OIL AND GAS COMPANIES ARE THE WORLD ECONOMY'S "MOTOR OF CHANGES"
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OIL AND GAS COMPANIES ARE THE WORLD
ECONOMY’S “MOTOR OF CHANGES” OIL AND GAS COMPANIES ARE THE WORLD
REVIEW OF ENERGY PROVIDERS’ SUMMIT
XVIII ST. PETERSBURG INTERNATIONAL ECONOMIC FORUM, 2014
ECONOMY’S “MOTOR OF CHANGES”
© JSC Rosneft
www.rosneft.ru
REVIEW OF ENERGY PROVIDERS’ SUMMIT
XVIII ST. PETERSBURG INTERNATIONAL ECONOMIC FORUM, 2014
OIL AND GAS COMPANIES ARE THE WORLD XVIII SAINT PETERSBURG INTERNATIONAL ENERGY PROVIDERS’
ECONOMY’S “MOTOR OF CHANGES” ECONOMIC FORUM SUMMIT
XVIII SAINT PETERSBURG
INTERNATIONAL ECONOMIC FORUM
82 SPIEF2014 OVERALL NUMBER OF EVENTS
7 590 175
Amount of Amount of contracts
participants signed
401 400 000 000 rubbles
Overall amount of contracts signed within SPIEF 2014
450 1 439
Speakers Newsmen
OFFICIAL DELEGATIONS FROM
73
This year the motto of St. Petersburg International Economic Forum was
sion, not only as well as signing of contracts.
COUNTRIES
2 OIL AND GAS COMPANIES ARE THE WORLD PRESIDENT OF THE RUSSIAN FEDERATION ENERGY PROVIDERS’ 3
ECONOMY’S “MOTOR OF CHANGES” OPENING REMARKS SUMMIT
and many years of experience have shown that In these circumstances, our desire to open
PRESIDENT up new markets is natural and understanda-
to develop the Russian fuel and energy sector, ble. Primarily we are talking about the dynami-
OF THE RUSSIAN FEDERATION but also increases Russia’s presence on inter-
national energy markets, which fully meets the gives us a chance to increase our exports, but
OPENING REMARKS interests of both the producing countries and also serves as a major impetus for the deve-
companies as well as the consumers. lopment of East Siberia and the Far East of
It is not by chance that even when much Russia.
was said about the need to restrict energy Yes, we are aware of the fact that our part-
+ / ' ners are planning to expand the number of
Good afternoon, colleagues, ladies and gen-
because there has never been any unilate- gas suppliers to Europe, for instance. How-
tlemen!
ral dependence: the dependence is always ever, far from dramatizing the situation, we ac-
mutual, which leads to greater reliability and tually welcome this development. I am certain
It has become a good tradition to hold sum-
stability of the global economy and the energy that the European Union representatives un-
mit meetings of energy companies – and of all
industry), despite all that, the supply of our derstand quite well that supplies from Russia
other companies that are directly linked with
energy resources to Europe, for instance, is help diversify the EU’s energy balance.
energy – within the framework of the Saint Pe-
constantly growing. Thus, last year exports of
tersburg International Economic Forum.
gas through pipeline systems grew by almost
I would like to say a few words about Rus- We need to increase energy ef-
38 9839' -
sia and our developments. I would like to note
ures, we have reached a record high for the
here that because of its huge energy resources
past years of over 188 billion cubic meters.
and its good geographic location (this is some-
I would like to stress that we support con-
on innovative technologies and de-
thing I have already mentioned at our narrow
scientious performance of contractual obliga-
format meeting), Russia plays a special part in
tions. We expect that the consumers and the
the development of energy in Europe and the
transit countries have the same responsible
approach. Honestly speaking, we are seri-
'#
ously concerned over the statements made by
to maintaining a balance between hydrocar-
some Ukrainian radicals who are threatening
bon demand and supply on the global market.
to block the transit of our gas to Europe. We ! "
Throughout the past years, our oil and gas
hope common sense will prevail and this will market is a good opportunity to consolidate
production has been growing steadily. We give
not happen. fragmentary regional gas markets. For us this
special attention to increasing oil recovery and
is a priority task.
high-level processing. We are very active in
again the timeliness of our initiatives to build Thus, apart from the LNG facility already
geological exploration and development of
direct fuel supply routes to the European Un- operating within the Sakhalin-2 project, the
* ! !
ion, such as the South Stream, which we are Yamal LNG plant is being built. Rosneft is
already building. I believe the European Com- planning to build yet another facility on Sakha-
shelf as well as for the development of hard-
mission should take an active stand on this is- lin, and Gazprom – in Vladivostok and on the
to-recover reserves. All this factors should
sue, because protection of the interests of the Baltic coast. A large part of these projects is
help develop our resource base for decades.
European consumers is one of, if not the main #
' !
job of this organization. I would like to speak in some detail about pros-
condensate in Russia has increased by al-
Today Europe accounts for over 70 percent pects for shale gas production. Ever since such
most 6 percent, of gas – by almost 15 percent,
of our oil exports and almost all of our pipeline $ %
and of coal – by over 17 percent.
gas. However, we have to admit that energy the supply has been growing. Thus, our Ameri-
We fully uphold the principle of sovereignty
consumption in Europe is growing slowly due can friends and partners intend to shortly be-
over national resources. At the same time,
to low economic growth rates, while political come net exporters. This is clearly good for the
Russia is ready to let our long-term interna-
and regulatory risks are increasing. Transit is #
tional partners take part in our fuel and energy
also an issue. for us as well.
sector. As you may know, this is what we do,
4 OIL AND GAS COMPANIES ARE THE WORLD PRESIDENT OF THE RUSSIAN FEDERATION ENERGY PROVIDERS’ 5
ECONOMY’S “MOTOR OF CHANGES” OPENING REMARKS SUMMIT
However, to organize LNG exports from ! important that this is exactly what the major Ladies and gentlemen, friends and partners,
North America to Europe – the experts pre- usually discovered and developed at the early companies are doing.
