Streetwise Professor

October 7, 2013

Igor Sechin: Thief? Thug? Hallucinator?

Filed under: Economics,Energy,Politics,Russia — The Professor @ 7:22 pm

I choose (d): All of the above.

Sechin held forth on the purchase of the TNK-BP minority shareholders.  The circumstances were rather extraordinary.  Late Friday night Rosneft’s PR people called a press conference to be held the next morning.  Obviously this was something that couldn’t wait

As for the “thief” part, Sechin gave no ground on piddling compensation to be offered the minority shareholders.  (I should note that BP is a beneficiary of this theft, and arguably an accessory after the fact to Rosneft’s theft of Yukos assets.)  He went with the “we’re paying the market price” line even though the market price of the minority shares had been hammered by realistic fears that Rosneft would not pay fair value.

But that wasn’t the main focus of his remarks.  That’s where the “thug” part comes in.  He was furious-furious-that an investor had the temerity to bring up the subject to Putin:

He seemed less concerned about the substance of the shareholder’s complaint–the fund manager voiced a concern widely held in the market that Rosneft’s offer to buy out minorities was unfairly low–than the fact that the investor had taken it directly to Mr. Putin during a public question-and-answer session at an investment conference.

“This was an attempt to apply pressure, maybe even to manipulate the market,” Mr. Sechin said of the fund manager’s question to the president.

“They should have said, ‘We thank Vladimir Vladimirovich (Putin) for the opportunity to work in Russia and please let us buy something else,’” he added, with only the faintest hint of a smile.

The concern was voiced by a representative of Franklin Templeton Investments, a veteran of emerging-markets investing. Templeton, the questioner said, had bought a stake in TNK-BP Holding, the traded unit of Anglo-Russian oil giant TNK-BP Ltd. in 2006. When Rosneft bought TNK-BP in March of this year, it bought out BP PLC and a group of Russian billionaires who were the British giant’s partners, paying a total of about $56 billion in cash and stock.

The Franklin Templeton representative said last week the stock had been trading at about 85 rubles ($2.10) a share before the Rosneft-TNK-BP deal was announced. The price Rosneft paid to BP and the Russian billionaires, he said, worked out to about 100 rubles a share. Then he added that Rosneft had just announced it planned to report a gain on the transaction because auditors had found the real value of TNK-BP was even higher than what Rosneft had paid–about 123 rubles a share.

His questions were simple: he asked the president if he thought Rosneft’s 67 rubles was a fair price and if such behavior would serve as a precedent for other state-controlled companies.

But here’s the good part.  And by “good” I mean “bad”:

“They’re a great fund, but no one should put pressure on us,” he added, referring to Franklin Templeton. Mr. Sechin said he’d had his staff identify the employee who asked the question, as well as to pull the records of the fund’s ownership, how much it had earned in dividends and how it had voted at annual meetings.

“Everything suited them,” he said, marveling that after such returns the fund would accuse Russia of “putting the squeeze on investors.”

Identify the employee who asked the question, etc.  No.  One would never construe that as a threat in Russia.  Never ever ever, right?

Reality: The message to Franklin Templeton is clear: we know who you are, and if you do that again, we will make you pay.  And for anyone else that has an idea of opening his pie hole, you might want to think about that again, fool. Ask Browder about that.

As for hallucinations, there were several.  For instance, Sechin lauded Russia’s investment climate.  No, really!  He did!

Mr. Sechin praised Russia’s investment climate, repeatedly crediting Mr. Putin for passing regulatory and other changes to stimulate oil production on the Arctic shelf and in other hard-to-produce fields.

“We have reinforced-concrete political stability led by Vladimir Vladimirovich,” Mr. Sechin added.

No further comment necessary.  Other than to say that Sechin’s nose will look tanned even in the middle of a sunless Arctic winter.

Another hallucination involved the shale revolution:

His brief tour of competing oil producers covered the Middle East and Venezuela, but didn’t include North America. [Talk about whistling past the graveyard!] When asked later about surging production of shale oil and gas that’s likely to help the U.S. overtake Russia as the largest producer of the fuels in the world this year, he acknowledged the boom but seemed dismissive. Echoing a view common among Russian officials but discounted in much of the rest of the oil world, he said the impact would be limited to the “local market.”

“We won’t be competing with them on global markets,” he said.

He brushed off a suggestion from a Russian journalist that Rosneft should focus on its own vast reserves of shale oil and gas and leave its current costly drive into the Arctic offshore for the future.

