Russia Explores Oil-Merger Plan

"Moscow is working on a plan to merge its biggest oil companies into a single national champion, a deal that would tighten President Vladimir Putin's grip on global energy markets and Russia's economy.

Under one scenario being discussed, state-backed giant Rosneft Oil would absorb fellow state producer Gazprom Neft -- a subsidiary of natural-gas exporter Gazprom -- and independently owned Lukoil, said people familiar with the talks. 

All three are under U.S. sanctions.

The resulting company would be the world's second-biggest crude producer, after Saudi Arabia's Aramco. Pumping nearly three times the output of Exxon Mobil, the biggest U.S. producer, a combined entity could allow Russia to wring higher prices from customers in places such as India and China.

Talks among executives and government officials have taken place over the past few months. It is uncertain whether they will result in a deal, and details of any plan could change, the people said.

Speculation about mergers and takeovers periodically sweeps Moscow and St. Petersburg, but no big energy deals have transpired in the past decade. Obstacles include opposition from some Rosneft and Lukoil executives, as well as the challenge of amassing the funds to pay Lukoil shareholders, said some of the people.

A Kremlin spokesperson said the administration had no knowledge of a deal.

A Rosneft spokesman said that The Wall Street Journal's reporting was false, based on information available to him. He said in an email that the Journal's article "may be aimed at creating competitive market advantages in the interests of other market participants." Asked by phone what information Rosneft considered to be inaccurate, the spokesman said he wasn't allowed to answer questions.

A Lukoil spokesman said neither the company nor its shareholders were in the process of merger talks "with any parties as this would not be in the interest of the company."

Spokesmen for Gazprom Neft and Gazprom didn't respond to requests for comment.

The talks underscore Putin's desire to muster the energy sector to support his military's effort, said the people familiar with the talks. The Russian president, some of them said, envisions a juggernaut able to compete with Saudi Arabia when oil demand, while still enormous, is slowing because of greener alternatives.

Oil and gas are the lifeblood of Russia's economy, supplying nearly a third of federal revenue, and handing Putin influence worldwide. Russia's success at stabilizing its economy in the face of Western sanctions is in large part because of its oil industry. A champion exporter might be better able to withstand Western sanctions, which have complicated exports, hamstrung big new oil-and-gas projects and snarled payments, the people said. The talks, while influenced by the conflict in Ukraine, also are meant to prepare Russia for an eventual post-conflict thawing in economic relations.

Bringing Lukoil under direct state control would mark a big step toward fully unwinding the privatization of Russia's mineral riches after the collapse of the Soviet Union. The leaders of the three oil giants are considered among the most powerful players in Putin's orbit." [1]

1. World News: Russia Explores Oil-Merger Plan. Paris, Costas; Wallace, Joe; Hirtenstein, Anna.  Wall Street Journal, Eastern edition; New York, N.Y.. 09 Nov 2024: A.7.