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Press releases

OPERATING RESULTS FOR Q2 AND H1 2018

06 August 2018
  • Q2 2018 AVERAGE DAILY HYDROCARBON PRODUCTION REMAINED FLAT QoQ AT 5.71 MMBOE
  • AVERAGE DAILY LIQUIDS OUTPUT UP BY 0.8% QoQ
  • ABILITY TO FURTHER INCREASE OUTPUT IN H2 2018
  • SUCCESSFUL ROSNEFT-2022 STRATEGY IMPLEMENTATION
  • Q2 2018 GAS PRODUCTION AT 16.5 BCM
  • Q2 2018 REFINING THROUGHPUT GROWTH IN RUSSIA BY 1.9% YoY
  • H1 2018 REFINING DEPTH IMPROVEMENT UP TO 75.2%, LIGHT PRODUCTS YIELD TO 58.1%

Upstream

Hydrocarbon production amounted to 5.71 mmboed in Q2 2018 and remained flat QoQ.

Average daily liquids production reached 4.6 mmbpd in Q2 2018, demonstrating 0.8% growth both QoQ and YoY. Taking into account the arrangements on partial recovery of oil and condensate production under the OPEC+ Agreement, the Company was able to rapidly increase production up to the level prior to the limitations commencement (October 2016) already in the beginning of July, which indicates the correct strategic approach to production management. The Company has the technological capacity to increase the liquids production in Q3 by ~200 kbpd, which was already utilized in the amount of ~120 kbpd in June-July immediately after the 174-th OPEC countries conference and 4-th OPEC+ countries’ Ministers meeting decision announcement.

In order to develop its technological potential, the Company has started testing a casing drilling technology at the Vankor field, the technology rollout will reduce the wells construction cycle. At a number of the fields the Company has mastered and successfully utilized multilateral wells construction technology. Low permeability reservoirs oil recovery improvement technologies with multistage hydraulic fracturing in the horizontal wells are actively being developed, joint projects with leading domestic enterprises are being implemented to develop the production of high-tech well logging equipment aimed at formations exploration in complex geological and engineering conditions. The first domestically-based corporate software RN-GRID for hydrofracturing design and analysis was put into commercial operation. Its mathematical model allows for a more accurate description of cracks in formations and injected proppant location estimation. All these features favorably differentiate RN-GRID from its western commercial alternatives, most of which utilize more simplistic modelling approaches. RN-GRID is used in 100% of the hydraulic fracturing works conducted by the in-house service RN-GRP.

Q2 2018 development drilling increased by 11% QoQ and reached ~6 mln meters in H1 2018 with sustaining the in-house drilling share at 60%. In H1 2018 the number of new wells commissioning increased by 22% YoY up to 1.7 th. wells with horizontal wells share up to 41% and the number of new horizontal wells with multistage fracturing up by 66%.

RN-Yuganskneftegaz, the Company’s largest asset maintains the achieved record production level, sustaining it above 1.4 mmbpd via advanced drilling technologies application, increasing the horizontal wells share, implementing the modern wells stimulation methods and successful Tyumen suite development. The subsidiary’s production growth exceeded 8% YoY.

Horizontal wells drilling with a unique combined production casing column at RN-Yuganskneftegaz facilities allowed for substantial reduction in construction period. In June 2018, a 4.7 km depth horizontal well with the horizontal section length over 1.5 km was drilled in 13.4 days. This is a record indicator not only of the Company, but also of the entire Russian oil and gas industry. Besides being successfully implemented at the largest production asset of the Company, this technology also utilized at the rest of the production facilities of the Group. The effectiveness of the technological approach is verified by the record drilling performance and the eagerness of other companies to replicate similar solutions at their own facilities.

The current production growth is being achieved via both brownfields production recovery in Western and Eastern Siberia (Varyoganneftegaz, Purneftegaz, Nyaganneftegaz) and new assets development. The Company also continues actively developing new projects in accordance with the approved schedule.

The Company is developing further the Kondinskoye and the Yurubcheno-Tokhomskoye fields launched last year, their combined oil production reached 12 mmbbl in H1 2018. A reservoir-pressure maintenance program is being successfully implemented, large-tonnage hydraulic fracturing with coil tubing (CT) works were conducted in horizontal wells equipped with controllable frac ports at the Kondinskoye field. A comprehensive testing of 36 MW gas turbine electric power plant has been started with Kondaneft facilities transferring to in-house electricity generation. The works on the second stage facilities technological launch are being conducted at the Yurubcheno-Tokhomskoye field with increasing development drilling.

