April 02, 2013, 01:19 / Business

Lukoil bought Samara-nafta for $2 billion

Of the almost 30 applicants for the small company Samara-Nafta, Lukoil turned out to be the most persistent. To stop the decline in production, he will pay $2.05 billion Irina Kezik

Vagit Alekperov will get his company to increase oil production / P. Lisitsyn / RIA Novosti

American Hess Corp. put Samara-Nafta up for sale in November. The last of the largest oil fields (Lodochnoye, Shpilmana and Imilorskoye) were sold last year, and the prospects for private companies to reach the shelf are very vague, so a serious fight broke out for this company with a production of 2.5 million tons of oil per year and reserves of 85 million tons . About 30 companies have signed confidentiality agreements, a person close to one of the contenders knows. Among them were both large players (a representative of Gazprom Neft confirmed its interest in Samara-Nafta), as well as small and medium-sized ones.

Lukoil won. Yesterday he signed an agreement to purchase Samara-Nafta for $2.05 billion, his representative told Vedomosti. Hess Corp. in his message confirms the deal with Lukoil.

Lukoil exceeded market expectations: analysts valued the company, which owns many small fields (more than 60 fields in 23 license areas), at $1.2–1.6 billion.

This persistence of Lukoil is explained by the fight against falling production. Having set the goal of increasing cash flow, the company lost sight of production - it has been falling for the third year in a row, recalls Raiffeisenbank analyst Andrey Polishchuk. In addition, geologists made a mistake in assessing the deposit, on which the company had high hopes. “We had a fairly tough conversation with the heads of our oil production unit. The president of the company [Vagit Alekperov] said that he was not satisfied with their work,” said Leonid Fedun, vice president and co-owner of Lukoil, in the fall of 2011.

The company's shares on the Moscow Exchange fell in price by 1.7% (the MICEX index lost 0.7%). This market reaction is due to the fact that Lukoil bought the asset quite expensively, Polishchuk notes: the asset is valued at $3.4 per 1 barrel of reserves, while Lukoil itself costs $3.2 per 1 barrel.

Considering Alekperov’s company’s problems with expanding its resource base in Russia, a deal even at an inflated price may be completely justified for it, Polishchuk notes.

Last year, Lukoil produced 84.2 million tons of oil, so Samara-Nafta will increase its production by 2.8%.

“We have acquired a quality asset with long-term growth potential in a new region, which has one of the most developed oil and gas infrastructures in the country and is located close to the main markets for petroleum products. This deal fits into the company’s development strategy until 2021, which provides for the stabilization and growth of oil production volumes in Russia,” Alekperov is quoted as saying in the Lukoil message.

In addition, notes co-director of the analytical department at Investcafe Grigory Birg, the lower Volga is the most important region for Lukoil in terms of increasing production in the future. The main increase in production will come from projects on the Caspian shelf, but Samara-Nafta will also help increase production. Due to the commissioning of new fields and increased oil recovery from already operating fields, Samara-nafta's production may increase to 3 million tons of oil in the next year or two.

In addition, the region in which Samara-Nafta operates is well studied and has a developed infrastructure. It is located quite close to export terminals on the Black Sea and two Lukoil oil refineries - Volgograd (capacity - 11 million tons) and Perm (13 million), as well as to the main markets for petroleum products. Accordingly, Birg believes, we should expect optimization of operating and transportation costs. “All of this explains the high value of the asset,” says Birg. Advance Capital Managing Partner Karen Dashyan believes that in the future, oil companies will significantly overpay the premium for producing assets, even with a relatively small and extremely difficult resource base, since there are very few such opportunities left, and everyone’s production is practically stagnating or falling.