GLNCY Glencore Plc (PK)

By James Marson 

MOSCOW -- Glencore PLC and Qatar's sovereign wealth fund have bought a 19.5% stake in Russian state-controlled oil producer PAO Rosneft, the Russian company's chief executive told Russian President Vladimir Putin in a meeting late Wednesday, state news agency TASS reported.

The agency cited Kremlin spokesman Dmitry Peskov as saying that Rosneft CEO Igor Sechin told Mr. Putin that the sale of the stake to a consortium of Glencore and Qatar had been completed in a deal that would bring EUR10.5 billion to the Russian budget.

Russia still holds a controlling stake in Rosneft, the world's largest listed oil producer.

The move comes as the Russian government is committed to cutting oil production in line with world producers. Though the hard part is how to make it happen.

Russian Energy Minister Alexander Novak pledged last week to cut production by up to 300,000 barrels a day by mid-2017. Russia, which pumps more crude oil than any other country, has had a spotty record with implementing production cuts in the past, pledging to reduce output and ramping up drilling instead.

Things haven't got easier since: the collapse of the Russian ruble and a tax regime that offers tax breaks and incentives for new, more complex projects have made it relatively easy for Russian companies to shield profits and keep pumping through the downturn.

Major Russian producers -- including the country's two largest, PAO Lukoil and PAO Rosneft -- are launching new projects late this year or early next year, guaranteeing a ramp up in production that could be difficult to delay.

Russian production has risen at a breakneck pace in recent months: in October, it reached 11.22 million barrels a day, up more than 4% from October last year. Since the end of July, Russia has brought some 370,000 barrels a day online.

For most of the year, Russia has said it prefers a freeze over a cut, which Moscow argued amounted to a reduction given Russia's plans to ramp up output further in 2017.

Even now, Mr. Novak's pledge to cut has left room for interpretation: Russia will gradually reduce production by up to 300,000 barrels a day "based on its technical capacity."

Mr. Novak and oil ministers from several other non-OPEC producers like Oman and Azerbaijan will meet OPEC officials on Saturday at the cartel's Vienna headquarters to hash out details. OPEC wants commitments of 600,000 barrels a day in reduced output from other countries to amplify the 1.2 million barrels a day cut the cartel agreed to last week.

Mr. Novak has said Russia's commitment to limit output was contingent on OPEC's own compliance with a cut, which will become clear early next year. The head of PAO Transneft, Russia's oil pipeline operator, told state news agencies that Russian producers would begin production cuts in March.

Some Russian producers say achieving cuts is easy from a technical standpoint: Russia's tax regime offers incentives for more costly new projects and heavy burdens on older wells like those in West Siberia, which produces the bulk of Russian crude.

That makes it easier for companies to terminate production at older fields, bringing them in line with expected cuts without damaging profits, said Lukoil Vice President Leonid Fedun in an interview.

"(Fields) that are high-cost and low-income will stop, there are no problems," he said. "Quite the opposite, it will allow Lukoil to increase cash flow."

At the same time, Mr. Fedun said in a separate interview with Russian state television that the company expected the Russian government to offer some kind of compensation for any potential losses from the cut.

Some analysts agree that companies could easily cut back drilling at older fields, which will continue to decline naturally in 2017, helping Russia achieve at least a partial cut.

"You don't need to stop certain wells, you just need to not drill additional wells," said Maxim Nechaev, head of Russian consulting at IHS Markit, who estimated Russia could bring production down by 100,000 to 150,000 barrels a day in the first half of the year by doing so. "Production falls naturally -- you just don't drill."

Others believe that reaching promised targets would force Russia to shut down thousands of wells, a logistical headache which would be made difficult by extreme cold at some fields and the inaccessibility of others during warmer months.

Separately, Lukoil, Rosneft and other Russian oil companies are bringing on new production as well. For example, a new Caspian Sea field is expected to produce some 90,000 barrels a day in 2017, Lukoil has said.

Finally, it is unclear how much the Russian government itself would benefit. With companies pledging cuts at older fields with the heaviest tax burden, the budget could lose out if producers cut back there.

"Oil companies will have to sacrifice some growth. and since production at fields which have almost no tax breaks whatsoever are going to be cut first, that has a rather negative impact for the budget," said Alexander Kornilov, an energy analyst at Aton Brokerage.

"The cut might happen, but it might not necessarily work out in an efficient way for Russia," he added.

Write to Laura Mills at Laura.Mills@wsj.com

(END) Dow Jones Newswires

December 07, 2016 14:06 ET (19:06 GMT)

Glencore (PK) (USOTC:GLNCY)
Gráfico Histórico do Ativo
De Jun 2024 até Jul 2024

Glencore (PK) (USOTC:GLNCY)
Gráfico Histórico do Ativo
De Jul 2023 até Jul 2024