An oil flow of 90 tpd (~670 bpd) was achieved in the first horizontal development well at the West Erginskoye field of the Erginsky cluster. The field development is carried out with the use of the Kondinskoye field infrastructure. The 50-kilometer oil pipeline under construction will connect the booster pump station of the West Erginskoye field with the Kondinsky central production facility.

In accordance with the plans, the commissioning works at a number of large fields are in progress. Development drilling is also ongoing at the Tagul field (19 wells drilled in H1 2018), and the construction of the field facilities is underway (oil treatment facility, well pads, oil pipelines, etc.).

At the Russkoye field with high-viscosity oil reserves, the construction works and preparations for the technological start-up of the Zapolyarnoye pipeline commissioning station and the pressure oil pipeline facilities are also in progress. As of the end of Q2 2018, 147 wells with over 9.5 ktpd of expected oil production were drilled at the field.

Within the second stage of the Srednebotuobinskoye field development the infrastructure facilities are being constructed, a drilling program for horizontal and multilateral wells is being implemented. The program of the pilot oil production from the Osinsky horizon with hard-to-recover reserves is underway. The oil production at the field achieved almost 9 mmbbl in H1 2018.

The construction works and the pre-commissioning of the oil gathering and treatment facilities (the central production facility and the oil gathering line from the right bank of the Podkamennaya Tunguska River) of the first start-up complex of the Kuyumba field are in progress, the development drilling is being intensified.

Q2 2018 gas production amounted to 16.45 bcm and decreased by 2.4% QoQ as a result of the seasonal factor and preventive equipment maintenance in Q2 2018. Associated petroleum gas (APG) utilization level in Q2 2018 was at 84.2%.

Active phase of the key infrastructure facilities construction is in progress at Rospan. Installation of the heater treater and the thermal insulation on the tanks completed at the gas and condensate treatment units of the East Urengoy license area. The processing equipment assembling is ongoing at the booster compressor station. Spherical tanks, LPG filling ports and racks are being installed at the Korotchaevo station railway terminal.

The implementation of the Egyptian offshore Zohr project where gas production started in December 2017 is successfully progressing. Six development wells have been commissioned at the field, raising the gas output to 31.5 mmcmpd (100% of the project, ~5.9 mmcmpd in the Company's share). H1 2018 gas production amounted to ~3.1 bcm (100% of the project, 561 mmcm in the Company's share). There are already 4 lines of the gas treatment facility (GTF) in operation (the last one was launched in the end of July 2018) in addition to the early production line which allows to increase the maximum capacity of the gas treatment up to 49.5 mmcmpd according to the design documentation (100% of the project). This capacity is to be achieved in near future after the commissioning of the second gas export pipeline running from the field to GTF. The Operator plans to launch the 5th process train of GTF and new production wells in H2 2018.

In H1 2018, 4.8 th. km of onshore 2D seismic surveys and 6.6 sq. km of onshore 3D seismic surveys were acquired. 37 exploration wells were tested with a 81% success rate. 37 new deposits and 2 new fields were discovered with estimated 14 mmtoe of АВ1С1+B2С2 reserves in place.

The Company continues to actively and successfully implementing Rosneft-2022 strategy in exploration and production. Certain this year targets have been already achieved in H1 2018. For instance, the strategic goal to reach and maintain the share of horizontal wells at minimum level of 40% from total number of wells is being achieved. H1 2018 increase in wells under-stream period already amounted to 4.1%. During the same period, the increase in the output of well workover crews reached 4.8% as a result of ongoing implementation of the organizational and engineering measures to reduce the crews' downtime, without executing any additional projects with material investment requirements.

Based on successful development of the internal expertise the Company has optimized technical solutions and cost estimates of the capital construction projects for a total of 7 bn RUB in H1 2018.

As part of the digitalization efforts, full-scale operations of the Company’s data processing center have been started since July 2018. Based on the data processing center, in cooperation with one of global industry leaders, General Electric, industrial IT-platform GE Predix, digital integrated field simulator IRMA and platform for geological data processing GeoPAK have being developed.

Refining, Commerce and Logistics

Q2 2018 oil refining throughput at the Company's refineries in the Russian Federation rose by 1.9% YoY up to 25.08 mmt with improving market conditions. The total refining throughput, including the foreign operations, reached 28.12 mmt (+1.4% YoY).

In H1 2018 the refining depth improved by 1.0 p.p. up to 75.2% on the back of the secondary processes optimization, while light products yield decreased slightly by 0.3 p.p. to 58.1% as a result of planned maintenance at the refineries.

Taking into account the Government of the Russian Federation overriding decision to complete the tax maneuver, the Company analyzes investment projects in the oil refining to determine the priorities with respect to oil refining capacities modernization, taking into account the maximization of economic effect.