“There will be competition, but we have competitive advantages,” he said.

Um, the oil market is essentially a world market, and supply shocks in one “local market”-you know, like North fricking America-have world-wide implications.  A one percent change in world output emanating from North America has pretty much the same effect on price as a one percent change in world output emanating from Iraq or Nigeria or Russia or Libya: roughly speaking, about a 10 percent impact.  In the medium to long run, there is no “local” in the oil market.  This is Oil 101.  But apparently it’s lost on the CEO of the largest oil producer in the world.

Moreover, the technology of shale is mobile, and will be, after tweaks to accommodate disparate geologies in China and elsewhere, this technology will lead to increased world output, lower world prices-and lower profits for Rosneft.

But the hallucinations don’t end there:

Russian state oil giant Rosneft has plans to extract oil in the next 100 years and sees no significant threat from the increase in shale gas production in the United States, CEO Igor Sechin told journalists Sunday.

“We have a 100 year work prospect,” Sechin said. “As for the shelf, we have no other alternative. In general, oil needs to be extracted,” he said adding that the US shale production is high-cost, which makes it impossible for export.

So shale is expensive, but Arctic projects are cheap?  Seriously?  “Oil needs to be extracted”?  What, regardless of cost?

Yes, shale oil production is expensive compared to other, more traditional resources.  But Arctic projects are incredibly costly, especially for an inefficient, technologically lagging company like Rosneft, which needs western partners to develop these resources-but can’t find the way to play nice with its ostensible collaborators.  Hell, even Shell, which is a far more technologically sophisticated company than Rosneft, and which has a proven track record with technologically challenging projects, has been humbled by its recent failures in the Arctic:

Voser, who will be replaced next year, also said Shell’s failed Alaskan Arctic exploration, marred by technical and regulatory problems, is one of his biggest disappointments on the job, the FT said in a story published Sunday.

Shell RDSA still doesn’t know if it will return to the Arctic next year or in 2015, he said. The company spent $5 billion in the Arctic without being able to complete any wells.

If Shell finds the Arctic a perhaps insurmountable challenge, one can only laugh that Sechin thinks that Rosneft will be able to produce oil in the Arctic economically, even if that oil just needs-needs, I tells ya-to be produced.

One can only marvel at Sechin’s performance. It encapsulates myriad Russian dysfunctions.  A complete disregard for property rights.  Thuggish intimidation of those who question authority.  A complete denial of reality, with the only question being whether that denial is the product of delusion, or just plain dishonesty.

As a friend often reminds me.  Eta Rossiya.

Print Friendly, PDF & Email


  1. […] – Thief? Thug? Hallucinator? […]

    Pingback by Further reading | FT Alphaville — October 8, 2013 @ 1:05 am

  2. Sounds like Putin has him on a short lease. You need to add disgusting suck up to the list and then I will go with E.

    Be a shame if Sechin someday got the cell next to Khodorkovsky because of Putin paranoia.

    Comment by pahoben — October 8, 2013 @ 3:29 pm

  3. I read and enjoy your blog every night.

    Comment by Richard Whitney — October 8, 2013 @ 3:32 pm

  4. You need to add disgusting suck up to the list…


    Be a shame if Sechin someday got the cell next to Khodorkovsky because of Putin paranoia.

    I’d not rule it out. Favoured lieutenants of former leaders rarely do well once the new lot are in power, especially in Russia.

    Comment by Tim Newman — October 9, 2013 @ 5:49 am

  5. Is there any corporate/insider intrigue? It is one thing to be an autocrat of a nation with weapons, but how does Sechin keep the management working for him, while at the same time not threatening his authority. He has no weapons (?) How is Sechin’s close relationship with Putin manifest to his lieutenants, so that they do not challenge him? Is Rosneft an environment of fear, or a sweetened gravy train of privileged perks running down the management?

    Comment by scott — October 10, 2013 @ 1:48 am

  6. @scott. Interesting question. I am sure there is considerable intrigue: what would Russia (or a Russian company) be without it? I am sure that one of Sechin’s tactics is to eliminate or isolate anyone who could pose a threat within the company, and to promote weaklings (especially those with good kompromat material about them!) to top positions. But ultimately, Sechin’s power rests on Putin’s support, or the perception of support.

    I am pretty sure that Rosneft is both an environment of fear and a gravy train for the connected. That’s how the natural state works. The knout is always useful, but sharing the spoils is too.

