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Main page About rosneft History
History of Rosneft

The history of Rosneft Oil Company is inextricably linked with the history of the Russian oil industry. The first mention of the enterprises, now part of the Rosneft structure, dates back to the late 19th century. In 1889, for example, oil fields exploration on Sakhalin began.

Rosneft’s key assets were built in the Soviet era, with the commencement of the full-scale development of new oil and gas fields. In the 1990s, numerous enterprises of the fuel and energy complex and other related enterprises of the public sector merged into vertically integrated companies following the pattern of the world's largest corporations, followed by their partial or complete sale to private investors. Most of the petroleum industry was privatized. The management of the remaining state-owned oil and gas assets was performed by the state enterprise Rosneft, which, in September 1995, was reorganized into an open joint-stock company Rosneft Oil Company.

During the 1998 crisis, Rosneft faced serious financial and operational difficulties: the production drop due to the high depletion of the resource base, the extremely poor utilization of the refining capacity, and the decreased retail sales.

In 2002-2004, the Company began restoring its status, acquiring new licenses and expanding its geography. In 2002, Rosneft received a license for the development of Kaigansko-Vasyukansky field (Sakhalin-5 project); in 2003, a license for Veninsky site (Sakhalin-3 project). Severnaya Neft [Northern Oil] Oil Company was acquired, which significantly improved Rosneft's position in Timan-Pechora district, and Anglo-Siberian Oil Company holding a license for the development of Vankor Field in Eastern Siberia.

Since 2004, a new stage in the Company development has begun. Within a short period of time, it significantly increased the efficiency of corporate management, performed serious work consolidating oil-producing and processing assets, and increased the financial discipline. By 2005, Rosneft occupied a leading position among Russian oil companies in terms of production.

In 2006, Rosneft’s shares were first traded at the London Stock Exchange. The total placement value was $ 10.7 billion, the world’s fifth largest IPO and the largest among Russian companies. The Company was trusted by such global energy players as BP and SINOPEC, who bought large blocks of shares; other Rosneft shareholders included 150,000 Russian individuals.

As a result of the acquisition of a number of oil and gas assets in Russia, the oil reserves and production volumes, oil refining capacities, and the retail networks were expanded substantially. In 2007, Rosneft already provided over 20% of the total oil production in the country, producing over 100 million ton of oil.

Despite the global economic crisis in late 2008, the Company once again became the leader in production growth among both Russian and international competitors. The Company continued work on the optimization and efficiency enhancement of all business lines, while the unfavorable market conditions at the year-end became a stimulus to continue this work. The Company succeeded in achieving significant results in improving the corporate management system and raising the level of information transparency.

In 2009, the largest field of Eastern Siberia - Vankorskoe Field was put into commercial production. The successful development of the deposit made Vankor the largest production project in modern history of the Russian oil industry and allowed it to become one of the ten major oil projects in the world.

In 2010, fundamental changes in the management policy occurred, and the Company's strategy upgrade commenced. The refineries modernization program was launched in order to fulfill the requirements of the Technical Regulations to the quality of motor fuels. The Company obtained rights for subsoil reserves use at a number of new promising areas, including those on the Arctic shelf of the Russian Federation. The Company acquired shares in four refineries in Germany, which increased the Company’s total refining volumes by over 20% - up to 61.6 million ton. By the year end, the Company had the highest indicator of the absolute oil production increase among Russian companies.

In 2011, the Company continued to actively replenish its resource base. In particular, two licenses were obtained upon the discovery of oilfields: for Baikalovsky site in Krasnoyarsk Territory and for Buzerovo site in Samara Region, plus two discovery certificates for the field named after N. Lysovsky and Sanarsky in Irkutsk Region. The discovery of deposits in extremely difficult geological conditions became possible with the application of innovative methods and modernization of the geological exploration technology.


In 2011-2012, unprecedented agreements were signed with ExxonMobil, ENI, Statoil for joint work on the Russian shelf.

In 2013, Rosneft became the world's largest public oil and gas company after the acquisition of TNK-BP. BP turned into the largest minority shareholder of Rosneft Oil Company with a stake of 19.5%.

In 2014, despite the oil market crisis, Rosneft again confirmed the status of a leading Russian oil and gas corporation, the largest taxpayer in the Russian Federation, providing a significant part of the overall tax revenue of the consolidated Russian budget, and a leader of the global oil and gas industry as a whole. During this year, the main industry events were related to projects the Company participated in, namely: the successful completion of exploratory drilling at the new Pobeda field in the Kara Sea and the discovery of the Kara Oil and Gas Province, and the commissioning of the first well at Berkut, the world's largest drilling platform in the Sea of Okhotsk, and the commencement of production using Hawk, a unique drilling rig on Sakhalin on in Northern Chaivo.

The highlight of 2014 was the opening of a large oil and gas province in the Kara Sea, with the proven resources comparable to the current resource base of Saudi Arabia. The discovery significantly increased the mineral and raw materials potential of Russia and will allow the country to remain a leader in oil and gas production for many years to come. The new deposit was given a symbolic name, “Pobeda” [Victory]. The first well alone allowed to add to the Company’s books the initial recoverable reserves totaling 130 million ton of oil and 396 billion cubic meters of gas.

