UAE sovereign wealth fund Mubadala pays $271m for stake in Gazprom oil subsidiary

Gazprom’s oil subsidiary’s combined production declined by 3 percent to 1.64 million tons in 2017. (REUTERS)
Updated 24 May 2018
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UAE sovereign wealth fund Mubadala pays $271m for stake in Gazprom oil subsidiary

  • Abu Dhabi’s state-owned Mubadala Investment Company (MIC) has agreed to pay $271 million for a 44 percent stake
  • Move underpins a strengthening alliance between Moscow and Opec’s Middle East countries

LONDON: Abu Dhabi’s state-owned Mubadala Investment Company (MIC) has agreed to pay $271 million for a 44 percent stake in an oil subsidiary of Russian gas giant Gazprom. 

The move underpins a strengthening alliance between Moscow and Opec’s Middle East countries, which joined forces to agree a supply-cut deal 18 months ago to stabilize the oil market after the price crashed in late 2014.

“This cements the link between GCC countries and Russia,” Giorgos Beleris, a Dubai-based oil analyst for Thomson Reuters, told Arab News.

Richard Mallinson, co-founder of London research consultancy Energy Aspects and a research associate with the Oxford Institute of Energy Studies, told Arab News that the GCC, and particularly the Saudis, had been talking “about aligning their goals in discussions about whether to extend a cap on crude production beyond 2018.” 

“They are after long-term cooperation, not just a short deal,” Mallinson said.

Shakil Begg, head of oil research for Thomson Reuters in London, said that joint ventures between Russian and Middle Eastern energy companies had become more common.

He added that Russia was still affected by certain sanctions, “so for them, it’s about getting access to technology and expertise.”

“Additional Gazprom production that could come on line is in difficult areas, such as the Arctic,” he said.

A joint statement about the deal from the UAE and Gazprom underlined Begg’s point. 

“For the first time, one of the largest investment funds in the UAE has invested in the Russian assets of Gazprom Neft, based in Western Siberia. The task of beginning cost-effective development of Paleozoic stocks can be more effectively solved within the framework of partnership, combining technological and financial resources,” the statement said.

Importantly, the two companies can make use of each other’s customer base in the Far East where demand, especially from China and India, has been strong.

MP said on its website: “(Our) major projects include exploration, development and production activities in Thailand, Indonesia, Malaysia and Vietnam, where we operate the majority of our assets.

“Southeast Asia continues to be the core region of our operated activities where we have developed an excellent track record of safe and efficient operations,” it added.

In 2017, MP’s average working interest production was about 320,000 barrels per day of oil equivalent.

Begg said: “It appears like this deal is strategic to obtaining a greater share of the light crude market in the Far East.

“The deal involves crude production from several fields operated by Gazprom Neft which feed the ESPO pipeline that supply a number of Chinese refineries and a few in Japan. Given the quality of Russian ESPO is similar to the main crude onshore crudes produced by the UAE (also sold to consumers in the Far East), it is possible that Mubadala are trying to retain/increase its market share in Asia.”

The growing Russian/GCC alliance was underlined recently when Russian energy minister Alexander Novak said a joint organization for cooperation between OPEC and non-OPEC countries may be set up once the current deal on oil output curbs expires at the end of this year.

Saudi Crown Prince Mohammed bin Salman told Reuters in March that Saudi Arabia and Russia were working on a historic long-term pact, possibly 10 to 20 years long, that could extend controls over world crude supplies by major exporters.

Announced at the St. Petersburg Economic Forum, the Russia/UAE agreement is between Gazprom, the Russian Direct Investment Fund RDIF) and MIC offshoot, Mubadala Petroleum (MP).

A statement by RDIF, the sovereign wealth fund of Russia, and MP said that it was creating a joint venture with Gazprom Neft to develop several oil fields in the Tomsk and Omsk regions.

RDIF and Mubadala Petroleum will acquire a 49 percent equity stake in Gazpromneft-Vostok, the operator of the fields. Mubadala Petroleum will hold 44 percent and RDIF 5 percent.

Kirill Dmitriev, CEO of the Russian Direct Investment Fund (RDIF), said: “(This deal) brings the experience and expertise of our Middle East partners to the Russian oil and gas sector. (We) see this as the first step in creating a consortium to pursue further significant investments in the sector.”

