Gazprom Shouldn't Be Written Off Just Yet

Blogmeister James at Robert Amerstdam was nice enough to link to нет дениг, нет проблем and say some nice things about it:

Craig Pirrong has a stinging piece [stinging? moi?] over at Seeking Alpha on all the upcoming nastiness he expects out of the economic crisis in Russia, beginning with the Sayano-Shushenskaya dam explosion to Gazprom’s disappointing first quarter results. It’s good article (especially the sharp rebuke against bullish analysts predicting a Gazprom rally)

But there’s a but (isn’t there always?):

but I think the eagerness to hold a parade over the collapse of the gas giant will only guarantee its next wave of revanchist corporate foreign policy strategy. Gazprom has a lot of ways to still make money, and the full bore weight of the Kremlin helping it out.

I agree completely, James. In fact, that was the thrust of my objections to Biden’s dismissing of Russia due to its economic and demographic weaknesses: namely, that these problems, and the desperation that goes with them, will make Russia more aggressive, not less.

When it comes to gas and Gazprom, that means that anyone touching Russian gas, or in a position to damage Gazprom’s interests better jock it up and get ready for battle. It means that companies like ExxonMobil (XOM) that have gas in Russia, and rights to sell it into potentially lucrative markets will face intense pressure. It means than even independent Russian companies can expect some smashmouth. It means that a country like Turkmenistan that sells gas to Gazprom and prices that seemed like a good idea at the time, but no longer, should get ready for economic and even political aggression. It means that Ukraine–and Europe–should look out come January.

Get ready to rumble, folks.

Comments

[Ferdinand E. Banks]

Sounds to me like Cold War rhetoric - or maybe I should say Cold War nonsense.

"Get ready to rumble folks." I had six years of getting ready to rumble, and they were GREAT. Japan and Germany, and afterwards six years in universities.

But I agree that Russia will become more aggressive - aggressive with the vodka. And by the way, it's their gas, ain't it, so let them play all the games they want with it. Best of luck to them and their clients, and may the best folks win.

2009 Aug 28 10:06 AM

[john s. gordon]

we've had so much rumbling in the last 100 yrs.
how about a little peace & quiet 4 a change?
> jack

2009 Aug 28 10:39 AM

[jerrydd]

Peace is not what Russia is about. They break contracts at will, screw everyone. I wouldn't be a customer of them because they can't be relied on. Anyone investing anything in Russia is a fool by their past actions in the last few yrs.

2009 Aug 28 01:42 PM

[Paul Harper]

mmm . what John said.

Gazprom is moving abroad rapidly & with funding from both the Chinese Dev Bank for the Siberian pipeline & also state funding, when it wants to get acquisitive in South East Europe, it's here to stay for a long, long time.

Not often I agree with the authours stance, but we in Europe are gearing up for another round of gas shortages due to political machinations from Putinland.

On the "let's get ready to rumble" quote, I am speechless

2009 Aug 28 01:43 PM

[BPYHO]

Trying not to sound too presumptuous, but this article has very broad claims with little backup. Can we get this author to stop writing about Russia?
#1 Gazprom will win any battle, they have the backing of the Kremlin, just look at all the deals that Western companies pumped buco bucks into only to get pushed out by Gazprom.
#2 Anyone investing in Gazprom (or in anything Russian related besides RSX) should know their investment is about as safe as an investment right now in AIG (presently at 50$ for no apparent reason) At any given moment (even after posting record profits) the company could be nationalized completely wiping investors out.
It doesn't matter though, please refer to point #1, in any battle over gas/oil deals in Russian territory Gazprom will win, there's no need to "get ready to rumble."

2009 Aug 28 09:39 PM

[Living4Dividends]

Wow! GAZPROM hold so much promise - after all it has access to 1/4 the worlds natural gas reserves and should be making money hand over fist.

Alas, Gazprom is a quasi-SOE's and as such, is poorly run. GAZPROM is overstaffed and milked to meet the state's needs. It is like a prized dairy cow that is riddled with parasites. The parasites sap the vitality of the cow and the cow no longer produces enough milk. "There is many a slip between cup and lip"

With it's vast oil and gax reserves and monopolistic franchise, Gazprom should be a "plump dairy cow". But, alas, Gazprom has been leveraged to the hilt as management has taken out a huge amount of loans. These loans were utter nonsense: Oil and gas are fairly cheap to extract and don't require tremendous amounts of capital. Pipelines are expensive, but they do not justify the loans taken out. Besides, most of the pipelines are paid for by the customers of the oil and gas.

The justification for taking out these loans sounded very smart "we need to improve our infrastructure in order to extract more oil and gas." An analogy is when Americans took out loans of 450,000 on a 500,000 house. When the value of the house drops to 350,000 the house has negative equity and in essence is bankrupt.

In the end, it was a sham way to bleed equity out of the company.

2009 Aug 29 06:06 PM

[adamnb]

Stop the scare tactics. Western media is addicted to Russian-bashing, with most having little knowledge of the country. Gzp is already state majority owned, the state has no need to nationalize. Secondly, since the company went public, its investors have done extremely well, even after the onset of recession, up some 3000% to date, plus regular paid decent dividends. I'll bet that there are few investors in the company that have ever lost money.


On Aug 28 09:39 PM BPYHO wrote:

> Trying not to sound too presumptuous, but this article has very broad
> claims with little backup. Can we get this author to stop writing
> about Russia?
> #1 Gazprom will win any battle, they have the backing of the Kremlin,
> just look at all the deals that Western companies pumped buco bucks
> into only to get pushed out by Gazprom.
> #2 Anyone investing in Gazprom (or in anything Russian related besides
> RSX) should know their investment is about as safe as an investment
> right now in AIG (presently at 50$ for no apparent reason) At any
> given moment (even after posting record profits) the company could
> be nationalized completely wiping investors out.
> It doesn't matter though, please refer to point #1, in any battle
> over gas/oil deals in Russian territory Gazprom will win, there's
> no need to "get ready to rumble."

2009 Sep 02 06:17 PM

[frontiersman]

Ignoring the Russia doomsayers has made a lot of investors rich over the last decade. In 1998, you could buy Gazprom shares for as low as six cents a share. A share trades at $5 now. Yes, Russia nationalized the blue-chip Yukos and if you were unlucky enough to have invested in it you lost all your money. Of course, you could have done the same thing by investing in "safe" American blue-chips like Enron and Worldcom. Gazprom is already majority-owned by the Russian government so there is little risk of nationalization. The risk that Gazprom will not realize its potential is already priced in --- huge upside to the stock if the most pessimistic view does not come to pass. In which case, those who continue to stay invested in the stock will get even more filthy rich in the second decade since 1998, while those invested in safe American stocks during that period have little gain to show for it.

2009 Sep 02 10:30 PM

[Wolf.Timber]

Nice article.

Question - Did Gazprom cut their dividend ?

2009 Sep 03 11:28 AM