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Zarubezhneft buys blocking stakes in ALROSA’s gas assets

02 february 2012

Zarubezhneft, a state-owned oil company, intends to acquire a blocking stake in the gas assets owned by Russian diamond miner ALROSA, according to www.rusenergy.com. The oil company will have 25% plus one share in ZAO Geotransgaz and a 26-percent stake in OOO Urengoyskaya Gazovaya Kompania, all owned by ALROSA.

Last Friday, Zarubezhneft and ALROSA signed an agreement of intent, which implies a possibility for these two companies to jointly develop three gas and gas-condensate fields, which are Beregovoye, Ust-Yamsoveiskoye and Urengoiskoye, in the northeastern part of the Purovski District located in the Yamalo-Nenets Autonomous Area.

In particular, Zarubezhneft intends to acquire a blocking stake (25 percent plus one share) in ZAO Geotransgaz and 26 percent in OOO Urengoyskaya Gazovaya Kompania. The preliminary agreement provides that ALROSA will not negotiate the assets with other potential buyers until May.

So far, the value of these assets was not assessed. Experts believe that the overall value of ALROSA’s gas business could reach about $1 billion, so eventually the deal will not exceed $250 million.

Oleg Petropavlovski and Eduard Badaev, analysts at FG BKS, believe that this deal will be positive for ALROSA. "The value of gas assets worth $1 billion is approximately correspondent to the price that the diamond miner will pay for the buy-back of these assets from VTB. If the deal with Zarubezhneft will see a successful completion, ALROSA will be able to fully recover the funds it spent and channel the money to develop its diamond business while using its operational cash flow to service its non-core assets," they believe.

Gradual sale of non-core assets is part of the medium-term strategy pursued by ALROSA, said Dmitry Turmyshev, an analyst at NB Trust, according to whom this development is positive for the financial condition of the diamond mining company – he believes that getting rid of non-core assets which require significant capital expenditures (formerly the miner mentioned it needed 12 billion rubles in such investments up to 2014) will, of course, improve the company’s credit profile.

For Zarubezhneft these will be their first natural gas assets to be bought and this is very important for the oil company, Dmitry Baranov, a lead expert at UK Finam Management, said. "First of all, Zarubezhneft goes into a territory, which is new to its business; it is Yakutia and also a new federal district, which is the Far Eastern Federal District of Russia. Given that the development of its natural resources on a large scale is just beginning, Zarubezhneft has every chance to take an active part in this process and increase its resource base, not only in terms of gas, but also in terms of oil, which is key to the company’s business,” he said. “Secondly, the acquisition of such a partner as ALROSA, allows Zarubezhneft to count on cooperation with the diamond miner in its own independent projects, and it is not necessarily that this aid should be expressed in monetary terms, it may be technological and industrial cooperation. Third, for Zarubezhneft, this transaction also provides an opportunity to gain experience in mining for a mineral which is new to its operations and this experience may be used later in other fields. And finally, fourth – if implemented, the project may turn out to be an additional source of income both for Zarubezhneft and ALROSA."