ALROSA’s gas assets temporarily owned by VTB Capital can fell to NOVATEK’s lot, Olga Mordushenko writes in her article published in the Kommersant Daily. The largest independent gas producer in Russia offered VTB to acquire Urengoy Gas Company for $160 million. Another asset, Geotransgas, is priced by analysts at $800 million. If NOVATEK agrees to pay this amount, it may satisfy VTB Capital - the seller sets the price for assets based on the initial price of $620 million plus $135 million as investments and $145 million as interest. However, the parties cannot so far agree on the price for Geotransgas, and VTB does not want to sell the assets separately.
According to the daily’s source, who knows the situation with ALROSA’s gas assets sold to VTB Capital in 2009, there is a real seeker for those assets. The source of the Kommersant said that on June 14, Leonid Mikhelson, Chairman of NOVATEK, offered Andrei Kostin, Chairman of VTB, to acquire a 90 percent share in Urengoy Gas Company for $160 million. Mikhelson pointed out that the price was subject to correction taking into account the net debt and “other factors” that would be revealed by a detailed audit of the company. The offer is valid till July 15. The source added that the other asset, Geotransgas, is of interest to NOVATEK, but negotiations were not completed and the asking price was not determined.
Geotransgas (in the Urengoy Settlement) holds the license for developing some part of the Beregovoye Field including the South Geological Area. The reserves equal to 107 billion cubic meters and 17 million tons of condensate. The license for development and production within the Beregovoye Field is held by Sibneftegas, and the company is controlled by NOVATEK. In 2014, Geotransgas may launch production. After this, the company’s sales are estimated by ALROSA to be at the level of RUB 15 billion, EBITDA at RUB 6 billion, and the cost recovery period is estimated as long as 4 years with investments running at RUB 7.3 billion till 2014.
Urengoy Gas Company (Novy Urengoy) holds the license for geological prospecting of the Ust-Yamsoveisky Area. Its reserves are estimated as 94 billion cubic meters of gas and 10 million tons of condensate. Additional exploration of the deposit is required.
In 2009, VTB Capital acquired the assets for $620 million. At that moment, analysts considered it to be an “adequate price”. But the Kommersant’s source close to ALROSA notes that since then, $135 million have been spent for investments in the projects, and the accrued interest (according to the agreement terms) has reached another $145 million. The agreement between VTB Capital and ALROSA will terminate in October 2012, adds the source, and then the diamond miner should buy the gas assets back, but for $1.2 billion. “When the deal was under conclusion, it was expected that VTB would be actively seeking buyers,” the source explains. Prior to this agreement, ALROSA was in search of buyers for gas assets for about two years, and NOVATEK was named as one of the bidders. Itera and Gasprombank took their interest in those, too.
The Kommersant has got NOVATEK’s confirmation that they are interested in acquiring ALROSA’s gas assets and holding negotiations on acquisition. “The assets are within the company’s area of activities and close to the transport infrastructure,” NOVATEK explained. However, the source of the Kommersant placed close to the deal explains that so far NOVATEK has framed his offer for Urengoy Gas Company only, while VTB Capital wants to sell both assets simultaneously. ALROSA assures it is not aware of the NOVATEK offer and gives no comment on the situation.
Alexander Nazarov of Gasprombank notes that the price for the deposits should not be high because of a low extent of exploration. He thinks that even the NOVATEK estimate of $160 million for Urengoy Gas Company is overpriced (i.e., approximately $0.3 for one barrel of oil equivalent) and says that the premium can be for the “good region” only. The fact that NOVATEK is first of all interested in Urengoy Gas Company can be explained by the geological and geographical considerations, the analyst believes. In his opinion, this is due to the fact that NOVATEK is not the only owner of the Beregovoye Field, and the development of Geotransgas will have to be coordinated with Itera. Besides, Geotransgas having a higher extent of exploration is valued much more. Vitaly Krukov of IDF-Capital prices Geotransgas approximately at $1 for one barrel of oil equivalent, that is up to $800 million.
Thus, the total value of the deal could satisfy VTB. According to the analyst, it is of interest for NOVATEK as well because the deposit features “clear geology and a developed infrastructure.” Dmitry Lutyagin of Alor-Invest adds that NOVATEK can “afford new acquisitions.” According to the expert’s estimates, the company’s debt/EBITDA ratio will be 0.75 by the end of the year, which means it can attract another €1 billion and keep the debt at a comfortable level.