In early Q2 2018, Syzran refinery completed the implementation of a large-scale program of technical re-equipment of the test center for oil and petroleum products - the central laboratory of the refinery. The introduction of the latest digital technologies will significantly improve the efficiency of the technological processes and the accuracy of the measurements, and will also strengthen the product quality control system.

Rosneft pays close attention to ecology and environmental protection. In April 2018, the Ufa group of the Company's refineries started commercial production of improved high-octane gasoline AI-95 of “Euro-6” class, which is significantly superior to Euro-5 fuel currently produced in the Russian Federation with respect to the environmental and performance indicators. The use of a new class gasoline will help minimize the carbon footprint of motor vehicles on the environment and improve the environmental situation, which is especially important in large cities.

In the course of the Rosneft-2022 strategy implementation, Ufaorgsintez completed the largest investment project in the recent years aimed at upgrading the isopropyl benzene (cumene) production facility in May 2018. The new technological process ensures safe and environmentally friendly production, reducing the consumption of the feedstock and the energy resources. The technology was applied in Russia for the first time.

As part of the import substitution program, the catalysts purchased for the hydrogen unit of the Ryazan refinery were substituted with catalysts produced by the Angarsk Plant of Catalysts and Organic Synthesis.

With regard to the cooperation strengthening with the end users the Company entered into a long-term contract (until end-2020) with Polish Grupa LOTOS SA for oil delivery via the Druzhba pipeline in the direction of Poland with volumes ranging from 6.4 to 12.6 mmt.

As a part of the oil supplies diversification, the Company continued to increase the oil shipments to the Eastern direction. In H1 2018 the deliveries increased by 17.1% YoY up to 27.4 mmt. The growth was at 2.9% QoQ up to 13.9 mmt in Q2 2018.

The Company is actively developing the LPG trade as a part of the commodity exchange trade development in Russia. In H1 2018 Rosneft increased LPG sales volume via the exchange trades by 69.8% YoY up to almost 35 th. tons. In addition, the Company started selling LPG from the Tuapse refinery through commodity exchanges on the terms of self-transportation by road for the first time in May 2018. The refinery became the Company's 12th plant in the Russian Federation (out of 13 large refineries) selling LPG via the commodity exchange.

Rosneft actively develops further the lubricants segment. In Q2 2018 the Company started sales of new diesel engine lubricant for ships, locomotives and industrial diesel engines, as well as for heavy-duty diesel engines of quarry trucks and diesel-driven drilling rigs.

In addition, the new generation turbine lubricants, Rosneft Turbogear, received the official approval from the leading turbine manufacturer – Siemens. This grade of oils has no analogues in Russia and is comparable in quality to products of the highest world standards. Rosneft Turbogear turbine lubricants are intended for use in thermomechanical and hydromechanical equipment of thermal, nuclear and hydroelectric power plants.

Q2 2018 product sales through the high-margin retail channel increased by 15% YoY.

After the new loyalty program roll-out completion in 57 regions of the Russian Federation the company continues working on increasing the number of participants in two loyalty programs "Family team" and "BP CLUB" on the back of target campaigns. As of the end of Q2 2018, 9 mln participants were involved.

Revenues from non-fuel sales in Q2 2018 increased by 6% YoY, mainly on the back of the introduction of a new product range policy at all Company’s filling stations and on the food offer development. Gross income from the cafe business in H1 2018 increased by 16% YoY. As a result of the additional installation of coffee-corners at the filling stations, the coffee and hot dogs sales increased by 5% and 10%, respectively.

The fuel quality control is being conducted constantly at the tank farms and the filling stations using the stationary and mobile laboratories. More than 3.6 th. inspections were delivered in 41 regions of the Russian Federation with own control equipment at the stations. Since the beginning of the year fuel quality tests at the tank farms and the filling stations have been carried out in all regions of the Company’s presence. Such control allows eliminating the risks of selling fuel to consumers with quality deviations. The dosage of fuel delivered to the end user at the gas stations of the Company is also being controlled on a periodic basis.

In pursuance of the multi-fuel supply development, the works have been completed and nine stations in Ulyanovsk, Voronezh, Saratov and Stavropol Krai have been put into pilot operations, where compressed natural gas (CNG) is sold as a motor fuel. The reconstruction of two more stations in the cities of Saratov and Mineralnye Vody are expected to be completed soon. Works on two stations in Ulyanovsk will be started in Q4 2018. The network will include 13 CNG-filling infrastructure facilities by the end of 2018.

International operations

In Q2 2018, during the XXII St. Petersburg International Economic Forum, the Company signed long-term contracts for the supply of gasoline and diesel fuel with the largest Mongolian importers of oil products. The total value of the contracts is estimated at $2.1 bln. The signed long-term contracts will allow Rosneft to retain stable position in the oil product market of Mongolia and strengthen cooperation with its Mongolian partners.

