Packer16 Posted February 2, 2014 Share Posted February 2, 2014 The other side is you are seeing proposals to increase investment in O&G by changing the royalty payment to be lower on new high development cost projects. The Gazprombank analyst report on Lukoil describes this. I have seen some changes that in opposition to the thesis laid out in the article. Recently, Russia has outlawed gov't officials from having foreign bank accounts (also from the Economist) and has more gov't/industry JVs (include O & G JVs with XOM). Also from the economist, Russian oil production is up 16% over the last 10 years. Myself and Charlie Munger and WB don't think oil prices will go down. BH just made a huge investment in XOM. As to nationalization, I don't see it happening. The gov't took over Yukos because the CEO got involved in politics, the Lukoil guys are not involved in politics. It is nice the press continues to put Russia down as it will keep the prices of the O & G companies cheap. Packer Link to comment Share on other sites More sharing options...
saltybit Posted February 26, 2014 Share Posted February 26, 2014 2009 Stanford GSB speech by Hermitage CEO Bill Browder about investing in Russia in the 90s. Hermitage exposed several high-profile cases of corruption in Gazprom back in 1998-2000. Link to comment Share on other sites More sharing options...
gary17 Posted February 26, 2014 Share Posted February 26, 2014 I believe the Chandler brothers (based in Singapore?) also invested in Russia before - there's an article they wrote on their website --- i read it many months ago... i believe there were a lot of corruption and they had to keep putting more money in and get involved personally... they finally got out after like 5 years or something with a tiny gain. Gary Link to comment Share on other sites More sharing options...
phil_Buffett Posted March 2, 2014 Share Posted March 2, 2014 i dont buy the Argument that russia has changed their attitude. they are the same political idiots as before. People are scared to go and invest in russia. so what could be a cataylst for lukoil? the valuation gets cheaper and cheaper after the recent sell of. Link to comment Share on other sites More sharing options...
JBird Posted March 2, 2014 Author Share Posted March 2, 2014 i dont buy the Argument that russia has changed their attitude. they are the same political idiots as before. People are scared to go and invest in russia. so what could be a cataylst for lukoil? the valuation gets cheaper and cheaper after the recent sell of. I have no idea what the catalyst could be. What was the foreseeable catalyst for PetroChina in 2002? Link to comment Share on other sites More sharing options...
phil_Buffett Posted March 2, 2014 Share Posted March 2, 2014 i dont buy the Argument that russia has changed their attitude. they are the same political idiots as before. People are scared to go and invest in russia. so what could be a cataylst for lukoil? the valuation gets cheaper and cheaper after the recent sell of. I have no idea what the catalyst could be. What was the foreseeable catalyst for PetroChina in 2002? thats right. i have a Long Position and iam confinced that lukoil is undervalued, but i hate how russia under Putin are political idiots. he is making the Situation and the Image of russia not better. it´s getting more worse over time. Link to comment Share on other sites More sharing options...
frommi Posted March 2, 2014 Share Posted March 2, 2014 A catalyst can now be the end of the crimea crisis or the the next numbers. In 3-4 weeks nobody talks about the crisis any more, because i think it is soon over. But that is just my optimistic view, who knows if i am wrong. :) The rubel has lost a lot of value in the last 3 month, when they really have 80% of revenue outside the rubel the next numbers should be really good. Link to comment Share on other sites More sharing options...
yadayada Posted March 2, 2014 Share Posted March 2, 2014 how about dividends. I mean it has to start paying those 10-20% annual dividends right? Or buy backs. Or else that price earnings multiple of 5 doesn't mean very much. It is not like they are building something to last with the equipment they invest in. Looking at it now, they generate half the amount of FCF that their earnings indicate. If the thesis is right, then you could say that they should turn into a cash cow within the next 5 years or so? And that basicly is the catalyst, cash returning to shareholders in large amounts. With the chance that the market will start liking it before that happens. Link to comment Share on other sites More sharing options...
