Rosneft at a Glance
Rosneft is the leader of Russia’s petroleum industry and the world’s largest publicly traded petroleum company. Company’s main activities include prospecting and exploration of hydrocarbon deposits, oil, gas and gas-condensate production, upstream offshore projects, processing, as well as oil, gas, and product marketing in Russia and abroad.
The Company is included in the list of strategic companies and organizations of Russia. Company’s largest shareholder (69.50% of the equity) is ROSNEFTEGAZ JSC, fully owned by the Russian Government, while BP holds 19.75% of shares, one share belongs to the state represented by Federal Agency for State Property Management, whereas the remaining shares are free floating. (see Shareholding Structure).
Rosneft key objectives pertain to production maintenance at mature fields, development of oilfield service business segment and further work offshore. Company’s successful performance in 2014 demonstrate efficiency of its strategy, importance of the determined priorities and ensures further sustainable development of the Company.
Rosneft is a global energy company with major assets located in Russia and a diversified portfolio in promising regions of international oil and gas sector, including assets in Venezuela, Ecuador, Cuba, Canada, the USA, Brazil, Norway, Germany, Italy, Algeria, Mongolia, China, India, Vietnam, Turkmenistan, Belarus, Ukraine, and UAE.
Rosneft geography in Exploration and Production business segment encompasses all the key oil and gas regions of Russia, including Western and Eastern Siberia, Volga-and Ural Regions, Far East, Timan-Pechora, Krasnodar Region and the shelf of Russian seas, including Arctic shelf, as well as promising regions abroad, including Latin America and South-Eastern Asia.
Rosneft is a leader in oil refining in Russia. The Company owns 11 major refineries (including 50% share in Slavneft-YaNOS) and several mini-refineries in Russia. The Company holds 50% share in a joint venture Ruhr Oel GmbH (ROG) with BP that owns shares of four refineries in Germany. Oil processing in Belarus is carried out under a refining processing agreement at Mozyrsky Refinery with an indirect ownership interest of 21%. Distribution network encompasses 59 regions in Russia, as well as countries of the near abroad.
According to the results of the audit performed by DeGolyer & MacNaughton under the SEC (United States Securities and Exchange Commission) life-of-field classification, as of December 31, 2014, Rosneft proven hydrocarbon reserves stood at 33, 977 mln BOE (4, 595 mln TOE). These figures put 2014 Rosneft's hydrocarbon reserve replacement ratio under the SEC classification at 154 %. The Company’s hydrocarbon reserves growth accounted 963 mln BOE (134 mln TOE) which amounted +3% to the rate of 2013.
Under the PRMS (Petroleum Resources Management System) classification hydrocarbon reserves by the 3P category as of December 31, 2014 stood at 106,359 mln BOE (14,428 mln TOE). The growth to 2013 amounted +5%. Proven hydrocarbon reserves (1P) stood at 43,085 mln BOE (5,836 mln TOE). Therefore, Rosneft's hydrocarbon reserve life totaled 24 years.
The increase in volume of proven reserves is, to a large extent, based on the successful implementation of geological survey, drilling and bringing new blocks into development. It is also due to the efficient work on maintenance and increase of the base wells fond productivity at the Company’s fields. The estimation of development prospects for the respective volumes of tight reserves of the Company’s fields in West Siberia was also upgraded.
Rosneft is the biggest public company in the world in terms of reserves and production. Adding reserves is one of the Company’s key priorities. Rosneft holds a leading position in the development of the Russian continental offshore fields.
The Company’s 2014 ABC1+C2 hydrocarbon reserves amounted to 129 bln boe (ca. 17 bln toe). Investment in exploration was twice the 2013 amount, primarily due to increasing the scope of offshore E&A operations.
In 2014, replacement of ABC1 commercial hydrocarbon reserves, including acquisitions, amounted to 461 mm toe, or 156% vs. 2013, and the reserves-to-production ratio (R/P) is 45 years.
The exploration program was successfully delivered. The Company carried out E&A operations in all the regions where it has the right to subsoil resource use in the Russian Federation, including the Far East, East and West Siberia, the Volga-Urals and Timan-Pechora regions, and the south of Russia. 100 exploration wells were drilled and tested with the success rate of 80%; 5 new fields were discovered, including 2 offshore fields, and 64 new accumulations in the existing fields. The total discovered reserves amount to ca.560 mmt of oil equivalent.
Reserves additions in West Siberia — 186.5 mm tons of oil and 72.2 bcm of gas. 57 Exploration wells demonstrating an 89% success rate. Tavricheskoye field discovered as part of the Uvat project in the south of the Tyumen region plus 18 new hydrocarbon accumulations. Total reserves additions in East Siberia — ca. 49 mm tons of oil and 43.6 bcm of gas; 9 new accumulations discovered. Total reserves additions in the Volgo-Urals region — 42.5 mm tons of oil and 4.0 bcm of gas; Rudnikovskoye and Yuzhno-Barsukovskoye fields discovered in the Samara region plus 37 new hydrocarbon accumulations.
