Rosneft Surpasses Gazprom as Russia's Most Valuable Company

Rosneft OJSC became Russia’s most valuable company as its market capitalization exceeded that of natural-gas exporter Gazprom PJSC for the first time since its shares began trading in 2006.

Rosneft stock rose 4.2 percent in London by 3:40 p.m., boosting the value of Russia’s largest oil producer to $51.7 billion. Gazprom gained 1.2 percent, raising its market capitalization to $51.5 billion. In Moscow, Rosneft advanced 2.5 percent while the gas producer was up 0.7 percent.

Both state-run giants have been at the center of Russia’s economy and political system since President Vladimir Putin used the country’s oil and gas wealth to drive growth from the chaos of the Soviet Union’s collapse. Crude producer Rosneft has narrowed Gazprom’s lead from more than $250 billion in 2008 as it expanded through acquisitions, while the gas company has faced rising competition at home and tumbling prices abroad.

“Rosneft is growing its free cash flow and should do better in a stronger oil-price environment,” Ildar Davletshin, an energy analyst at Renaissance Capital, said by e-mail. “Gazprom’s free cash flow is on the way down and unlikely to reverse soon.”

Crude Market

Oil prices have rebounded after falling to a 12-year low earlier this year amid signs a global glut is starting to ease. Saudi Arabia, Russia and other major producers are due to meet April 17 in Doha to discuss capping output to support the market. Any increase in prices boosts Rosneft’s ability to pay down debt from acquisitions including its $55 billion purchase of TNK-BP, BP Plc’s joint venture in Russia.

The company’s free cash flow rose to 657 billion rubles ($9.9 billion) last year from 596 billion rubles in 2014, excluding the effect of contract prepayments, Rosneft said in a financial statement on its website.

“The company will continue to build up free cash flow and increase the efficiency of capital spending,” its press service said in an e-mailed statement. “In the long-term plan, the company has colossal potential for further growth in capitalization.”

Gazprom, which hasn’t yet reported 2015 results, saw free cash flow decline to 230 billion rubles in the first nine months of the year from 370 billion rubles a year earlier, Davletshin said.

European Gas

Gazprom’s total hydrocarbon output still dwarfs Rosneft’s. The gas producer pumps about 8 million barrels of oil equivalent a day compared with Rosneft’s 5 million barrels, yet the lowest European gas prices in a decade have diminished its bargaining power in the region. 

The market isn’t persuaded that Gazprom needs to go ahead with “enormous capital investments” in new pipelines to Europe even though the company is “obsessed with the idea of bypassing Ukraine,” Aton LLC analyst Alexander Kornilov said by e-mail. Liquefied natural gas shipments from North America and the Middle East to Europe will present further competition, Kornilov said.

On the Russian stock market, Gazprom has a free float -- or volume of publicly available shares -- about four times larger than Rosneft’s, according to data compiled by Bloomberg. Rosneft’s “thin” float means significant new investments can produce a more noticeable price move, according to Artem Konchin, an oil and gas analyst at Otkritie Financial Corp. in Moscow.

“Any meaningful new interest can disproportionately affect the share price,” he said by e-mail.