Nationalization of the oil industry: a magic wand or a "breakthrough" into the past? (part 2)

Victoria Petrova

In the previous article, we analyzed the advantages of the fact that oil and gas companies may undergo nationalization, which is already creeping forward, pretending to be a normal market development of business. There are enough supporters of this approach. Is it time to send the Western model with private business to a landfill?

Whom to sell whom?

We have, in fact, state-owned Gazprom, which, under the management of Alexey Miller, completed 9 months of 2020 with record losses of 592.1 billion rubles according to RAS, and there is a private NOVATEK, which earned 327.6 billion rubles over the same period. But if profit indicators can depend on a mass of parameters and change very quickly, then market capitalization very accurately shows the state of affairs of the company. Thus, Gazprom has a market value of 5.03 trillion rubles, and NOVATEK - 4.08 trillion rubles. Gazprom alone produced 452 billion cubic meters of gas last year, has pipes for exporting blue fuel to different countries, long-term contracts and a colossal sales network in Russia. And NOVATEK had to pump out about 84 billion cubic meters of gas and spend money on its liquefaction in order to send it by tankers around the world. That is, the scale of production and assets are not comparable, but the assessment by investors does not differ that much.

Sergey Pikin, director of the Energy Development Fund, notes that a similar situation has developed in the oil industry:

- Let's take Lukoil and Rosneft as an example. Rosneft has a much larger resource base than Lukoil, production is higher, but in terms of capitalization, they are estimated at approximately the same level. Why it happens? Because Lukoil is more profitable, it has better management. If we again compare Rosneft and foreign companies of the same scale, then their price difference will be tenfold, almost incomparable.

Oil and gas analyst Mikhail Krutikhin is even more radical in his views on the efficiency of state-owned companies:

- The difference between state-run companies and private business is enormous. In Russia, as in some other countries, the official who runs a government organization often does not care about its effectiveness. That is, in a commercial company, management must manage in the interests of shareholders and take care of increasing profits and minimizing costs. This is a law that cannot be broken. In a state-owned company, as we can see, instead of these principles, the management is concerned with maximizing costs. Projects are being launched that are deliberately failing commercially, only because they require huge investments and officials can make money from these investments. They do not answer to the investor (government), the efficiency of such companies becomes extremely low.

In addition to experts, we interviewed the authors of specialized telegram channels, who are constantly on the topic, and, due to their anonymity, can be considered relatively independent experts. Telegram channel Gaz-Batushka:

- The share of the state in oil and gas is large - this is bad. Even the presence of two private companies does not improve the situation, since they operate in a market dominated by state-owned companies and are forced to accept their rules of the game. Private traders will not be allowed to significantly increase their market share. So there is no point in striving too hard for development and increasing your efficiency. To live with wolves - howl like a wolf.

But just without this competition it is impossible to provide a decent quality of services to the population at affordable prices and to carry out the same gasification of regions, for example.

Mikhail Krutikhin, oil and gas industry analyst:

- Let's see, for example, how the gasification by Gazprom took place. It would seem - a social project. Gazprom said that it annually allocates a billion dollars for it. But where is the gasification? She's gone! Giant pipes run from Yamal towards Europe and through the territories where they go (Komi, Arkhangelsk region), towns and villages are not supplied with gas. Roughly speaking, there is a pipe, but there are no branches to settlements from it. We can say that gasification has failed. Gazprom does not know how to sell the most "primitive" gas, it is a very primitive organization.

But oil and gas companies are not a second-hand iPhone, you can't just take them and sell them on an ad - it's too expensive. And where does the interest come from, if in Russia there are sanctions, then we ourselves spoil everything by forceful solutions to corporate conflicts, as in the case of Yevgeny Chichvarkin's Euroset or Baring Vostok with Michael Calvey. Even the IPO of the quite successful Sovcomfot turned out to be unsuccessful - the shares fell by 10% after going public in October.

Everybody knows about producing companies, but there are those without whom it would not have been possible to produce a single barrel of oil - oil service organizations. Almost nothing is heard about them, but they are the ones who hire shift workers, bring in equipment, and implement everything conceived by mining companies.

Why the state is not Robin Hood

Oilfield services are the kingdom of private traders. There was no place left for the state in this area even before the imposition of sanctions - foreign companies such as Schlumberger and Halliburton, which possessed modern technologies, had a clear advantage. Private traders, including domestic ones, prevail in this area even now - only they can freely use foreign technologies under the conditions of sanctions. In addition, it is more convenient for large companies to outsource work with personnel.

But it was the oilfield service that suffered the most in 2020: it sank by 20% - 30%, gaining no more than $ 22 billion. Due to weak demand and OPEC + restrictions last year, mining companies often refused to develop new wells, and often simply did not pay for the work performed, using the right of the strong. The same state Gazprom introduced a deferred payment of 180 days and extended it to 2021. Chairs in the morning, and money not even in the evening, but six months later. At the same time, it is necessary to invest in new technologies and pay salaries to employees.

It is not surprising that last year shift workers went on strike building a compressor station for the Power of Siberia, shift workers went on strike at gas fields in the Nadym region of the Yamalo-Nenets Autonomous Okrug, shift workers went on strike at the Rosneft Tagulskoye field in the Krasnoyarsk Territory. All have the same claims - multimillion-dollar wage arrears for 3-6 months and attempts to send people home without money and guarantees of payments.

Maybe if the oilfield services were state-owned, then everything would change? The authors of the industry telegram channels are sure that simply changing the owner will not solve the problem.

Telegram channel Gaz-Batushka:

- No, it would not be better. Neither federal state unitary enterprises nor private companies can print money. And when it comes to communicating with Gazprom or Rosneft, it doesn't matter who owns the company. Leading mining companies can bend their pay line and dictate working conditions to anyone. But private companies are much more flexible, they have much more options for attracting borrowed capital, every step of the director is not monitored by the prosecutor for the misuse of the funds received. And all this ultimately allows private companies to survive. And FSUE would have to be liquidated or bankrupt in the same situation.

Drilling Telegram channel:

- It is natural that the blow fell on the servicers. The production restriction led, first of all, to the restriction of drilling volumes. But in this case we are talking about force majeure. The stop was due to agreements within the framework of OPEC + at the state level, which means that the risks of companies should have been insured by the state, regardless of their form of ownership. Unfortunately, our state, when making such systemic decisions, takes into account only linear consequences. But this is already a claim to the level of competence and the quality of management decisions of our officials.

Alas, there is no place for state-owned companies in the oilfield service. Therefore, the complete nationalization of oil and gas is impossible in principle: even if the mining companies are nationalized, their contractors will remain private.

The authors of telegram channels have no consensus on the privatization and nationalization of oil and gas. Burova believes that “if there is a law on privatization, then there must be a law on nationalization,” since private (privatized) companies control common resources. This means that there must be a mechanism for removing bad managers from the country's resources. The authors of Gaz-Batushka are sure that "nationalization has no advantages by definition, especially within the framework of a market economy, nationalization is the legalized expropriation of private property." And the issues of national security are solved by legislative regulation, because all the same, private companies have nowhere to go - all assets (oil and gas) are located in Russia.

As a result, not daring to either privatize or nationalize oil and gas, the state maneuvers between them, under the guise of increasing efficiency, increasing the share of its presence in this sector. In this case, only stagnation in the industry turns out.

In the following articles by Novye Izvestia we will deal with the problems of the nationalization and privatization of other industries. Russia is a country of contrasts, and there are very colorful examples.