Today marks the start of the St. Petersburg Economic Forum, the annual conclave where Russia’s government tries to woo the world’s investors to companies like Gazprom (OGZPY, quote) against the spectacular backdrop of white nights in its northern capital.
The mood approaching this year’s event is glum, as President Vladimir Putin shows every sign of running the same sort of truculent, byzantine state during his just-launched third presidential term as he did during 12 previous years as national leader.
Our colleagues at Reuters calculate the Russian stock market has fallen by 32% since last July, when Putin let it be known he would shift from the prime minister’s chair back to the presidency.
That’s double the 16% slide in Brent crude oil, which one would expect Russian shares to track. Call the rest the Putin discount, an impressive amount of wealth destruction for one man.
There is one reason for investors to keep an eye on the confab in St. Petersburg though. It has to do with Gazprom, Russia’s biggest company by far and 7.7% of the widely traded Market Vectors Russia ETF (RSX, quote).
State-controlled Gazprom is much disliked by investors, for good reason. Its Kremlin-appointed managers are inefficient, opaque, unfriendly, and cronyistic. Yet the company’s semi-monopoly status allows it to remain a cash machine, earning $44 billion last year. And sometimes that makes its stock so cheap it is hard to resist buying.
Now looks like it could be one of those times. Gazprom has lost a third of its value over the past year and its market capitalization is barely three times expected 2012 profits. That compares with a forward p/e of 14 for London-based gas producer BG Group or 10.5 for diversified petroleum giant ExxonMobil (XOM, quote). Maybe investors should hold their noses and add a little Gazprom as the ultimate value share – provided the company can get its Shtokman project sorted out.
The Shtokman field is a forbidding chunk of the Russian Arctic that is presumed to be one of the world’s great untapped natural gas wells. Gazprom has been planning to develop it for the past 20 years, and it remains a key element in the company’s long-term effort to remain the biggest gas producer on the planet.
Gazprom finally seemed to have settled on a workable partnership for Shtokman over the past few years, maintaining a 51% majority interest in the project and splitting the rest between Total (TOT, quote) of France and Norway’s Statoil (STO, quote). Negotiations on a final investment blueprint dragged on, however, with the latest deadline set for June 30.
Then, earlier this month, Gazprom pulled the kind of flakey move that makes people nervous about having Russian business partners. Deputy chairman Alexander Medvedev suddenly announced the Russian gas monopoly would be seeking new partners for Shtokman, though he graciously conceded that Total and Statoil had a “good chance” of staying in the project.
Medvedev apparently neglected to tell Total CEO Christophe de Margerie about this strategic shift. “Quite honestly this isn’t all quite clear,” de Margerie told Dow Jones at a gas conference after the news broke. “It would be good to talk directly.” This Monday, Russian business paper Vedomosti reported that the Shtokman project was in disarray with its entire Moscow-based staff furloghed.
Gazprom CEO Alexei Miller promised to pull a gleaming rabbit out of the hat during the Petersburg Forum, announcing a new lineup of partners that he hinted would include oil supermajor Royal Dutch Shell. If he can convincingly put Shtokman’s pieces back together this weekend, that could be a buy signal for Gazprom.
The company is a long way from being Exxon, but maybe it deserves at least a third of Exxon’s p/e.
Or not, if Miller and Medvedev continue to outrage first-rate foreign partners, and kick the can of their signature exploration project another decade or two down the road.