Gazprom Neft - $SIBN.RM

What’s Gazprom Neftc Business Model?

Gazprom Neft PAO is an integrated oil company engaged in the exploration, development, production, transportation, and sale of crude oil and gas. The Company is involved in oil refining, marketing of petroleum products, oilfield services, and construction and development of exploration wells. Gazprom sells its products through its sales network in Russia as well as exports worldwide.

What Gazprom Neftc is doing in more details?

One of Russia’s largest integrated oil companies, and its third-largest refiner, Gazprom Neft explores for, produces, refines, and markets petroleum products. Its retail operations include more than 1,800 gas stations.

The company, with proved reserves of 2.8 billion barrels of oil equivalent, controls refineries in Moscow, Yaroslav, Serbia, and Omsk that produce more than 45.7 million tonnes of petroleum products per year. It refines about 80% of the oil it produces, a high ratio for Russia.

Gazprom Neft also shares ownership of major natural gas project SeverEnergia with NOVATEK, the country’s largest independent gas producer. State-owned gas giant Gazprom controls Gazprom Neft.

Where Gazprom Neftc is Operating?

Gazprom Neft operates through two segments: Downstream and Upstream.

The Downstream segment processes crude oil into refined products. It also trades and transports crude oil and refined products. The segment brings in about two-thirds of the group’s total revenue.

The Upstream segment explores, develops, produces, and sells crude oil and natural gas. It also provides oil fields services. The segment brings in about one-third of total sales.

Where is the geographical reach of Gazprom Neftc?

Gazprom Neft operates in Russia and in other nations in Europe, the Middle East, South America, and Africa. The company exports to more than 50 countries around the world. Russia accounts for more than half of total revenue.

Its key refining facilities are located near Omsk, Moscow and Yaroslavl, and Serbia.

What is Gazprom Neftc Financial Performance?

Note: Growth rates may differ after conversion to US dollars.

With the steep decline in oil prices that hit the markets worldwide, Gazprom Neft’s revenue fell in 2015 and 2016; revenue has been recovering in the years since. Net income has been growing as well, hitting record levels in 2017 and 2018.

In 2018, revenue increased 29% to 2.5 trillion RUB, thanks largely to recovering oil prices and to production growth at certain fields. Hydrocarbon production grew 7% that year, and oil product sales grew 4%.

Aviation fuel sales alone rose 10%, due both to an increase in air traffic and to the company’s expanded geographic coverage in that sector.

Net income rose 49% to 376.7 billion RUB in 2018. While revenue has been rising, the company is also implementing measures (such as utilizing new technologies) to operate more efficiently, which has boosted its bottom line.

The company ended 2018 with 247.6 billion RUB in net cash, some 150 billion RUB more than it had at the end of 2017. Operating activities provided 537.5 billion RUB in cash, while investing activities used 335 billion RUB and financing activities used another 56.5 billion RUB.

What is Gazprom Neftc Future Strategy?

Gazprom Neft has worked to become a global company over the past decade by expanding production and selling products around the world. It became Russia’s third-largest oil producer in 2017.

Strategies to build business include expanding corporate sales, partnering with the largest consumers of petroleum products, growing its portfolio of gas stations, and digitizing business processes.

The company is actively developing the first major domestic offshore project — the Prirazlomnoye field in Russia’s Arctic shelf — and has production projects in other nations including Venezuela and Iraq.

Volume of conventional reserves has declined, which means that oil companies will need to increasingly concentrate on unconventional and complex segments (offshore, shale) where reserves are more difficult to recover.

As a result, Gazprom Neft is heavily invested in technological projects that involve 3D modeling, artificial intelligence, big data, and cloud technologies.

Because the company has a number of foreign projects and is exploring additional geographies, it runs the risk of encountering political challenges. There is also the risk of having a competitive disadvantage in new markets. Gazprom Neft carefully assesses these risks when expanding.

What is Gazprom Neftc’s History?

In the aftermath of the fall of the Soviet Union in the early 1990s, Sibneft was formed in 1995 as part of Russia’s privatization of state industries. Sibneft included western Siberian oil producer Noyabrskneftegas and the Omsk oil refinery.

The Russian government was to retain a 51% stake for three years, while limiting foreign ownership to 15%. Finance Oil Company (FNK), controlled by business oligarch Boris Berezovsky, the man reportedly behind Sibneft’s formation, gained a controlling stake in Sibneft.

The new integrated oil company’s prize asset was the Omsk refinery. Built in the mid-1980s, it was Russia’s largest and most modern refinery.

In 1997 Sibneft became the first Russian company to issue a Eurobond. Despite an economic crisis in 1998, Sibneft continued to service all of its financial obligations.

That year Sibneft made plans to merge with rival oil company Yukos (controlled by oligarch Mikhail Khodorkovsky), but falling oil prices led the two firms to scuttle the proposed union.

Also in 1998 Sibneft published a corporate governance charter, compiled by leading European experts to bring the company in line with international practices. This move was followed up with the appointment of three non-executives to the company’s board of nine directors.

A year later Sibneft became the first major Russian oil company to publish its financial accounts (audited by Arthur Andersen) according to US generally accepted accounting principles.

In 1999 Sibneft also formed alliances with two Western oil services firms, US-based Schlumberger and Canadian-based BJ Services, to enhance its extraction of oil and gas.

During the 1999 Russian Duma elections, reclusive oligarch Roman Abramovich (who had acquired a 12% stake in Sibneft in 1996) claimed to control Sibneft, whereas Berezovsky (also elected to the Duma) was said to have only a background role in Sibneft.

The company announced plans in 2000 to invest $52 million to modernize the Omsk refinery, upgrading its capacity to produce lead-free gasoline.

That year Sibneft also agreed to acquire majority stakes in two refined products retailers in the Urals region, which together controlled 132 service stations and 20 storage sites.

Sibneft lost out in its bid to gain control of Onako, another former state-owned oil company that was privatized in 2000. Sibneft had teamed up with two other oil companies, Yukos and Stroitransgaz (a unit of Russian gas giant Gazprom), to bid for Onako but lost out to rival Tyumen Oil Co. (TNK).

However, Sibneft, which had gained control of a 40% stake in Onako’s main oil producing subsidiary, Orenburgneft, reportedly made an arrangement with TNK to swap its Orenburgneft shares for a minority stake in Onako.

Also in 2000, Sibneft and other Russian oil companies were investigated by Russian authorities after allegations of tax evasion.

In 2001 the company announced plans to search for oil in the Chukotka autonomous district. (Abramovich is the governor of Chukotka). This unexplored area has a similar geological structure to Alaska’s oil-rich North Slope.

Later that year Sibneft acquired a 36% stake in a Moscow refinery from oil giant LUKOIL, allowing the company to supply markets in European Russia. In 2002 Sibneft opened its first gas station in Moscow.

Gazprom Neft (as Sibneft) was once controlled by UK-residing, Chelsea soccer club-owning Russian oligarch Roman Abramovich through investment company Mil

house Capital. In 2005 Gazprom bought its majority stake in Sibneft from Millhouse Capital for $11 billion. The company changed its name to Gazprom Neft the next year, and ENI acquired 20% of Gazprom Neft in 2007 following the bankruptcy of Yukos.

Gazprom had the option to buy ENI’s stake within two years and exercised that right in 2009, paying just more than $4 billion to ENI. Gazprom now directly owns or indirectly controls through subsidiaries about 95% of Gazprom Neft.

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