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OPERATING RESULTS FOR Q2 AND H1 2019

20 August 2019
  • H1 2019 AVERAGE DAILY HYDROCARBON PRODUCTION AMOUNTED TO 5.81 MMBOE, DEMONSTRATING A 1.8% GROWTH YOY
  • H1 2019 AVERAGE DAILY LIQUIDS PRODUCTION REACHED 4.68 MMBPD, UP BY 2.1% YOY
  • SAMOTLOR FIELD PRODUCTION STABILIZED AT 0.38 MMBPD
  • GAS PRODUCTION IN H1 2019 AMOUNTED TO 33.43 BCM, UP BY 0.3% YOY
  • REFINING DEPTH IN Q2 2019 INCREASED TO 74.8%, LIGHT PRODUCTS YIELD AMOUNTED TO 58.4%
  • DOMESTIC MARKET MOTOR FUEL SUPPLIES AMOUNTED TO 14 MMT IN H1 2019, UP BY 6.9% YOY

Upstream

Hydrocarbon production in H1 2019 amounted to 5.81 mmboed (141.8 mmtoe for the half-year), exceeding H1 2018 level by 1.8%. Q2 2019 average daily hydrocarbon production amounted to 5.71 mmboe (70.1 mmtoe for the quarter), demonstrating a 0.1% growth YoY and a 3.3% decline QoQ due to the temporary restrictions on the oil intake into the trunk pipeline system by Transneft and the Company’s compliance with its quotas under the OPEC+ Agreement.

In H1 2019 liquids production amounted to 4.68 mmbpd (114.3 mmt for the half-year), exceeding H2 2018 production level by 2.1%. Production growth was due to the continued active development of new large projects (Yurubcheno-Tokhomskoye, Srednebotuobinskoye, Kondinskoye fields) and production ramp-up at brownfields (Samaraneftegaz, RN-Nyaganneftegaz, Varyaganneftegaz). The reporting quarter liquids average daily production of 4.62 mmbbl (56.7 mmt for the quarter) increased YoY by 0.3% and declined QoQ by 2.7% due to temporary restrictions on the intake of oil into the trunk pipeline system by Transneft and the Company’s compliance with its quotas under the OPEC+ Agreement. During temporary restrictions on the oil intake into Transneft’s trunk pipeline system (May 1 - July 15, 2019) the Company was forced to reduce crude oil production by 1.7 mmt.

In Q2 2019 development drilling footage increased by 8% QoQ, reaching 5.2 mln m in H1 2019. The share of in-house drilling footage is traditionally maintained at more than 50%. The Company focuses on construction of hi-tech wells, which ensure more efficient reservoir development and enhanced oil recovery compared to directional wells drilling.

Taas-Yuryakh Neftegazodobycha achieved a new drilling footage record during construction of multilateral well using a Fishbone technology. The total horizontal wellbore length within the reservoir exceeded the previous achievement by more than 800 m and amounted to 6,052 m. This is the longest horizontal section of an on-shore multilateral well. The initial flow rate was more than 200 tpd.

As of end-H1 2019 the number of new wells commissioned amounted to 1,494 units. New horizontal wells commissioning increased by 14% compared to H1 2018 level, while its share in the total well stock reached 54%, growing by 13 p.p. YoY. H1 2019 production per horizontal well increased by 15% YoY and exceeded 5 th. tons per well, which is over 2 times higher than the directional wells level. The number of newly commissioned horizontal wells with multistage hydrofracturing increased by 9% YoY and reached 33% of the total new wells commissioned in H1 2019, growing by 7 p.p. YoY.

The program to increase drilling and new wells commissioning at the Samotlor field continues due to the investment incentives provided by the law. As a result, the production at the field stabilized in the reporting quarter after several years of decline: in Q2 2019 average daily oil production at the field amounted to 0.38 mmbbl, which corresponds to Q1 2019 and H1 2018 levels.

