Move Over Exxon-Mobil, Here Comes Gazprom 20 comments
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Can anyone overtake Exxon-Mobil (NYSE: XOM) in the energy arena? What if I told you that there’s a company out there that is half the size of Exxon but will likely overtake the company as the world's largest energy company? Well, read on and I’ll tell you exactly why I believe this company will.
Gazprom OAO (ADR: OGZPY) is a sleeping giant in the world economy that very few people seem to know about. It’s a $250 billion dollar company that is likely to be valued in the trillions in just 10 years. It’s exactly the kind (although it’s a quite large) of company that I love finding for both my Momentum Model Stock Portfolio and my Investment Advisor Newsletter. Of course there are risks involved with this company, especially since it’s deeply connected to the Russian government, but I believe the risk/reward ratio is too good to pass up. Here are the top reasons I believe this company will reward investors handsomely.
- Gazprom is the largest Russian company and the biggest producer of natural gas in the world accounting for 90% of Russian natural gas production and 20% of world production. Gazprom has reserves of 1,000 trillion cubic feet or 30 trillion cubic meters, equating to control of 17% of the world’s gas reserves
- Natural gas demand in Europe is projected to increase by 4% annually between 2007 and 2030, a total increase of more than 72% which is more than five times the 0.7 percent annualized growth in US demand
- Exxon market capitalization $500 billion while Gazprom is $225 billion. Guess who has substantially more reserves, superior distribution pipeline capacity and government monopoly protection (Gazprom by Russia law is the only company that can export natural gas outside Russia and since there are price controls for domestic gas they don’t have much competition. Gazprom says they lose money on domestic natural gas so export is where the profit comes from.)
- “Natural Gas will replace oil as the lifeblood of the world economy” - Elliot Gue, editor The Energy Strategist
- Gazprom owns 60% of Gazprom Neft, a Siberian based oil producer & refiner which exports oil & diesel fuel to Europe & China. Oil exported is subject to a $25/barrel tax. Owning Gazprom lets you own 60% of the 2nd largest oil exporter in Russia that is building a huge pipeline and rail line from Siberia into China
- Gazprom owns stakes in Gazprom bank (2nd largest bank, retail banking services in Russia), Gazprom telecom company providing cell phone service, an ISP service and broadcast cable TV network channels. This mega conglomerate also owns majority stakes in construction companies, metal fabricators, cement companies, and agriculture companies
- Gazprom makes money providing electricity to a modernizing Russian population in metro areas, producing their own electricity for their businesses. If more coal gets burned, not natural gas, in power plants then that means they have more natural gas to export at higher prices and more profits. If they reduce domestic, price-controlled natural gas consumption in Russia, replacing it with cheap coal (as they control major cities power now), then they export more natural gas at higher profit margins.
- As if Gazprom is not ruthless enough as it is, after jacking up prices to captivate European customers they have been accepting, in lieu of payment, minority stakes in major company and/or state-owned oil/gas/electric utility companies. Gazprom owns a sizable piece of a Hungarian oil company, a Polish gas company, and a Belgian electric utility.
- Former Gazprom chairman (and Russian President) Dmitry Medvedev says the company’s market capitalization should quadruple to reach one trillion dollars by 2017, which would make it the world’s biggest corporation. Gazprom’s accounting is audited by American accounting firm PriceWaterhouse Coopers and is 50.01% owned by the Russian government
I believe that Gazprom is certainly worth a look for intelligent investors. I’d love to see the government open up a bit about the dealings of the Company, but I can’t help but salivate when I think about their long-term prospects.
Disclaimer:
The author does not own any shares of any of the companies mentioned in this article.
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This article has 20 comments:
Gazprom will cross the Trillion Market Cap point long before 2017. Bet you a 1000 cubic metres worth of Gazprom blue that it happens before 2012.
"It’s a $250 billion dollar company that is likely to be valued in the trillions"
Trillions is PLURAL, meaning several trillion. Thanks for your absolutely worthless comments.
Russia is extremely rich in natural resources but it remains poor in capital. So the Faustian deal with western finance will likely continue, IMHO.
Political risk is not going up, it is going down and oil and gas prices are great, even if they fall 25%. At least the Russians have not labeled billions of dollars of junk as high quality and killed a big segment of the world´s banking system. With the scams coming out of the US you need to talk about American Roulette, not Russian.
Iran and Russia sign major oil deal
Jul. 14, 2008
The Media Line News Agency , THE JERUSALEM POST
A few days after French oil giant Total withdrew from its planned multi-billion dollar gas investment project in Iran, Russia's Gazprom is entering the market in a multi-billion-dollar deal.