sent here at the moment are well aware of stage of exploration and development of a geo- In the meantime, we do not see the existing We will appreciate any recommendations
this – there should be a proper infrastructure logical area. This means that ‘easy’ reserves, regulatory system – I would like to say a few you may have regarding Russian legislation
on both sides of the Atlantic. This will require the so-called ‘cream’, have already been re- words about this, if I may – and coordination and established practice of applying the law. I
large capital investment and time. Besides, moved or are about to run out. Therefore, we am certain that expanding the formats of our
have to move to new areas, often hard to ac- perfect. Rather frequently, regulation tends to cooperation will help to build a truly effective
as you also know, is about 1.6 times higher - distort even market signals and leads to subsi- global economy.
than in Europe. This is a fact, at least for ing secondary or even tertiary production me- dies being channeled to the so-called ‘favorite In conclusion, I would like to reiterate that
now. thods and develop reserves that were traditio- types of energy’. In Europe, in the energy sector today, reliable and stable energy supply de-
Obviously, LNG producers in the US would of the European Union these are the so-called termines to a great extent the stable progress
primarily want to compete for the premium and hard to reach. renewable sources. This is clearly a distortion of national economies and the global econo-
Asian market. Nobody will ever operate at a However, I would also like to note that of the market that is detrimental to competition; my as a whole. It is in our common interest to
? - today’s prices on the global market do not it makes entire industries less competitive. #
@ hamper economic development. Moreover, I hope participants in today’s summit will ! -
This is natural; this is the law of market econ- they are stable, which is of principal impor- manage to work out a set of proposals on @ ! Z
omy. tance for the development of long-term pro- the most called for priority measures to deforms the economic basis and principles of
raise the quality of energy markets’ regula- '
tion and take another look at the possible summit will help resolve this important issue.
- format for comparing tax, regulatory and I wish you interesting discussions and pro-
legislative regimes in various jurisdictions mising contracts. I leave you to your work and
-
and also give recommendations on inter- wish you all the best.
national legal support of the operation of
! competitive, transparent and open energy Thank you.
markets.
I would like to repeat here that the price of jects in the fuel and energy and other sec-
Russian pipeline gas is competitive and – what tors of the economy. To reduce costs, we
is more important – predictable, because it is need to increase energy efficiency of our
economies, focus on innovative technolo-
Other natural gas exporters, by the way, use gies and develop the refining of hydrocar-
these methods, as well. bons, things like petrochemical and gas-
chemical production.
Colleagues, friends, It is very important for Russia to resolve
these issues. Our country intends not only
Energy is the most important basis for sus- to retain, but also to strengthen its posi-
tainable development of the global economy. tion as one of the leading energy suppliers
Expert assessments show that there are suf- and to become a leader in the qualitative
transformation of the global energy sector
and they will last long enough. At the same as well.
# - The challenges in the energy sector are
ciency, and they apply to the situation in the clearly of global nature, and we can only meet
fuel and energy sector. them together, by means of cooperation. It is
6 OIL AND GAS COMPANIES ARE THE WORLD ROSNEFT’S PRESIDENT’S ENERGY PROVIDERS’ 7
ECONOMY’S “MOTOR OF CHANGES” ADDRESS SUMMIT
Global GDP over time Industrial output over time
11 %
20 % y-o-y
forecast
10
9
ROSNEFT’S PRESIDENT 8
7
6
15
10 8.6
ADDRESS 5
4
3
5 3.8
2
1 2.1
0 0
-12006 2007 2008 2009 2010 2011 2012 2013 2014 2011 2012 2013 2014
Dear ladies and gentlemen! Dear col- -2
leagues! Dear guests of the Forum! -3 -5
-4
-5
On behalf of Rosneft company, which tradi- -6
BRIC USA, EU, Japan World USA Developing countries excl. China China
tionally has been acting as a sponsor and one
of the organizers of the Forum, I would like to
welcome the representatives of government
authorities, the leaders of oil and gas business-
es, energy companies, the representatives of the economic dynamics, the fact that our mo-
derator has already referenced to. _
service companies and other entities who have The global demand for energy carriers con- the outlook prepared by the Chinese ex-
demonstrated interest towards our work. tinues to grow even despite the continued cri- !
I would like to draw your attention to the sis phenomena, and that particularly concerns energy resources demand in the country. I
fact that during the last year the weight of our the economies of certain regions. During the should also note that IEA has reconsidered
community in the global economy has consid- ! its outlook concerning this aspect more than
erably grown. Whereas in the previous year 39\ once.
the participants represented the capital of 2.5 the same period of time the growth amounted During the visit of the Russian President
trillion US dollars, today it exceeds 3.5 trillion to 29%. At the same time the share of Asia- Vladimir Putin to China on May 21, Gazprom
dollars. and CNPC have signed a strategic 30-year
Traditionally, at the beginning of my presen- from 35% to 41%, while the share of America contract for the supply of 38 billion cubic me-
tation, I believe I should make certain state- and Europe went down from 50% to 45%. ters of gas a year. Our company together with
ments concerning the limitation of responsi-
bility upon a number of disputing provisions
related to our outlooks.
Fuel & Energy consumption by types, 2008-2013 Asia Pacific is the largest driver of energy demand growth
In this presentation we would like to ensure
14 000 mmtoe 14 000 mmtoe
certain succession with our previous approach >12,700
11,315
and estimates. 12 000 12 000
" For now we can state that the majority of our 10 000 10 000
# !
the participants represented the 8 000 8 000
in practice.
# $ %& - Last year we came to the conclusion that the 6 000 6 000
' $ ability to overcome the crisis and the recovery 4 000 4 000
of the global economy right now is not very
2 000 2 000
The almost zero current growth in the global 0 0
exports shows that despite the quarterly GDP 2008 2009 2010 2011 2012 2013* 2008 2009 2010 2011 2012 2013*
Asia Pacific Africa
growth, the global economy is far from full renewables hydro nuclear coal gas oil Middle East Europe
recovery. At the same time we can observe South and Central Americas North America
Z !
