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Interactive Annual Report 2013

 


Rosneft at a Glance

Rosneft is the leader of Russia’s petroleum industry and the world’s largest publicly traded petroleum company. Rosneft activities include hydrocarbon exploration and production, upstream offshore projects, hydrocarbon refining, and crude oil, gas and product marketing in Russia and abroad.

The Company is included in the list of strategic companies and organizations of Russia. The main Company shareholder (69.50%) is OJSC ROSNEFTEGAZ, a 100% state-owned company. BP owns another 19.75%, and the remaining 10.75% of shares are publicly traded. (see Shareholding Structure).

 

 

Business Geography

Rosneft conducts its exploration and production activities in all key hydrocarbon provinces of Russia including West Siberia, Southern and Central Russia, Timan-Pechora, East Siberia, Far East, and Russian continental shelf including the Arctic region. The Company is also embarking on and implementing a number of projects in Venezuela, Brazil, USA, Canada, UAE, Algeria, Norway, Kazakhstan, Vietnam and Abkhasia.

9 large refineries and 4 mini-refineries of Rosneft are spread on Russia’s territory from the coastline of the Black Sea to the Far East, 7 refineries are situated outside Russia (Rosneft has shares in 4 German refineries, a share in Saras S.p.A, an oil processing company from Italy, Mozyr refinery of Belorussia and Lisichansk refinery in Ukraine), the Company’s sales network covers 56 regions of Russia.  

Resource Base

A reserves audit conducted by DeGolyer & MacNaughton confirmed that as of 31 December 2013 Rosneft's total proved SEC LOF hydrocarbon reserves amounted to 33 014 million barrels of oil equivalent. That included 25 191 million barrels (3 398 million tons) of liquid hydrocarbons (oil, condensate, NGL) and 46 941 bcf (1 329 bcm) of gas.

Also, DeGolyer & MacNaughton has audited Rosneft’s reserves using the PRMS classification. As of 31 December 2013, the proved hydrocarbon reserves (1) amount to 41,771 mln boe, including 30,782 mln boe (4,161 mln t) of liquid hydrocarbons (oil, condensate, NGL) and 65,937 bcf (1,867 bcm) of gas.

As of the year end, Rosneft's reserves-to-production ratio was estimated at 24 years, including 20 years for oil and 50 years for gas. Most of the Company resources are categorized as conventional reserves, which allows the Company to consistently grow its production.

The Company's proved reserves are concentrated mainly in brownfields and reflect their geological and technological potential. At the same time, the Company is actively pursuing development of large greenfields in East and West Siberia, including such fields as Suzunskoe, Tagulskoe, Lodochnoe, Yurubcheno-Tokhomskoe, Russkoe, and the Kynsko-Chaselskaya Group, aiming to start commercial development in 2016-2019. The use of new technologies, in particular, long horizontal well drilling and multi-stage hydraulic fracture treatment, will make it possible to add mid-term considerable oil reserves including some hard-to-recover reserves (shale oil). That will facilitate increasingly more active bringing into development of probable reserves which amount to 70% of the proved hydrocarbon reserves.

As of 31 December 2013, the Company's average estimated possible recoverable hydrocarbon reserves amounted to 339 billion barrels of oil equivalent (46 billion tons of oil equivalent), which is almost 70% higher than in the end of 2012. The resource increment comes from Company exploration in the Kara Sea, Laptev Sea, Black Sea, as well as from the Company new licenses offshore the continental shelf of the Barents Sea, Pechora Sea, Kara Sea, Chuckchee Sea and Laptev Sea.

Exploration

The Company’s strategic priority is consistent replacement of over 100% of production with new reserves, as well as improving the quality of reserves.

Rosneft continues to increase its investment in exploration, which amounted to 38 billion rubles last year. That allowed the Company to acquire 8.7 thousand running kilometers of 2D seismic data, 7.5 thousand square kilometers of 3D seismic data, and drill 68 exploration wells. That exploration effort resulted in the discovery of 6 new fields and 70 new deposits.

In 2013, the Company replaced over 179% of its oil and gas condensate production with new reserves (according to SEC) – the best performance among international oil and gas majors. The Company hydrocarbon reserves grew by 11% versus 2012 YE (including 6% for liquid hydrocarbons and 29% for gas). The reserves increase shall be primarily attributed to the following factors: delivery of the Company exploration program, drilling out and putting on production new sectors in the Company key fields, well intervention jobs aimed to keep up base production, and the increase of the Company shareholding interest in Taas-Yuryakh Neftegazodobycha LLC and NGK Itera companies.

Rosneft makes it a priority to deliver an optimum scope of exploration activities and improve their effectiveness. The majority of Rosneft’s exploration projects are undertaken in the most promising petroleum provinces of Russia (West and East Siberia, the Volga Region, southern seas shelf). In 2014, Rosneft continues efficient appraisal of brownfields and exploration in new regions of East Siberia and Yamal-Nenets Autonomous District.

