Mikhail Yuriev, a former Russian politician and businessman, said he’s quitting Russia to invest in the U.S. energy industry where cheaper financing, better infrastructure and support for foreign businesses boost returns.
Yuriev plans to raise $2 billion to invest in shale oil and gas exploration and processing, he said in an interview in Moscow. U.S. money will account for half of his Amshale Capital Partners fund, according to the investor, who with Russian partners may add as much as $200 million.
Yuriev is channeling his wealth into industries abroad as President Vladimir Putin increases the state’s role in Russia’s oil and gas industry, the world’s largest. Small and mid-sized investors, such as those driving the U.S. shale boom, lack the resources to compete in Russia where the top 10 producers pump about 90 percent of oil output, Energy Ministry figures show.
While Russia’s limited access and an uncompetitive market can result in high profit margins for a few companies, its higher cost of services, financing and taxes makes the U.S. a more attractive proposition, according to Yuriev. Russian projects also face “superfluous” government regulation and an “unfriendly” business environment, he said.
Yuriev, ex-deputy speaker of the State Duma, Russia’s lower house, and a former vice president of business lobby the Russian Union of Industrialists and Entrepreneurs, has invested in energy and industrial companies across the former Soviet Union and held board seats on businesses including Evrofinance Group.
His new fund will include a focus on exploration in areas such as Texas, Montana and Louisiana, according to Yuriev. His managing company is already drilling in southern Texas, with contractor Halliburton Co. this month starting the third of a 10- to 15-well program across 200,000 acres of shale leases.
“I see incredible rationale in Russian financial investors, and ultimately Russian strategic investors, investing in the U.S. oil and gas industry,” said Rob Van Genderen, managing director of Pharos Financial Group. “The U.S. is expected to become the largest producer of oil over the next several years.”
Shale oil and gas is extracted using hydraulic fracturing, or fracking, which involves blasting rock with sand, water and chemicals to release fuel. A boom in shale output has seen the U.S. surpass Russia as the world’s largest gas producer, while sending U.S. prices for the fuel to their lowest in a decade.
Yuriev plans to take advantage of the price decline by using U.S. gas to make urea, an industrial fertilizer not widely used in Russia. Work has begun on a plant in Louisiana that will make the product, he said, valuing the U.S. nitrogen-fertilizer market at almost $15 billion a year.
Yuriev is also examining building a plant to make hot-briquetted iron, which is used in steelmaking, to take advantage of cheap gas supplies, he said.
As well as ease of gas processing, the U.S. provides investors with ready access to export markets, cheap debt and a favorable tax system, Yuriev said. Those advantages will help energy producers withstand plummeting prices as output swells, he said.