At the 18th International Economic Forum in St. Petersburg dedicated to building confidence in the transformation era, Rosneft signed a record number of agreements (over 50), which both expanded the previous agreements with Russian and foreign partners, and opened new cooperation perspectives in all areas of the Company's business.

Following the results of 2014, Rosneft retained the status of the largest taxpayer in the Russian Federation, providing about a quarter of all tax revenue to the Russian budget: in 2014, Rosneft transferred to all budget levels over 3 trillion rubles - over 57% of the annual revenue.

In January 2015, Rosneft began oil production at the Arkutun-Dagi field using Berkut - the world’s largest drilling platform. The annual field production, when it achieves the designed capacity, will reach 4.5 million ton. In March, the Company completed the acquisition of a 100% stake in SANORS Holding (JSC Novokuibyshevsk Petrochemical Company). The synergetic effect of integration will allow to intensify the vector of petrochemical development and increase the added value of production.

The Kara-Winter 2015 research expedition organized by the Company jointly with the Arctic Science Project Center and the specialists of the Arctic and Antarctic Research Institute, has become the world’s largest Arctic expedition in terms of the scope and range of works over the last 20 years.

Integral privatization transaction

In 2016, Rosneft both demonstrated high operations efficiency and succeeded in providing substantial support to the Russian budget due to the completion of a privatization transaction and tax deductions. Rosneft’s main success was, of course, the completion of an integral transaction to privatize a 19.5% stake in the company and the majority share of Bashneft, as a result of which the State received 1.04 trillion rubles (the Company's total payments to the budget for 2016 exceeded 3 trillion rubles). According to Igor Sechin, “The privatization of the Company's shares allowed to ensure the total budget payments of 30% of all privatization revenues in Russia since 1991”.

"This transaction has become a tectonic shift in the way the Company is viewed by investors," states the Wood Mackenzie report. "Rosneft has made a breakthrough in its international strategy." It is no coincidence that at the year-end press conference in 2016, President Vladimir Putin called Rosneft "one of the most efficient energy companies in the world." According to the analysts, the transaction became the largest one in the global oil and gas industry in 2016 and proved that investing in Russia is profitable.

The powerful synergistic effect of the merger between Rosneft and Bashneft will undoubtedly contribute to the development of the Russian economy. This effect will be ensured by the optimization of reciprocal supplies of oil, transportation and logistics costs, reduced cost of drilling services, joint use of the infrastructure of production assets, modern technologies and know-how. The prompt monetization of this effect is guaranteed by Rosneft’s successful experience in integrating TNK-BP. "We will work to maximize the synergetic effect," Igor Sechin promised at the Annual Shareholders Meeting. "In the first two quarters of 2017, the synergetic effect of Bashneft's integration will reach over 40 billion rubles in cash."

Capitalization growth

In 2016, the value of Rosneft's shares at the Moscow Stock Exchange has increased by almost 60% (this indicator is both higher than the market indices and significantly exceeds those of the major Russian competitors). In the first six months of the year, for the first time in its history, Rosneft became the largest company in Russia in terms of market capitalization. In December, the Company's market capitalization exceeded 4 trillion rubles. The quality of Rosneft's assets, along with the emergence of new professional investors among its shareholders, received high appraisal in the market.

Industry experts have repeatedly pointed out the fundamental undervaluation of Rosneft, which is also aggravated by the country factor and politically motivated sanctions. However, in the long run, they believe the Company has an enormous potential for further capitalization growth through its activities in all business areas: production, refining, oilfield services and trading. This opinion is supported by the reports of the largest investment banks, which predict an increase in the value of Rosneft’s global depository receipt (GDR) to $ 9 per share and state that the capitalization of $ 100 billion ( the level before the crisis in the 2000s) is very much attainable.

"Rosneft’s competitive advantage is, first of all, in the record number of high-yielding new fields to be put into operation, which will generate free cash flow and is expected to provide significant dividend payments", stated the Bank of America. Almost all leading analysts recommend buying Rosneft shares, and highlight the significant potential for synergies with the integration of the acquired Bashneft assets.

Geological exploration and production

In 2016, the Company again achieved higher results in all major areas. The next milestone in the hydrocarbons production was achieved: 265 million TOE for the year (an increase of 4.3%). The key positive factors were the integration of Bashneft's assets in October 2016, the commissioning of upstream assets at the East Messoyakhsky and Suzunskoye fields, the increased efficiency of mature assets, the implementation of an intensive drilling program secured by the available well-developed own service department.