* expected values
8 OIL AND GAS COMPANIES ARE THE WORLD ROSNEFT’S PRESIDENT’S ENERGY PROVIDERS’ 9
ECONOMY’S “MOTOR OF CHANGES” ADDRESS SUMMIT
CNPC have also signed the schedule of the nomic dynamics of 3.5-4% yearly growth, the Liquids demand forecast Gas demand forecast
{ - annual increase of oil prices by 2-3% is quite mmtoe mmtoe
6 500 6 500
ment to increase the crude oil supply by 9.1 balanced, which would enable both the oil and
6 000
million tons a year to provide the plant with gas producers and service companies to plan 6 000
raw materials. That will enable our company to their investments on the long-term basis and 5 500
5 500
achieve the annual supply of crude oil to Chi- continue the extraction of high technology re- 5 000
5 000
na of 46 million tons by 2020, which makes 55 '
4 500
billion cubic meters of energy if transformed within those price conditions there is also a 4 500
4 000
into gas equivalent. good balance not only for the producer country
4 000
Now that we speak of the most important in- budgets, but also the consumer country bud- 3 500
dicator – the oil price, there are active factors gets, which ensures additional revenues. 3 500 3 000
|8 338 The majority of the participants of the market 2 500
3 000
dollars per barrel. Against the growth of ten- do agree that in the long-term outlook oil and 2005 2010 2015 2020 2025 2030 2035 2040 2005 2010 2015 2020 2025 2030 2035 2040
sion and respective risks there might be cer- gas would retain their importance, while the Шелл,MOUNTAINS
Shell, ГОРЫ Шелл,OCEANS
Shell, ОКЕАНЫ
ЭксонМобил
ExxonMobil 2014
2014 МЭА,NPS
GEA, NPS Шелл,MOUNTAINS
Shell, ГОРЫ Шелл, ОКЕАНЫ
Shell, OCEANS
tain deviations both from the lower and upper share of gas would be slightly growing. The МЭА,CPS
GEA, CPS BP 2014 ЭксонМобил
ExxonMobil 20142014 МЭА,NPS
GEA, NPS
BP EIA, Референсный
EIA,reference МЭА,CPS
GEA, CPS BP 2014
limit of this range. expansion of use of renewable energy sources EIA, Высок.
EIA,high цены нефть
oil price Статойл,
Statoil, Базисный
basis BP EIA, Референсный
EIA, reference
ОПЕК, reference
OPEC, Референсный
EIA, Высок.
EIA,high цены нефть
oil price Статойл,
Statoil, Базисный
basis
The indicators of the tight recovery oil in the continues, but is has somewhat slowed down. ОПЕК,reference
OPEC, Референсный
United States and the budget indicators of the * ! Z -
OPEC and independent producers against the Z #
background of the global economy growth do general, in the contemporary market to a large Intentional promotion of painless rejection of (24-25%) up to 2050. It will be counterproduc-
not allow for any stable decline in oil prices. @ ! - hydrocarbons through quick development of tive if the recent political tensions would lead
Essentially there exist a certain balance of cial players, who are often less informed about renewable sources and dramatic increase of to the rejection of the effective ways of the EU
supply and demand in the market, and all of Z # ~ energy development for the sake of purely po-
the main players do accept this fact. ready to respond to everything, like a hearsay Union. At the same time the price that have litical motivations.
Quite a narrow price range has been deter- or an unproven hypothesis. These players can to be paid for this is being understated, and Henry Hub prices have more than doubled
mined, within which the oil price growth may be be easily manipulated, as in the energy indus- the society doesn’t see the real picture that in for now, reaching the level of more than 4.7
accompanied by the decrease of production try changes are indeed taking place. Besides, many ways technology for this process is not dollars per million BTU, and it doesn’t look
costs in the global economy. Both the produ- we can observe the intentional work to distort ready. The practical implementation of such like any seasonal factor. And even with the
cers and the consumers simultaneously ben- # @
@ - that show it.
( )*+) -
,
. /
Change in Chinese Gas Demand Forecasts, IEA* Chinese Gas Demand Forecast (CNPC-2014) ) 01
bcm 600 bcm
700 #2#2 $$
500
600 500
529 3
500 470
400 350
396
400
307 300
300 220
200
200 107.6 objectives leads to a total distortion of the mar- strong price level increase the stagnation
100
100 ket relations and very heavy cost burden that in the US gas production has not yet been
0 0 the consumers will have to bear. overcome. The US gas price dynamics dis-
2015 2020 2025 2030 2035 2010 (fact) 2015 2020 2030
WEO-2013 (NPS) WEO-2012 (NPS)
Still, according to the recent outlook made by pels the illusions that LNG will become a se-
Low scenario Baseline scenario High scenario
WEO-2011 (Golden Age of Gas) WEO-2011 (NPS) the European Commission, the share of gas in rious factor in the European gas market on
WEO-2010 (NPS) WEO-2009 (RS) * WEO (NPS)– World economic outlook (new policy scenario)
WEO (RS) – World economic outlook (reference scenario)
the energy balance EU-27 will remain stable its basis, certainly if the EU countries are not
WEO-2008 (RS)
10 OIL AND GAS COMPANIES ARE THE WORLD ROSNEFT’S PRESIDENT’S ENERGY PROVIDERS’ 11
ECONOMY’S “MOTOR OF CHANGES” ADDRESS SUMMIT
intending to subsidize its imports, as they would dramatically change the situation in the Global Tight Oil Production Forecasts Till 2035
have massively been subsidizing the use of global energy industry.
the renewables. There is a more weighted and balanced at- IEA forecast OPEC forecast
In the United States the issue of LNG export titude towards the unconventional hydrocar- 12 mmbd 0.4 7
mmbd
really saw some heated debate. Not long ago bons in different parts of the world. Experts 10
0.2 1.2
0.4 6
0.7 0.2
some of the lobbyists have stated that mas- know that these particular resources are 8 0.7 1.3 5
sive export wouldn’t lead to any price growth, much more complicated than the traditional 6 4
# ones. The economically recoverable resour- 5.7
5.5
4.3
3.4
3
4 0.2
0.2
gics. Prices have started to grow even against 2 1
2
2
the lack of exports. And recently a big group total resources. The technologies tried out on 1.8 3.3 4.3 1.6 3.4 4.3 1
0
of senators have made an outcry against ex- certain deposits have to be adapted for appli- 2012 2025 2035 2011 2025 2035
0
2010 2015 2020 2025 2030 2035
ports, providing arguments that it would lead cation to different ones, and any proven con- World Energy Outlook 2013 World Energy Outlook 2012
to a considerable (more than twofold) price clusions can only be made after the results Базовыйscenario
Baseline сценарий Сценарий production
Incremental дополнительной
scenarioдобычи
Canadian sands Tight oil Gas to liquids (GTL) Coal to liquids (CTL)
increase that would undermine the domestic of the development. This kind of experience
consumption, and in the longer term export is now limited for the North America. The IEA
possibilities as well. states that there might be sharp growth in the
Here is another example. There continues world tight oil production by 2025 up to the Going back to the issue of instability in the amongst the players of the oil and gas indus-
the growth of the tight oil production in the level of 5.7 million barrels per day with the markets and quite often their inadequate sig- try and all service and technology companies
United States, more than 1.5 times during the subsequent stagnation and a gradual decline nals towards the fundamental indicators, we in Russia and abroad.