The Company is the leader of Russian oil industry in launching greenfields. In addition to launching new large projects (Suzunskoye, Vostochno-Messoyakhskoye, Yurubcheno-Tokhomskoye, Kondinskoye, Tagulskoye, Russkoye, Kuyumbinskoye fields, 2nd stage of Srednebotuobinskoye field) a second Erginsky cluster field was launched in June 2019 – Zapadno-Erginskoye with recoverable oil reserves of 23 mmt (C1+C2). The field was prepared for production start in the shortest possible time span of less than 1.5 years. New well drilling and construction methods, modern technical and engineering solutions and the existing Kondinsky cluster infrastructure were used to achieve such rapid field development.

In H1 2019 the Company’s share in total hydrocarbon production at the abovementioned new assets amounted to 9.15 mmtoe (374 kbpd), 4.68 mmtoe (381 kbpd) of which was produced in Q2 2019. Its share in Rosneft’s Q2 2019 total liquids production amounted to c. 7%. We expect that production at the fields launched after 2016 (including the mentioned above) will reach c. 20% of the Company’s total liquids output in 2022.

The Company started the development and preparation for commercial launch of the North Danilovskoye field – 1 of 4 fields, which form the new Danilovsky production cluster (including South Danilovskoye, Lisovsky, and Verkhneicherskoye fields). Total recoverable oil and gas condensate reserves of the 4 fields (C1+C2 category) amount to 320 mmt. The synergy effect will be achieved via a joint use of the transportation infrastructure for all cluster deposits, along with crude oil preparation capacities of the Verkhnechonskoye oil and gas condensate field.

Gas production in H1 2019 amounted to 33.43 bcm, including 16.31 bcm in Q2 2019. YoY production growth was achieved mainly due to the production capacity increase at Zohr field along with commencing new wells with a high gas factor at Yem-Egovskoye and Kamennoye fields at RN-Nyaganneftegaz in H2 2018.

Egypt offshore Zohr field development continues ahead of schedule. In December 2017 gas production was launched on the field, while as of end H1 2019 the daily production reached 66 mmcm (100% of the project). In Q2 2019 the last technological line was commenced at the gas processing facility. Q2 2019 gas production amounted to c. 5.8 bcm (1.02 bcm in the Company’s share). Production is planned to increase to planned capacity of 76 mmcmpd before end 2019.

More than 1.7 th. linear km of 2D and c. 5.6 th. sq. km of 3D onshore seismic works were conducted in H1 2019 on Russian on-shore, 48 exploration and appraisal wells were tested with an 88% success rate. As a result of geological exploration, 29 new deposits and 17 new fields were discovered with АВ1С1+B2С2 hydrocarbon reserves amounting to more than 26 mmtoe. Taking into consideration the large scale of seismic operations carried out in the strategic regions of presence, the Company continues to process and interpret the previously obtained significant amount of seismic data, the results of which will be used for exploration and appraisal drilling.

Downstream

H1 2019 oil refining throughput at the Company’s refineries amounted to 51.8 mmt (25.0 mmt in Q2 2019). In H1 2019 oil refining throughput at the Company’s refineries in Russia was at 47.4 mmt (22.9 mmt in Q2 2019). The throughput reduction at the Company’s refineries in Russia was caused by equipment maintenance works and units optimization in the context of the current petroleum products demand. Oil refining throughput at the Company’s refineries in Germany in H1 2019 amounted to 4.4 mmt (2.1 in Q2 2019). The reduction in foreign refining throughput was caused by repairs at PCK Raffinerie GmbH refinery along with a reduction in the refinery utilization rate in May-June due to the temporary restrictions on the oil intake into the trunk pipeline system by Transneft.

Refining depth in Q1 2019 amounted to 74.8%, light products yield to 58.4%.

The Company continues to implement development and maintenance projects at Russian refining assets. As part of the large-scale investment program at the Ryazan refinery two new 20 th. tons reservoirs with remote control and product quality preservation systems were commissioned in April 2019. At end of May 2019 four receivers for hydrogen storage were installed at hydrogen production units at the Syzran refinery production platform. The new equipment will enable the build-up of substantial hydrogen reserves to promptly ramp up the production after the scheduled works at the refinery, which will allow for additional petroleum products output.

In May 2019 production of AI-95 “Euro 6” class high-octane gasoline with enhanced environmental and operational qualities started at Ryazan refinery in addition to the Ufa Group of refineries and Saratov refinery. The fuel is distributed at Ryazan region filling stations, and it is planned to extend the fuel supplies to Tula and Kaluga regions in the near future.

