“Rosneft” will deliver to new shareholders up to 55 million tonnes of...

“Rosneft” will deliver to new shareholders up to 55 million tonnes of oil


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Joint venture trader Glencore and the Qatari investment Fund QIA, which has acquired 19,5% of Rosneft, signed a five-year purchasing contract with the Russian company up to 11 million tons of oil annually. At current prices the cost of the contracted oil is more than $20 billion

“Rosneft” has announced about the conclusion of the five-year agreement for the supply of oil from the British QHG Trading LLP, owned by Swiss commodity trader Glencore and the Qatari investment Fund QIA. Glencore announced the completion of the transaction on purchase of 19.5% of “Rosneft” a week ago, 3 Jan.

Under the terms of the agreement, each year QHG Trading will be able to get from 4.5 million to 11 million tons, and total shipments over five years range from 22.5 million to 55 million tonnes, maximum volume of raw materials that could put Rosneft, corresponds to the figure shown on 10 December in a press release Glencore on participation in privatisation “Rosneft” (.pdf). Then, Glencore said that one of the conditions of the transaction on occurrence in the capital of the Russian company is a new agreement off-take, which is marketable and logistics Glencore will have access to 220 thousand barrels. per day (equivalent to 11 million tons per year). But from the message of “Rosneft” now it follows that 11 million tonnes is the upper bound on the amount of contract which can be supplied at the request of “Rosneft” (option).

In addition, initially it was assumed that the contract will be concluded only with Glencore, however, the trading structure QHG Trading, registered in the UK on 5 December in the form of a limited liability partnership (LLP), at the end of 2016 got partners company Qatar Holding is a unit of the Qatari Fund QIA, follows from the data of the official register of British companies that was read by RBC. The representative of Glencore have not yet answered the question RBC about whether the members of the consortium who bought 19.5% of Rosneft shares (Glencore and QIA), share equally in the profit from trading Rosneft’s oil. Press-service “Rosneft” also has not yet responded to a request to RBC.

Margin up to 3%

In the message “Rosneft” it is noted that in monetary terms, the size of the transaction is undefined, since the cost of each lot to be delivered within five years oil will depend on the existing market prices. Assuming the current price of a barrel of Urals (about $52), total value of shipments in five years could range from $8.5 billion to $21 billion In such agreements, off-take price, which pays for the volume of a trader, usually tied to the market price and the differential, through which the trader can realize a profit, writes Professor of Finance, University of Houston Craig, Pirrung in the classic work “Economics of commodity traders” (.pdf). Profit margin for Glencore in the deal with Rosneft will be about 3% of the cost of oil, said RBC Pirrong in December 2016. That is, QHG Trading can profit from this contract of approximately $125 million per year based on current oil prices.

QHG Trading is one of the three limited partnerships (LLP) , created structures together with Glencore Qatar Holding in England in the course of privatization of 19.5% of “Rosneft”. To conclude with QHG Trading transactions for the supply of oil and petroleum products was approved by the Board of Directors of “Rosneft” on 7 December 2016, in anticipation of the sale to the consortium of Russian stocks.

Another common characteristic of the agreements, off-take is pre-payment to the supplier on the part of the trader is actually secured contract volume of oil, said Pirrong. But it is unknown whether the contract of “Rosneft” and QHG Trading advance. Prepaid was a valid contract of “Rosneft” with Glencore from 2013, Rosneft obtained billions of dollars in advance. Similar deal, Rosneft has signed with other traders for example, Vitol and Trafigura, although the Western sectoral sanctions in 2014 have significantly limited the maturities of the advances the Agency Reuters. The representative of Glencore and a press-service “Rosneft” have not yet answered the questions of the RBC.

Glencore gets to Trafigura

Glencore is already one of the main buyers of raw materials “Rosneft”, told RBC Vice-President of the international pricing Agency Argus for oil and oil products in Russia, CIS and Baltic States Victor Doubles. In 2013, the company signed a five-year contract for supplies of Urals in the amount of up to 46,9 million tons (to 9.38 mln tonnes), stated in a press release of “Rosneft”.

In 2016, according to preliminary estimates Argus, Glencore acquired from Rosneft 9.6 million tons Urals. In 2015, the volume of purchases Glencore “Rosneft” amounted to 8 million tons and in 2014 — 6.7 million tons, says Pair. In December 2016, the Financial Times reportedthat Glencore is interested in the extension of the existing contract, which expires in 2017.

By the end of 2016, Rosneft produced about 190 million tons of oil, that is to purchase Glencore accounted for about 5%.

Assuming that Glencore will account for half of QHG implemented through the Trading of oil (the share of Glencore and QIA in the consortium, 50/50), and add the volumes under the current contract, it turns out that Glencore, starting with January 1, 2017, to export the 11.6–14.9 million tonnes of raw materials “Rosneft” in the year. “This is less than the volume of exports of another trader who cooperate with “Rosneft”, — Trafigura, but more than the supply trader Vitol,” says Parna.

By the end of 2016, as expected, that Trafigura will take first place for volume of purchases of Russian oil, a total of about 23.5 million tonnes, including nearly 20 million tons from Rosneft, said the expert. “At the same time “Rosneft” sees Trafigura as a strategic partner and, according to our sources, the Russian company intends this relationship to save. Most likely, the result of the transaction, Rosneft will be the second largest trader Glencore, but not at the expense of relations with Trafigura,” the Pair concludes. Also in March 2013, Rosneft entered into with Vitol five-year contract for the delivery of 20.1 million tons of oil (of 4.02 million tonnes per year).

Rosneft announced the sale of Glencore and QIA 19.5% stake in the company owned by “Rosneftegaz”, December 7, 2016. The amount of the transaction amounted to €10.2 billion (692 billion at the exchange rate on 6 December). On December 16 CEO of “Rosneft” Igor Sechin told President Vladimir Putin that all proceeds from the sale of these shares are listed in the Federal budget. January 3, 2017 Glencore announced the closure of the transaction. 4 Jan Rosneftegaz, which is a little over 50% stake in Rosneft, announced “the completion of all business, technical closing procedures and settlement”, specifying that these procedures required the training of more than 50 documents and agreements in more than five jurisdictions.

The Role Of Qatar

Perhaps QHG Trading will sell volumes of oil selected Rosneft, and Glencore, which will have to resell it to end consumers, says the analyst of Raiffeisenbank Andrey Polischuk. In this case, a joint venture in Qatar, which is part of OPEC (though not being there on the first cast), will be able to earn on trading Russian oil, if QHG Trading will receive a Commission from operations with raw materials “Rosneft” and to pay dividends to its shareholders, he adds.

Such cases, when OPEC makes oil trade of the country not included in the cartel, solitary, usually we are talking about swap operations: one company or country is supplying the oil to another within the region and in return receives a raw material in another region. So, “Rosneft” last summer agreed to counter the supply of oil and oil products with PDVSA from Venezuela (part of OPEC), it also wants to use Venezuelan oil to its Indian refinery.

For Qatar similar contracts (on the resale of Russian oil) is a minor additional income for Glencore is the main business. Rosneft, which received the right to sell oil from Venezuela, thus expanding market presence and diversificarea.

Qatar has played a Central role in that Russia agreed to support the collective reduction of oil production in line with OPEC agreements on November 30, celebrated in December, analysts at Reuters Breakingviews. While the two countries vie for influence in the middle East, there are often political differences, both also compete on the global gas market.

With the participation of Lyudmila Podobedova