past 4 years. This is an important phenome- after that. believe that an important method of softening By the end of 1990s the global oil and gas
non, but is doesn’t lead to the destabilization The 40-year ban for oil exports from the US this is to achieve greater transparency through industry has set a course towards complicat-
of the global market. As seen by the leading - improving the objective and all-round aware- ing the development conditions because of
energy agencies, by 2020-2022 the produc- portation from Canadian oil-bearing sands into ness on the part of all market participants. the depletion of the traditional resources. This
tion of oil in the United States may grow by the US market are also examples of market There is not enough information, for example, has led to greater intensity on the capital and
45% more. However, there remain some big realities distortion. on the energy consumption structure, on intro-
doubts about the respective resources been At the last Forum we spoke about the inter- duction of production capacities, on the cha- tability. Exploitation of unconventional depos-
! country competition, but we are against this racteristics of the investment projects, on the its required greater investments in new tech-
the long run. Thus, both the shale gas and the competition being ruled by subjective metho- orders of large-scale equipment. There are nologies and new types of services, which cre-
tight oil cannot be described as factors that dologies that are far from being market-based. also questions about the transparency and the ! !
pricing mechanisms at the goods exchanges result, the industry started consolidating, and
and trading organizations. the giants of the global industry appeared to-
It seems to us that in order to soften these gether with the new technological leaders.
US oil production, 2010–2014 US oil production forecast until 2035 drawbacks we have to create new mecha- Russia has seen the start of such consolida-
tion later because of the prevalent traditional hy-
mmbd mmbd
9 8.46 12 on interaction between the companies and the drocarbons base. But with the development of
11.5
11,5
8 expert community, with the support, but with-
11
7 10.5
10,5
10.5
out the dominant position of the regulatory au- regions Russian companies would inevitably
6 5.47 10 thorities. The present agencies, for example, follow the global industry development trends.
9,5
5 9.5 ~$ _ Z Service companies respond to the chal-
9
4
8.5
8,5
the interests of the consumer market. It is pos- lenges by acquiring extensive high-margin assets.
3 8 ! Z - Our conclusions in respect of the market
2 7,5
7.5 lution group which would consider the cases !
7
1 of market manipulation and competition distor- long-term strategies for the company up to
6,5
6.5
0 6 tions, including those in the pricing area. 2033 and beyond. It is based upon the cur-
2010 2011 2012 2013 2014
2014(оценка)
(estimate) 2010 2015 2020 2025 2030 2035
AEO
AEO2014
Another important trend which produces in- rent position of Rosneft as the biggest public
US Crude Oil 2014
Alaska Gulf of Mexico Other states
US Crude Oil and"
Natural "WOO2013
Gas Liquids WOO 2013 Z ! ! company in the world in terms of the amount
and"
US Crude Oil
Natural Gas "WEO2013
Liquids WEO 2013 gas industry is a continued consolidation of production and reserves.
12 OIL AND GAS COMPANIES ARE THE WORLD ROSNEFT’S PRESIDENT’S ENERGY PROVIDERS’ 13
ECONOMY’S “MOTOR OF CHANGES” ADDRESS SUMMIT
Let me remind you that Rosneft didn’t re- below 5 dollars for barrel of oil equivalent and 4 5 -
ceive any actives through the privatization in the capital investment cost below 8 dollars
Russia. On the contrary, the company has for barrel of oil equivalent, which is consider-
3 6
been formed in the market environment and ably better than other companies may demon- 3
has successfully launched its IPO complying strate, and this is impossible without achieving
with all the standards, which turned it into an technological dominance.
We and our partners are convinced that sure and support the strategic needs of the
international public company with a private
these investments will help to consolidate the -
property form. At the same time the govern- region, the need to develop resource bases in
energy security of the consumers of the whole cy on the basis of our own service company
mental revenues from placing and further sell- geographic proximity to this area, the reduc-
! - RN-Burenie and our partners;
ing a part of the company to BP exceeded the tion of transportation costs and infrastructure
ment of partnership between consumers and - creation of a pool of innovative technologies
expenditures as well as the tax incentivization
suppliers on the long-term basis. and competences in all of the key areas of our
privatization three times. provided by the Russian government, make
Effective utilization of the potential of new re- future development.
Among the shareholders of Rosneft there investments into the Eastern Siberia and Far
serves types and offshore drilling require devel- And today within this forum I have the
are about 150 thousand Russian citizens. We East more and more attractive.
opment in Russian oil service sector and often honor to announce a number of deals that
always remember that fact, and we believe it is This is the trend that we found several
creation of unique technologies. For this purpose we have been able to achieve with Prime
our duty to develop our long-term operations years ago, and we started developing the
Rosneft is making the most important prerequi- Shipping, Seadrill and General Electric. The
sites for the future stable growth of its core busi- company is going to develop these projects
- !
gard we are going to implement the strategy in: in terms of transportation, drilling (including
Futures trading volume is many times greater … with the futures market distorting the
than physical trading… perceptions of the out - formation of high-tech oil services business offshore drilling) and all services utilizing hi-
of the new type, which would enable us to en- tech equipment.
Derivatives trading volume and oil and petroleum product 120
consumption, mmbpd Dated Brent
Forward curves (ICE)
1,222 115
Shift to More Complex Reserves Stimulates Consolidation in the
WTI crude 439 110 Oil And Gas Sector
105
Shift
Globalto More
trend Complex
of increased Reserves
production Stimulates
of non-conventional reserves Consolidation in the
Global trend of increased production of non-conventional reserves
by 40 times
100 Oil And Gas
bboe Sector
Total Elf
GE Lufkin
Transocean
% Schlumberger
Smith Int.