"The reporting year was a landmark for us in terms of the completion of the five-year program for the Company's transformation, as a result of which Rosneft acquired its modern image," said Igor Sechin. “We have significantly increased the operational and financial performance. Over the past five years, liquid hydrocarbon production and refining volumes have doubled, and gas production has increased more than five-fold, which allowed Rosneft to become the leader among public oil companies in terms of hydrocarbon production and reserves," he continued. According to Sechin, the Company's growth was provisioned by Rosneft’s technological leadership, both in the Russian and the global industry, and by the faster modernization of production facilities. Sechin pointed out that the Company has one of the world's best efficiency indicators of the specific operating and capital costs in the production business, and the key to this success is the introduction of new technologies.

Rosneft outperforms its competitors in terms of the efficiency of geological exploration. As of January 1, 2017, the Company's recoverable oil and condensate reserves in category АВ1С1 + В2С2 were estimated at 12.2 billion ton and 7.6 trillion cubic meters of gas. In 2016 only, the Company discovered 13 fields and 127 new deposits with the total reserve of 207 million TOE of categories AB1C1 + B2C2. The hydrocarbon reserves replacement indicator under the Russian classification was 126%. Increasing the resource base is one of the Company’s key priorities.

The seismic exploration work increased by 58% in 2016. By the end of 2016, Rosneft performed onshore 2D seismic work at 2.8 thousand lin. km and 3D seismic work at 7.9 thousand square km, showing an increase of 27% and 29% respectively. 85 exploration and development wells were completed and tested, demonstrating the efficiency of 80%.

During 2016, the production drilling increased by 35%, to 9.3 million meters. A new Company’s record was the commissioning of over 2.6 thousand new wells, which is 43% higher than in 2015. The percentage of horizontal wells was 32% in 2016. By the end of 2016, the number of operating drilling rigs reached 280 (+ 26% vs 2015). At present, Rosneft's own subsidiaries perform over 50% of drilling, exploration and completion works at the wells.

By the end of 2016, Rosneft put under pilot and commercial development 37 fields with total recoverable reserves of over 500 million ton of oil, including the large deposits: East Messoyakhskoye in Yamalo-Nenetsky Autonomous District, Suzunskoye in Krasnoyarsk Territory, Naul’skoye in Nenetsky Autonomous District, named after O. A. Moskovtsev in Khanty-Mansiysk Autonomous District. The Company operates extremely efficiently at mature assets, applying advanced technologies of drilling, well stimulation and increasing the efficiency of oil recovery.

Rosneft pays great attention to the development of hard-to-recover reserves. The era of "light" oil reserves is coming to an end, however Russia has unlimited potential of its hard-to-recover reserves. The successful development and application of new technologies, including horizontal drilling methods, allowed the Company to begin efficient development of hard-to-recover oil reserves, increasing their production 15-fold in 2016.

Rosneft’s share in oil production in the Russian Federation is about 40%, and in the world production - over 5%. The active development of the exploration and production will soon ensure the 98% success of the Company’s geological exploration, a fundamental increase in the technological success of production drilling and sidetracking while maintaining high economic efficiency. By 2022, Rosneft plans to increase the annual production to 30 million tons of oil through the organic growth.

"Our strategic advantage," says Igor Sechin, "are the huge traditional onshore oil reserves in the regions with the developed infrastructure. Our strategic prospects are the colossal offshore reserves. Our analysis shows that the existing reserves will allow us to extract 500 million tons of oil over the current production plans in the next 20 years. However, this can only be achieved if the efficiency of the production processes improves."

The key actions proposed by the Company include: the increase of commercial drilling speed, the use of multi-stage hydraulic fracturing, the increased proportion of horizontal drilling to minimum 40%, the improved efficiency of in-company services, the application of standard solutions in construction processes and the revision of standard solutions in favor of innovations.

Rosneft’s new strategy will allow to expand the opportunities of the oilfield service. The Company plans to invest in IT-solutions for drilling. "We understand," Sechin asserts, "that the future of the wells construction depends on the large-scale application of highly automated drilling complexes, on the robotization of construction processes, on the development of completion technologies for high-tech wells with complex architecture. These are super-deep horizontal, horizontal drain-hole and multi-hole wells."

The total volume of Rosneft's investments in 2016 amounted to 750 billion rubles, mostly aimed at increasing the production drilling in Western Siberia and the development of new projects. According to Igor Sechin, in 2017, Rosneft plans an investment program of 1.1 trillion rubles. The Company’s priority will be the development of new promising deposits in Russia: Suzun, Lodochny, Russky, Kuyumbinsky, Yurubcheno-Tokhomsky, Srednebotuobinsky (Taas-Yuryakh Project), and gas assets of ROSPAN, Harampur, Kynsky-Chaselskoye fields. In 2018, an investment program is planned for approximately 1.3 trillion rubles.

Gas business

Gas business occupies a special place in the Company development. By the end of 2016, Rosneft became the largest independent gas producer in Russia and the world’s sixth among public companies. The Company produced 67 billion cubic meters of gas (production increased by 7% as compared to 2015). Rosneft has been steadily increasing its production volumes over the past several years: in 2015 it produced 62.5 billion cubic meters (a 10% increase), in 2014 - 56.7 billion cubic meters (a 49% increase).

