OREANDA-NEWS. September 09, 2009. Tatneft intends to revive cooperation with Shell, Interfax wired on Tuesday, citing Tatneft’s Board Chairman Rustam Minnikhanov. However, Minnikhanov emphasized that Tatneft is not going to be a junior partner, and that cooperation with Shell is possible only along mutually beneficial terms, reported the press-centre of OTKRITIE FC.     

View: In past years investors have reacted negatively to the breakdown of cooperative efforts between Tatneft and Shell in a bitumen oil project at the new Ashalchinskoye field. We assume that the two oil corporations could conceivably cooperate again on the project, but only if Shell supplies the equipment and technologies.

It is difficult to estimate the exact volume of bitumen oil extraction at the Ashalchinskoye field, but according to our forecast, in 2009 the production of bitumen oil in the Republic of Tatarstan could amount to 130,000 barrels (18,000 tons) of oil, which is less than 1% of Tatneft’s total oil production. We believe that Tatneft can raise funds for the project on its own which would leave its estimated 2009 D/E ratio at 53%.

Valuation: Tatneft’s common stocks trade at a 2% discount on P/E to Russian oil and gas peers. The company’s P/E is equal to 9.7x.

Action: We view these results as a short-term positive for Tatneft. Our long-term target price for the company’s stock is US5.6 with a BUY recommendation.