constructive Posted March 2, 2014 Share Posted March 2, 2014 i dont buy the Argument that russia has changed their attitude. they are the same political idiots as before. People are scared to go and invest in russia. so what could be a cataylst for lukoil? the valuation gets cheaper and cheaper after the recent sell of. I have no idea what the catalyst could be. What was the foreseeable catalyst for PetroChina in 2002? Increasing Chinese per capita income and car ownership was quite predictable. Cheap oil relative to the previous 30 years somewhat predictable. Improving Western sentiment towards the Chinese market less predictable. Warren might be too modest to claim seeing those catalysts, but that doesn't mean he didn't. With Lukoil we can't depend on Russia growing or oil prices increasing. But there are other factors to make up for it. Lukoil has more low cost reserves and is cheaper on an earnings or cash flow multiple than PTR in 2002. I believe being run by owner operators, it is managed more efficiently than PTR which is majority state-owned and more bureaucratic. Link to comment Share on other sites More sharing options...
constructive Posted March 2, 2014 Share Posted March 2, 2014 how about dividends. I mean it has to start paying those 10-20% annual dividends right? Or buy backs. Or else that price earnings multiple of 5 doesn't mean very much. It is not like they are building something to last with the equipment they invest in. Looking at it now, they generate half the amount of FCF that their earnings indicate. If the thesis is right, then you could say that they should turn into a cash cow within the next 5 years or so? And that basicly is the catalyst, cash returning to shareholders in large amounts. With the chance that the market will start liking it before that happens. Here is their dividend policy: http://www.lukoil.com/static_6_5id_243_.html The trailing yield is now around 5%. http://www.lukoil.com/materials/gallery/125_1962_l.jpg Also, in the last 4 years they have bought back 12.6% of shares. I think further share reductions will be smaller scale and dividends will be the larger factor for shareholder returns. They have also built up over 3 decades of reserves while paying dividends and buying shares back. I don't think it makes any sense to suggest that their reinvestment in the business isn't worth anything. Link to comment Share on other sites More sharing options...
SwedishValue Posted March 2, 2014 Share Posted March 2, 2014 Any thoughts if a "political discount" is motivated, and in that case, how much? Russian government could increase oil taxes if they wished to. On a personal note, and with previous infringements on private capital in Russia, I would like to have a high discount. Seeing that it currently trades at low multiples makes me wanna look into it further. Link to comment Share on other sites More sharing options...
prevalou Posted March 2, 2014 Share Posted March 2, 2014 Why not then ask for à discount for us equities, given previous infringements on private capital (Fannie Mae and Freddie Mac) ? Link to comment Share on other sites More sharing options...
SwedishValue Posted March 2, 2014 Share Posted March 2, 2014 With all due respect, I do not believe they compare. Link to comment Share on other sites More sharing options...
Packer16 Posted March 2, 2014 Share Posted March 2, 2014 The belief in the "rule of law" in the US is the reason I am long Freddie/Fannie Mae. I had a friend who was marking (estimating the value of the GM debt before the bankruptcy) and Gietner told the debt holders take this deal or we will make sure you never manage money again. A boss with that type of attitude breeds it in those who work for him. So I am pretty sure the government wanted to make sure the Freddie and Fannie shareholders never would receive anything even as the companies finances improved. Now with the discovery power of the plantiffs in this case all of the coersion will be made public. The judge in the case also holds the government to higher standard as she should so things may get interesting. Packer Link to comment Share on other sites More sharing options...
phil_Buffett Posted March 3, 2014 Share Posted March 3, 2014 down almost 8% today. ouch Link to comment Share on other sites More sharing options...
JBird Posted March 3, 2014 Author Share Posted March 3, 2014 Down 10% in pre-market. This is going to be fun. Link to comment Share on other sites More sharing options...
plato1976 Posted March 3, 2014 Share Posted March 3, 2014 Does anyone know if on a market cap / reserve basis is this one cheaper than petroChina when WEB bought it ? how about dividends. I mean it has to start paying those 10-20% annual dividends right? Or buy backs. Or else that price earnings multiple of 5 doesn't mean very much. It is not like they are building something to last with the equipment they invest in. Looking at it now, they generate half the amount of FCF that their earnings indicate. If the thesis is right, then you could say that they should turn into a cash cow within the next 5 years or so? And that basicly is the catalyst, cash returning to shareholders in large amounts. With the chance that the market will start liking it before that happens. Link to comment Share on other sites More sharing options...
constructive Posted March 3, 2014 Share Posted March 3, 2014 Does anyone know if on a market cap / reserve basis is this one cheaper than petroChina when WEB bought it ? Yes it is. Petrochina had 11B barrels of reserves in 2002 and traded for $38B. Lukoil has 17B barrels of reserves and coincidentally also trades for $38B today. In the meantime the price of oil has gone up ~5x. Link to comment Share on other sites More sharing options...
