New M&A Opportunities for China in Russian Upstream
The new tax system, increasing links with Asia and uncertainties over new gas projects are among the most important aspects of Russian upstream in 2015, the Wood Mackenzie reported on Friday. According to the consultancy, Russian companies are also likely to mothball expensive projects due to costs hike.
“2015 will be a year of uncertainty for the Russian upstream sector, as continuing international sanctions will restrict access to capital markets and increase the financing costs for Russian upstream companies. We expect Russia's upstream players such as Rosneft to retreat from high cost and technically challenging frontier developments – such as tight oil and Arctic exploration” Michael Moynihan, Principal Analyst for Wood Mackenzie Russia and Caspian Upstream Research commented in a note released on Friday.
The new report also argues that Russian companies will be focusing on West Siberia.
The oil price movements, coupled with the new tax system, are expected to backlash against national producers, writes Wood Mackenzie.
‘Designed to be neutral in a high oil price environment, these will have a rather negative impact on producers in comparison to the previous terms as the price continues to decline. Fields, which previously received Mineral Extraction Tax (MET) breaks, will now have to start paying a reduced rate’ explains the press release.
Wood Mackenzie also foresaw an increase in inflation which could reduce the advantage related to the depreciation of the Rouble.
According to the analysis, Russia’s isolationism will also translate into an increased reliance on domestic technology. At the same time, the coming months could also bring along more M&A opportunities for Chinese companies in Russia.
‘Chinese financial assistance is anticipated at the corporate and project level. In the past, Chinese equity in the Russian upstream has been limited. However, the Russian government may be more open to Chinese M&A in 2015.’
As written by Natural Gas Europe in a recent article, in the coming weeks, the Russian Cabinet and state Duma will draw up proposals for cuts to the Russian state budget for 2015.