"The gas business is one of the growth points for our company," Igor Sechin said at the Shareholders' Meeting. "Significant reserves and a highly efficient portfolio of gas projects will allow us to continue to actively increase the gas production with an average annual growth rate of over 10%, and to join the top three world's largest gas producers by the beginning of the next decade. Also, in 2018 we are launching the second stage of the Company’s largest new project for the production of hydrocarbons - Rospan, which plans to produce about 20 billion cubic meters of gas as early as in 2019."

The main centers for gas production growth in the coming years are the Rospan project (Novo-Urengoysky, East-Urengoysky licensed areas), Kharampur and Beregovoe fields, and the Kynsky-Chaselsky group of fields. By 2020, Rosneft plans to increase gas production to 100 billion cubic meters and its share in the Russian market up to 20%. At the same time, the Company is expanding its gas business at the international level: a strategic Zohr project on the Egyptian shelf, perspective projects in Venezuela, Brazil, Mozambique, Vietnam and Norway.

Offshore projects

The Company is the largest subsoil user on the Russian shelf: Rosneft owns 55 licenses for the Russian continental shelf. The hydrocarbon resources in these areas amount to about 41.5 billion tons of oil equivalent.

Rosneft implemented a large-scale geological survey of subsoil blocks on the shelf and exceeded its license obligations two-fold. During the field season of 2016, Rosneft carried out 2D seismic work in the water areas of the Barents, Pechora, Kara, East Siberian, Chukchi Seas and the Laptev Sea - over 33 thousand km. The 3D seismic survey also covered over 4 thousand square km.

In 2017, ahead of the schedule, Rosneft began drilling in the Khatanga licensed area. The exploratory drilling of the northernmost well on the Eastern Arctic shelf was launched by the Russian President Vladimir Putin during a teleconference with Rosneft CEO Igor Sechin. According to the preliminary estimates, the resource potential of the Laptev Sea is about 9.5 billion tons of oil equivalent. Based on the results of the preliminary analysis of the core samples collected from the Central Olginskaya-1 well, the President was informed about the discovery of a large oil field. The core sampling showed high oil saturation with a predominance of light oily fractions, which confirmed the geological model designed by Rosneft specialists. "We are on the verge of opening a new oil and gas province. This group of fields with the logistics convenient for the Asian market will be the most efficient and extremely attractive project in the Company's portfolio," said Igor Sechin. In the next five years, Rosneft plans to increase investments in development of the Arctic shelf 2.5 times, to 250 billion rubles.

Oil refining

Rosneft owns 18 oil refineries in Russia and abroad. In 2016, the volume of refining at the Company’s Russian refineries increased by 3.3%, and at foreign refineries - by 4.8%. The yield of light oil products in the past year increased and reached 56%, the processing efficiency increased to 71.2%. The production of fuel oil at Rosneft’s Russian refineries reduced by almost 15% along with the increased production of Euro-5 class gasoline and diesel fuel over 1.5 times.

"The Company’s main strategic goal," said Igor Sechin in the report at the Shareholders' Meeting, "will be the margin increase throughout the value chain. Given the high competition in global markets, it is important to "get closer" to the end user. It is the only way for Rosneft to retain premium sales and respond, as quickly as possible, to the changes in market conditions. Therefore, the Company will prioritize the development of processing assets in the developed and growing consumption markets, the creation of trading and marketing "hubs". Petroleum chemistry plays a special role in the Company’s strategy. The Company expects the global demand for petrochemical products to grow faster than the GDP and consumption of petroleum products. This will create additional prospects for this line of business. Rosneft aims to increase the share of oil and gas chemical business to 20% of the total volume of the Company’s refining capacity. This goal is quite achievable, especially considering the fact that investments will be realized with the involvement of project financing, and qualified partners possessing the required technologies, developed channels for the products sale."

Innovations

In 2016, 44.1 billion rubles were allocated for the innovation development in Rosneft. A complex of activities aimed at enhancing the efficiency of the Company's scientific, project and innovation activities was implemented, including the Corporate Scientific Project Complex (SCPC) as a single Company unit based on a number of Corporate Research and Design Institutes. Today, CSPC has a strong infrastructure and research potential: it includes 26 corporate institutes employing about 12 thousand employees. SCPC is represented in all regions of the Company's operation, including other countries; the project production of SCPC covers all business areas: from deposits development to retail.

It should be emphasized that Rosneft is sponsoring a large-scale scientific research program in the Arctic. During the expedition Kara-Summer-2016 organized by the Company, for the first time in Russia, a unique technology was used to change the trajectory of iceberg drift by external influence.

Rosneft expects to switch to a new, "digital" work pattern. The Company agreed with General Electric, the industry leader, to create a joint venture which will introduce modern digital technologies and new standards of industrial Internet to Rosneft assets. The implementation of the latest digital solutions based on the Predix and Meridium platforms will allow to optimize the systems for collecting, processing and analyzing operational data "from the well to the fuel nozzle at the filling station". "Rosneft" relies on the fast digitalization of business, industrial Internet technologies, which will fundamentally enhance the control of product flows and to eliminate the human error factor.