%
Chevron GlobalSantaFe Industries Schlumberger
783 bboe
Aquitaine ExxonMobil Transocean GE Lufkin
60 Texaco 14% Smith Int.
Brent crude Total Elf
Conoco Statoilof ChevronXTO GlobalSantaFe Industries
95
50
Global trend of increased production
BP Amoco Aquitaine non-conventional
Hydro Texaco
reserves12%
ExxonMobil
60
Exxon Mobil
Phillips 14%
28 Conoco Statoil XTO
10%
%
40
bboe BP Amoco Schlumberger
Hydro GE Lufkin 12%
50 Phillips
15 13 90 Total Elf Exxon Mobil Transocean Smith Int. 8%
30 Chevron GlobalSantaFe Industries 10%
Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 60 40
Aquitaine Texaco ExxonMobil 6%
14%
20 Conoco Statoil XTO 8%
50
BP Amoco
30 Hydro 4%
12%
Phillips
10 Exxon Mobil 6%
2%
10%
40 20
Trading volume Consumption 0 0%
8% 4%
301990 1993 10 1996 1999 2002 2005 2008 2011
6% 2%
Russia
20 is embarking
0 on the road of developing non-conventional reserves
4% 0%
10 1990 1993 1996 1999 2002 2005 2% 2008 2011
Gazprom Rosneft
08
1990 1993
Russia is embarking on the road of developing non-conventional reserves
1996 1999 2002 Sibneft2005 2008
TNK-BP
2011
0%
7 TNK-BP
taking into full account the interests of our company eastward. The company is going to Russia is embarking on the road of developing non-conventional reserves
6 Rosneft
5 Gazprom
TNK-BP
shareholders, both national and international. make great emphasis upon the large-scale 4
8
Gazprom RosneftSibneft
8 7 TNK-BP TNK-BP
I would like to note that the proven reserves implementation of new projects in that re- 3
7 6 TNK-BP
Sibneft
2
of oil and gas of the company amount to 33 gion. With the participation of foreign and 6
1 5
5
0 4
%~_ Russian companies there will be created ca- 41990 1993 3 1996 1999 2002 2005 2008 2011
3
are considered largest in the world. The de- - 2 Conventional 2 Non-conventional Share of non-conventional (the right-hand scale)
1
1
velopment cost of these resources is also at cal industries, shipbuilding, key equipment 0
0 Service companies are meeting the challenges by acquiring growing high-margin technology businesses
1990 1993 1996 1999 2008 2002 2011 2005 2008 2011
a record low level, and we would do our best supplies for offshore drilling as well as do- 1990 1993 1996 1999 2002 2005
Conventional Non-conventional
of non-conventional (theShare of non-conventional (the right-hand scale)
to maintain this advantage in future. Our task zens of thousands of highly skilled employ- Conventional Non-conventional Share right-hand scale)
is to maintain the operation cost level stably ment opportunities. Service companies are meeting the challenges by acquiring growing high-margin technology businesses
14 OIL AND GAS COMPANIES ARE THE WORLD ROSNEFT’S PRESIDENT’S ENERGY PROVIDERS’ 15
ECONOMY’S “MOTOR OF CHANGES” ADDRESS SUMMIT
Developing
" #2''
Service development
Experience Development of Technological
capabilities through
partnership
customization internal capabilities leadership 3
07
In the period up to 2020 the production of is important to note that this kind of dynamics
hydrocarbons in our company will grow by ap- Z +
Increase in
proximately 30%, including the increase in li- -
Technology development
Increased level of Competitiveness in
Service consolidation investment for
technology the global market quids production by 15% and in gas produc- ! -
service assets
tion threefold. duction of high quality gasoline and diesel oil
In the period up to 2025 the yearly produc- will grow by half, while mazut production will
tion of hydrocarbons in the company is going decrease by 46%. As a result, this particular
to grow by 50%. sector, just like in case of the world majors, will
We may speak about the potential doubling become a strong generator of revenues both
of our business scale by 2033, whereas the in the domestic and export markets. We are
average rate of liquid hydrocarbons produc- expecting that with the completion of upgrade
tion growth is going to be more than 4%, al- the EBITDA in Downstream would go up to 11
2017 2020 2025 2030 most fully through organic growth.
The share of gas is going to grow up to one The scale of the company, the global na-
third in the overall balance of the company ture of its operations, the quality changes in
It is important to note that this kind of dyna- the company gas business in this period will production. In the domestic gas market in Rus- its cooperation with partners bring the need
mics is a part of contemporary processes that be carried out by launching major gas projects sia the share of Rosneft would reach 20%. It to further optimize processes in terms of the
involve major companies becoming more uni- # +
versal after a period of excessive outsourcing By 2020 we are going to launch several
@ new clusters of gas and oil production based
key technological competences on the house. on such major assets as the Vankor cluster,
Service and technological sectors also see south of Krasnoyarsk Territory and Western
consolidation processes allowing to speed up Siberia, which will allow the principal produc-
achievement of leading positions in order to tion growth in 2020-2025. During the same 400 mmtoe
further develop a more hi-tech resource base. period we will continue gas business growth,
At different times our own teachers such as as the continuation of high-tech development Offshore
ExxonMobil and Statoil, and General Electric of tight reserves is expected together with a
as a supplier of equipment have followed the considerable production increase in the inter- International
same way which enabled them to achieve the national projects. You know that the perimeter
Gas
leadership in terms of deepwater production, of the company has more than 2 billion tons of
200
in the LNG markets etc. reserves and considerable resource potential
The composition of Rosneft assets does that could be developed. Tight oil
correspond to the key challenges the industry The increasing growth of the company up to E&A and greenfields
is facing. 2033 is linked to the commercial start of off-
With the purpose of maintaining the level of shore production. Arctic projects would enable
Brownfields
! Z Rosneft to become the biggest operator of this
company is going to pay special attention to kind of reserves. In terms of offshore produc- 0
mature projects, including large-scale drilling tion it is too early to make precise estimations, 2014 2017 2020 2025 2030
Tight oil,
that would help us to extend the life of ma- but the geologic experts suggest the possibi- Brownfields
Gas and East
international
Offshore and
Siberia LNG
! lity of major discoveries. projects
2017 2020 2025 10
2030
16 OIL AND GAS COMPANIES ARE THE WORLD ROSNEFT’S PRESIDENT’S ENERGY PROVIDERS’ 17
ECONOMY’S “MOTOR OF CHANGES” ADDRESS SUMMIT
Global supply of conventional energy resources Share of oil in total production, by company
8 6 ,
5 000 mmtoe 100
%
90
4 500
4 000 80
5
3 500 70
3 000 60
2 500 50
2 000 40
53%. The aggregate tax payments in the go- Beyond the oil and gas sphere the resource
30
vernment budget exceeded 2.4 trillion rubles. principle of rent requisitioning is not well-main-
1 500
1990 2011 2020 2025 2030 2035 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 During the last year considerable changes took tained. There still isn’t any adequate taxa-
Coal Oil Gas ExxonMobil PetroChina Shell Chevron BP place in terms of the development of a modern tion based on the analysis of unique natural
taxation system, and the tax burden that Rosneft
carries is much heavier in comparison with big- mineral fertilizers production, ferrous and non-
gest public international companies because of ferrous metals.
