Energy price fluctuations and ruble devaluation along with political instability in Russia are likely to cause major changes in the Russian energy sector. Recent major conflicts in the industry, TNK-BP and Timan Oil and Gas, are the first indications of a reshuffle in the Russian energy sector, according to analysis by RUXX index that tracks Russian equities.

BP has been looking for buyers for its stake in TNK-BP, the third-largest Russian oil producer, since early June, after a long saga of shareholder conflicts with its Russian partner AAR and a long-standing feud with the Russian government agencies (that included police raids, denied visa applications for UK executives, and foiled M&A transactions). Timan Oil and Gas Plc (TOG), an exploration and production company with 270 million tons of extractable crude reserves, has seen a controlling stake change hands from British owners to a Russian tycoon, allegedly unbeknownst to the former.

"The recent developments demonstrate the continued importance of the energy sector for the Russian economy, as it still accounts for a large part of the nation's budget, and for the Russian government, as the sector brings approximately 70% of federal revenues," says RUXX analyst Ilya Lushnikov. "It is understandable that the Russian government would want to consolidate its control over revenue flows from this key sector, by helping to place the most lucrative assets in the industry in the hands of businessmen and companies it sees as loyal. In fact, this has been going on for years: we witnessed the Yukos affair in the previous decade, which saw redistribution of some of the nation's best oil assets in favour of the government-controlled Rosneft; another government-controlled firm, Gazprom Neft, took over Sibneft's assets. According to the media, Alexander Lebedev, a banking and resources magnate with close links to the government, took over an appealing oil exploration asset TOG around 2009, and now BP is getting squeezed out of its Russian venture," Lushnikov added.

However, in a more recent development, Alexander Lebedev seems to have lost government support and may see the alleged asset grab reversed. According to TOG UK-based former core shareholder Boris Reuter, his stake was taken away from him on the basis of an agreement he claims he had neither seen nor signed. "My efforts to seek justice through the Russian court system went nowhere three years ago," says the British businessman. "Instead, the police and others discouraged me from pursuing this." However, the situation seems to have changed, as Lebedev is divesting of his Russian business, claiming unfair treatment by the Russian authorities, Russian business daily Kommersant reported earlier this month.

"We consider 2012 to be the year of changes in the Russian oil and gas sector as political and economic situations in the country develop. It remains to be seen if the newly formed government will affect the current state of the industry. The situation is unpredictable and calls for caution for anyone considering investments in the Russian strategic oil and gas sector," says Lushnikov.

Shayne Heffernan

Shayne Heffernan oversees the management of funds for institutions and high net worth individuals.

Shayne Heffernan holds a Ph.D. in Economics and brings with him over 25 years of trading experience in Asia and hands on experience in Venture Capital, he has been involved in several start ups that have seen market capitalization over $500m and 1 that reached a peak market cap of $15b. He has managed and overseen start ups in Mining, Shipping, Technology and Financial Services.Read the Terms of Service