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Investor doubts hold back Russian oil powerhouse

The Star

The Russian oil company Surgutneftegaz owns refineries and gas stations, sells a valuable product and makes a profit. But it sometimes fails another test of the capitalist world.

The company is valued by the Russian stock market at even less than its cash and easily sold assets. That astonishing fact suggests that investors see no real value in the business.

Surgut, as it is known for short, is Russia’s fourth-largest oil company after Rosneft, Lukoil and TNK-BP. Its sprawling oil fields, pipelines and drilling rigs should be highly valued in the investment arena. It pumps 1.1 million barrels of oil a day. So the struggle to raise its stock value in the eyes of portfolio managers, while more extreme than many of its Russian peers, is emblematic of investors’ broad lack of confidence in the country’s economy. Outsiders view Russia’s companies, however cash-rich, with an incredible degree of skepticism.

Shares in Surgut have fallen in recent weeks to a level where the market value of about $28.5 billion (U.S.) for its common shares on the Russian Micex stock exchange is now lower than the $31.4 billion in cash and liquid assets on its balance sheet, according to Troika Dialog bank in Moscow.

“It’s an illogical valuation,” Chris Weafer, the chief strategist at Troika Dialog brokerage in Moscow, wrote in a research note last week about the company.

The Russian market this spring fell faster than others of the BRIC countries of Brazil, Russia, India and China and since mid-March is down 18.8 per cent. Global oil prices have slumped, reducing expected earnings.