Black Gold: Surgutneftegas

March 13, 2011 Company Profiles, Global Oil No Comments

Oil has taken center stage in the world news and I feel that it is important that we look at oil with an eye to investing in oil stocks after the immediate panic calms down and the shares pull back a little. With that said, I want to take a look at Russian oil companies because if any country can step up and provide the stability that OPEC lacks, it is Russia.

There are a lot of major oil companies in Russia which is a country rich in oil and gas. Russia has the resources and has a leader who wants Russia to step up its game and move to center stage: Vladimir Putin. A lot of this is speculation, but I think that oil is not going to stay down for long if when it next corrects. When that correction occurs I, for one, want to be ready to step in and take a position in a company that may be the next black gold: Surgutnefetegas.

Russia’s Major Oil Companies

Gazprom, Lukoil, Gazpromneft, Rosneft, THK-BP and Surgutnefetgas are large Russian oil companies. Let’s review them quickly in order to get a feel for the Russian oil industry.

Gazprom (OGZPY, Pink Sheets) is the world’s largest gas company focused on geological exploration, production, transmission, storage, processing and marketing of gas and other hydrocarbons. 50.002% of Gazprom’s stake is held by the Russian government which makes me a little wary of investing in them. Their major energy product is natural gas, which is not where I really want to go at this time. Oil is going to be in high demand for the foreseeable future and that is what I want to focus on. OGZPY is currently trading at $29.47.

Lukoil (LUKOY, Pink Sheets) is the largest private oil company in Russia. It explores for and produces oil and gas, along with petroleum products and petrochemicals. Lukoil’s main resource is located in Western Siberia, and it has refineries, gas processing and petrochemical plants in Russia and Eastern Europe . Lukoil is state-owned and was formed in 1991. “State owned” is to me like GM, whose CEO is Barack Hussein Obama. I won’t invest in Government Motors. LUKOY is currently trading at $69.61.

Gazpromneft (GZPFY, Pink Sheets) is Russia’s fastest-growing oil company. Earlier known as Sibneft the company got the new name of Gazpromneft in 2006. Noyabrskneftegas was established in 1981 and served as the foundation for the creation of Sibneft, which was founded in 1995 by consolidation of Noyabrskneftegas and the Omsk Refinery assets. As of Jan 1, 2010 Gazpromneft held 1,562 million tons of hydrocarbon reserves. GZPFY is currently trading at $25.03.

Rosneft (RNFTF) is one of the world’s largest oil companies, owning 2 refineries, four main oil terminals and a network of over 700 service stations, the company is among the top ten in crude oil production. Rosneft’s headquarters is located in Moscow. As of December 31, 2010, Rosneft had estimated net proved reserves of 2,487 million tonnes of oil and 791 bcm of gas. Rosneft had hydrocarbon reserve life of 25 years, including 21 years for oil and 67 years for gas.

Rosneft has been included in the Russian Government’s List of Strategic Enterprises and Organizations. The state holds 75.16% in the Company (through OJSC ROSNEFTEGAZ), while approximately 15% of shares are in free-float. RNFTF is currently trading at $6.75, but it really doesn’t matter because only 15% of the shares are in private hands.

TNK-BP (TNBP:RU) was established in 2003 by a merger of BP’s Russian assets and assets of Alfa Access Renova group (AAR). TNK BP is a leading Russian oil company with principal refineries in Ryazan, Saratov, Nizhnevartovsk and Lisichansk in Ukraine. TNK-BP’s total proved reserves were 11.667 billion barrels of oil equivalent as of Dec. 31st, 2009. TNK-BP is headquartered in Moscow and the company owns a network of about 1600 filling stations in Russia and Ukraine operating under TNK and BP brands. TNBP:RU is currently trading at $2.95.

Now Let’s Look At What Could Be The Next Black Gold!

Surgutneftegas: SGTZY, Pink Sheets

surgut Black Gold: Surgutneftegas Surgutnefetegas is another large oil company. Its main activities include prospecting, gas and oil filed constriction and development, production and marketing of oil, gas and petrochemical products.

The territory stretching along the middle section of the river Ob and surrounding Surgut, is one of the first territories where in the middle sixties oil and gas production started in Western Siberia. In 1993, the property complex of the production association “Surgutneftegas” became the basis for establishing a joint stock company, which retained the name “Surgutneftegas”.

Today over 50 divisions of the company operate on the market. The recoverable oil and gas reserves amount to 2.5 billion tons of oil equivalent.

