CEFC Acquires Stake in Rosneft, Increasing Chinese-Russian Energy Cooperation Amidst U.S. Sanctions

On Sep­tem­ber 8, 2017, CEFC China Energy reached an agree­ment with a con­sor­tium of com­pa­nies, com­prised of Swiss com­pany, Glen­core and the Qatar Invest­ment Author­ity, to acquire a 14.26 % stake in Rus­sian oil major, Ros­neft, in a deal val­ued at $9.1 bil­lion.  In July of this year, CEFC and Ros­neft signed a coop­er­a­tion agree­ment that called for the joint explo­ration, pro­duc­tion, and refin­ing of petro­chem­i­cals.  The agree­ment involves the estab­lish­ment of a ver­ti­cally inte­grated joint invest­ment fund to achieve these project out­comes and effec­tively paved the way for CEFC’s even­tual equity stake in Ros­neft.

Specif­i­cally, CEFC will buy shares of the Rus­sian oil major at a 16% pre­mium to the 30-day vol­ume weighted aver­age price of Ros­neft shares.  This lucra­tive offer was made less than one month after another series of U.S. con­gres­sional sanc­tions against Rus­sian enter­prises (includ­ing Ros­neft) were imple­mented.

The terms of the acqui­si­tion remain opaque.  Even China’s state-owned China Daily reported on the “lack of trans­parency” sur­round­ing the deal.  Beyond real­iz­ing com­mer­cial syn­ergies, the opac­ity and accel­er­ated nature of the deal is indica­tive of the polit­i­cal incli­na­tions of Moscow and Bei­jing, as they seek closer ties amidst increas­ing West­ern scrutiny and pres­sure.

The deal marks one of the largest Chi­nese invest­ments in a Rus­sian state-owned entity, which will make CEFC Rosneft’s third largest share­holder.  The con­tract is to be signed this week. The stake will provide CEFC an annual equity oil pro­duc­tion of 42 mil­lion met­ric tons (approx­i­mately 84,000 bar­rels per day) and access to oil and gas reserves of 2.67 bil­lion tons (20 bil­lion bar­rels).  Ros­neft CEO and close ally of Vlad­mir Putin, Igor Sechin, indi­cated that CEFC will be granted com­plete access to Rosneft’s oil fields and petro­chem­i­cal projects in East Siberia in an effort to “increase syn­ergies” between the two com­pa­nies.  Although still sub­ject to reg­u­la­tory clear­ance, when real­ized, the deal will mark a sig­nif­i­cant strength­en­ing of energy ties between Moscow and Bei­jing.

russia-chinaenergycooperationOther ongo­ing Chi­nese-Rus­sian ini­tia­tives in this area this year, include:

  • August 2017, China Invest­ment Cor­po­ra­tion expresses inter­est in pur­chas­ing shares of Rus­sian energy trans­port monopoly, Transneft.
  • June 2017, Bei­jing Petro­chem­i­cal Engi­neer­ing Com­pany (a sub­sidiary of Yan­chang Petro­leum) signed a coop­er­a­tion mem­o­ran­dum with Ros­tec to cre­ate a joint ven­ture that would local­ize new LNG tech­nolo­gies in Rus­sia.
  • April 2017, China Petro­leum Con­struc­tion Cor­po­ra­tion (CPECC) signed an EPC agree­ment with Gazprom to par­tic­i­pate in the con­struc­tion of Russia’s Amur gas pro­cess­ing plant – a joint ven­ture project between state-owned com­pa­nies Gazprom and China National Petro­leum Cor­po­ra­tion.

The graph to the right, excerpted from Intel­Trak, shows the increase in Chi­nese invest­ment in the Rus­sian energy and petro­chem­i­cal indus­tries over the past six years.