Rosneft seals $10bn deal with oil traders

Rosneft has closed a $10bn financing deal with oil traders Glencore and Vitol, bringing the “largest acquisition in history” a step closer to conclusion, according to Igor Sechin, the Russian state oil company’s chairman.

Mr Sechin, in making the announcement, did not say what the money was to be used for, but analysts said that it was clearly part of the $45bn in cash needed to complete Rosneft’s $55bn acquisition of oil company TNK-BP agreed last October.

Mr Sechin told an oil industry conference late Wednesday night in Houston, Texas that the $45bn cash component of the deal amounted to the largest purchase ever. He also said it would yield $10bn in synergies for Rosneft as a result of eliminating duplication.

The oil financing agreement caps a frenetic half year of raising finance by Rosneft to fund the TNK-BP acquisition, agreed in October, of which two 50 per cent stakes are held apiece by UK oil group BP and Russia’s Alfa-Access-Renova.

In December Rosneft issued $3bn in eurobonds, while later that month, according to a statement on its website, it borrowed $16.8bn from a consortium of international banks to finance the acquisition of 50 per cent of TNK-BP from BP, which will receive $17.1bn in cash from Rosneft and a 12.84 per cent Rosneft stake.

The agreement also has BP reinvesting $4.8bn of the cash to buy a 5.66 per cent stake in Rosneft from the Russian government, bringing the oil major's total stake in Rosneft to 19.75 per cent.

In February a second consortium of banks agreed to lend $14.2bn of the remaining $28bn needed to buy the second 50 per cent stake in TNK-BP from AAR, according to the Rosneft statement.

Rosneft last month denied reports that it was seeking to borrow an additional $30bn from Chinese state energy company CNPC in exchange for possibly doubling oil supplies. However, on February 27, Arkady Dvorkovich, deputy prime minister, appeared to confirm that talks were indeed taking place.

“It [a loan] is not ruled out. This was discussed by Rosneft and a Chinese bank,” Mr Dvorkovich, who is responsible for Russia's energy sector, was quoted as saying by Russian news agency Interfax

However, a person familiar with the company said again on Thursday that further financing talks were not on the cards.

Rosneft’s net debt level after all the financing for the TNK-BP purchase is completed will be about 2 times ebidta, according to Ildar Davletshin, oil and gas analyst for Renaissance Capital, the Moscow investment bank. Mr Davletshin said that that level is “high for Russia, because leverage is much lower in Russia, but fairly normal for the industry as a whole”.

“As long as they manage their projects efficiently, they will be alright,” he said.

The $10bn pre payment is one of the largest ever involving trading houses. The agreement with Glencore envisages supply volumes of up to 46.9m tonnes of crude, while the contract with Vitol envisages volumes of up to 20.1m tonnes, according to a statement on Rosneft’s website, which added that the money would be “used for corporate-wide and investment purposes”.

In the speech in Houston, Mr Sechin highlighted Rosneft’s expansion strategy over the next decade – experts say that for Russia’s oil industry to continue growing, it must expand beyond the traditional oil basin of West Siberia.

Mr Sechin spoke of the Vankor region of east Siberia, where Rosneft has announced discovery of 3.9bn barrels of oil equivalent, and which Mr Sechin described as “the basis of a new oil province” in Russia.

He also focused on the start of operations in the Arctic, which started in earnest last year with the drilling of an exploration well in the Kara Sea, which he estimated contained 100bn boe.