Rosneft holds a leading position in the development of the Russian continental offshore fields. In 2013, Rosneft and its partners delivered an unprecedented shelf exploration program which included 32.5 thousand running kilometers of 2D and 2.6 thousand square kilometers of 3D seismic, geo-technical surveys to prepare 12 sites for exploration drilling, and acquisition of 19 new licenses to prospect, explore and produce hydrocarbons in the license blocks of the Arctic shelf, in the Sea of Okhotsk, and in southern seas. The overall number of licenses the Company holds for the development of the Russian shelf amounts to 46 licenses with total hydrocarbon resources of over 43 bln tons of oil equivalent.

Oil Production

Rosneft accounts for more than 40% of the Russian oil production. The Company successfully pursues its strategy of sustainable production growth, which includes, among other things, the introduction of state-of-the-art technologies. In 2013, production of oil and other liquid hydrocarbons has grown by 72% year-on-year and amounted to 4,196 th. bpd.

Oil produced from its brownfields amounted to around 80%. In 2013, growth was shown by the Samaraneftegaz brownfields in the Volga-Urals region (2.9%), active greenfields in East Siberia – Vankor (17.8%) and Verkhnechonskoye (7%), and the Uvat group of fields in the south of the Tyumen Region (18.4%). At the same time, the Company continued its work to improve performance efficiency and reduce lifting costs which in 2013 amounted to USD 4.3/bbl thereby achieving the best unit lifting cost performance in the world among publicly traded oil companies.

The target the Company set for 2014 is to achieve further stabilization of brownfield production and planned production increases from greenfields, as well as preparing Vankor-based greenfields for commercial operation.

Gas Production

Based on 2013 performance, Rosneft became the third largest gas producer in Russia, having produced 38.17 bcm of gas. The record-setting more than two-fold increase of gas production is related primarily to the consolidation of new assets and consolidation of ITERA, also, RN-Yaganskneftegaz and Vankorneft delivering programs aimed at prudent utilization of associated petroleum gas, and RN-Krasnodarneftegaz efficiently stimulating gas wells to improve recovery.

In 2013, the Company worked to lay the foundation for the future growth of is gas business through organic growth of gas production. Among other things, the Company focused its efforts on active development of the Rospan project (development of the Vostochno-Urengoiskoe and Novo-Urengoiskoe license blocks) and obtaining approval for a comprehensive field development plan for gas deposits of the Kharampurskoe field.

Gas sales in 2013 amounted to 39.1 bcm of gas, including 24.0 bcm in West Siberia, 10.4 bcm in European Russia, 3.1 bcm in South Russia, 0.5 bcm in the Far East, and 0.9 bcm outside the Russian Federation. Total sales grew 3.5 times year-on-year, in connection with new assets integration.

Thanks to its considerable reserves, Rosneft has an immense production increase potential. Gas value assurance is one of Rosneft's strategic objectives. The Company is planning to expand its presence in the gas market and is actively pursuing this sector of business executing direct gas delivery contracts with major consumers. By 2020, the Company is planning to produce 100 bcm of gas per year, which is estimated to make a two-fold increase in its domestic market share (to circa 20%).

LNG market presents one of the opportunities for Rosneft's gas reserves monetization. The Company has commenced natural gas liquefaction plant project implementation – “Russian Far East LNG” – for effective commercialization of Sakhalin offshore natural gas resources and reserves. The capacity of the first train of the LNG facility is 5 mmta, with a future expansion option. Project launch is expected in 2018-2019.

Refining

In 2013, the Company refineries in Russia and abroad processed more than 90 million tons of oil, with domestic refining volumes accounting to almost one-third of the country’s total refining output. Rosneft’s structure includes nine large oil refining enterprises on the territory of Russia: Komsomolsk refinery, Tuapse refinery, Kuibyshev refinery, Novokuibyshevsk refinery, Syzran refinery, Achinsk refinery, Saratov refinery, Ryazan Refining Company and Angarsk Petrochemical Company.

In Russia Company also owns 4 mini-refineries in the West and East Siberia, Timan-Pechora and in the south of Russia’s Europe with total capacity 0.6 mln tons of oil a year, as well as a stake in Strezhev mini-refinery in East Siberia. Rosneft has stakes in 4 refineries with capacity 11.5 mln tons (in the Company’s share) in Germany.

The Company is implementing a massive refineries modernization program, that will enable it to increase the refining depth up to 81% and ensure compliance with the terms of 4-sided agreements. In 2013 Rosneft continued to implement at its refineries specific actions to fully switch to production of fuels compliant with the Euro-5 environmental standard. The Company also continued to work on increasing refining depth, improving refining operating efficiency and industrial and environmental safety. Following the refinery upgrade program, outputs of Euro-4 and Euro-5 gasoline and diesel fuel at Rosneft’s Russian refineries amounted to some 15 million tons.

