Industry Consolidation Detrimental For Risk/Reward Profile

Further consolidation of Rosneft 's position in the Russian oil and gas sector will have a detrimental effect on the market ' s O&G score in our risk/reward ratings as it reflects a deterioration in the competitiveness of the Russian energy sector.

In a turn of events, the AAR consortium was reported on October 17 2012 to be selling its 50% stake in TNK-BP to Russian national oil company (NOC) Rosneft for US$28bn. Rosneft has also reportedly made an offer to buy out BP's 50% stake in TNKBP.

A main component of our risk/reward ratings is the level of state ownership in a country's oil and gas assets. If Rosneft proceeds with the acquisition (full or partial) of private ly-owned rival TNK - BP , it would add up to 1.7mn barrels of oil per day in oil production . This would bring its total to nearly 4.4mn b/d, eclipsin g other domestic producers such as Lukoil , Surgutneftegaz , Tatneft and Bashneft .

Risk Premium
Russia and CEE Oil and Gas Risk/Reward Ratings

In Russia, the dominance of state-owned companies in the entire value chain already has given the country a low score despite its raw resource potential. This is especially so in our upstream ratings. Its score for Country Structure (which considers the level of state ownership and number of foreign competitors) is 30 out of 100, compared to an average of 60 in Central and Eastern Europe (CEE). An increase in the level of state ownership will prompt a downgrade and would further erode the overall Rewards score for Russia's upstream.

Three Become Two
Total Production Of Russia's Largest Energy Companies('000s boe/d)
This article is tagged to:
Sector: Oil & Gas
Geography: Russia

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