    One interesting observation. Yakunin (head of Russian Railways) has been the subject of many rumors/stories, and there was even that episode of the fake press release announcing his ouster. Sechin has not experienced anything similar. Interesting to consider why.

    The ProfessorComment by The Professor — October 10, 2013 @ 11:04 am

  7. Questions overheard in Rosneft coffee bar-

    Why do they keep pouriing those grave sized sections of the floor in the basement?

    Did you notice the smell of bitter almonds today when Andrey had his heart attack?

    Comment by pahoben — October 10, 2013 @ 11:59 am

  8. @pahoben. Very funny. Reading the grave in the basement line led me to think of Sechin starring in a reprise of Arsenic and Old Lace.

    The ProfessorComment by The Professor — October 10, 2013 @ 12:06 pm

  9. @Professor
    Too funny. That would be one to catch on stage.

    Comment by pahoben — October 10, 2013 @ 12:34 pm

  10. @pahoben. That would be the very pomo version of Arsenic and Old Lace. Igor would be more fitted for the Peter Lorre role, rather than one of the aunties. I think he has the dramatic range to do the Karlov part too.

    The ProfessorComment by The Professor — October 10, 2013 @ 3:16 pm

  11. I can’t imagine him as George Bailey in It’s A Wonderful Life without a major script rewrite. Maybe things like he pockets the money and has his uncle arrested for theft. The angel that comes in the bridge scene tries to drown him but he escapes and the evil banker dies in a car bombing and a will is found that leaves everything to George.

    Comment by pahoben — October 10, 2013 @ 5:59 pm

  12. @pahoben. Major rewrite is right.

    BTW-you submitted comment #17,000. Congratulations & thanks!

    The ProfessorComment by The Professor — October 10, 2013 @ 6:47 pm

  13. Thank you. How about a post on Yellen as a prize when you can. Sounds lik she will hand out some serious Benjamins. A professsional opinion would be appreciated.

    Thanks for a great blog.

    Comment by pahoben — October 10, 2013 @ 6:55 pm

  14. @pahoben-thanks for your thanks.

    I’ll give some thought to a Yellen post.

    Totally unprofessionally, I will share a vivid memory of our single meeting. In October 2011 I made a presentation to the Board (along with several other economists) about clearing. Yellen’s elfin appearance was surprising and left an impression. The elfin image is not just because she is quite short, but because she was wearing a green velvet outfit that looked like a costume from Elf.

    I will say that she asked the most interesting and penetrating questions. Tarullo did not impress, and the other board member there was silent and so memorable that I can’t remember her name.

    Yes, Ben was there too. He was memorable, but not for anything he said or asked, for he was silent except for some rather perfunctory introductory remarks. He was sitting directly across the huge oak board table from me. Before the meeting it was clear he had a massive headache. He rubbed his temples, and then when an assistant brought him an ice cold Diet Mountain Dew he held it to his forehead for a minute or two while he kept his eyes closed 😛 I was thinking to myself-Yikes! Bernanke has a huge headache (or was it a hangover?)-maybe I should sneak out and call my broker to tell him to short all the S&Ps my margin account could handle 😛

    The ProfessorComment by The Professor — October 10, 2013 @ 7:10 pm

  15. I will laugh about this scene for a while.

    Comment by pahoben — October 11, 2013 @ 5:54 am

  16. Now that she is in charge her outfits should change to red with white fur trim.

    Comment by pahoben — October 12, 2013 @ 9:55 am

  17. @pahoben-that is too funny. We won’t have helicopter drops of money-we’ll have sleigh drops instead! And not just on 12/25!

    The ProfessorComment by The Professor — October 12, 2013 @ 2:39 pm

  18. @Professor

    Laissez les bon temps rouler!!!

    Comment by pahoben — October 12, 2013 @ 4:26 pm

  19. If she shows up for her Senate confirmation hearing in that outfit the markets will go nuts.

    Comment by pahoben — October 12, 2013 @ 5:54 pm

  20. “If Shell finds the Arctic a perhaps insurmountable challenge, one can only laugh that Sechin thinks that Rosneft will be able to produce oil in the Arctic economically, even if that oil just needs-needs, I tells ya-to be produced.”

    As far as the Arctic is concerned, Rosneft seems to have farmed out all the risk to Exxon and to a lesser degree Statoil and ENI.

    Comment by Alex K. — October 14, 2013 @ 1:48 am

RSS feed for comments on this post. TrackBack URI

Leave a comment

Powered by WordPress