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Gazprom Eyes a Trillion Dollar Capitalization

by: Kurt Wulff July 21, 2008 | about stocks: OGZPY.PK    
Kurt Wulff

Kurt Wulff

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The largest weighting in the McDep Energy Portfolio, buy-recommended Gazprom (OGZPY.PK) sells its world leading natural gas volume for less than one-fifth the oil equivalent price. At an unlevered weighting of 9.6% in the illustrative portfolio, the company supplies 9.6% of our suggested 17% weighting in Russia and 8% of the 11% weighting in Rest of World Natural Gas.

Disclosed on June 30, final results according to international accounting standards recorded natural gas sales of 55 billion cubic feet daily in 2007, coincidentally the same as total marketed production in the U.S. by all companies. Average price may reach $4 a thousand cubic feet in the Next Twelve Months, less than a third of current futures prices and less than a fifth of the natural gas equivalent of oil at about $23.

Reported by Bloomberg among other sources, Russia plans to allow prices to domestic industrial users to reach European levels of profitability in three years while keeping caps on household prices for the time being. Chief Executive Alexei Miller eyes a trillion dollar capitalization for Gazprom by 2015, which would be a triple in stock price for a compound annual rate of 17% a year, assuming no dilution in shares outstanding. By the McDep Ratio, the stock has unlevered appreciation potential of 45% to be realized perhaps in 12 -24 months. Energy investors are subject to political risk in Russia as well as every country in the world.

Originally published on July 1, 2008.

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This article has 5 comments:

  •  
    Jul 21 10:38 AM
    Way to toss in that tiny little caveat there at the end. Russia doesn't treat its oil and gas business as a business, it treats it as a weapon. I don't care to tie up my investment money only to find that Putin's dogs have shut down another pipeline (supposed to be carrying MY product to MY customers for MY profit!) to make some asinine political point. And I surely don't want to be holding this on the day they expropriate it.

    Every sovereign has an agenda in oil and gas, it is true. The key is to find sovereigns whose interests are well-aligned with yours AND have fundamentally well-run businesses to invest in. I'm much happier to invest with those whose agendas look more like Norway's - filling pension funds for every citizen and some unborn. In other words, they want the money, I want the money; we both profit from the same thing. And they're unlikely to seize my holdings because the truth of the matter is that they need foreign investment a lot more than they need the last 34% of Statoil. By contrast, Russia doesn't care much about making money; it just wants to bluster, threaten, and throw its weight around to remind everyone how big and bad it is; if that means lower profits, underinvestment, theft, corruption, and war, so be it. Hardly what I'd call good alignment of investment objectives. If you still have doubts, ask a BP investor about Russia.
    Reply
  •  
    Jul 21 11:28 AM
    www.washtimes.com/news.../

    "Vladimir, I have two bits of advice for you: kill your opponents, and paint the Kremlin blue."

    Mr. Putin ponders a moment, then asks, "Why blue?"
    Reply
  •  
    Jul 21 11:53 AM
    Sorry to rain on your bluster there, 'bearfund', but the only thing asinine is your uninformed commentary.

    First off, Gazprom is a commercial entity far more (like 100 to 0) than it is a 'weapon' of a group of 'Putin's dogs'. If you don't realize this you are either a spreader of propaganda or a victim of the same. As to you using the term 'Putin's dogs', I would say that just increases the likelihood that you are a spreader rather than a victim.

    As to BP investors, I am one. I know all about TNK/BP in detail... do you? If BP had not gone into Russia, it would be worse off... it's current TNK issues are being sorted out properly, the oligarchs who sold their half share to BP are being sued by BP to pay the back taxes due before the deal, as the contract of purchase called for... read the facts please. BP is in talks with gazprom on added joint ventures... why? Because it's GOOD FOR BP.

    The oligarchs are the problem, not Putin, the Kremlin, or any other boogeyman that your boss Khodorkovsky tries to scare up. Go back now and get more instructions.

    As for 'appropriation', get real. Try being factual... not a fearmonger.

    As to risks to OGZPY as a stock... Gazprom is under no risk any greater than the likelihood that suddenly natgas will be obsolete... and unless fusion suddenly becomes something other than '50 years away', gas will become THE #1 PREFERRED ENERGY SOURCE in the near future. In less than a decade half of European vehicles will be hybrid turbo-diesels and the other half CNG fueled. Guess who'll sell the CNG.

    Try being objective. You'll make a profit for your children. And you won't be a agit-prop puppet for the bad guys.
    Reply
  •  
    Jul 21 03:32 PM
    Yes, energy production IS subject to the political whims of every country, not the least of which is these UNITED STATES. At least Russia and ALL the other countries in the world are trying to explore for their domestic energy resources, NOT BOYCOTT THEM!
    Reply
  •  
    Jul 21 05:05 PM
    Russia's energy policy is rational and logical... to wit, the most efficient and socially beneficial extraction and use of it's varied resources, in a timely way, with fair and orderly transition from the ridiculous policy of ruinous exploitation and export for Swiss bank cash by the oligarchic thieves of ex-Soviet assets, into a market based system that properly rewards stakeholders, while protecting Russian citizens as much as possible. Looks to me as though Putin and his team obviously care about Russian people, present and future, and environment as well... without overtaxing capital or being destructive to any rights.

    Oh yeah... he hasn't invaded any countries to steal their resources, either.

    I'd like to say at least that meanwhile the USA has had no energy policy at all since 1979, but the actions of the DC warmongers in the middle east, especially since GB the First went active, disproves that... in a very negative way. Thank your lucky stars you weren't born there... what a nightmare for all those poor victims of the 60 years of US-sanctified (48-90) and led (91-08) aggression since WW2.

    And before that fan of Khodorkovsky and Statoil above starts spurting about outrageous taxes in Russia, he should perhaps check to see Norways marginal tax rate on it's oil companies... it's about 80%. You see, I owned NHY and STO in the past, too. Not any more...
    Reply
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