rogermunibond Posted March 3, 2014 Share Posted March 3, 2014 Buffett mentioned today that he was buying a stock that trades on the LSE both on Friday and today. And was happy to see it down today. Hehe. Link to comment Share on other sites More sharing options...
fareastwarriors Posted March 3, 2014 Share Posted March 3, 2014 Buffett mentioned today that he was buying a stock that trades on the LSE both on Friday and today. And was happy to see it down today. Hehe. You think it is Lukoil? Why? Link to comment Share on other sites More sharing options...
rogermunibond Posted March 3, 2014 Share Posted March 3, 2014 Tongue in cheek. Just a wild ass guess. Link to comment Share on other sites More sharing options...
fareastwarriors Posted March 3, 2014 Share Posted March 3, 2014 Tongue in cheek. Just a wild ass guess. ahh got it. ;D Link to comment Share on other sites More sharing options...
claphands22 Posted March 5, 2014 Share Posted March 5, 2014 2009 Stanford GSB speech by Hermitage CEO Bill Browder about investing in Russia in the 90s. Hermitage exposed several high-profile cases of corruption in Gazprom back in 1998-2000. This is an awesome video -- great story arc with a tragic ending. 10/10 recommend. I originally saw this on http://oddlotinvest.wordpress.com/ which is rapidly becoming my favorite blog. Link to comment Share on other sites More sharing options...
claphands22 Posted March 5, 2014 Share Posted March 5, 2014 VIC presenter Harvey Sawking, who runs Firebird Managemet, recommended Gazprom Neft of September of 2013 as well as Tallink, Kazkommerzbank, and Sberbank. http://www.stockgumshoe.com/2013/09/vic-harvey-sawikin-firebird-mgmt/ "Harvey Sawikin is a Russia-focused investor, one of the few who has been consistently invested in Russia since it opened to foreign investors, and his suggestion is to buy Gazprom Neft (GAZ in London, GZPFY on the pink sheets), a Gazprom subsidiary that’s a better (and less liquid) value than its parent. It’s cheap partly because it’s illiquid. It has small free float, Gazprom isn’t likely to give up more shares or take them private. There’s also a chance that Gazprom will sell Gazprom Neft their assets at bad prices — Neft has one of the best management teams, Gazprom the parent has one of the worst. To avoid confusion, the ticker for Gazprom GDRs in London is OGZD, OGZPY on the pink sheets– he does not like that company, the parent, at all. The majority of Gazprom Neft’s revenue comes from petroleum products, only about 25% is crude oil. Even after the tax regime that reduces their profits from spiking crude oil prices being in place for five years, they’re continuing to make money — by producing more of what the government favors, like refined products (jet fuel, etc.). They might not make money if they make mistakes, but it’s a misconception that they can’t make money under this regulatory regime … they can and they have, and they have been among the most efficient oil companies in Russia, unusual for a government controlled company. Gazprom the parent is highly inefficient, with billions of capex wasted or stolen, but Gazprom Neft has been a highly efficient operator so it’s been kept separate. They provide a billion dollars a year (or more) in dividends to the parent. If they become inefficient, their reason for existing goes away — they provide dividends, and they receive oil licenses and are allowed to stay independent. Transfers of reserves from Gazprom to Gazprom Neft have been at huge discounts, less than 20 cents per barrel. They’re currently valued at $1 of enterprise value per barrel of reserves, which is extraordinarily cheap, and they pay a 7% dividend. All of the Russian oil companies are cheap, Lukoil also has it’s attractions at 4.5x earnings, but it’s also a bit more expensive and more visible." Link to comment Share on other sites More sharing options...
Mephistopheles Posted March 27, 2014 Share Posted March 27, 2014 In the last 5 years, the highest this stock traded was $73, which was in April 2011. Earnings and reserves for the last 5 years were about the same, and in some cases even higher than now. I know the stock is really cheap under both of those metrics, but given that the stock has been less than 50% higher under the same numbers over the last 5 years, can this be a possible value trap? (not sure if that's the right term) I know the dividend yield is healthy but this doesn't seem to be an obvious double based on the valuation in recent years. I am not sure if it's worth the political risk. Maybe I'm missing something. Thoughts? Link to comment Share on other sites More sharing options...
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