Dr. Bakheet Al Katheeri, CEO of Mubadala Petroleum, said: “Through this new partnership, we will not only share but also further build on our expertise and capabilities in oil and gas while adding significant oil production to our existing oil and gas portfolio.”

Gazpromneft-Vostok controls seven subsoil licenses in Tomsk and the neighboring Omsk region; these contain both mature and undeveloped oilfields. Its proven and probable reserves stand at 296 million boe (barrels of oil equivalent), of which more than 80 percent is crude oil. According to the Russian energy ministry, the company produced 1.64 million tons (33,000 bpd) of oil in 2017, down 3 percent year on year.

Gazprom is looking to divest stakes in non-core assets to pay for its capital-intensive projects in the Arctic, namely the East-Messoyakhinskoye, Novoportovskoye and Prirazlomnoye oilfields, according to a report by Edinburgh-based website NewsBase.com.

In February, the company reportedly sold the West-Noyabrskoye field in Yamalo-Nenets to an unnamed buyer, and it is also looking to unload stakes in the Neptune oilfield off the coast of Sakhalin and the Chonsky project in Eastern Siberia. Gazprom Neft reported free cash flow of 65 billion rubles ($1.15 billion) at the end of 2017, versus a negative value a year earlier, NewsBase said.


Saudi Arabia’s Jabal Omar Development Company returns to profit

Updated 50 min 31 sec ago
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Saudi Arabia’s Jabal Omar Development Company returns to profit

  • Developer launches roadshow to promote 'Address' brand
  • Taps into rising occupancy rates in holy city

LONDON: The Saudi developer behind the transformation of the center of Makkah — Jabal Omar Development Company — has returned to profit in the third quarter after a string of losses over the last year.
The change in fortune will be welcomed by the Tadawul-listed company as it pushes forward with its luxury hotel, residential and retail developments being built to meet the anticipated growth in demand from visitors and pilgrims to the holy city.
Net profit — minus Zakat and tax — reached SR469.62 million ($125.13 million) for the three months ending Sept. 30 in a Saudi exchange filing on Tuesday. This compared to a loss of SR593.97 million recorded in the same quarter last year.
Jabal Omar said the improved profits were due to increased revenue from sales of residential units.
Third-quarter revenue reached SR1.32 billion compared to revenue of SR45.52 million in the same time period the previous year.
The developer also cited a “positive performance” within its commercial sector as well as a reduction in some of the company’s financial burdens.
The results come in the same month Jabal Omar launched a three-day roadshow on Oct. 8 to market its new “Address“-branded Makkah luxury hotel development.
It is a project being managed by Dubai-based Emaar Hospitality Group — the company behind the high-end “Address” hotel brand. Jabal Omar said is looking to sell 741 freehold units.
The project marks the first time Emaar’s ‘Address Hotels and Resorts’ brand has expanded into Saudi Arabia. It is scheduled to open in 2019 and it will be just a few steps away from the Grand Mosque.
Market commentators say they expect demand for luxury hotels and other residential projects in Makkah to continue to be “strong” in the coming year — something Jabal Omar Development Co. will be keen to capitalize on.
“Makkah is a unique market and there is strong demand for luxury hotels throughout the year. A large proportion of demand for luxury hotels come from wealthy GCC travelers, who are largely repeat visitors to the Holy City,” said Rashid Aboobacker, director at the Dubai-based tourism consultancy, TRI Consulting.
“There has always been high demand for luxury residences in Makkah close to the Haram, driven by the prestige and special status of the location as well as the limited supply,” he said.
“Once the ongoing expansion works are complete, the visitor numbers are set to increase substantially. Consequently, we do not foresee any risk of overcapacity in Makkah in the foreseeable future,” he added.
He added that alongside the growth in luxury developments, there is also a “growing need” for midscale and economy hotels and apartments.
“We believe that there is also need for upgrade of the existing stock as a large proportion of them do not fully conform to international quality standards and guest requirements,” he said.
Christopher Lund, head of hotels, Mena, at the consultancy Colliers International, noted that the luxury sector tends to perform better than other parts of the Makkah hospitality market.
“The 5-star upper-upscale and luxury hotels in Makkah have outperformed the overall market, achieving a 12 percent higher occupancy level year-to-date September 2018, which is primarily due to the fact that the 5-star hotels are located in the most prime locations in the central area,” he said.
“So far in 2018, hotels in the central area have achieved a 49 percent higher RevPar (revenue per available room than the overall Makkah quality hotel market.”