Gazprom's Chief Executive Alexei Miller met on Sunday with Iranian President Mahmoud Ahmadinejad and went on to sign an agreement for developing Iranian oil and gas fields.
Iran, according to the agreement, has offered Gazprom an extended package for the development of oil and gas fields; construction of refineries; transfer of oil from the Caspian Sea to the Sea of Oman; development of Iran's North Azadegan oil field; exchange of technology and experience; and the possible participation of Gazprom in the planned pipeline between Iran, India and Pakistan.
Azadegan is Iran's biggest onshore oil field with an estimated 42 billion barrels of crude oil. Iranian firms began working on the field in February after the Japanese partner, Inpex, quit the project.
The accord also includes the future formation of a joint company between the two countries, for cooperation in oil and gas.
Official reports from both countries have not yet revealed if the South Pars gas field will also be part of the deal. Last week, France's Total decided to freeze its investments in South Pars, following Iran's test-fire of long-range missiles.
"After Total's announcement that because of political risk they do not want to commit themselves to the South Pars multi-billion-dollar project, it was natural that Iran would continue and expedite its current negotiations to use other companies," Manouchehr Takin of the UK-based Center for Global Energy Studies, told The Media Line.
The South Pars field in the Gulf has around 500 trillion cubic feet of gas, which accounts for about eight percent of the world's gas reserves.
Takin was however skeptical regarding whether or not it was the American pressure on European companies that made Total withdraw from the project.
"I think it is more within Total's shareholders and board of directors, who have looked at every aspect, and decided not to take too much political risk in their portfolio," he said.
"However, I do agree that one cannot help but think of the pressure from the US Department of Treasury, who had been directly talking to managements of banks and big companies, twisting their arms not to get involved with Iran," Takin added.
Medvedev has of course already replaced Putin and they appear to be close as Medvedev was originally Putin's election manager. Seems to me the ex and new head of Russia are on the same page, and both have ties to Gazprom. Can't figure out why would they want to screw with Gazprom. However, in Russia, be cautious. MTL is a different issue. Putin appears to be trying to play the company. The quote from Mevedev is interesting!
And in reference to 'bella's' notes, Gazprom is also busily working deals with Lybia to move and market their energy. And didn't I just read something about the Iberian peninsula (Spain?)...
Now, if I could just get TDAmeritrade's software to work properly, I'd probably have bought some OGZPY today ...
jegan ;-)
My largest position is in Gazprom, which I originally bought for about 50 cents per share. I also have shares of Norilsk Nickel, Polyus Gold, (got that because Norilsk shareholders got equal shares of Polyus when it was spun off from Norilsk), and LUKoil. I should have bought VIP, but I thought it was expensive compared to the rest of the companies available. I hated Yukos, but bought it cheap, then sold it before it collapsed when it was at the top of it's historical price. I also held Rostelekom for a while, then sold it making a tidy sum, which I reinvested in more Gazprom. I also had Unified Energy Systems, and sold that just before it was carved up, so I could get more Gazprom. When I sold ROS and UES, Gazprom was about $15 per share.
Investing in Russia is rewarding, and if you watch the Russian news closely, it really pays off. US reports on Russia have been very little help to me in deciding when to sell and when to invest.
Miller at Gazprom has always talked about crossing the 1 Trillion USD mark. You trying now to use the grammatical term of plural is a joke.
1.001 trillion is still "greater than a trillion".
1.001 trillion is still "in the Trillions".
You clearly have no clue by trying now to wiggle your way into meaning "2 Trillion +" now...
Go back to school.
I'm not going to take you on the bet because we'd be betting on the same thing.
Miller at Gazprom actually said 1.7 trillion by 2017 I believe.
Why are you so defensive? We both agree on the same thing. Let me guess, you're just trying to pick a fight. That's cool. Keep on trying; I couldn't care less!
Last Friday Gazprom signed two agreements with Turkmenistan in Ashgabat: (1) Gazprom will spend $4 B to $6 B developing NG projects in Turkmenistan. (2) Starting in 2009 Gazprom will buy Turkmenistani NG at a price based on wholesale prices in the Ukraine and the EU. (Low markup - massive vollume.)
Gazprom recently offered to buy all of Azerbaijan´s NG production.
I saw your post about Yukos on another Gazprom forum here. Maybe you remember when I was translating Yukos' press releases, and there were so many about their schemes for evading taxes? And how they were paying all of those huge dividends, (most of which went to themselves), as a way to avoid paying their creditors?
Your post about Yukos was right on the money.
Glad you didn't get trapped investing in Khodorkovsky's theivery. Didn't remember ever seeing RB Russian ADR's until after the Yukos scammers were already in hot water... but thanks for whatever posts of yours I did see, I was rooting you on for your timely investments.