By Market News Video Staff, Tuesday, March 8, 11:04 AM ET
by Max Blythe
Russia energy is in the headlines again, with France’s Total agreeing to buy up a 12% stake in Russian gas producer Novatek for $4 billion. Novatek, with production of 120,000 barrels of oil equivalent per day and proven reserves of around 1 billion barrels, is Russia’s second-largest gas producer after state-owned behemoth Gazprom. The Novatek deal was on the back of the landmark BP-Rosneft deal in January and will likely look even more attractive, given the turmoil in the Middle East. Russia, once the international bogeyman of direct foreign investment into the energy sector, is enjoying a revival as oil prices entrench in the triple digits.
With Libya, the world’s 12th largest oil exporter, on the brink of a prolonged and possibly bloody civil war and protest movements spreading beyond Egypt and Tunisia, oil-rich and relatively stable Russia is looking like “quiet harbor” in terms of energy production. Or, at least, investors seem to think so: after the BP-Rosneft deal was announced, BP’s ADRs (NYSE:BP) reached $49.25, which is a post-spill high for the embattled British firm. In terms of Russia, HSBC sees Russian oil companies boosting profits by 20% this year if crude stays above $90 per barrel. Two ways to tap into this upside are via Russian energy-sector ADRs traded on the Pink Sheets or by Russian ETFs.
Lukoil (LUKOY) is Russia’s largest, private-sector oil company. ConocoPhillips (NYSE:COP) is a major investor in Lukoil and the Russian company, which gives Lukoil a bit of a premium over its peers. Lukoil is currently up 31.16% year-to-date. In terms of natural gas, Gazprom (OGZPY) dominates Eurasia, being both the world’s largest producer of natural gas and the owner of the most extensive gas-pipeline system. The state-run company supplied a full 25% of the European Union’s natural gas. In 2008, when oil prices reached their historic high, Gazprom accounted for a full 10% of the Russian economy. Gazprom’s European pricing is based on oil prices rather than spot prices for natural gas, meaning sustained high crude prices boosts the gas giant’s revenue and, consequently, Gazprom ADRs are up 20.72% year-to-date.
The Market Vectors Russia ETF (AMEX:RSX) gives investors access to four firms that are not traded on US markets: state-run oil major Rosneft, VTB Bank, Novatek and NLMK Steel. The ETF also includes Lukoil, Gazprom and Gazprom’s oil subsidiary, Gazprom Neft. The ETF is up a full 9.44% since the beginning of the year and, due to its weighting towards the Russian energy sector, could benefit from higher oil prices.
For a complete list of holdings, visit the RSX Holdings page on ETFChannel.com
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