OAO Surgutneftegaz, Russia's fourth-largest oil producer, is consolidating its position as the country's richest company, raising $44 billion in cash and bank deposits, despite the risk of new US sanctions. The Siberian oil producer increased its cash position by 6% in dollar terms last year, according to a company report released on Saturday. Surgutneftegaz did not provide a currency breakdown in its 2017 IFRS report. For at least the past six years, he has held most of his cash in US dollars.
Investors have been keeping a close eye on Surgut's accounts after the US Treasury Department placed chief executive Vladimir Bogdanov on a sanctions list earlier this month. This raised concerns in Russia that Surgut could also be subject to sanctions. The fines could mean the company is stuck with dollars it can't easily use to pay banks, contractors and customers. Similar fines against Russian billionaire Oleg Deripaska and his company Rusal have already caused market convulsions as contractors and banks froze deals with the aluminum giant.
If Surgut faces Rusal-like sanctions, the company could have trouble using dollars because all such transactions are controlled by the US, said Alexei Panich, partner at the international law firm Herbert Smith Freehills. Russian banks will continue to hold dollar deposits (companies) under existing contracts, but Surgut may find it difficult to extend terms (deposits) and increase cash.
The lion's share of the company's cash is concentrated in long-term deposits with state-owned Sberbank PJSC, according to a source close to the oil company. In 2012, the bank held 44% of Surgut's deposits. Most of the rest was in VTB OJSC, Gazprombank OJSC and the Russian subsidiary of the Italian bank UniCredit SpA.
Surgutneftegaz, Sberbank and UniCredit declined to comment to Bloomberg. Others did not respond to a request.
Surgut was included in a list of US sanctions imposed in 2014 over Russia's role in the conflict in eastern Ukraine. These restrictions concern the provision of certain technologies and access to foreign capital markets. But they are not vital to the company and have not affected its operations. Surgut is not borrowing as it has saved up enough money to avoid a takeover. The owners of the company are a mystery. Bogdanov, one of the last so-called red directors or former Soviet managers, says he still controls the company. It is owned mainly by its employees, according to public statements by government officials.
Who owns the money
Bogdanov, 66, solidified his grip on Surgutneftegaz in the mid-1990s when the weak government that emerged from the collapse of the Soviet Union auctioned off the precious industrial plant. The Surgut Pension Fund acquired 40% of the company, which a few years later was divided among two dozen legal entities with interdependent owners registered in the city of Surgut, according to bankers working with the manufacturer and its managers.
According to the Russian legal framework Spark-Interfax, these companies and their successors invested about 1 trillion rubles in the long term at the end of 2016, providing more than 75%. None of them has more than 5%, meaning the company is not required to disclose the names of its shareholders. Bogdanov, who officially owns less than 1%, said that the money "pot" will help the company in the crisis. “He knows he can’t use the money personally,” Alexander Ryazanov, a former deputy head of gas exporter PJSC Gazprom who has known Bogdanov for more than 20 years, said in an interview three years ago.
The richest resident of the Khanty-Mansiysk Autonomous Okrug, CEO and co-owner of Surgutneftegaz, the third largest Russian oil company after Rosneft and Lukoil, Vladimir Bogdanov recently won a state award, the first in his life. The prize in the field of science was awarded to him for "the creation of rational systems for the development of oil, oil and gas and gas-oil fields in Western Siberia." It was presented personally by President Putin in a solemn ceremony in the Kremlin on June 12, 2017.
Few of the Russian billionaires can boast of such a high assessment of their work. In the top ten of the Forbes list, no one has a state award, including the president of Lukoil Vagit Alekperov. Meanwhile, Bogdanov occupies a modest 49th place in the ranking with a fortune of $1.9 billion. He has been on all Forbes lists since 2004, and the estimate of his fortune has changed slightly, from $1.7 billion to $4.4 billion.
In life, the billionaire is modest, and he avoids publicity. He was last listed by Forbes in 2004. Then the image of an ascetic living in Surgut in an ordinary apartment building and having a budget vacation in Karlovy Vary was fixed for him for many years. Another Forbes question about whether anything has changed since then remained unanswered. The secretary at Bogdanov's office told Forbes that he was on vacation, email was disabled throughout the company "due to the threat of hacker attacks" and there was no operational communication with the head.