management decisions and turn the company Z - a bigger share of EMT and export duties. A separate extensive issue is posed by dif-
into a strategic energy, technologic and opera- rel of oil equivalent without taking into account In the taxation structure of the Russian com- ferent non-system privileges and exemptions.
tional holding with a very precise structure of # @ In the gas industry their amount exceeds 2
its business processes. would enable us to develop large-scale deve- If to take a general look at the economy, hundred billion rubles per year. Today, during
Right now this model is being developed lopment program without any additional bor- the tax burden situation hasn’t yet been tho- a meeting with the President our colleague,
for the oil marketing and sales. The following rowings. roughly analyzed. We can take a look at the President of Lucoil Mr. Alekperov even ap-
stages are planned: separating sales networks * # - taxation in the oil and gas sector. The burden pealed to the President, asking him to discuss
into a separate business entity, attracting part- ciate our resolution to follow this strategy. is multiply different and at the same time the the issue of tax maneuver at the next presi-
ners, organizing the work based on new prin- As many can recall, at the last summit we global practice doesn’t separate the taxation dential commission of the energy complex.
ciples, and the possible future IPO entrance. were very detailed in terms of how the tax le- of hydrocarbons in terms of the type, as they Yet in such industries as railways, for in-
Another element of the execution of our gislation in Russia may be improving. usually accompany each other. stance, the effective tax burden is even less
strategy in terms of creating a well-focused In order to demonstrate the importance of
sales business of the world class is the de- these processes I can give you a simple illus-
cision to acquire international oil-trading busi- tration. The outlook of the company is based Oil and Gas Production Worldwide
ness from Morgan Stanley. The deal is follow- upon the recent tax innovations, and if those
in % vs 2000
ing its schedule, and we are actively working decisions were not made, the production of bboe
(2000 - 100%)
with the regulators in order to receive respec- hydrocarbons by our company and other Rus- 70 350
tive permits. Everything is going all right for sian companies in the industry would have Forecast
60
now. gone into stagnation as the result of the inef- 300
As the result Rosneft would match global fective investments refusal, and after stagna-
50
majors in terms of the key set of competen- tion a very quick decline is usually coming. 40%
ces, and we will hopefully become one of the So as far as only Rosneft is concerned in Non-conventional 250
40
hydrocarbons,
global leaders in such areas as offshore de- ! !
30
deep water shelf
velopment, production of unconventional hy- 9 200
drocarbons, monetization of oil and gas in the 2033, which would mean receiving 12 trillion
20 74% 60%
global market. rubles less for the budget.
Conventional hydrocarbons Conventional hydrocarbons 150
Taking into consideration the multiplicative 10
the company will become stronger. The rate -
~' Z ly bigger, and it has to be taken into account 0 100
2002
2025
2000
2001
2003
2005
2006
2008
2007
2009
2011
2010
2012
2013
2014
2015
2016
2018
2019
2020
2021
2022
2023
2024
2004
2017
would enable us to reduce debt to EBITDA ra- that at the suppliers of equipment and servi-
tio to 1-1.3% during the next two years. ces would have incurred losses as well.
Conventional, current production Conventional, greenfields Non-conventional
Following a very intense investment phase We are the biggest taxpayer in the coun-
in 2014-2016 the company will generate free try. In 2013 the tax burden upon Rosneft was Deep water Others Capex index IHS18 OIL AND GAS COMPANIES ARE THE WORLD ROSNEFT’S PRESIDENT’S ENERGY PROVIDERS’ 19
ECONOMY’S “MOTOR OF CHANGES” ADDRESS SUMMIT
Tax burden for Russian and international companies in the oil and gas sector, 2013 Tax Incentives for Offshore Development
60%
$/bbl
80 Profit tax Revenue taxes
50% 70.5
70
6.4
40% 60
50.8
30% 50
40 35.5
20%
31
64.1 29.2
30 27.3
16.7
10% 50.8 12
20 13.3 19.2
0%
Gazprom NOVATEK Rosneft Lukoil Gazprom neft
GazpromNeft Surgutneftegaz Chevron ExxonMobil Total 10 18.8 19
excl.GazpromNeft 14
10
0
Russia’s gas companies Russia’s oil companies International oil and gas companies Current taxation in Russia (offshore, Norway (offshore) USA (Gulf of Mexico) Brazil (offshore) Canada (Arctic
Russia average) offshore)
Note: Tax burden is calculated as a ratio of taxes paid (MET, export duty, profit tax, excise taxes, corporate property tax, etc.) to revenues.
than 10%. That is considerably smaller than At the same time a positive example is the de- Summarizing, we can see that in the energy I would like to wish everybody success,
average in the economy. cision to provide tax stimulation for offshore and industry important processes are taking place, thank you very much for coming and for your
hard-to-recover reserves development. It cre- which require continuous analysis. Being a attention.
and other sectors and its stabilization remain ! responsible company we try to develop our
to be the most important element in improving in new projects. New taxation rules for resource strategy taking all these factors fully into ac- Thank you very much.
of capitalization in the company, which could ! ! count. We are going to pursuit it in close co-
yet be another instrument to increase the re- new Russian offshore projects and other tight operation with our partners, many of which are
venue the budget is enjoying. reserves among the leading ones in the world. participating in this summit.
