Sistema May Merge Russneft, Bashneft Assets After Cutting $7 Billion Debt

AFK Sistema may merge its Bashkir oil assets and OAO Russneft, after reducing the almost $7 billion of debt owed by the crude producer founded by Russian billionaire Mikhail Gutseriev.

“Russneft is in difficult condition; it’s overburdened with debt,” Sistema Chief Executive Officer Leonid Melamed said today in an interview with Bloomberg Television. Sistema, billionaire Vladimir Yevtushenkov’s holding company, will seek to restructure the Moscow-based oil producer’s debt and improve operations before deciding whether to merge the assets, he said.

Sistema, which was built around telecommunications, retail and real estate, agreed last year to pay $2.5 billion to gain control of the OAO Bashneft oil producer and three refineries in the Bashkortostan region. Last month, it bought 49 percent of Russneft for less than $100 million. Gutseriev had fled Russia and sought to sell the company to fellow billionaire Oleg Deripaska in 2007 during a tax fraud probe.

“They will sort out Russneft’s $7 billion debt before they increase their holding over 50 percent,” Alexei Kokin, an oil and gas analyst at IFC Metropol in Moscow, said by phone.

Sistema has sold or ceded some assets to repay borrowing. Its net debt rose 42 percent last year to $12.3 billion.

Sistema could boost Russneft output 10 percent to 15 percent, as it has with Bashneft, Kokin said. In the current tax regime, Russneft will benefit from access to refining capacity, while giving the Bashkir refineries a back-up source of crude, he said.

“We are strategic investors” in Bashneft, Melamed said. “On top of growth of the global economy, the demand for energy resources will be very high.”

Bashneft produces about 275,000 barrels of oil day, while Russneft produces about 245,000 barrels a day. Together, they pump about as much oil as Russia’s sixth-largest oil producer, OAO Tatneft.

To contact the reporter on this story: Maria Ermakova in Moscow at mermakova@bloomberg.net

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