Far Eastern Shipyard

Upon the instructions of the Russian President, Rosneft is implementing a large-scale project to create a shipbuilding cluster in the Far East, the heart of which will be the shipbuilding complex Zvezda. In September 2016 in the city of Bolshoi Kamen, Vladimir Putin took part in the grand ceremony of launching the first stage of the shipyard. "We have every reason to believe that the new enterprise will be better in many respects than our main international competitors," the Russian President said. As Igor Sechin, the head of Rosneft, reported to him, all construction and installation works at the main facilities of the first stage had been completed in strict accordance with the schedule, and the works in the open outfitting slip were performed ahead of the previously approved plan.

The President also examined the installation area of the complex, where modern special cranes with a lifting capacity of 320 tons had been delivered in late August 2016. The equipment was manufactured as part of a joint contract between Zvezda Distillery and China Heavy Industry Corporation Nantong (CHIC). According to the Contract, in 2016 - 2017 CHIC will supply four cranes with a lifting capacity of 320 tons, four cranes with a lifting capacity of 100 tons, and a unique Goliath crane with a lifting capacity of 1,200 tons to the construction site of the Zvezda shipbuilding complex. Cranes of this type allow for the concurrent construction of several ships of large blocks.

In June 2016, JSC Zvezda, China Shipbuilding Industry Corporation (CSIC) and Qingdao Beihai Shipbuilding Heavy Industry Co., Ltd. (BSIC) signed a contract for the construction and supply of a floating transfer dock with a lifting capacity of 40,000 tons, which is being built at the shipyard for the construction of marine equipment.

It is worth mentioning that the main objectives for the construction of new shipyards in the Far East have been formulated by the President back in May 2009 during a working meeting in Komsomolsk-on-Amur. This moment should be considered the beginning of the creation of a shipbuilding cluster, which is being formed based on the Far Eastern Shipbuilding and Ship Repair Center (FESB&SRC). Shipbuilding will begin this year, with a pilot order scheduled for completion in 2019.

As for the Zvezda product line, the enterprise will produce high-tech, large-capacity vessels, offshore drilling units, exploration and production platforms, service vessels, including ice class vessels. In order to gain experience in modern shipbuilding and subsequently localize production in Russia, the FESB&SRC plans to establish joint ventures with foreign engineering partners: to develop ice-class vessels projects with Damen, drilling platforms with Keppel and onboard equipment with General Electric.

Rosneft provided the shipyard with a pilot order: four multifunctional supply vessels of reinforced ice class and five green Aframax type tankers running on gas engine fuel and meeting the highest environmental standards.

In December 2016 the Company announced founding the "Eastern Mining and Metallurgical Company", a joint venture between Rosneft and the Ural Mining and Metallurgical Company (UMMC). In accordance with the agreements reached, the joint venture will become an anchor supplier of a large-format steel sheets to satisfy the long-term demand of the Far Eastern shipyard.

By 2024, the shipyard will have created over 7,500 highly-skilled jobs, and Rosneft has already allocated funds for the construction of six residential buildings.

At the launch ceremony of the first stage of the shipyard Vladimir Putin said that the development of civil shipbuilding and the commissioning of new production facilities is a key strategic task strengthening the industrial potential of the Russian Far East. The President highlighted the importance of implementing a comprehensive Rosneft strategy in the Far East, which would both increase the capacity for hydrocarbon production and support the scientific research, implement social projects and create an infrastructure for quality growth. "All this reflects a thorough, responsible approach to business development, it sets a good benchmark for other major Russian and foreign companies deciding to invest in the Far East," said Vladimir Putin.

Sales of oil and oil products

In 2016, Rosneft significantly reinforced its position in the international market. The Company successfully diversifies supplies between the Western and Eastern customers. In late 2016, annual contracts were signed for the supply of oil to Belarus, with a total volume reaching 10.2 million ton, and to Germany - up to 7.3 million ton. At the International Economic Forum in St. Petersburg, the contract with PKN Orlen for the supply of oil to the Czech Republic was extended for three more years. The contract provides for the possibility of increasing supplies to PKN Orlen up to 15.8 million tons of oil and is an example of Rosneft's successful strategy in traditional sales markets. In the promising Asian market, Rosneft's leading positions will be strengthened under the unprecedented contract with PetroVietnam - to supply up to 96 million tons worth $ 36 billion by 2040, also signed at the SPIEF. In general, Rosneft is significantly increasing supplies to the East. In 2016, they increased by 8.6% - up to 43.1 million tons. As a result, Russia became equal to Saudi Arabia in terms of oil supplies to China, while three years ago Saudi companies supplied to China twice as much raw material as Russian enterprises.

