OREANDA-NEWS. August 31, 2010. Rosneft is currently in advanced negotiations to buy a 50% stake in Ruhr Oel GmbH from the Venezuelan state oil company Petroleos de Venezuela SA for between USD1bn and USD2bn. Ruhr Oel has stakes in a number of German refineries – Bayern Oil, Gelsenkirchen, MiRO Karlsruhe and PCK Schwedt – which have a combined capacity of 50MMT. Ruhr Oel GmbH’s share of that capacity figure is approximately 25%, reported the press-centre of OTKRITIE Financial Corporation.

View: This deal, which would increase Rosneft’s refinery capacity to 63MMT, has been developing since mid-spring, so it presents little surprise for the market. That being said, we believe this possible acquisition could have a long-term positive impact on Rosneft’s valuation, especially when refinery profit margins and petroleum product demand for in Europe return to their normal levels. If the purchase price for this asset is less than USD1.4bn, we would expect positive short-term impact on Rosneft shares. In our view, after buying the stake in refineries Rosneft may begin to consider purchasing retail chains, with the aim of establishing an international vertically integrated oil unit.

Valuation and Action: We reiterate our BUY rating for Rosneft and a target price of USD11/share. The stock trades on a 2010EV/EBITDA of 4.4x, which implies a 25-30% discount to emerging market peers.