Russian oil merger excludes Yukos

The merger of Russian gas giant Gazprom and oil firm Rosneft is to go ahead, but will not include Yugansk, which was controversially bought last year.

The merger, backed by Russian authorities, will allow foreigners to trade in Gazprom shares. Gazprom chief Alexei Miller confirmed Rosneft-owned Yugansk was not part of the deal and will instead be spun off. Under the agreement, the state will get a controlling share of Gazprom in exchange for Rosneft. The state wanted to control Gazprom before allowing foreigners to trade. Speaking on NTV television, which is controlled by Gazprom, Mr Miller added that Yugansk, which was swallowed up by Rosneft late last year, will operate as a separate, state-owned oil firm headed by current Rosneft chief Sergei Bogdanchikov. According to reports from Russian News Agency Interfax, the deal should go through in the next two to three months.

"Obtaining majority control over Gazprom is the beginning of the liberalisation of the market in Gazprom shares," Mr Miller added. By opening up trading in Gazprom to foreigners, the firm will become a top emerging market play for traders. Currently, foreigners can only trade in Gazprom via a small issue of London-listed proxy shares. "This is positive news for the international investment community," Global Asset Management investment chief David Smith said. "The majority of investors are going to be happy," he added.

However, analysts were disappointed that Yugansk would not be included in the deal. "Yugansk is a heavy cashflow generator and would have been a much better asset for Gazprom," Renaissance Capital energy analyst Adam Landes told Reuters news agency. But he said the latest development was simply an interim step to allow foreigners to trade in Gazprom. "Ultimately and industrially, Gazprom needs Yugansk," he added. Analysts said the deal would give Gazprom control of 8% of Russia's total oil production, an improvement on its current 2.5%, but still far less than the 20% share it would have gained had it also taken over Yugansk. However, the merged group will still remain outside Russia's top five oil producers - led by Lukoil with 11% of the market , followed by TNK-BP which is half owned by BP, and Surgutneftegaz. Instead, the merged Gazprom-Rosneft group will rank alongside Sibneft with 7% of the market. Yugansk was sold to a little-known shell company in a disputed auction in December, following what many thought was a politically-motivated attack on Yukos. The shell company was then snapped up by Rosneft. Yukos unsuccessfully sought to halt the auction by applying for bankruptcy through the US courts. The unit was auctioned by Russian authorities to help pay off a $27.5bn back-tax bill.