The Company continues successful diversification of foreign crude supply channels. In Q2 2019 crude supplies in the Eastern direction reached 21.2 mmt, increasing its share in the total crude sales volumes abroad to 56.4%.

In June, as part of LPG and petrochemicals supplies geographical expansion, during the St. Petersburg International Economic Forum Rosneft and Manzhouli Far East Gas Co. Ltd. signed an agreement of intent on cooperation in propylene and various types of LPG transshipment at the Manzholi Far East Gas Co. Ltd. terminal. The terminal is located in China at the border-crossing point Zabaikalsk - Manchuria. The terminal’s total planned capacity is up to 3 mmt of LPG and propylene per year.

In H1 2019 Rosneft increased the motor fuels supplies to the domestic market to 14.0 mmt (6.8 mmt in Q2 2019) which is 6.9% higher than H1 2018 level. Moreover, in the reporting quarter the Company exceeded the quota for exchange-traded motor fuel sales volumes, including gasoline by c. 2 times.

As part of the geographical expansion of our filling stations network, the permission was obtained from the Federal Air Transport Agency for construction of fueling complexes at Pulkovo Airport with a design capacity of 300 th. tons - about 50% of the annual fueling volume at this airport, taking into account development plans of the Airport. The construction and installation works were initiated, and their completion is planned for October 2020.

In H1 2019 petroleum products sales via retail channel grew by 12.8% YoY, in Q2 2019 - by 8.6% QoQ. Revenue from non-fuel sales keeps increasing mainly due to implementation of new product mix policy at all filling stations along with food offer development.

The work proceeds towards increasing the number of participants in "Family Team" and "BP Club" loyalty programs. As of the reporting quarter-end 12.9 mln active participants were involved.

A pilot project was implemented with PJSC “Moscow Credit Bank” as a partner of the “BP Club” loyalty program to purchase fuel via mobile application for the B2C segment. “Privilege World” mobile app was posted on the AppStore and Google Play platforms. The service is available at all BP stations in the Moscow region. Until the end of 2019 it is planned to replicate the service at “BP” filling stations in St. Petersburg and Tver.

In July 2019 the Company completed acquisition of 100% shares in companies of “Petersburg Fuel Company” (PTK) group. The acquisition of PTK group of companies is in line with the Company's strategy aimed at developing the retail business and expanding its presence in key regions of the country. The retail network of PTK is present in St. Petersburg, Leningrad, Murmansk, Novgorod, Pskov, Tver regions, and also the Republic of Karelia. The assets include 141 filling stations, 125 gasoline trucks and 2 modern petroleum storage depots. The acquisition of the new business will provide the Company with an additional synergistic effect and increase the efficiency of the fuel sales channel.

Implementation of the project to promote a mobile app with virtual fuel card payment option in accordance with retail business digitalization plan. Until the end of 2019 it is planned to extend the mobile application functionality: to display information about refill considering cash balance and card limits, to implement push-notifications, to display information about current promotions of non-fuel products and services.

International operations

Rosneft Deutschland, a Rosneft subsidiary, being among the largest wholesale suppliers of petroleum products in Germany continues to develop the customer base. Particularly, a number of contracts were signed with airline companies in Germany to fuel air carriers in airports of Munich and Berlin. Moreover, the license to import and export crude oil and other feedstock to Germany was received in the reporting period. Independent imports of feedstock will contribute to the effectiveness of the subsidiary’s operational performance.

In Q2 2019 Nayara Energy, the Company’s associate, signed a long-term USD 750 mln prepayment contract with the involvement of an international banking consortium to export petroleum products to BP and Trafigura.


