Cash-flush oil producer Surgutneftegaz broke a self-imposed, decadelong expansion freeze by agreeing Monday to buy 21 percent of Hungarian refiner MOL for the equivalent of $1.8 billion.
OMV, Austria's oil and gas giant, announced that it would pocket 1.4 billion euros ($1.8 billion) — or double the stake's market value ?€” from the sale, following a failed attempt to merge with its Hungarian rival. Surgut, whose cash stockpile has been estimated to exceed its market value, said in a separate statement that it would use the purchase to increase its refining capacity in closer proximity to end customers in Europe.
But the benefits for Surgut were an open question Monday. Just hours after the news broke, MOL poured cold water on Surgut's plan of expanding its reach in Europe. The Hungarian company said it considered Surgut a "financial investor" and that it wouldn't bother with a partnership.
Surgut will replace OMV as the biggest single shareholder in MOL. Even so, its voting rights will be limited to 10 percent under Hungarian law, which also gives the government a "golden share," or preferential voting rights.
"The purchase of an interest in MOL will be a serious basis for the start of long-term, mutually beneficial cooperation between our companies," Surgut chief Vladimir Bogdanov said in the statement.
MOL rebuffed the offer, however, saying it was not consulted on the deal and learned about the sale from the media.
"There have not been, nor are there, any strategic or operational relationships between Surgutneftegaz and MOL," the Hungarian company said in an e-mailed statement. "Therefore, the intentions of Surgutneftegaz, formulated in its statement, are not clear.
"The board of directors of MOL considers Surgutneftegaz to be a financial investor and does not comment on transactions between ordinary shareholders."
MOL said it would maintain its focus on a partnership with the Croatian oil and gas company INA, in which it owns a blocking stake.
The market was also lukewarm about the deal. Surgut, which would stand to benefit from boosting its refining capacity, will have too little clout at MOL to count on sending any of its oil to the company's refineries, analysts said.
"It doesn't look like this holds any promise for Surgut," said Viktor Mishnyakov, an analyst at UralSib. "MOL always has the chance to say, 'We don't want your oil.'"
Surgut would have better prospects if it had secured the support of the Hungarian government, said Alexei Kokin, an analyst at Metropol.
Despite MOL's frosty reaction, its stock surged as much as 15 percent in Budapest, although it shed most of the gains to finish about 2 percent higher.
Surgutneftegaz shares dropped 3.5 percent at the end of trading on the MICEX, beating the exchange's fall of 6.4 percent. In London, which is the primary market for the stock, Surgut fell.
OMV said it would own no more shares in MOL after the deal, which was conducted by JPMorgan. The Austrian company called the sale a "logical step" after it dropped a takeover bid for MOL in August because of a rejection from MOL's board and objections from the European Union.
OMV called the price "good," saying it corresponded to 19.2 forints (8.2 cents) per share compared with Friday's closing price of 9.9 forints per share. OMV's shares were up almost 3 percent in Vienna.
Surgut, Russia's fourth-largest oil producer, struck the deal after a protracted abstention, surprising the market. With the exception of licenses and minor assets, it had made almost no oil-industry purchases since 1999, when it announced that it had acquired a blocking stake in oil trader Nafta-Moskva. It has since sold the interest. The strategy set the company widely apart from Russia's other commodities producers, who ?€” encouraged by the state ?€” have been on a buying spree in recent years to convert their profits from a booming market into assets around the world.
"We believe Surgutneftegaz has behaved as if it were not authorized to dispose of its own money," Metropol's Kokin said in a research note released at about the same time that news of the deal broke. "We don't see any circumstances indicating that Surgutneftegaz is going to change that policy."
Kokin said later by phone that it was "the first time … Surgut has dipped into its purse."
Lack of appetite for acquisitions is more surprising given the company's wealth. Surgut held $13.6 billion in cash at the start of last year, according to the latest available company data. Its cash horde may have reached $18 billion at the end of last year, Kokin said in the note.
Metropol said Monday that Surgut's market value was $17 billion.
Surgut's money cushion is so thick that it gave rise to rumors that Russia's heavily indebted oil champion, state-controlled Rosneft, might seek a merger to clear its balance sheet. Both companies have denied such plans, and Energy Minister Sergei Shmatko said last week that a tie-up would not make sense.
It was not immediately clear whether Surgut, which has a notoriously murky ownership structure, would be required to make any disclosures to Hungarian or EU regulators. A Surgut spokeswoman said she was not aware of any potential disclosure requirements.
Although it has economized on industry assets, Surgut hasn't shied away from other interests. In 2007, the company bought 20 percent of the National Media Group, a company owned by businessmen considered loyal to Prime Minister Vladimir Putin.
Lately, however, the company has not been able to turn its healthy financial position into stronger production. After a period of sustained growth, its output began slumping last year, dropping by 4 percent, Kokin said. It will continue sliding at a slower pace through 2018, he said.
Surgut's sole refinery is the giant Kirishi facility outside St. Petersburg, which handles slightly more than one-third of Surgut's oil. It refined 447,000 barrels per day of the company's 1.2-million-bpd output in February, according to data from the Energy Ministry's statistics body.
