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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. Rosneft owns 11 refineries throughout Russia, from the Black Sea to the Far East, and 7 more of its refineries are located abroad (the Company has stakes in 4 refineries in Germany, a stake in the Italian Saras S.p.A. petroleum refining company and in Mozyr Refinery in Belarus; it also owns Lisichansk Refinery in Ukraine). Rosneft's retail network covers 54 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.

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 to progress resources to the proved category to underpin sustainable mid- and long-term production growth.

The Company 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 oil reserves replacement ratio was 179%. 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).

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 resources estimated at over 45 billion 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. Production of oil and other liquid hydrocarbons has grown by 72% and amounted to 4 196 thousand barrels per day (organic growth by 1%).

The Company has stabilized production in the largest West Siberian fields including fields operated by Samotlorneftegaz, Nizhnevartovsk, Varyoganneftegaz, and Nyaganneftegaz. The improved operating efficiency in brownfields can be attributed, first of all, to the use of new recovery enhancement technologies including wide use of horizontal wells with multi-stage hydraulic fracture treatment, sidetracking, waterflood management, and multiple completions in production and injection wells. In 2013, Samaraneftegaz grew liquid hydrocarbons production by 2.9% through drilling out new discoveries in licenses acquired in 2011-2012 and improving exploration effectiveness due to wider use of 3D seismic acquisition technology.

In 2013, production from greenfields (Vankor, Verkhnechonskoe, the Uvat Group) accounted for 19% of the total production of liquid hydrocarbons.

At the same time, the Company continued its work to improve performance efficiency and reduce lifting costs which in 2013 amounted to USD 4.8/bbl thereby achieving the best unit lifting cost performance in the world among publicly traded oil companies.

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 addition of large gas assets following acquisition of TNK and consolidation of NGK Itera. 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 39.07 bcm, including 24.02 bcm in West Siberia, 10.42 bcm in the European part of Russia, and 0.94 bcm outside of the Russian Federation.

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. Working with ExxonMobil, the Company is studying feasibility of building a 5 MTA LNG plant in the Russian Far East.

Rosneft is considering several gas sales options for the proposed plant. The Company has already signed LNG contracts with Japanese Marubeni and Sodeco. Stable LNG demand in Asia-Pacific countries guarantees Rosneft a sustainable market for that project.

Some of the future production volumes of the proposed plant have been contracted by one the world's trading leader, the Vitol company, which allows Rosneft to diversify risks in the global LNG trading market.

At this time, Rosneft is successfully implementing its program to bring its associated gas utilization ratio to 95%.

Refining

Rosneft accounts for more than 20% of the Russian refining. In Russia, the Company owns 11 large refineries at locations that offer the Company a competitive advantage. That helps considerably improve efficiency of supply of oil products. Rosneft also has a shareholding, or retains control over, seven refineries outside of the Russian Federation.

In 2013, the Company refineries in Russia and abroad processed more than 96 million tons of oil (an organic growth of 1 %). Production of mogas and diesel to Euro-4 and Euro-5 standards amounted to 18 million tons.

At present, Rosneft is expanding and upgrading its refineries with a view to better balance its Upstream production and Downstream refining capabilities and increase the yield of high-quality high-added-value products that meet the highest environmental standards.

As part of the refinery upgrade program, a 12 MTA AVT-12 crude distillation unit, the largest in Russia, was commissioned in October 2013 at the Tuapse Refinery. In 4Q, most of the required heavy process equipment was delivered to the Komsomolsk Refinery, Achinsk Refinery, Novokuibyshevsk Refinery, Kuibyshev Refinery, Angarsk Petrochemical Company, and Syzran Refinery. The Company is successfully competing in the retail products and aviation fuel markets. High-premium in-wing client base has been expanded through winning over new customers. The value of products supplied to aviation companies in 2013 increased to 67.8 billion rubles, which is 23% higher than in 2012.
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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. 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.

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.

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 2012, in view of the Company's increasingly active offshore operations, an environmental program was formed for the Company Arctic Research Center, and cooperation agreements with the Russian EMERCOM, Roskosmos and Ministry of Transportation were drafted.

Science and Innovation

In the modern world, a company’s competitive advantage is increasingly defined by its technological advancement. 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 invested 86 billion rubles in innovation and registered 50 new patents.

In 2013, Rosneft and ExxonMobil finalized their agreements to create the Arctic Research Center and exchange technologies. The Arctic Center will be providing a full range of scientific research and engineering development services.

 











© ROSNEFT, 2014  

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