New Russian Fiscal Regime is a Basis for National Energy
Projects Development
Onshore fields Offshore fields
Tight oil development incentives law Offshore development incentive law
License holder income, $/bbl
91.2
х 2 .5
х 1 .84 54.8
29,8 36
Before After Before After
Rosneft's total discovered recoverable reserves Rosneft's anticipated offshore resources – 43.5 billion
exceed 1.4 billion tons of oil equivalent tons of oil equivalent20 OIL AND GAS COMPANIES ARE THE WORLD ENERGY PROVIDERS’ SUMMIT ENERGY PROVIDERS’ 21
ECONOMY’S “MOTOR OF CHANGES” PARTICIPANTS SUMMIT
ENERGY PROVIDERS’ SUMMIT PARTICIPANTS
Ichiyo Ishikawa Stephen Greenlee Bob Dudley Lorenzo Simonelli
Journalist, NHK Japan Broadcasting President of ExxonMobil Director and Member of the Board of Directors, President and CEO of GE Transportation,
Corporation Exploration Company Chairman of the Executive Committee of the a subsidiary of the American General Electric
Board of Directors, President of BP Group
Japan USA USA
UK
Energy resources are the blood, the oxygen, the The Arctic has been estimated by the US, and has We are present in Russia for over 20 years and We are proactively working on technology
food for the global economy and the globaliza- contained perhaps 20% of the remaining resour- we have a good fortune and privilege now to be solutions to look at ways in which we bring
tion in the world, and the interests of the pro- ces left on the planet yet to be discovered. a major shareholder in Rosneft, which is a great down the costs and try to avoid unplanned
ducing and consuming countries overlap in the ExxonMobil and Rosneft, have concluded the professional company, who is embarking not downtime. And I also think as we go forward
stability of the energy resources supply. Agreement several years ago to combine the only on great projects here in Russia, but taking there’s an increasing aspect of collaboration with
Therefore, despite all possible political contra- resources, to combine the talents, combine the on great international partnerships with good Rosneft because together we can see what the
dictions, today’s meeting held in Russia as an capabilities of both of these great companies. So companies. But it is one thing to be a shareholder challenges are, and we can work on the solutions.
economic and energy state is very important, with that we created this Strategic Cooperation and quite another is to be a participant and have We established a research center that will focus
involving the leading executives of the major Agreement that saw us working together on Rus- ! ! on the effective process design development for
energy companies from America, Europe, Asia sian resources and Russian areas from explora- in one or another country. And I see BP investing local companies and thus will contribute to the
and other regions in the environment of open ex- tion with success development and production in other projects with our partner Rosneft. The localization of manufacturing. We believe that
change of views about the future of the energy based on our experience that we have in Sakhalin. President today encouraged the investment in in the sector that unites General Electric and
sector. Why oil and gas still represent such a ExxonMobil is pleased to work with Rosneft in projects such as shale development. This project Rosneft we have chances of success.
driver of the economic growth? And there comes this joint venture. I think it’s also a fair question is vital to be able to meet the world’s demand
up a question: isn’t it the old type of economy? * for energy sources. Today, we work in the world
Should we speak about alternative energy re- ! # - where politicians too often can hardly forecast
sources, for example, about renewable sour- the situation for the next 18 months. In Russia,
ces of energy? I suppose such view does ex- get the local communities in Russia and Russian according to the agreement with China, are
ist. However, the fact is that price for oil and gas industry, and the industry as a whole. The main trying to look forward, signing long-term contracts
does produce a decisive effect over the global proof to my words is our experience in Sakhalin. for 25-30 years. We must act in the same way,
economic development. Besides, the processing Over 90% of the workforce there are Russian realizing that our relations with Rosneft do not
nationals, and we have created over 3000 high- consist of occasional transactions, but stay as
! paying jobs. With this success we will be able to
innovation. replicate that over and over again in these new and reliance. And we are very pleased to be part
ventures that we are exploring. So I think from of Russian energy complex.
the standpoint of macro looking at material re-
! -
ance as we move forward.22 OIL AND GAS COMPANIES ARE THE WORLD ENERGY PROVIDERS’ SUMMIT ENERGY PROVIDERS’ 23
ECONOMY’S “MOTOR OF CHANGES” PARTICIPANTS SUMMIT
Tim Dodson Rafael Ramirez Rovnag Abdullayev Alex Beard
Executive Vice-President Statoil Minister of People’s Power for the oil and President of the State Oil Company Director of the oil commodity department of
mining industry in Venezuela, (SOCAR) Glencore company
PDVSA President
Norway Azerbaijan Republic UK
Venezuela
I could start with a lot of different aspects like We cannot impose low price cycles and Social responsibility of the state oil companies In 2000 and 2001 when Western banks were
resource scarcity or resource complexity extremely high price cycles. We need to respect is constantly increasing; such companies are still contemplating coming back to Russia,
when talked about stability. But from a Statoil the laws and interests of oil producers and for playing a greater role in the social development of trading companies like Glencore were here and
point of view we see a number of fundamental their countries. From the example of Azerbaijan I
challenges which our industry is facing. We resources, which in turn require investment can say that a well-organized oil sector together at that stage with oil price at 10-15 dollars,
choose to summarize those up with 3 “C”. Those in exploration, in production, in supplies to the with the good governmental policy in its regard providing companies with the access to the
! market. may act as the driver for the whole economy Western market, thus developing the global
community trust. Our industry needs access to We count on the cooperation with Rosneft to of the country. In the period from 2000 to 2013 economy. In the later years, of course we moved
resources. The world’s population needs access create and develop our joint ventures. > 3 into a new phase. The oil price has increased
to energy but we also need an acceptance from due to the oil sector. The social responsibility ! 38
local communities, a license to operate, if you is enormous, and Rosneft is a brilliant example of many producing nations, and that has led us
like, in order to do those things. We also have of development in Russia, and we are going to different forms of investment – we very often
our joint ventures together with Rosneft in the to continue our cooperation on the common act both as shareholders and owners. We see
Arctic. So let me use it as an example. How can business. tremendous opportunity in Russia, tremendous
we build trust for operating in the Arctic? Our talent pool and fantastic national resource base.
recipe for this is linked with three words. First
is transparency. That is really the new currency
for trust, being open about what we are doing.