At the very beginning of 2017, Rosneft and the Chinese National Oil and Gas Corporation (CNPC) signed a supplementary agreement increasing the oil supplies in transit through Kazakhstan, and to extend the Contract signed on June 21, 2013, until December 31, 2023. The deliveries in the period from 01.01.2017 to 31.12.2023 will amount to 70 million tons, while the total volume of oil supplied under the contract, taking into account the previously targeted 21 million tons, will reach 91 million ton over the 10-year period. Rosneft has successful experience in fulfilling contracts for the oil supply to China. Within the period from 2005 to 2016, the Company signed a number of long-term contracts, under which Rosneft has already delivered over 186 million ton of oil for over $ 95 billion. Rosneft is also one of the leaders in the supply of petroleum products to the People's Republic of China: from 2009 to 2016, the Company supplied about 30 million ton of oil products worth over $ 19 billion.

In order to provide raw materials for its growing network of international refineries, Rosneft expands its activities in oil trading and seeks more supply contracts with other producers. "The Company will expand its oil trading through organic growth," said Didier Casimiro, Rosneft Vice President for Refining, Petrochemicals, Commerce and Logistics. Rosneft is interested in having many trading options, being able to choose the way to perform each delivery of raw materials: from transportation through pipelines or by sea, to mixing or refining. "We are a producing company and we are well aware of the options in trading," Casimiro states. – “Unlike Shell, BP or Total, which produce less raw materials than Rosneft, the largest oil company in the Russian Federation relies on the partnership with trading companies when shipping a significant share of its exports by sea. Singapore’s Trafigura Group, Swiss Glencore and other traders sign supply contracts with Rosneft. At the same time, Rosneft competes with them for transactions with other producers to ensure its own oil trading activities." Experts discuss the potential of Rosneft’s subsidiary in Geneva Rosneft Trading SA at the fast growing international trading market. In 2016, Egypt was the first in the history to receive a batch of LNG. That contract became Rosneft’s entrance ticket to the world market of LNG trading - after all, as a rule, in order to participate in international tenders, it is required to confirm the experience in the organization of LNG supply.

In the competition for the oil market, two strategic approaches have been formed: price dumping and establishing partnerships with oil importers. The principal adherer of the "price war" was Saudi Arabia, which refused any oil exports restrictions and knowingly set its oil prices well below the market price. The Russian strategy in the oil market is completely different. Rosneft is expanding its coverage by establishing partnerships and creating joint ventures with key oil consumers, building global integrated networks. "Russia does not intend to play the role of an extra in the current price war," Igor Sechin wrote in an op-ed published in the newspaper Corriere della Sera. – “As you know, Rosneft has the lowest operating costs: $ 2.5 per barrel (excluding taxes and transport), and we are rapidly increasing our share of the global oil market. According to IEA statistics, over 10 years (from 2005 to 2015), our share in the oil market (including condensate) increased from 1.9% to 4.9%, and after Bashneft's acquisition - up to 5.4%”.

"Perhaps the most striking example of the global integrated approach," continues Sechin, "is Rosneft's entry into the Indian market, which the world's oil and gas industry leaders consider one of the most attractive and promising markets. In order to take a foothold there, Rosneft applied the transcontinental business format. The Company created alliances with Indian partners, involving them in the development of promising oil and gas provinces in Russia. This laid the foundation for an energy bridge between our countries. Then the Russian company entered the capital of India's leading refinery located in the city of Vadinar. Given our active presence in the Venezuelan market, Rosneft will be able to obtain significant synergy from the processing of heavy raw materials from Latin America using the refining capacities of the Indian plant. In addition, a modern refinery with a comprehensive infrastructure will create an energy hub in Vadinar, which will provide oil products to the markets of Southeast Asia and the Indian Ocean Region. Such global integrated networks are the best way to withstand competition at this stage. "

Integral approach

During 2016, Rosneft successfully implemented a strategy to attract strategic partners - leaders of the global oil and gas industry - into Russian prospective projects. This strategy allows to ensure effective exploration and production of hydrocarbons. In addition, in view of the integral approach, consumer countries have become interested in obtaining guaranteed volumes of raw materials, in the production of such products, their transportation and delivery to the end user. This approach minimizes the risks of participants, ensuring their profit throughout the entire production chain. "Rosneft’s task is to connect the unique geology of Russia with the capital and leading expertise of our partners," said Igor Sechin at the St. Petersburg Economic Forum. "We are going to open our resource base, invite foreign partners, both to share the risks, and to strengthen and develop the industry technological competencies." While contracting investment partners, Rosneft offers to them complex, arduous projects requiring long-term investments. However, oil consumers are interested in the partnership because of a possible shortage of resources and price fluctuations. And in the end of the day, they share the risks: both of the fields production and the sale of products.

A striking example of this approach is the involvement of Indian partners in the development of East Siberian deposits. Within the shortest time, Rosneft completed the implementation of the project to create a unique international energy hub based on the so-called Vankor cluster. The share of Indian state-owned companies in the hub is 49.9%. At the same time, Rosneft retained the majority share of the capital, control over the company's operations, and 100% control over the overall infrastructure of the cluster. The achieved estimate value of the Vankor project is $ 3.4 per barrel of hydrocarbon reserves (according to category 2P as per PRMS methodology) and reflects the high potential of the project resource base.