2014 saw growth in the main types of E&A operations: 2D seismic surveys went up by 3% to reach over 2,000 line km; 3D seismic surveys exceeded 9,000 sq.km demonstrating a ca. 9% growth vs. 2013; exploration drilling penetrated 223 km of rock, a 4 km growth, year-on-year. Exploration drilling efficiency demonstrated an 80% success rate vs. 76% in 2013.
Oil and Gas Production
Rosneft is the biggest public company in the world in terms of reserves and production. Adding reserves is one of the Company’s key priorities. Rosneft accounts for more than 40% of the Russian oil production. In 2014, crude and liquids productiontotaled 204.9 mmt. Daily crude and liquids production remained at the level of 4.2 mm bbl/day.
New producing assets achieved maximum production levels since the beginning of their development – 22.0 mmt from the Vankor field, 8.2 mmt from the Verkhnechonskoye field, and 10.0 mmt from the Uvat project. The Company continued to stabilize its brownfield production, primarily by efficient waterflood management and drilling wells with multistage hydraulic fracturing. Most noticeable successes in slowing down production decline rates were scored by Varyoganneftegaz and Samotlorneftegaz.
In 2014, gas production grew by 48.6% and exceeded 56.7 bcm. The increase in comparison with the output level of 2013 is accounted for primarily by acquisition of new assets and implementation of the program aimed at increase of associated gas utilization level (up to 81% in 2014 versus 70% in 2013), particularly, in the second quarter of the year 2014, a gas pipeline at the Vankor field was put into operation. In 2014, AG utilization level of 95% was achieved at OOO RN-Purneftegaz on account of commissioning of a booster compressor station at the Kharampurskoye field for gathering, treatment and supply of associated gas from Kharampurskoye field group.
In 2014, the Company’s refineries processed 99.8 million tons of oil, with domestic refining volumes accounting for almost one-third of the country’s total refining output.
Apart from large refineries comprising part of Rosneft, the Company holds shares in several mini-refineries in the territory of the Russian Federation, where in 2014 the refinery volume reached 1.9 million tons. The largest mini-refinery is Nizhnevartovsk refining association, where the processing volume totaled 1.5 million tons in 2014. In Germany Rosneft holds shares in four refineries with the capacity of 11.5 million tons (in terms of the Company share).
The Company also manufactures petrochemical products in Russia, at Angarsk Polymer Plant, which specializes in the production of ethylene, propylene and polyethylene. The capacity of the pyrolysis unit, which is the main processing unit of the enterprise, makes up 300 thousand tons of ethylene per year.
In March, 2015, the Company acquired the petrochemical holding SANORS (Novokuibyshevsk Petrochemical Company). NPC is a major producer of gas processing, petrochemistry and organic synthesis products in the territory of Russia and Eastern Europe.
Rosneft is actively developing production of oils. The basic production sites are Novokuibyshevsk Oils and Additives Plant, oils production facility of the Angarsk Petrochemical Company, Moscow Plant Nefteprodukt and oil plant OOO RN-Lubricants, Ryazan, as well as the refinery of OAO Slavneft-YANOS (ownership interest). The summary capacity of these enterprises exceeds 700 thousand tons per year in commodities, specifically, it makes up over 500 thousand tons of oils per year.
The Company structure also comprises Neftegorsky and Otradnensky gas treatment plants in Samara region, summary capacity whereof makes up 1.8 bcm of gas per year.
A distinctive feature of Rosneft is its own export terminals in Tuapse, De-Kastri, Nakhodka, and Arkhangelsk, which make the Company export operations much more efficient, improve the planning process and help to optimize costs. At this time, Rosneft is implementing comprehensive expansion and modernization programs at its terminals to ensure that their capacity meets the future export needs.
One of Rosneft's strategic objectives is to increase direct sales of its products to end consumers. With that in view, the Company consistently develops its retail network.
The primary objective of the Company retail activity is to increase sales of high quality products with high added value directly to end consumer. For that purpose, Rosneft is expanding its retail network, primarily in strategically important regions, consistently increasing the number of retail sites featuring stores, cafes, car washes and service stations.
Petroleum products retail network comprises 2,571 filling stations/ filling complex (including 2,377 filling stations in Russia). Working with end consumers, Rosneft pays special attention to consumer loyalty, considering consumer feedback. Mystery Shopper program that was aimed at estimating the quality of service at filling stations demonstrated the average quality rate equal to 86 points out of 100 possible in 2014.
The Company also holds leading position on Russian jet fuel market that is maintained through sales of jet fuel at 18 controlled fueling sites and 18 partner fueling sites.