Second, dialog. We need to engage with all
stakeholders. And then third, responsibility.24 OIL AND GAS COMPANIES ARE THE WORLD IGOR SECHIN INTERVIEW ENERGY PROVIDERS’ 25
ECONOMY’S “MOTOR OF CHANGES” WITHIN ENERGY PROVIDERS’ SUMMIT SUMMIT
in competition, but its shares value does
IGOR SECHIN INTERVIEW not grow correspondingly. Rosneft is
WITHIN ENERGY producing 27% more hydrocarbons than
ExxonMobil, at the same time production
PROVIDERS’ SUMMIT costs are 3.5 times smaller. Why then the
capital of ExxonMobil amounts to 430 bil-
lion dollars, while that of Rosneft makes
only 70 billion at the present time?
Igor Sechin: Mr. Ishikawa, that is an inter-
esting question indeed. Not all the factors
depend on the company. There are diffe-
rences in business conduct. The market
takes into account country factors when
evaluating shares, and the rate for Russian
issuers makes up approximately 2.5%. And
this factor is still quite subjective. If not to
take it into account, the company capitaliza-
tion will immediately jump from 70 to 100.
The thing is that Russian Federation inde-
pendent rating has been changed, and the
rating of all Russian companies changed
automatically.
The second element mentioned in my pre-
sentation is the taxation burden. Our com-
panies have it extremely different. The aver-
age taxation burden of ExxonMobil is 22%,
while Rosneft has 53%. Our social respon-
sibility level is much higher. The difference
in natural resources legislation is also of
principal importance. In the United States
the proprietor of the land is also the proprie-
tor of deposits and natural resources. It also
makes a substantial element of company
Ichiyo Ishikawa: Many companies are inte- by Stephen Greenlee. Trust is the most im- major companies who are present here do capitalization.
rested in strategic relationships with Russia portant thing to ensure longevity of our pro- adhere to these kinds of principles, because I would also like to mention shipping costs,
and in strategic investments into Russia. And jects. only on their basis we can guarantee stabil- for example, the average Transneft tariff
it seems to me it is based upon trust. So I These are the projects developed over de- ity. The stability in this sense is what mar- is 6 dollars per barrel. ExxonMobil has its
want to ask you, what trust means to you and cades, and their stable development ought kets depend upon, what millions of people own transport capacities, so their effective-
to your business. to be guaranteed by the participants of depend upon, and we are fully aware of our ness is much higher and the cost amount is
these processes. Mutual long-term inter- responsibility. around 1 dollar per barrel. In addition, Ros-
Igor Sechin: It seems to me that those ests and trust are the key elements of all neft is a young company, in 1999 we pro-
were very correct words which Mr. Dudley the long-term partnerships that bind us. And Ichiyo Ishikawa: Igor Ivanovich, some- duced only 4 million tons of oil, today we
said, and by the way, it also was mentioned I believe that the senior executives of all the times companies make obvious progress produce 240 million tons in oil equivalent.26 OIL AND GAS COMPANIES ARE THE WORLD IGOR SECHIN INTERVIEW ENERGY PROVIDERS’ 27
ECONOMY’S “MOTOR OF CHANGES” WITHIN ENERGY PROVIDERS’ SUMMIT SUMMIT
of Finance Mr. Siluanov said they might tive, because the controlling package en-
make a profitable sale to Chinese inves- sures, for example, the offshore works, the
tors. Igor Ivanovich, what would be your possibility initially guaranteed to the com-
comments, do you think it is a good mo- pany and its shareholders during the first
ment for selling the state share package? share placement in 2006. Presence of the
offshore package was one of the main con-
Igor Sechin: Mr. Ichiyo Ishikawa is a very ditions in terms of selling shares to private
meticulous moderator. We have indeed customers (at the moment we have more
heard the declaration of the Minister of Eco- than 150 thousand shareholders) and fo-
nomic Development, and the information reign stockholders.
that the privatization possibility for 19.5% Journalists with a reference to the opi -
Rosneft shares is under discussion has nion of the Minister of Finance Mr. Silu-
been partially confirmed by the chairmen of anov have asked me today about Chinese
the government. As far as the favorable mo- companies possibly expressing interest
ment is concerned, I think we can expect in buying our shares. I think it is too early
the opportunity or form the opportunity our- to say who will buy, as the one who pays
selves, thus the conditions for selling this most is the one to buy, as it is described
package will be formed and they will deter- in the works of leading economists. And if
mine the most effective technique. I don’t the company will be charged with organiz-
see any problems to hinder this deal. As re- ing this sale, we will make it more effective
gards selling the 19.5% package or leaving than anybody else, as we have a deeper
it state-owned, any of these decisions will understanding of the company peculiari-
retain the governmental control, as the ma- ties, its underestimated potential, the stra-
jority ownership of 51% is left untouched. tegy, ways to increase capitalization, and
, From the strategic point of view, lowing the of course we count on governmental sup-
, state share below 51% is counterproduc- port on this issue.
9 -
But the production is not the only area al- ing the modernization of our plants. Rosneft
lowing to make profit. ExxonMobil have potential has certainly been evaluated, and
twice bigger share of refining, which allows we are going to increase the value of the
for additional effectiveness. Exxon has long company steadily and insistently during dai-
passed the period of capital accumulation, ly work with our partners.
and primary investments have been made
long ago. Rosneft only has these processes Ichiyo Ishikawa: Igor Ivanovich, then
under way. But we understand the course would you tell us about the intentions to
of necessary actions, I hope I have partially sell the state share package? Members of
shown the company strategy in my presen- the government have stated the realization
tation, and we will implement it, getting the of the whole state package in Rosneft in
increase in production and refining, finish- the near future. For example, the MinisterYou can also read
