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Russia buys 49% stake in Vietnamese refinery

Gazprom Neft (ticker: GZPFY), the oil arm of Russian state-owned Gazprom (ticker: OGZPY), and Vietnam Oil and Gas Group (PetroVietnam) have signed a series of agreements to strengthen ties between the oil and gas industries in the two nations. As part of the agreement, Gazprom Neft will acquire a 49% stake in the Dung Quat refinery in Vietnam, according to the press release. The deal also includes steps towards broader cooperation in the energy sector by expanding oil and gas exploration and production in Vietnam.

The Russian energy giant will have exclusive rights to negotiate with PetroVietnam to acquire 49% of the shares – the foreign ownership ceiling in a Vietnamese company – in Binh Son Refining and Petrochemical Co., the refinery operator. The statement gave no value or timing for the purchase.

Plans to modernize the Dung Quat refinery will increase capacity from the existing 6.5 million tons to 8.5 million tons per annum, improve the efficiency of its technological processes enabling the plant to switch over to producing Euro-5 standard motor fuels. Gazprom Neft’s share of investment in the project will be proportionate to its share in the plant.

Russia slows modernization of its own refiners

Due to the increased financial pressure being brought on by international sanctions, Russian oil companies have asked the government to delay a refinery modernization program, reports Reuters.

“Due to the sanctions and related financial constraints, contracts (for modernization) are either being delayed or frozen,” Vladimir Kapustin, head of Russian oil and gas institute VNIPIneft, told an oil conference earlier this week. Kapustin said foreign companies are delaying equipment supplies for the refineries in fear of breaching sanctions.

Since 2000, refinery output in Russia has grown by over 45%, reaching 294 million tons in 2014. Until now, the growth in refinery production and improvements in oil product quality has not been slowed by sanctions.

According to the Energy Ministry, 19 new units are expected to be commissioned at Russian refineries in 2015 compared with eight in 2014.

Free trade deal with Vietnam

The Prime Minister of Russia, Dimitri Medvedev, said Monday that Russia and Vietnam will be seeking expanded trade ties that go beyond the energy industry as well. During his two-day official visit to Vietnam, Medvedev said that the countries are close to finalizing a free trade agreement, reports the Associated Press.

Medvedev predicts that the trade agreement could increase Russia’s annual trade with Vietnam four-fold to $10 billion over the next five years.

“We have agreed on most contents of the agreement,” Medvedev said during a press briefing. “I think this is the factor that would promote bilateral trade.” The Russian Prime Minister’s counterpart, Nguyen Tan Dung, said he hoped the trade pact would be signed in the first half of this year.

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Important disclosures: The information provided herein is believed to be reliable; however, EnerCom, Inc. makes no representation or warranty as to its completeness or accuracy. EnerCom’s conclusions are based upon information gathered from sources deemed to be reliable. This note is not intended as an offer or solicitation for the purchase or sale of any security or financial instrument of any company mentioned in this note. This note was prepared for general circulation and does not provide investment recommendations specific to individual investors. All readers of the note must make their own investment decisions based upon their specific investment objectives and financial situation utilizing their own financial advisors as they deem necessary. Investors should consider a company’s entire financial and operational structure in making any investment decisions. Past performance of any company discussed in this note should not be taken as an indication or guarantee of future results. EnerCom is a multi-disciplined management consulting services firm that regularly intends to seek business, or currently may be undertaking business, with companies covered on Oil & Gas 360®, and thereby seeks to receive compensation from these companies for its services. In addition, EnerCom, or its principals or employees, may have an economic interest in any of these companies. As a result, readers of EnerCom’s Oil & Gas 360® should be aware that the firm may have a conflict of interest that could affect the objectivity of this note. EnerCom, or its principals or employees, may have an economic interest in any of the companies covered in this report or on Oil & Gas 360®. As a result, readers of EnerCom’s reports or Oil & Gas 360® should be aware that the firm may have a conflict of interest that could affect the objectivity of this report.