 

Key operating results for Q2 and H1 2019:

 Q2
19
Q1
19
QoQQ2
18
YoYH1
19
H1
18
YoY
Hydrocarbon production (kboepd) 5,710 5,902 (3.3)% 5,706 0.1% 5,806 5,706 1.8%
Liquids production (mmt) 56.71 79.63 (1.6)% 56.54 0.3% 114.34 112.00 2.1%
Gas production (bcm) 16.31 17.12 (4.7)% 16.46 (0.9)% 33.43 33.33 0.3%
APG utilization rate 76.7% 82.3% (5.6) p.p. 84.2% (7.5) p.p. 79.5% 84.9% (5.4) p.p.
Development drilling (km)* 2,689 2,495 7.8% 3,143 (14.4)% 5,184 5,967 (13.1)%
2D seismic (linear km)* 718 1,065 (32.5)% 1,197 (40.0)% 1,783 4,763 (62.6)%
3D seismic (sq. km)* 1,708 4,051 (79.8)% 1,837 (7.0)% 5,759 6,586 (12.6)%
Oil refining (mmt) 24.96 26.87 (7.1)% 28.12 (11.2)% 51.83 55.69 (6.9)%
Russian refineries 22.87 24.50 (6.7)% 25.08 (8.8)% 47.37 49.78 (4.8)%
Outside Russia 2.09 2.37 (11.8)% 3.04 (31.3)% 4.46 5.91 (24.5)%
Refining depth 74.8% 74.4% 0.4 p.p. 75.2% (0.4) p.p. 74.8% 75.2% (0.4) p.p.
Product output in Russia (mmt) 22.09 23.67 (6.7)% 24.22 (10.4)% 45.76 48.11 (4.9)%
Gasoline 3.66 3.83 (4.4)% 3.56 2.8% 7.49 7.24 3.5%
Naphtha 1.18 1.29 (8.5)% 1.51 (21.9)% 2.47 3.08 (19.8)%
Diesel   fuel** 7.46 8.12 (8.1)% 8.22 (9.2)% 15.58 16.40 (5.0)%
Fuel oil 5.37 5.83 (7.9)% 5.87 (8.5)% 11.20 11.52 (2.8)%
Kerosene 0.83 0.79 5.1% 0.88 (5.7)% 1.62 1.69 (4.1)%
Petrochemicals 0.39 0.43 (9.3)% 0.41 (4.9)% 0.82 0.84 (2.4)%
Other 3.20 3.38 (5.3)% 3.77 (15.1)% 6.58 7.34 (10.4)%
Products output outside Russia (mmt) 2.20 2.50 (12.0)% 3.11 (29.3)% 4.70 5.99 (21.5)%
Light products yield 58.4% 58.2% 0.2 p.p. 58.1% 0.3 p.p. 58.4% 58.1% 0.3 p.p.
Sales volumes
Crude oil (mmt) 38.8 35.5 9.3% 31.7 22.0% 74.3 62.5 18.9%
International sales to non-CIS 35.7 31.9 11.9% 28.2 27.0% 67.6 55.3 22.2%
International sales to CIS 1.9 2.2 (13.5)% 2.2 (14.0)% 4.1 4.4 (6.7)%
Domestic sales 1.2 1.4 (14.4)% 1.3 (8.0)% 2.6 2.8 (6.8)%
Petroleum products (mmt) 24.2 27.6 (12.3)% 28.0 (14.0)% 51.8 55.7 (7.0)%
International sales to non-CIS 12.8 15.9 (19.5)% 16.8 (24.0)% 28.7 33.7 (14.8)%
International sales to CIS 1.0 1.0 5.4% 1.0 0.0% 2.0 1.9 5.3%
Domestic sales 9.5 10.0 (5.0)% 9.3 2.0% 19.5 18.7 4.3%
Sales of bunker fuel to end-users 0.9 0.7 18.5% 0.9 0.0% 1.6 1.4 14.3%
Petrochemical products (mmt) 0.7 0.7 (9.6)% 0.7 0.0% 1.4 1.5 (6.7)%
International sales 0.2 0.3 (11.0)% 0.3 (33.0)% 0.5 0.6 (12.3)%
Domestic sales 0.5 0.4 0.0% 0.4 25.0% 0.9 0.9 (4.2)%
Gas (bcm) 14.92 16.46 (9.4)% 14.39 4.0% 31.38 30.95 1.4%

* According to management accounts
** Including marine fuel

Information Policy Division
Rosneft
Tel.: +7 (495) 411 54 20
Fax: +7 (495) 411 54 21
August 20, 2019

 

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.