Russia's Competition Authority announced yesterday it has issued approval to nine companies -including Mol - to place bids for a 96.9% stake in a Russian exploration company Udmurtneft, according to Econews. The buyer will be picked on 28 April, with MOL seen as a front-runner, according to unnamed sources familiar with the case cited by Reuters. The purchase price is rumored to be around US$ 3bn. Udmurtneft is up for sale by TNK-BP, a joint venture with BP for portfolio optimization reasons.
Udmurtneft produces 120,000 barrels of oil per day (3x more than MOL’s 2005 annual production) and has reserves equivalent to around 1 bn barrels according to Reuters. Last year the oil reserve valuation implied USD 10-11/bbl, however each transaction valuation depends on two significant factors: 1) how difficult is it to explore the fields and 2) are there transportations routes set up. We believe, as Udmurtneft’s filed are under exploration currently, the transportation routes are already set up. Valuation of the fields will rather be influenced by the difficulty of the exploration. Udmurtneft’s deposits have very difficult geographical structure, and that is the point which makes the company more attractive in MOL’s eyes than for other bidders. MOL has specialized in difficult-to-explore fields in order to gain market share on the Russian upstream market. MOL has the knowledge and experience for exploring Udmurtneft’s fields. The transaction should not put a heavy burden on the company’s capital structure either.
We see the news as positive, due to the special knowledge required, as we see MOL as the likely winner of the Udmurtneft tender. We look forward to the official announcement of the winner on the on 28 April.