Based on LLC Taas-Yuryakh Neftegazodobycha, another international consortium was created, which, apart from Rosneft (a 50.1% stake), includes BP and state-owned Indian oil and gas companies. Recently, Rosneft has been acting as an Eurasian integrator more and more often. Experts believe that in this case we see trend, a kind of strategy for creating Eurasian energy hubs.

The entry of Indian companies into Russian projects supplemented the breakthrough to India, where Rosneft had obtained a stake in the Vadinar Refinery, where the infrastructure includes a deep-water port which can receive super-large VLCC tankers, and a network of 3,000 gas stations. The high level of the plant technological equipment (Nelson index 11.8), which allows to ensure the outstanding project economics (average processing margin in the last six months - over $10 per barrel) was a significant factor which determined the Company’s choice in favor of this asset. The capacity of the Vadinar refinery is 20 million ton, processing depth - 95.5%. Commenting on the transaction, Igor Sechin said: "This is a historic event for the Company: Rosneft is entering one of the most promising and fastest growing markets in the world. The project creates unique synergies, both for the existing Company assets and for the planned Rosneft projects, and opens the way for increasing the supply efficiency at the markets of other APR countries, such as Indonesia, Vietnam, the Philippines, Australia." According to the recently published report of the International Energy Agency, India is to become the world's main growth driver in the motor fuel market: by 2040, motor fuel consumption in this country will double to 10 million barrels per day, and in 2017 gasoline consumption will grow by 12%.

Vladimir Putin urged to build the Eurasian partnership based on a "broad integration profile", and Rosneft is putting the President’s idea in practice. Another example of the Company's integrated approach is an agreement with Beijing Gas on the acquisition of a 20% stake in PJSC Verkhnechonskneftegaz by Chinese partners. The transaction price amounted to about 1.1 billion dollars. As a result of the transaction, a vertically integrated cooperation structure will be created: the Chinese company acquires a stake in one of the largest producing fields in Eastern Siberia with the developed infrastructure and access to the ESPO pipeline, and Rosneft, in turn, receives an opportunity to enter China's domestic gas market with swap gas supplies.

The total funds received by Rosneft as a result of the transactions for the Indian and Chinese partners entering into the promising Russian projects amount to about $ 6 billion.

Global Energy Company

In general, in 2016, Rosneft continued to strengthen its positions in the global oil and gas market through the implementation of efficient M&A transactions. The “Indian Scheme” is also being implemented in Indonesia: memorandums were signed with the Pertamina Oil Company for the acquisition of stakes in some Russian fields. According to the memorandum on the Northern Chaivo Project (Sakhalin Island), the parties intend to agree on legally binding documentation for the Pertamina’s acquisition of up to 20% of the stake in the project. Another memorandum implies Pertamina’s entry into a project to develop the Russkoye field, with a share of up to 37.5%.

At the same time, an agreement was signed to establish a joint venture to implement the project for the construction of Tuban oil refinery and a petrochemical complex in the eastern part of Java island (Indonesia). The project feasibility study is currently in progress. After the feasibility study, a decision will be taken whether to invest in the construction of an oil refinery. The designed capacity of the primary processing of the Tuban complex is planned at 15 million tons per year. The project includes the construction of a large unit for catalytic cracking of fuel oil and a petrochemical complex. It is assumed that the complex will be able to receive VLCC class supertankers carrying deadweight up to 300 thousand tons. The document regulates the distribution of shares between the JV participants (Rosneft - 45%, Pertamina - 55%).

It should be noted that the Tuban Refinery construction project is strategic for Indonesia (new refineries have not been built since 1994). At the same time, Indonesia is a rapidly growing market, and oil refining and petrochemical projects in this country are of great interest. In the coming years, the authorities plan to build powerful refineries in Indonesia (according to the government plans, by 2020, the oil refining capacity should increase from 1 million barrels to 2.3 million barrels per day).

During his visit to Jakarta, Igor Sechin noted that Indonesia currently imports oil products produced from Russian oil mainly from South Korea and Singapore, and it is important for Rosneft to supply oil directly to the country. "10 years ago, Indonesia produced 71 million tons of oil, today - 38 million tons, and by 2030 it will be 11 million tons," said Rosneft CEO at the Russia-ASEAN summit. – “And all this with the growing of consumption. Sure, this creates favourable conditions for our interest in supplies, in the participation in processing, and in trading."

Observers have noted that Rosneft’s planned processing and petrochemicals projects in the region are original and, at the same time, will complement each other. The creation of a joint venture with Pertamina, acquiring a share in the capital of Essar Oil Limited, and the construction of the Tianjin Refinery in China are elements of a long-term strategy. Their implementation will create unique synergies in the region and stimulate rapid development of Rosneft’s trading subsidiary.

Rosneft also plays an important role in European oil refining. In late 2016, in the course of the restructuring of the oil refinery and petrochemical complex in Germany (JV with BP), Rosneft obtained shares (from 24% to over 54%) in three German refineries. As a result, the Company now controls over 12% of Germany's refining industry (with the capacity of 12.5 million ton per year), which makes the Company the third largest player in the German refining market.

