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Igor Sechin Gave a Keynote Speech at Summit of Energy Companies within the St. Petersburg International Economic Forum

24 May 2014

Summit of Energy Companies ‘Oil Companies - Force for Changing Global Economy’ took place within the St. Petersburg International Economic Forum with the support of Rosneft. President of the Russian Federation Vladimir Putin opened the meeting.

The summit was attended by ExxonMobil Exploration Company President Stephen Greenlee, GE Oil&Gas President & CEO Lorenzo Simonelli, Statoil executive vice president Timothy Dodson, the Minister of People’s Power for Petroleum and Mines Rafael Ramirez, and head of Glencore Energy Alex Beard. The participants also included SOCAR President Rovnag Abdullayev, Total Senior Vice President Continental Europe and Central Asia Michael Borrell, BP CEO Robert Dudley, ExxonMobil Development Company President Neil Duffin, ExxonMobil Exploration Company President Stephen Greenlee, Total S.A. Chairman, CEO Christophe de Margerie, ConocoPhillips President for International Projects Kerr Johnston, ONGC Chairman of the Management Board, CEO Dinesh Sarraf, Statoil executive vice president Timothy Dodson, Trafigura Beheer BV Chairman of the Management Board, CEO Claude Dauphin, GDF Suez S.A. President, Vice-Chairman of the Management Board Jean-François Cirelli, Royal Dutch Shell plc CEO Ben van Beurden.

As highlighted by Igor Sechin in his presentation, implications in regard to development of markets will allow the Company to steadily build its strategy with a vision to 2033 and further. The strategy is based on current state of Rosneft as world’s largest publicly traded oil company by output and reserves. Rosneft President noted that the Company didn’t receive assets in the course of privatization in Russia. On the contrary, Rosneft established in competitive business environment, successfully completed its initial public offering in 2006 subject to all Clarity Standards, which made it international publicly traded privately owned company. At that, as a result of the share placement and sale of BP share, government revenues have exceeded mutual financial result of oil and gas sector privatization 3 times.

‘About 150 thousand of Russian individuals became Rosneft shareholders,’ Igor Sechin noted. ‘With this in mind, we consider it our duty to build our long-term activities in light of their interests, as well as of all of our shareholders’.

He highlighted that current proved oil and gas reserves of the Company amount to 33 billion barrels SEC classification, and are the largest in the world. Company expenses for resource development are also at record lows, and Rosneft will continue to maintain this advantage in future. ‘Our goal is to control the level of operating costs steadily on less than 5 dollars per barrels of oil equivalent, and capital investments on less than 8 dollars per barrels of oil equivalent. It’s substantially better than the results of large Russian and international companies, and impossible without achievement of technological leadership.’

According to him, in order to efficiently achieve potential of new types of reserves, and develop shelf, there shall be developed powerful service sector in Russia, and frequently unique technologies.

For this purpose, Rosneft will create most important background for further persistent growth of its core business in the region of extraction and refining of hydrocarbons. The Company will implement the strategy aimed at development of new type manufacturable oil service business, covering strategic needs of the Company, and providing industry’s best economic efficiency on the basis of its own drilling and service company RN-Bureniye with possible attraction of partners; creation of pool of innovative technologies and competences in all key areas of its further development.

Igor Sechin said that speed up in Company’s growth up to 2033 is coming from the beginning of commercial extraction on the shelf. Arctic projects will allow Rosneft to become the world’s largest operator of reserves of this type. By 2020, hydrocarbon production will increase by about 30%, including liquids production increase by 15%, and gas production increase up to 3 times. By 2025, annual hydrocarbon production of the Company will increase by approx. 50%. We can talk about potential of doubling our business scale by 2033, and average annual rate of growth of liquid hydrocarbons will amount to 4% almost entirely by organic growth. Gas share will increase to third part of general production balance sheet of the Company. At the domestic gas market, Rosneft share will total about 20%.

According to Rosneft President, size of the Company, global nature of its activities, and major breakthrough of project scope with partners call for further optimization of implementation of managerial decisions, and transformation of the Company into a strategic energotechnological and operational holding with distinct structuring of business processes. Currently this model is being worked out for supplies of oil products. It provides for such stages as making marketing networks a separate legal entity, attraction of partners, organization of work on a new principle, and probably IPO in future. Another element of strategy implementation for the creation of world-class focused marketing business is represented by the decision to acquire international oil trading business bank of Morgan Stanley.

Igor Sechin noted that as a result of implementation of this strategy, Rosneft will come up with global majors by set of key competences and efficiency, and will become one of world leaders in a number of areas, including shelf development, extraction of unconventional types of hydrocarbons, and monetization of oil and gas in the world market. In addition to the above, financial performance will increase. The growth rate of EBITDA and money flow generation will allow to reduce net debt to EBITDA ratio to 1.0-1.3 within three years.

After intensive investment base in 2014-2016, the Company will generate Free Cash Flow to the extent of 5-7 dollars per barrels of oil equivalent excluding received trade preliminary payments and bank financing, which will allow to implement large-scale development programs without additional borrowings.

‘We believe that the market will appreciate our determination to implement this strategy,’ Igor Sechin highlighted. He added that future trends of the Company are based on recently approved tax novations. ‘Had these decisions not been reached, hydrocarbon production by our Company and other Russian companies would have switched to stagnation phase as a result of inevitable denial of ineffective investments, and then to rapid fall.’

Having said that, Igor Sechin noted that tax burden of Rosneft is significantly higher as compared to largest publicly traded international companies due to higher MET and export tariffs. ‘Let’s have a look at difference in tax liabilities of oil and gas industry,’ he added. ‘The burden is way different. That said, the international practice doesn’t classify taxation of hydrocarbons by their type, as generally they accompany each other. Beyond oil and gas sector, the resource approach to rent withdrawal is not supported. There’s still no adequate tax assessment in the region of production of mineral fertilizers and base metals based on the analysis of profitability coming from usage of unique natural resources.’

According to Igor Sechin, fiscal mode inside the oil and gas sector, and its stabilization in relation to other sectors, are still one of the main elements of increasing capitalization, which can serve as another tool for increase in budget income.

‘It seems that demand for joint analysis and work shall be carried out through the development of established traditions of our regular meetings as St. Petersburg Energy Summits,’ Igor Sechin said. ‘I’d like to introduce you to the idea of minimum institutionalization of this tradition, for example, through the formation of standing secretariat consisting of several people, who could prepare topics for next summits, and conduct preparations on a regular basis with your participation.’

The participants of the Summit supported that suggestion.

Rosneft President Igor Sechin Speech at Summit of Energy Companies within the St. Petersburg International Economic Forum 2014

Review of Energy Provider’s Summit “Oil and Gas Companies are the World Economy’s “Motor of Changes”. XVIII St.Petersburg International Economic Forum, 2014

Summit of Energy Companies
‘Oil Companies —
Force for Changing Global Economy’

Video from

Rosneft Information Division
Tel: + 7 (499) 517-88-97
May 24, 2014

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.