Bogdanov came to work at Surgutneftegaz in 1976, in 1984, at the age of 33, he became the general director of the enterprise, and in 1995 he organized a scheme to buy out a state stake in the amount of 40.16% of shares through a loans-for-shares auction. Since then, the structure of the company's share capital has changed several times, but who its real owners are still a secret with seven seals. In a 2016 report, Surgut states that "the company's shares are distributed among shareholders, none of whom is the ultimate controlling party and does not exercise significant influence." Bogdanov, as an individual, today owns 0.37% of the ordinary shares of Surgutneftegaz.
Another secret of Surgut is the astronomical amounts of funds that the company keeps on deposits in Russian banks, mainly in US dollars. By the end of 2016, this amount was 2.181 trillion rubles, or $36 billion. This is almost 20% of all deposits of Russian companies in all Russian banks. In Sberbank, Russian companies keep 2.637 trillion rubles on deposits, in VTB - 2.181 trillion rubles (exactly the amount Surgut has accumulated). In all other banks, this figure is much lower.
Why does Surgut need so much cash? “We have something to spend on: we are developing new provinces. This money is a safety net: no one knows what will happen to oil prices. We need them for the team to live in peace. If the situation of 1998 happens again, what will we do then?” - Bogdanov answered the questions of shareholders at the annual meeting in 2013. By that time, Surgut had already accumulated 1 trillion rubles, or $31 billion at the then exchange rate. The price of oil has more than halved, but the stash has remained intact. On the market, Surgutneftegaz, with its accumulated $36 billion, is worth only $20 billion.
outperformed ExxonMobil Corp. and Royal Dutch Shell Plc, becoming the world's only publicly traded oil company to deliver positive returns to investors following OPEC's November decision to defend its market share and the ensuing price collapse, Bloomberg reported. Over the past 15 months, the dividend yield on the company's papers amounted to 18.5%, the agency calculated, while the shares have fallen 14% since November. Thus, the income of shareholders amounted to a total of 6.4%, taking into account dividends reinvested in securities, the agency indicates. Exxon shares fell 9.4%, but dividend payouts softened the fall to 5.4%. Shell losses were 31%, while the dividend yield was 5.6%, according to Bloomberg data. The rest of the majors are also in the red: Chevron shares have fallen 29% since November 2014, while the dividend yield was 3.75%, Total lost 16.7% of the quotes value, and the dividend income brought investors only 5.8%. Chinese PetroChina lost 47.6% of its share price, while the dividend yield was 2.4%.
Company reserve
Surgutneftegaz only once and unexpectedly for everyone bought in 2009 a 21.2% stake in the Hungarian company MOL, but sold the stake two years later. “I don’t need to buy anything. We have everything!<....>It is worse when there is no money. Then you don’t know where to run, where to borrow, at what percentage,” said Vladimir Bogdanov, CEO of the company, in 2012.
The reason for Surgutneftegaz's success is obvious: the company has huge dollar deposits (more than $30 billion - Vedomosti), says Sergey Vakhrameev, portfolio manager at GL Financial Group. In 2014, Surgutneftegaz earned RUB 846 billion on foreign exchange differences, while IFRS profit tripled to RUB 885 billion. As a result, Surgutneftegaz paid record dividends: 63.2 billion rubles. on preferred and 23 billion rubles. on ordinary shares, reminds Vakhrameev. Dividends on preferred shares increased by 3.5 times, on ordinary shares - by 8%. Other Russian oil companies do not have such an airbag, as a result, they went into the red in terms of share returns, like the world majors. Lukoil, taking into account dividends, lost 27%, Rosneft - 35%, Gazprom - 44%, Vakhrameev calculated.
Surgutneftegaz is the leader in Russia both in terms of dividend yield and TSR (total shareholder return), says Aton analyst Alexander Kornilov. The dividend yield of Surgutneftegaz prefs since June 2014, when oil prices began to fall, was 37.8%, and TSR - 96%, while for other Russian companies these figures are 4-14.3 and 1.1-53 .9% respectively, he points out.