Rosneft is creating a powerful refining center in East Siberia and the Russian Far East to serve the region’s growing need for sufficient volume of high quality fuel at competitive prices. Stable supply of high quality fuel to industrial customers and to the region’s retail network will create additional conditions conducive to economic development of the Russian Far East. As a result of the important upgrade of production facilities at the Komsomolsk and Achinsk Refineries and the Angarsk Petrochemical Co., as well as development of the project “The Eastern petrochemical company”, Rosneft will become more competitive for export to the Asia-Pacific markets.

Export Terminals

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.

Retail Network

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.

The Company's retail network is one of the largest in the country. It includes more than 2400 retail sites throughout Russia. Every seventh vehicle in Russia is refueled at Rosneft retail sites.

Rosneft also leads the market in terms of jet fuel sales with a 34% share. The Company acquired more airport fueling sites and expanded its in-wing jet fuel sales client base (highly lucrative channel) by partnering with major counterparties. As the result, jet fuel sales in 2013 grew almost twofold year-on-year.

Corporate Governance

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 is consistently improving its corporate governance system in line with the corporate governance principles recognized by the global economic community. The most meaningful criteria of assessing the effectiveness the Company’s corporate governance system are information openness, professionalism and responsibility of its management.

In its work to improve openness and transparency, the Company pays special attention to the improvement of its interaction with shareholders and investors. Rosneft has dedicated telephone lines and electronic mail boxes for communicating with shareholders and investors. A Rosneft shareholder call-center with a telephone hot-line has been set up.

As part of its interaction with institutional investors and analysts, Rosneft regularly publishes its financial performance under IFRS, holds meetings and teleconferences in Russia and world's largest financial centers.

Transparency of financial reporting is an important element of corporate governance. On 1 February 2013, Rosneft was the first of the largest worldpetroleum companies which published its full audited consolidated 2012 financial statements under IFRS.

One of the most convincing illustrations of the practical implementation of principles of strong corporate governance is the composition of the Company Board of Directors and its committees. Rosneft's Board is comprised of experienced leaders who are highly respected in the business community. In order to make the Board meetings more efficient, recommendations on many of the most important topics are proposed by the Board permanent committees - HR and Remuneration Committee, Strategic Planning Committee, and Audit Committee.

Environmental Safety

The Company manages environmental protection issues through paying special attention to preventative measures aimed to minimize any adverse impact on the environment. Rosneft is implementing a 2009-2014 Target Environmental Program aimed to upgrade environmental protection facilities and equipment.

In 2013, in view of the Company's increasingly active offshore operations, Rosneft closed a deal with ExxonMobil establishing the Arctic Research Center (ARC). Initially, the Arctic Center will work in such areas as safety and environment; ice, weather and geological studies; ice monitoring; development of design criteria, assessment and formulation of field development concepts. The Arctic Center will make use of existing Rosneft and ExxonMobil developments to produce environmentally safe and more efficient technologies.

Rosneft’s strategic goal is to achieve undisputed leadership in environmental protection standards in the Russian oil and gas industry, and in making them compliant with the recognized global practices.

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'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:

  1. Develop as a high technology energy company.
  2. Gain technical leadership in key competencies: petroleum production and refining.
  3. Maintain unit capital and operating costs at the world's best performance level.
  4. Improve operations energy efficiency to achieve world's best performance level.
  5. 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:

  1. Geological exploration and formation evaluation;
  2. Geology and field development;
  3. Well construction;
  4. Oil and gas production engineering;
  5. Construction and operation of ground infrastructure facilities;
  6. Unconventional sources of hydrocarbons (viscous oil, Bazhenov sediments, gas hydrates, oil from coal beds);
  7. Non-hydrocarbon energy sources;
  8. Offshore operations;
  9. Upstream information technology;
  10. Refining technology;
  11. Petroleum chemistry technology, GTL;
  12. Development of proprietary catalysts;
  13. New refining product development;
  14. Deeper refining of black oil;
  15. Downstream information technology;
  16. Engineering support of new technology implementation by corporate design institutes;
  17. Energy saving;
  18. Ecology;
  19. Alternative sources of energy;
  20. Knowledge sharing systems and corporate information technology.

In 2013, Rosneft continued working on enhancing its intellectual and technological advantage by funding cutting-edge in-house R&D development, supporting Russia’s leading universities and R&D centers, and creating joint R&D centers with leading international companies.

The Company’s 2013 innovations budget was RUB 148.1 bln. including Research and Advanced Development expenses in the amount of RUB 23.2 bln. Rosneft filed 52 patent applications for inventions, utility models and software to be protected by intellectual property rights, nearly tripling the number of such applications registered in the previous year.

 











© ROSNEFT, 2014  

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