Surgutneftegas possesses 300 filling stations, 32 tank farms and 24 oil-storage tanks. The headquarters of the company is located in the city of Surgut, in the Tyumen Region. SGTZY is currently trading for $11.44.

Surgutneftegas is Completely Privately Owned With a Kicker!

Putin With Surgutneftegas Employees

A well-known Russian political analyst Stanislav Belkovsky said in an interview with the German daily Die Welt that “37 percent of Surgutneftegas was owned personally by then Russian President, and now Prime Minister, Vladimir Putin”. The veracity of these claims have never been confirmed, but Surgutneftegas continues to be considered a company very close to the Russian national leadership. This, if true, is a huge plus for STGZY going forward. If you doubt this, just look at what “The Community Organizer in Chief” did for the unions once he took over control of GM. It’s nice to have friends in high places.

The Transneft pipeline from Siberia allows Surgutneftegas to transport oil from its Talakan Field in eastern Siberia. That alone has greatly enhanced the company’s profitability. In 2009, Surgutneftegas, made its debut in Europe: it bought 21.2 percent of Hungarian MOL from Austria’s OMV. This step was quite unusual for cash-rich Surgutneftegas, which does not have any production links with MOL. The key assets of MOL include several refineries and 5,000 km of gas distribution networks.

Let’s Go to The Charts!

SGTZY is not heavily traded, yet. If OPEC continues down the path of embracing the Muslim Brotherhood, that could change really quickly.

The gaps in this chart concern me because gaps have a tendency to get filled. On the other hand, oil is getting rather volatile which can explain some of this action. As we move out to the 2 year chart we begin to see a gradual upward trend for SGTZY.

This upward trend should accelerate if OPEC oil comes under any more pressure. In fact, even without further disruption of Middle East and Northern African oil, the current levels of unrest should push oil importers to look for a more stable source of oil. Russia is able and willing to assume that roll.

This piece from The Russia Forum 2011, brings Putin’s plans for Russian oil exports into focus.

Oil & Gas Exports to Asia: Deciphering the Message in a Fortune Cookie

Oil and gas exports to traditional European markets – vitally important for the Russian economy – are coming under increasing competitive pressure. One major emerging alternative is to intensely develop oil and gas reserves in Eastern Siberia and offshore Far East to secure a basis for large-scale oil and gas exports to Asia, more specifically to China. Russia’s energy strategy through 2030 envisages spectacular growth in the oil and gas production share of Eastern Siberia and the Russian Far East in the country’s total, from a respective 3% and 2% in 2008 to a whopping 18-19% and 15% in 2030. This new production implies a spike in eastbound oil and oil product exports from 8% to 22-25% of the total. The prospects for Russian gas exports to China and other Asian countries are also promising. That said, Russia faces a number of hurdles to fulfill its new export strategy. Exploration and development of oil and gas reserves in Eastern Siberia and the Far East is behind schedule, mainly due to the government’s inconsistent tax policy and potential investors’ restricted access to strategic reserves. Other large target markets (Japan) are saturated, while penetration in others (China) is challenged by lingering pricing issues and tougher competition from other energy sources.

Surgutneftegas is perfectly positioned to profit from Putin’s desire to expand Russia’s oil exports and world events are conveniently falling into place to facilitate his plans When you add the troubles that are facing the Middle East and North African oil producing nations and the havoc that Japan’s earthquake has wreaked on the nuclear industry, it is quite clear that oil and coal are not going to be replaced with “alternative” energy any time soon. Oil, gas and coal will be the solution for the world’s energy needs for many years to come. It is time for the world to throw off OPEC’ S shackles and move to more pro-western sources of energy like the world’s number one oil producer, Russia.

Check out SGTZY’s website for more information.

http://www.surgutneftegas.ru/en/about/today

Final Thoughts

I would appreciate any and all comments from anyone that has more info on SGTZY. I am going to keep watching this stock with an eye towards getting in at the low $10 to high $9 range. Once the current unrest in the Middle East ends and we get a clearer picture of the damage in Japan, the oil price should adjust to a new “normal”. That’s when I will think the real price of SGTZY will come to the fore.

This is a long term play which has a lot of upside. I wouldn’t try to day trade this stock. Do your home work, pick an entry point and have a clear exit point that you are looking for. This stock is not for everyone, but I do believe that there is a lot of “blue sky” potential here. In a couple of years we might look back and see the next black gold: Surgutneftegas.

As is always the case, I urge you to do your own research before buying or selling any stock. I am only giving you my opinion here, and nothing else. I do not currently own this stock, but I am definitely interested.

Till next time, good luck and good trading!