Igor Rotenberg made it profitable to get to Gazprom

Nine years after the sale of its non-core assets to the Rotenberg family, Gazprom buys back not only the construction contractor, but also the drilling contractor. Over the years, the company paid 25 billion rubles in dividends.
Origin source
The new single contractor of Gazprom, Gazstroyprom, is negotiating the purchase of Gazprom drilling from Igor Rotenberg and his partners. RBC was told about this by two sources close to the monopoly, and an interlocutor in one of the structures affiliated with it.

The parties agreed in principle, but so far they can’t agree on a price, says one of RBC’s interlocutors. Gazprom Burenie is the largest drilling contractor for Gazprom, and Rotenberg “asked so dearly for the company that even Gazprom was very surprised,” he explained. According to the second interlocutor, negotiations are ongoing, but no decisions have been made. “If partners manage to agree on a price, the deal may take place in the fall [2019],” the source concludes.

What price the parties are discussing, RBC interlocutors do not know. Gazprom Drilling revenue in 2018 amounted to 79 billion rubles, net profit - 9 billion rubles.

This is not the only contracting business that Gazprom sold to Arkady Rotenberg in the early 2000s and is now buying back (Igor Rotenberg, the son of Arkady, became the owner of Gazprom Drilling in 2014), RBC sources say. This year, Gazstroyprom can also buy from Rotenberg one of the largest gas construction contractors, Stroygazmontazh, with revenue of 304 billion rubles. The businessman also bought the main assets of Stroygazmontazh from the monopoly in 2008 for 8.3 billion rubles.

Gazprom and Gazstroyprom declined to comment, representatives of Gazprom Drilling and the Rotenberg family have not yet responded to RBC's requests.

How much Rotenberg will earn

Currently, 78.8% of Gazprom Burenie is owned by Igor Rotenberg, 16.3% by Oscar CIF, 5% by Alexander Zamyatin, a longtime partner of Igor Snegurov, co-owner of another major contractor, the VIS group.

Arkady Rotenberg bought Gazprom drilling in 2011 at a tender. In 2014, falling under US and EU sanctions, Arkady Rotenberg sold the company to his son Igor, 16.3% received the businessman’s brother Boris Rotenberg (he then transferred this to the Oscar CIF). In 2018, Igor Rotenberg and Gazprom Drilling also fell under US sanctions.

By 2019, the Rotenbergs earned at least six times more than they invested in a contractor. In 2011, Arkady Rotenberg bought the asset at auction for 4.05 billion rubles, making the only step of 500 thousand rubles. Since 2011, the company paid shareholders 25 billion rubles. dividends, of which a record 7.5 billion rubles. - in 2018, follows from the data of SPARK and Interfax.

In 2011, the contractor performed 70% of Gazprom’s drilling operations. The new owners planned to diversify the company and enter foreign markets, in particular to Saudi Arabia. These plans were delayed due to the loading of Gazprom contracts, said company CEO Damir Valeev in 2018. In nine years, Gazprom Burenie received only one new large customer - Bashneft-Polyus (a joint venture of Bashneft and LUKOIL): in 2015-2016, the company won tenders for 10 billion rubles.

Why Gazprom is returning a contractor

Gazprom announced the sale of non-core assets after Alexey Miller headed the monopoly in 2001 - this was necessary, among other things, to reduce the monopoly's debt. In June 2019, when asked about the reasons for creating Gazpromstroyprom, Miller said that construction is still a non-core business for Gazprom. Now the monopoly owns 49% in Gazstroyprom, the rest belongs to structures close to Gazprombank and unknown individuals. “But even our current participation will be reduced in the very near future,” Miller said. Gazprom is creating an “effective mechanism for monitoring the investment and construction cycle,” he assured reporters.

From an economic point of view, there is no point for Gazprom in buying Gazprom drilling, says analyst at S&P rating agency Alexander Gryaznov. “Over the past five to seven years, almost all oil and gas majors have got rid of service companies, their maintenance has become ineffective: if the service is outsourced, you can lower the price for the contractor, if inside the company it’s already gone,” he explained. As a result, a large and highly competitive market for services has formed in the world, and oil and gas companies have seriously sold contractors at prices, he concluded. But this deal will allow Gazprom to no longer report on transactions with a company that has fallen under sanctions, argues Gryaznov.

Theoretically, in a competitive environment, the sale of service companies should lead to higher quality and lower prices for services for structures such as Gazprom, confirms Dmitry Marchenko, senior director of the Fitch corporations. But in Russia there were no truly competitive conditions; pricing in the drilling services market is not always transparent, the expert concluded.