Study On Oil & Gas Development And Financial M&A In Russia

Nowadays Russian oil and gas companies are facing many opportunities and challenges.Firstly,the shale gas revolution in the US global energy markets have brought challenges such as low hydrocarbons prices,changes of the roles of key players,which has obvious effect on the international oil and gas market.With the Trump government withdrawing US from Paris climate agreements,unbalancing global energy markets development of oil and gas industry has become a critical issue.The challenges,such as sanctions implemented by USA and European union and low hydrocarbon prices,are driving Russia oil and gas industry to grow large and stronger,in order to overpass them.Secondly,as the world economy grows fast,humanity is facing serious ecological issues.High intensity of carbon emission lead to the global warming.In Russia,oil & gas industry keeps playing the key role in its economic development.And this makes the industry's development and its impact on Russian economy development,to become a very sensitive and important topic.Therefore,this thesis focuses on the mergers and acquisitions(M&A)of Russia's oil and gas industry.The importance of M&A is that mergers are believed as a way of overpassing the challenges in the context of Russia.Development of Arctic Shale,Russian Far East and Asia –Pacific expansion require from companies to turn into big and stable players in short term.Unfortunately,organic growth will not be enough,so companies are expected to do take overs and mergers.In this thesis,we take the methodology of DCF approach.To conduct analysis three models,need to be built: one to evaluate price of target company,one for acquirer's price evaluation and last one to evaluate price of the united company.Using,financial statement of firms,future free cash flows need to be forecasted and terminal value evaluated.Sum of present values of these cash flows and terminal value is the price of the company.Sum of the merging firms' prices and occurred during integration costs,had to exceed value of the combined company,otherwise deal is inefficient.Based on this,the thesis carried out case study on deal between two biggest oil companies in Russia.In 2016 oil company “Rosneft” has taken over “Bashneft”.This is an essential case for oil industry,as both companies belong to top five oil companies in Russia.Results show that deal was inefficient,as discounted back to 2016 price of “Rosneft” less than sum of companies' prices before merger.This is important result,as oil & gas companies in Russia might use this experience in the future deals.