Rosneft’s development strategy includes both increasing the Company shareholder value and attaining the highest corporate governance standards. The Company strongly believes that those two goals are inter-related. Commitment to transparent and responsible business management is extremely important for gaining investor confidence and ensuring that all Company shareholders get a maximum long-term return on their investment.
Rosneft governance system is based on corporate governance principles and standards recognized by the global economic community and designed to ensure the Company sustainable development, economic efficiency, and investment attractiveness.
Rosneft Charter provides four-level system of governance bodies, which complies with Russian legislation for public companies.
Rosneft supreme governing body is the General Shareholders’ Meeting. The Board of Directors performs the Company’s strategic management on behalf and in the best interests of shareholders. Rosneft day-to-day operations are managed by the sole executive body and collective executive body. Executive bodies report to the Board of Directors and the General Shareholders’ Meeting.
Rosneft constantly monitors the efficiency of the governance system, and holds activities to improve corporate governance in view of the changing economic environment as well as in compliance with applicable legislation and regulatory requirements.
Environmental protection and safety are among Rosneft top priorities. To ensure best performance in this area, the Company constantly develops approaches to environmental management, and increases the scale of environmental activities and environmental funding.
In 2014, Rosneft Board of Directors set the strategic goal of becoming a recognized environmental leader among global oil and gas companies by 2030, as part of the approved Development Strategy and Long-Term Development Program. The Company’s environmental performance indicators through 2018 were defined in the course of preparation of the Long-Term Development Program.
To ensure compliance with the environmental legislation, the Company operates a multi-tier system of internal operational control that provides for timely prevention, identification and countering environmental non-compliances, as well as planning actions to eliminate identified non-compliances.
The total capital expenditure on environmental protection in 2014 amounted to RUB 36.9 bn. Apart from Rosneft’s Targeted Environmental Program and Environmental Legacy Program, projects that have a significant environmental effect will be financed within the framework of the Investment Gas Program and Pipeline Reliability Improvement Program.
Science and Innovation
Rosneft is a leader in the process of high-quality modernization and innovative changes in the Russian oil and gas industry. The Company is focusing its efforts on developing the intellectual and technological potential of the industry based on a powerful foundation of Russia’s petroleum academic school – one of the best in the world – and in partnership with leading international oil and gas companies.
Technological leadership is achieved through innovation activity, which requires consistent introduction of cutting edge technologies and equipment, utilization of the world's best practices, improved quality of management and business processes, and constant improvement of staff competencies. Rosneft realizes that innovation is critical for Company development and it strives to enhance its research capability working in close contact with the industry's leading research and educational institutions and small and medium-size innovation companies.
Rosneft aims to become the world’s technology leader in the energy industry. In order to achieve this goal, the Company is consistently working on the implementation of its Innovation Development Program.
Rosneft's Innovative Development Program is an essential element of its development concept. The Company innovation efforts are designed to modernize its operations base and develop and implement new technologies aimed to help the Company achieve its operational objectives. Those include reserves replenishment, recovery efficiency enhancement, full utilization of associated gas, effective implementation of offshore projects, deeper oil refining, higher energy efficiency, lower capital and operating costs, and environmental and industrial safety assurance. Rosneft's Innovative Development Program is called to meet the global challenges faced by the Company and help the Company achieve its strategic goals.
The Company Innovative Development Program goals are as follows:
- Develop as a high technology energy company.
- Gain technical leadership in key competencies: petroleum production and refining.
- Maintain unit capital and operating costs at the world's best performance level.
- Improve operations energy efficiency to achieve world's best performance level.
- Meet world's highest standards in environmental and industrial safety.
Based on a review of technical challenges faced by the Company, the following 20 priority areas for innovation research have been identified:
- Geological exploration and formation evaluation;
- Geology and field development;
- Well construction;
- Oil and gas production engineering;
- Construction and operation of ground infrastructure facilities;
- Unconventional sources of hydrocarbons (viscous oil, Bazhenov sediments, gas hydrates, oil from coal beds);
- Non-hydrocarbon energy sources;
- Offshore operations;
- Upstream information technology;
- Refining technology;
- Petroleum chemistry technology, GTL;
- Development of proprietary catalysts;
- New refining product development;
- Deeper refining of black oil;
- Downstream information technology;
- Engineering support of new technology implementation by corporate design institutes;
- Energy saving;
- Alternative sources of energy;
- Knowledge sharing systems and corporate information technology.
The total expenditure in innovations in 2014 exceeded RUB 170 bn, including (without limitation) R&D expenses, purchase of machinery and equipment required for technology innovations, purchase of software and personnel training. R&D financing in 2014 reached RUB 33.2 bn (0.6% of the Company’s revenue) which was a 43% growth year-on-year. The expenses for Targeted innovation projects (TIP) and implementation of TIP technology totaled RUB 1.48 bn and RUB 9.25 bn respectively.