OREANDA-NEWS. October 22, 2009. AFK Sistema held its first meeting with oil and gas analysts about the prospects of its energy subsidiaries. During the meeting Sistema’s managers provided the following guidance, reported the press-centre of OTKRITIE FC:

According to Sistema, Bashneft plans to buy back from minority shareholders stocks of four Bashkir refineries currently owned by AFK Sistema, in order to launch a vertically integrated oil company. Sistema expects Bashneft’s crude oil production to rise in 2009, hoping that the company can overcome output stagnation in the long-run, to become one of the top 5 domestic crude producers.

According to Sistema, Bashneft could remain a stable crude supplier for the four refineries owned by AFK Sistema. Currently it supplies 100,000 – 200,000 tons of oil (730,000-1.46m barrels) monthly to these refineries (10-20% of Bashneft’s crude oil production), while the key oil suppliers for the refinery are LUKOIL and TNK-BP Holding.

In addition, Sistema looks for the Bashkir refineries to post refining margins of 80-90% of the average refining margin in Russia in the future (in 2Q09 the margins of these refineries were negative).

View: We regard Bashneft’s and Sistema’s oil production expectations as overly optimistic since 80% of Bashneft’s oil fields are depleted. According to our estimates, the refining margins of Bashkir refineries could amount to US10-11/barrel in the long-run.

Action: We view this news as a long-term positive for Bashneft stock.