In Russia, the Company also plans to develop joint oil refining projects with foreign partners. In September 2016, within the Eastern Economic Forum, Rosneft and Chinese Sinopec signed a legally binding agreement for the preparation of a joint preliminary feasibility study of the construction and operation of a gas processing and petrochemical complex in Eastern Siberia. It is assumed that the annual capacity of the first stage of the complex will be 5 billion cubic meters of crude natural gas, with the yield of up to 3 million tons of high-tech polymers and petrochemical products, to be sold primarily in the Russian and Chinese markets. The resource base of the project is the oil and gas fields of Rosneft of the Yurubchensky cluster in Eastern Siberia. In addition, Rosneft and ChemChina will work on the project of the Eastern Petrochemical Company; the parties intend to create a joint venture for its implementation (60% JV stake for Rosneft, 40% for ChemChina).

Rosneft also expands its coverage of the perspective production projects abroad. Rosneft and PDVSA have agreed to increase the share of the Russian company in the joint venture Petromonagas to 40%. Another event, important for the Company, was the Contract under which it bought from Eni up to 35% in the concession agreement for the development of the Zohr field, as well as 15% in the project operator - the joint parity company Eni and EGAS: Petroshorouk. The value of the stake acquired by Rosneft is $ 1.125 billion. The company is participating in a project to develop the largest hydrocarbon field in Egypt, along with world majors, its long-standing partners: Eni and BP. Upon the completion of transactions between Rosneft, Eni and BP, the shareholder structure of the concession agreement may look as follows: Eni - 50%, Rosneft - up to 35%, BP - up to 15%.

The discovery of this field in August 2015 was a significant event in the oil industry: according to Eni, an open area of 100 sq km may contain up to 30 trillion cubic feet of dry gas (5.5 billion BOE) in situ. It is incomparable to the reserves of the Israeli deposit Leviathan (which the world media covered widely), which amount to 14 to 20 trillion cubic feet. The successful development of Zohr will satisfy Egypt's natural gas demand for decades to come, since it accounts for over a third of the country's gas reserves. This transaction is a true example of the fact that Western and global businesses are trying to break through the sanctions blockade and establish close relations with the largest oil company of the Russian Federation, inviting it to participate in a joint project to develop the Mediterranean shelf. According to the experts, the Company’s participation in the development of this unique production asset will provide the Rosneft trading department with a significant amount of physical resources, which, in turn, will let the Company to actively expand to the markets in the Middle East-Europe region.

In 2020, after the Zohr project reaches its designed capacity, Rosneft's gas production will increase by 9 billion cubic meters per year. The monetization efficiency of this gas volume is ensured by the proximity to important sales markets. Rosneft also plans to export gas from this project to the European market and to the Middle East countries, depending on the economic attractiveness of the export options. Moreover, it should be noted that 9 billion cubic meters is only a basic development model not including the additional exploration potential. The participation in the project will allow the Company to gain invaluable experience in the development of offshore fields (Rosneft is already implementing a project to develop gas fields on the Vietnamese shelf and has sufficient technological experience). In addition, according to the oil market experts, upon closing the transaction, Rosneft will be able to increase its geological reserves of hydrocarbons by about 250 billion cubic meters.

In general, the majority of players in the oil market now see Rosneft’s integral approach, which implies cooperation with partners throughout the entire production chain - from production to processing of hydrocarbons and petrochemicals - as an ideal way to withstand competition.

The results of 2016 indicate that Rosneft’s role in the processes occurring in the oil market is enormous. The privatization transaction for the sale of 19.5% of the Company's shares allowed to attract the attention of potential investors to the Russian oil industry. Great operational results strengthened Rosneft’s position as a leader of the global energy industry, which will play a significant role in reformatting the oil and gas market.

Over the past five years, Rosneft changed from a regional player to a world major, the largest public company in terms of production, reserves and business expanse, as well as the most efficient in terms of operating costs. In order to solidify its successes, the Company proposes to adopt a new strategy and a new organizational and staff structure. The strategy should be based on a qualitative change in the Company's business due to technological breakthrough, full-scale application of digital technologies in all areas of its activity, constant work on reducing costs, improving marginality of the processing segment due to the flexibility of the basket.

Within the new strategy, Rosneft will shift to the holding management structure allocating business segments responsible for the financial results. As a "pilot" project, it is proposed to implement a project for the allocation of Rosneft’s retail business. This will significantly increase the capitalization of RN-Retail and attract strategic investors. Almost 90% of retail has already been consolidated into a single subholding, and the combination of retail assets has proven its efficiency. Rosneft expects that the holding structure will allow distributing financial resources more efficiently, increasing return on invested capital and increasing profitability for shareholders.

According to Igor Sechin, the implementation of the Rosneft 2022 strategy will allow the Company to increase its capitalization by 25-30%. "The main thing is a significant increase in efficiency and competitiveness. We set the company's long-term goal to achieve the cost price at the level of Saudi Aramco. This would guarantee Rosneft and the Russian oil and gas industry leadership in the global energy industry," summarized Rosneft CEO.