China Goes After Russian Oil Giant Rosneft, Deals Fly

Anyday now we will hear that all that metal China is mining isn’t really designed for job creation and dumping steel into the world, it’s for building oil storage tanks. With a world awash in crude, China’s state owned oil giant CNPC is looking to become a major shareholder in Rosneft to have access to more of it.  For those who don’t know, Rosneft is Russia’s biggest oil producer.  The company had a joint venture with ExxonMobil XOM -0.01% a while back in the Kara Sea, butWashington put a stop to it because of sanctions in retaliation for Russian involvement in Ukrainian politics.

Meanwhile, the Chinese are hoping to bankroll the Russian company as it opens more of its shares to the market. Ironically, Rosneft will go f-rom being a majority Russian state owned enterprise to a majority Russia and Chinese owned one.

Russia’s First Deputy Energy Minister Alexei Teksler said China’s National Petroleum Corporation (CNPC) was interested in Russia’s privatization plan.

China said the same. “Yes, we are considering this,” CNPC’s Wang Zhongcai reportedly said, adding that the company is conducting their due diligence on the deal.

Under the state privatization plan, Rosneft is expected to privatize 19.5% of its state shares this year. The Russian government currently owns 69.5% of Rosneft, with the rest of the shares free-floating in the market.

Vladimir Putin has stated numerous times that he was continuing with privatization plans of beloved state assets, a process that has largely stalled since he took over the government nearly a decade ago. He warned in 2014 and again in 2015 that selling oil assets when prices were depressed wouldn’t be prudent. Oil prices remain in the low $40s per barrel, but Rosneft shares are doing well. The Micex traded shares are up 27% year-to-date, beating the forex which has the dollar down nearly 10%.
 

It is strange that Russia is considering moving ahead with the sale, though the country has been cozying up to the Chinese ever since Europe slapped it with sanctions in 2014 on account of its support of separatists in eastern Ukraine. Rosneft is be part of other billion dollar energy deals flying between the two countries, which include a Gazprom natural gas line into China. There’s also a proposed agricultural joint venture on the Mongolian border, and ongoing moves to connect the Moscow exchange with Shanghai to facilitate local currency hedging and forex settlement as a means to diversify commerce f-rom the dollar. It is unclear whe-re those projects stand at this time.

Russia’s government, meanwhile, is not all that bullish on oil.

The Russian Ministry of Economic Development’s base case scenario for crude is $40, while a worst case scenario has it priced at $25.