MOL has a refining capacity of 336,000 bpd, with its own production of 85,700 barrels of oil equivalent per day in 2008, the company said in a March investor presentation on its web site.
OMV, Austria's oil and gas giant, announced that it would pocket 1.4 billion euros ($1.8 billion) — or double the stake's market value ?€” from the sale, following a failed attempt to merge with its Hungarian rival. Surgut, whose cash stockpile has been estimated to exceed its market value, said in a separate statement that it would use the purchase to increase its refining capacity in closer proximity to end customers in Europe.
But the benefits for Surgut were an open question Monday. Just hours after the news broke, MOL poured cold water on Surgut's plan of expanding its reach in Europe. The Hungarian company said it considered Surgut a "financial investor" and that it wouldn't bother with a partnership.
Surgut will replace OMV as the biggest single shareholder in MOL. Even so, its voting rights will be limited to 10 percent under Hungarian law, which also gives the government a "golden share," or preferential voting rights.
"The purchase of an interest in MOL will be a serious basis for the start of long-term, mutually beneficial cooperation between our companies," Surgut chief Vladimir Bogdanov said in the statement.
MOL rebuffed the offer, however, saying it was not consulted on the deal and learned about the sale from the media.
"There have not been, nor are there, any strategic or operational relationships between Surgutneftegaz and MOL," the Hungarian company said in an e-mailed statement. "Therefore, the intentions of Surgutneftegaz, formulated in its statement, are not clear.
"The board of directors of MOL considers Surgutneftegaz to be a financial investor and does not comment on transactions between ordinary shareholders."
MOL said it would maintain its focus on a partnership with the Croatian oil and gas company INA, in which it owns a blocking stake.
The market was also lukewarm about the deal. Surgut, which would stand to benefit from boosting its refining capacity, will have too little clout at MOL to count on sending any of its oil to the company's refineries, analysts said.
"It doesn't look like this holds any promise for Surgut," said Viktor Mishnyakov, an analyst at UralSib. "MOL always has the chance to say, 'We don't want your oil.'"
Surgut would have better prospects if it had secured the support of the Hungarian government, said Alexei Kokin, an analyst at Metropol.
Despite MOL's frosty reaction, its stock surged as much as 15 percent in Budapest, although it shed most of the gains to finish about 2 percent higher.
Surgutneftegaz shares dropped 3.5 percent at the end of trading on the MICEX, beating the exchange's fall of 6.4 percent. In London, which is the primary market for the stock, Surgut fell.
OMV said it would own no more shares in MOL after the deal, which was conducted by JPMorgan. The Austrian company called the sale a "logical step" after it dropped a takeover bid for MOL in August because of a rejection from MOL's board and objections from the European Union.
OMV called the price "good," saying it corresponded to 19.2 forints (8.2 cents) per share compared with Friday's closing price of 9.9 forints per share. OMV's shares were up almost 3 percent in Vienna.
Surgut, Russia's fourth-largest oil producer, struck the deal after a protracted abstention, surprising the market. With the exception of licenses and minor assets, it had made almost no oil-industry purchases since 1999, when it announced that it had acquired a blocking stake in oil trader Nafta-Moskva. It has since sold the interest. The strategy set the company widely apart from Russia's other commodities producers, who ?€” encouraged by the state ?€” have been on a buying spree in recent years to convert their profits from a booming market into assets around the world.
"We believe Surgutneftegaz has behaved as if it were not authorized to dispose of its own money," Metropol's Kokin said in a research note released at about the same time that news of the deal broke. "We don't see any circumstances indicating that Surgutneftegaz is going to change that policy."
Kokin said later by phone that it was "the first time … Surgut has dipped into its purse."
Lack of appetite for acquisitions is more surprising given the company's wealth. Surgut held $13.6 billion in cash at the start of last year, according to the latest available company data. Its cash horde may have reached $18 billion at the end of last year, Kokin said in the note.
Metropol said Monday that Surgut's market value was $17 billion.
Surgut's money cushion is so thick that it gave rise to rumors that Russia's heavily indebted oil champion, state-controlled Rosneft, might seek a merger to clear its balance sheet. Both companies have denied such plans, and Energy Minister Sergei Shmatko said last week that a tie-up would not make sense.
It was not immediately clear whether Surgut, which has a notoriously murky ownership structure, would be required to make any disclosures to Hungarian or EU regulators. A Surgut spokeswoman said she was not aware of any potential disclosure requirements.
Although it has economized on industry assets, Surgut hasn't shied away from other interests. In 2007, the company bought 20 percent of the National Media Group, a company owned by businessmen considered loyal to Prime Minister Vladimir Putin.
Lately, however, the company has not been able to turn its healthy financial position into stronger production. After a period of sustained growth, its output began slumping last year, dropping by 4 percent, Kokin said. It will continue sliding at a slower pace through 2018, he said.
Surgut's sole refinery is the giant Kirishi facility outside St. Petersburg, which handles slightly more than one-third of Surgut's oil. It refined 447,000 barrels per day of the company's 1.2-million-bpd output in February, according to data from the Energy Ministry's statistics body.
MOL has a refining capacity of 336,000 bpd, with its own production of 85,700 barrels of oil equivalent per day in 2008, the company said in a March investor presentation on its web site.
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