FSUOGM: Rosneft denies oil mega-merger reports

Russia’s largest oil company Rosneft strongly denied Western media reports that there was a plan to merge it with the country’s other top oil producers Lukoil and Gazprom Neft, in a sarcastic statement on November 12, describing the claims as detached from reality and lacking in business logic.

The Wall Street Journal (WSJ) reported on November 9 that Russia’s government was considering a plan to merge the country’s three biggest oil producers Rosneft, Gazprom Neft and Lukoil into a single company, in a move aimed at shoring up stability in Russia’s sanctions-stricken oil industry and expanding the Kremlin’s control over the sector. Long-reigning and politically influential Rosneft CEO Igor Sechin is playing a lead role in the negotiations, the WSJ said, citing sources.

“In view of the unprecedented amount of coverage in foreign media alleging imminent consolidation of assets in the Russian oil industry with a direct hint on Rosneft's intention to take over the main players in the domestic oil domain, we believe it necessary to bring a message forward,” the company said. “Your efforts have been a complete success. Igor Sechin's insidious intentions to take over the assets the company has not any need for have been thwarted solely by your efforts,” it said. “There is a small problem, though, with the alleged intentions having nothing to do with reality and not following any reasonable business logic.”

The company hinted that the reporting was designed to tarnish the reputation of its CEO, whom it sarcastically referred to as “evil Sechin”, and suggested that there were expectations of a change in management at the top.

Rosneft also threatened legal action against media outlets, warning that “should the Plan B come to fruition, it would be desirable to consider a possibility of compensating the moral damage to the unfortunate victims of self-serving scheming on behalf of the players in this exciting PR campaign.”

Sechin is widely considered to be one of Russian President Vladimir Putin’s inner circle of trusted confidants, and has served as Rosneft’s chairman since 2004, following the company’s takeover of most of Mikhail Khodorkovsky’s Yukos business, and its president and CEO since 2012.

The WSJ’s reporting was widely picked up by other Western news platforms including Reuters and Bloomberg. The Financial Times (FT) reported in its own exclusive on November 13 that the merger of Rosneft, Lukoil and Gazprom Neft into what would become the world’s second-largest oil producer, after Saudi Aramco, had been pitched by Russian Energy Minister Sergei Tsivilev, who is married to Putin’s first cousin once removed, Anna Tsivileva, and considered to be a protege of another key Putin ally, billionaire Gennady Timchenko. Among various other key holdings, Timchenko controls major stakes in Russian LNG exporter Novatek and petrochemicals giant Sibur.

If the reports are accurate, the government might reason that a merger would enable the three Russian oil companies to pool together their financial clout and other capabilities, including technological resources needed to substitute equipment and technology previously imported from the West, and methods of circumventing Western sanctions. However, analysts at Russian banks and brokerages poured water on the rationale, arguing that the move would come at a cost to productivity, adding that separate companies make it easier to get around sanctions.

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