Bloomberg reveals the owners of 22% of preferred shares of Surgutneftegaz (in total, preferred papers account for 18% of the capital). Among them are Grantham Mayo Van Otterloo & Co, JPMorgan Chase & Co, Blackrock Fund Advisors and others. “But the beneficiaries of the company are unknown, and as an investor, I have a question: how long are shareholders willing to share such dividends with minority shareholders? In the event of a further fall in oil prices and the devaluation of the ruble, the risk of a revision of the dividend policy also grows, ”says Vakhrameev. In addition, the company has already found itself in a situation where dividends ($1.5 billion) exceeded annual cash flow (about $1 billion in 2015), the expert points out. Before the oil price crash, the company was generating $2-3 billion a year, he estimates. But Surgutneftegaz will have no problems with the payment of dividends: the company can cut investments, withdraw money from deposits, increase debt, the expert lists. On the other hand, if oil prices start to rise, Surgutneftegaz will record a large loss in exchange rate differences, so it's time to sell the company's preferred shares now, advises Andrey Polishchuk, an analyst at Raiffeisenbank.
A meeting of Surguneftegaz shareholders was held today in Surgut. The company is not going to change its strategy: it will develop in Russia and continue to save money in its accounts. Absorption by interested state structures, among which Gazprom is called, the permanent general director of Surgutneftegaz, Vladimir Bogdanov, is not afraid.
Meetings of shareholders of Surgutneftegaz differ markedly from meetings, for example, of Rosneft or Gazprom. No more than 100 people take part in them (most of them are oil company managers who are in a hurry to return to work as soon as possible), separate rooms are not rented for them, banners with greetings are not hung out. Shareholders should not count on sandwiches or gifts with company symbols, and the event itself does not last more than three hours.
Surgutneftegaz is considered a very closed company, and it was clear in advance that it would not be possible for those who were interested to learn something new at the meeting. The first to speak was General Director Vladimir Bogdanov. He congratulated himself and everyone else on the 20th anniversary of the company. During this time, according to him, Surgutneftegaz has come a long way "from a regional company to a world-famous company." This year, Surgutneftegaz has stabilized production at about the level of last year - 61.4 million tons, and in the coming years, according to Mr. Bogdanov, it will grow. First of all, due to new projects, the largest of which is the Severo-Rogozhnikovskoye field, the production of which will begin in 2015, although the license for this has been released for another six years. Surgutneftegaz will launch 12 more fields in 13 years. “We will work in Eastern Siberia, the potential of Western Siberia has not been fully exhausted, there is room for development, we also have a new region - Timan-Pechora,” Mr. Bogdanov said. The special pride of Surgutneftegaz is the airport on Talakan, opened last year. The company built it for its own needs - the delivery of workers to the field of the same name - and approached the matter with such zeal, as if oil could be produced there too.
Vladimir Bogdanov recalled that the net profit of Surgutneftegaz in 2012 amounted to 161 billion rubles, having decreased by 31% due to "foreign exchange losses". The company this year for the first time released a report under IFRS, but, of course, there were no sensations in it. The owners of preferred shares of Surgutneftegaz will receive dividends of 1.48 rubles this year. per share. They were interested in whether the company's shares would rise in price. Vladimir Bogdanov promised that they would. “A lot of factors, external and internal, influence the share price. We cannot influence external ones, like oil prices, but internal ones depend on us. I have always said: if there is absolutely no need, do not sell shares, because they can even be inherited. In the next three or four years, their value will increase,” he said.
The shareholders, of course, were also worried about the fate of more than 1 trillion rubles, which Surgutneftegaz had accumulated in their accounts. “We have something to spend on: we are developing new provinces. This money is a safety net: no one knows what will happen to oil prices. We need them for the team to live in peace. If the situation of 1998 happens again, what will we do then?” - said Vladimir Bogdanov. At the same time, all the new provinces of Surgutneftegaz in Russia. Mr. Bogdanov recalled that the company last autumn sold its stake in the Venezuelan national oil consortium to Rosneft, in which it had previously invested about $200 million. “Money earned in Russia should work in Russia,” said Vladimir Bogdanov.
The question of who owns Surgutneftegaz was traditionally ignored by Mr. Bogdanov. This question also worried analysts who were invited to Surgut for the first time in early May, when the IFRS report was released. From the company's US GAAP report in 2001, it followed that it had 40% of treasury shares on its balance sheet, but then all information about them disappeared. “Surgutneftegaz has no treasury shares. For example, our shares are pledged to Surgutneftegazbank, but they are managed by the bank's management itself,” Mr. Bogdanov repeated yesterday. In May, by the way, he chose not to communicate with analysts, delegating authority to managers, but, apparently, he was still worried about the event, because he watched the meeting from the operator's room at the end of the hall.
