Forbes Global 2000 Shows Nothing Can Stop Russia’s Oil Beasts

  • May 14, 2020
  • Investing

But if it had a slogan, it would be similar to that of the U.S. Post Office: “nor rain, nor Siberian ice, nor negative oil futures” can take Russia’s state owned oil firms off the Forbes Global 2000 list.

Of the top 10 Russian companies on this year’s Global 2000, seven are oil and gas. The other two are banks — Sberbank and VTB Bank — and Norilsk Nickel. The seven are all drilling for oil and gas from the cold Kara Sea of Russia, to remote areas of Bolivia.

Gazprom, the biggest, is ranked as the 32nd largest multinational corporation in the world this year, up from 40 in 2019. The company has become somewhat of a household name to casual political junkies on Russia watch. It is the majority owner of the Nord Stream II pipeline connecting Russia to Germany, and has been threatened with sanctions by the U.S. Gazprom’s European partners aren’t happy. They’ve gone on with the project anyway. Gazprom is far and away the biggest supplier of natural gas to Europe.

Rosneft is the second largest, ranked as the 53rd-biggest company in the world, falling one spot from the 52nd-largest in last year’s Global 2000.

Most people might not know this, but due to debt problems in Venezuela, the Citgo gas station its oil company PdVSA once owned fully is now 49.9% owned by Rosneft.

If Boston Red Sox fans ever get to Fenway Park this year, glowing over the Green Monster is the red triangle of the neon red Citgo sign, owned in large part by a company whose chief executive is often referred to in the Russian media as Darth Vader. Igor Sechin is arguably the second most powerful man in the country, second only to Vladimir Putin himself.

LukOil is Russia’s third largest corporation. It is the 99th largest company in the world, dropping from the 97th largest in 2019. Anyone who has ever driven through the boroughs of New York has probably filled up at a LukOil gas station. It’s Russian.

The biggest climber on this year’s Global 2000 for the Russians was Novatek, another privately-owned energy beast. It went from 499th to the 316th-largest public company in the world.

Novatek is majority owned by billionaire Leonid Mikhelson. It’s famous for its Siberian natural gas discoveries and is one of Russia’s key producers and exporters of liquefied natural gas, with a whole lot of it going to the Chinese. They are, arguably, one of the U.S. LNG industry’s biggest competitors in Asia.

This year started off lousy for the Russians, though. In March, they failed to extend a production cutback deal with OPEC, mainly with the Saudis. Russia abandoned a roughly three-year-old arrangement with them to limit production, sending oil prices to the floor. When both said they would increase production as the global coronavirus pandemic destroyed crude oil demand, oil prices fell even lower. And then in one historic day last month, the May futures contract went haywire, going to more than negative $33 a barrel before coming back to life the next day as the contract expired.

Oil is still cheap. It’s been stuck in the low $20s for weeks now.

From a business perspective, Russian state-owned oil and gas firms are too big too fail.

“There’s not going to be any downgrades or defaults,” says Luiz Peixoto, an economist with BNP Paribas in London.

“We bought Gazprom and Norilsk Nickel,” says Arent Thijsen, a fund manager for Blauwtulp Wealth Management in The Netherlands. “A lot of Russian equities are very cheap right now because of the pandemic. A lot of them have unexpectedly solid growth,” he says.

Sberbank CEO Herman Gref describes the present oil and health crisis as a “walk in the park” compared to Russia’s previous economic blowouts. Sberbank is ranked No. 402 on this year’s Global 2000. That’s a drop of hundreds of points from its 47th-largest ranking in 2019.

Russia’s dependence on oil and gas is still a huge problem. Years after the fall of the Soviet Union, Russia — when it comes to its most important corporations — still looks like what the late Senator John McCain called “one big gas station.” Weak oil is a headwind for Russia.

Still, Baron de Rothschild’s famous “buy on the sound of cannons, sell on the sound of trumpets” was made for Russian equities, and anyone that buys the big Russian index ETFs are stuck with the likes of Gazprom and Vader’s Rosneft.

In the 2008-09 global financial crisis, Brent oil fell by 77% from $146 per barrel to $34 and the MSCI Russia declined by 80% from peak to trough.

In the 2020 global pandemic, Brent oil fell by 75% from $69 per barrel to a low of $17.30 and MSCI Russia declined by 51% from peak to trough. Russians are getting use to the crash. They didn’t fall for it this time. The locals bought. Russia’s corporate giants were the beneficiaries.

“In Russia, crises happen twice as often as in the rest of the world. Russian investors have to always be ‘on alert,’” says Grigory Sedov, global head of private clients at Renaissance Capital. “Many Russian investors have been able to meet the current crisis in good shape.”

There will be a U-shaped recovery in Russia post-pandemic. Oil will rise again. That will give Russian oil and gas a chance to climb out of the hole they’ve dug for themselves with their dispute with OPEC and U.S. shale. Some of those oil companies will fall lower on the Global 2000 next year because of this mess. But none will fall off of it.

Source: Forbes