PKN is seeking to buy oil deposits of Yukos, daily Dziennik reports, citing Russian daily RBK. According to the newspaper PKN is considering to bid for two upstream companies, Tomsknieft and Samaranieftgas.
Our view: Samaraneftgas is a medium sized upstream company with total hydrocarbon production of 70 MMboe last year and reserves of 1,700 MMboe. Tomskneft is somewhat bigger, its production reached 85 MMboe in 2006 and reserves stood at 2,270 MMboe. Applying the typical Russian crude oil reserve valuation of 3-4 US$/bbl on these the companies, their fair value could fall to the US$ 7-9bn range, each of them higher than PKN's current market cap. With its stretched balance sheet after the Mazeikiu acquisition (gearing stood at 45-50% at the end of 2006), PKN cannot spend more than US$ 1bn on further acquisitions without seriously punished by debt agencies and lenders.
Although we cannot fully rule out that PKN would try to take part in a buyout action as a minority partner of Rosneft, we see little chance of it. (Please refer to the attempt of cash-rich MOL last summer to buy half Tomskneft-size Udmurtneft, which action immediately forced debt agencies to it to watchlist for potential downgrade). Moreover, please be aware that the chance to acquire Russian upstream asset below or at their fair value is practically zero when all European and CEE oils try to do the same. We would certainly welcome a lower acquisition appetite of PKN and see it focusing on leveraging out its synergies with Mazeikiu and Unipetrol.