Judging by the results of voting on agenda items, about 75% of the shareholders who own the company, whose market value is estimated at more than $30 billion, were present in the hall. Surgutneftegaz shares are looped and concentrated in several NPs headed by its managers as long-term financial investments . Formally, they are its true owners, and we can say that such a structure exists only thanks to their personal devotion to their CEO. But this means that Surgutneftegaz, with such a system of ownership, is an easy target for absorption.
Vladimir Bogdanov answers all questions about the owners of the company that it is “people's”. It is not the first year in the industry that Surgutneftegaz has been “sold” either to various state-owned companies or to businessmen who are considered to have a large administrative resource. Rumors have now become more active that the chairman of the board of Gazprom, Alexei Miller, is personally interested in the company. The concern headed by him is noticeably losing ground, and a high-profile deal could clearly benefit him. What arguments Mr. Miller can resort to is clear: with such a system of ownership, control over Surguneftegaz can be obtained by anyone. And this is definitely not in the interests of the state, especially given the 1 trillion rubles. in company accounts.
Surgutneftegaz has heard of such talk, but prefers to remain calm. “These conversations are many years old, we are aware that they are ongoing. Nothing will happen to the company, don't worry,” says the top manager of the oil company. Mr. Bogdanov has always managed to beat off any attacks on Surgutneftegaz, which he treats as his life's work. Surgutneftegaz itself is confident that the company will be completely different without it.
Vladimir Bogdanov was the last to leave the meeting. He asked journalists to write more good things. In light rain, Mr. Bogdanov walked to the main office of Surgutneftegaz. Passers-by ignored him.
Kirill Melnikov
The depreciation of the ruble against the dollar played into the hands of the shareholders of Surgut. “Due to the significant effect of the revaluation of foreign exchange assets, the net profit of Surgutneftegaz increased by almost 3.5 times and amounted to 891.7 billion rubles,” Bogdanov said. As a result, dividends on preferred shares, directly linked to net income, also increased by almost 3.5 times compared to last year, to 8.21 rubles. per share (for ordinary shares, the growth was only 8% - up to 65 kopecks). In total, the Board of Directors recommended that shareholders allocate more than 86 billion rubles for dividends. This recommendation, as well as other technical issues (approval of the annual report, re-election of the board of directors, etc.), was approved by the shareholders of Surgut almost unanimously.
It was as if they had only come to the meeting to make sure they were paid dividends. During the meeting, employees-shareholders did not ask questions about the company's activities, and during the break they began to disperse without waiting for the results of the meeting. “I have already voted on all issues, I realized that the dividends will be paid on July 16th. Can I go home already?” a female minority shareholder of Surgut with experience asked a respectable man in a suit, mistaking him for an employee of Surgutneftegaz. He graciously allowed her to leave. Another holder of the papers of the oil company asked Bogdanov for a ticket to the sea, he instructed the personnel director to resolve the issue.
Bogdanov promised to launch in the third quarter one of the largest new fields named after. V. I. Shpilman in Western Siberia, the key production region of Surgut (it accounts for 87% of Surgut's production). In the past year and the first half of 2015, the infrastructure works were carried out on it (a road, pipelines and a booster pumping station were under construction). After reaching the design capacity, this field will provide production of 2.5-3 million tons of oil per year, according to the annual report of Surgut. The head of the company specified that by the end of the year, production at the Shpilman field is expected to be at the level of 50,000 tons.
Four much more mature fields in Western Siberia - Vostochno-Elovoe, Yukyavinskoye, Rodnikovoe and Suryeganskoye - Surgutneftegaz wants to offer the government to conduct pilot zones of the financial result tax (NFR), Bogdanov said, answering a question from RBC. The idea of such an experiment was recently supported by Deputy Prime Minister Arkady Dvorkovich.
The top manager did not comment on the first results of the tax maneuver that has been in force in the industry since the beginning of 2015. “[Now] it’s hard to say, because you see how volatile [the market] is and what’s happening with [oil] prices. [Summing up now], we will only raise foam, ”concluded Bogdanov and disappeared behind the powerful backs of his two guards.