the capital infusion,” said Emily Stromquist, analyst at Eurasia.
Rosneft needs to invest more than $21bn annually until 2017 to launch new fields and upgrade refineries. It also needs to repay $12bn by year-end and another $17bn next year, after it borrowed heavily to buy rival TNK-BP for $55bn last year — a deal that included BP taking a 20 percent stake in Rosneft.
Rosneft should be able to access some of the money it needs from short-term credit lines via Western banks as the United States sanctions only prohibits them from providing loans with maturity longer than 90 days.
But with the European Union expected to impose similar lending bans soon, Rosneft boss Igor Sechin under personal sanctions owing to his closeness to Putin and any resolution to the Ukraine crisis a long way off, all Western lending to Rosneft has in fact stopped, finance and industry insiders say.
“The credit has stopped. All conversation has become purely theoretical. People fear everything is following the patterns of the Iranian (sanctions) scenario when credit and then oil flows were getting progressively hurt,” said an executive with a Western trading house and a major buyer of oil from Rosneft.
Over the past year, BP and trading houses Vitol, Glencore and Trafigura provided Rosneft with $20bn worth of loans syndicated by banks and guaranteed by oil exports.
Reuters