Rosneft and Ghana National Petroleum Corporation (GNPC) signed a package of documents providing for the delivery of liquefied natural gas (LNG) to the port of Tema (Ghana) over 12 years in the volume of around 1.7 mmtpa (or 250 mln standard cubic feet per day), its regasification using the processing capacities of Tema terminal in order to subsequently supply the natural gas to GNPC. The obligations of the parties under the signed documents will come into effect once they are approved by the Boards of Directors of the companies. The signed documents open a new stage in the development of cooperation between Russia and the Republic of Ghana.

During the XXII St. Petersburg International Economic Forum, Rosneft and the Government of the Kurdistan Region of the Republic of Iraq signed an agreement, securing the intention of the parties to conduct a detailed study of potential gas cooperation options. Within the framework of the signed agreement, the parties will work out a comprehensive plan for the development of gas business in the Kurdish region of the Republic of Iraq. Rosneft will decide on whether to participate in the gas business of the region based on the comprehensive development plan and taking into account the attractiveness and effectiveness of the potential cooperation.

In May 2018, Rosneft Deutschland GmbH, a subsidiary of Rosneft, dispatched the first physical deliveries of polymer-modified bitumen (PMB) Alfabit to consumers in Germany. In the future Rosneft Deutschland intends to establish a sales and distribution network in Germany for PMB in order to satisfy the needs of customers from Germany and neighboring countries. In addition, contracts have been signed with German companies to sell petrochemical products of own production starting from 2019.


 

Key operational indicators in Q2 and H1 2018:

  Q2‘18 Q1‘18 Q2‘17 Q-o-Q% Y-o-Y% H1‘18 H1‘17 Y-o-Y%

Hydrocarbon production   (kboepd)

5,706 5,708 5,703 (0.0%) 0.1% 5,706 5,744 (0.7%)

Liquids   production (mmt)

56.54 55.46 56.08 1.9% 0.8% 112.00 112.20 (0.2%)

Gas   production (bcm)

16.46 16.87 16.99 (2.4%) (3.1%) 33.33 34.20 (2.5%)

APG utilization rate

84.2% 85.7% 88.9% (1.5 p.p.) (4.7 p.p.) 84.9% 89.4% (4.5 p.p.)

Development drilling (km)*

3,143 2,824 3,205

11.3%

(1.9%) 5,967 5,483 8.8%

2D seismic (km)*

1,197 3,566 4,476

(66.4%)

(73.3%) 4,763 10,695 (55.5%)

3D seismic (sq.km)*

1,837 4,749 1,614 (61.3%) 13.8% 6,586 5,649 16.6%

Oil Refining (mmt)

 28.12  27.57  27.72 2.0% 1.4%  55.69  56.02 (0.6%)

At Russian   refineries

 25.08  24.70  24.62 1.5% 1.9%  49.78  50.16 (0.8%)

Outside   Russia

 3.04  2.87  3.10 5.9% (1.9%)  5.91  5.86 0.9%

Product   output in Russia (mmt)

 24.22  23.89  23.87 1.4% 1.5%  48.11  48.46 (0.7%)

Gasoline

 3.56  3.68  3.66 (3.3%) (2.7%)  7.24  7.53 (3.9%)

Naphtha

 1.51  1.57  1.52 (3.8%) (0.7%)  3.08  3.09 (0.3%)

Diesel   fuel**

 8.22  8.18  7.99 0.5% 2.9%  16.40  16.52 (0.7%)

Fuel oil

 5.87  5.65  5.86 3.9% 0.2%  11.52  11.99 (3.9%)

Kerosene

 0.88  0.81  0.87 8.6% 1.1%  1.69  1.58 7.0%

Petrochemicals

 0.41  0.43  0.40 (4.7%) 2.5%  0.84  0.80 5.0%

Other

 3.77  3.57  3.57 5.6% 5.6%  7.34  6.95 5.6%

Product   output outside Russia (mmt)

 3.11  2.88  3.10 8.0% 0.3%  5.99  5.86 2.2%

*According to management data

**Including marine fuel

Information Policy Division
Rosneft
Tel.: +7 (495) 411 54 20
Fax: +7 (495) 411 54 21
August 6, 2018

These materials contain statements about future events and expectations that are forward-looking in nature. Any statement in these materials that is not a statement of historical fact is a forward-looking statement that involves known and unknown risks, uncertainties and other factors which may cause actual results, performance or achievements expressed or implied by such forward-looking statements to differ. We assume no obligations to update the forward-looking statements contained herein to reflect actual results, changes in assumptions or changes in factors affecting these statements.