OREANDA-NEWS. November 10, 2009. AFK Sistema has shown interest in RussNeft, a mid-sized vertically integrated oil company, reported Kommersant, citing an unnamed source, reported the press-centre of OTKRITIE FC. 

View: During an investor day back in October, Sistema’s top managers announced that Sistema is considering a new acquisition in the domestic energy sector. At present, RussNeft’s 9M09 oil production is 9.54m tons (255,000 bpd), with incremental oil production at +3% YoY. However, the company has a total debt of US6.65bn, a fact that could undermine acquisition of the company by Sistema. Nevertheless, there are some indirect signs regarding Sistema’s interest in Russneft. Thus, the head of the oil business unit in Sistema is Alexander Korsik, who previously worked at RussNeft. In addition, Sistema’s Bashkir refineries faced a deficit of crude for refining in 2Q09 because Bashneft does not possess sufficient volumes to supply these refineries to capacity. 

Moreover, neither LUKOIL nor TNK-BP Holding can provide much additional crude volumes, since in accordance with the tolling system they first need to supply their own refineries. Before the economic downturn our evaluation of 100% of RussNeft’s equity was in the range of US10-12bn. At present, we evaluate RussNeft’s equity at US3.5-5bn, because of its large debt. The query about the potential purchase could depend upon whether Sistema has can finance this acquisition. We believe that it could hold an IPO of its Bashkir oil holding.