Igor Sechin Reports to President of Russia on Rosneft’s Performance in 2020
President of the Russian Federation Vladimir Putin has held a working meeting with Rosneft Oil Company Chief Executive Officer Igor Sechin. The Company’s financial and operational performance in 2020 and its promising projects were the main topics of the meeting.
Emphasis was placed on the organisation of Rosneft’s operations during the pandemic-related restrictive measures, and on the Company’s plans to vaccinate its employees.
Igor Sechin said that Rosneft had contacted the Government, the Healthcare Ministry and Deputy Prime Minister Tatyana Golikova with a request to reserve enough vaccines for 300,000 employees of the Company. According to him, the Company plans to vaccinate employees in March. “We are using the time left before vaccination to organise, together with the healthcare authorities, the necessary logistics, the delivery of the vaccines and the vaccination procedure itself, with the presence of doctors, medical check-ups and post-vaccination monitoring,” Rosneft CEO explained.
Igor Sechin noted that, despite the deteriorating external environment and the dramatic impact of the pandemic, Rosneft managed to show a positive operational and financial performance in 2020–the only global major to show a profit so far. Rosneft posted 147 billion roubles in IFRS net profit for 2020. In contrast, a number of international majors, such as ExxonMobil, Chevron, Shell, Total, closed the year in the red.
Despite the deterioration in the macro environment, this result allowed the Company to create a reserve to pay 2020 dividends. The Company’s dividend policy is to pay out at least 50% of its IFRS net profit to shareholders.
Last year was a record year for Rosneft in upstream as well. The Company discovered three new fields–the Zhukov field, the Rokossovsky field and the Zapadno-Irkinskoye field. According to the international analytical agency Wood Mackenzie, these new discoveries are the largest in the world, with their average resource potential exceeding 4 billion barrels of oil equivalent. That is almost twice as much as those of the closest competitors, which were also discovered last year. “And in general, by the end of 2020, the organic increase in reserves at Rosneft’s active assets amounted to over 700 million tonnes of oil equivalent in international categories,” Sechin told the President.
Rosneft’s 2020 hydrocarbon production volumes totalled 256.2 million tonnes of oil equivalent, while the volume of production drilling was increased by 9.1% against the previous year. The Company opened 2,600 commercial wells in 2020, which is up 6% on 2019.
Samotlor was one of the key fields where the Company significantly ramped up drilling in 2020. According to Igor Sechin, due to the investment incentives, Rosneft increased and maintained local production levels and fulfilled investment agreements, signed with the Finance Ministry.
Moreover, Rosneft set a record in terms of commercial speeds for drilling horizontal wells. The industry’s maximum daily drilling rates were 27,542 metres.
In 2020, the Company’s unit operating costs came down 9.7% compared to 2019, to $2.8 per barrel of oil equivalent, which is one of the best indicators in the global industry. As for general and administrative expenses, those went down by almost a third, and interest expenses, by 15%.
Igor Sechin noted that Rosneft continued to work with its international partners. The Company signed a deal with the Norway’s Equinor on an exploration and production project in the Irkutsk Region, bringing in an investor and a technology partner, one as experienced as Equinor, and expanding our resource base for oil supplies to the APR countries.
“Major international investment banks and analysts are predicting a general shortage of energy resources and an increase in their cost due to the depletion of the resource base, watering of deposits, shrinking yields as well as the new tendency among oil companies to transition to green energy and reduce investment in oil and gas projects driven by the falling demand. So, by developing these new fields, we will try to satisfy the deficit that may arise in the market,” Sechin told Vladimir Putin.
Rosneft CEO also reported to the President on completing a series of deals to build an asset portfolio for the Vostok Oil project in the northern Taimyr Peninsula. In particular, the Company acquired a new deposit with a substantial synergistic effect in the Krasnoyarsk Territory. All the deals were fully approved by the internal and external audits and recognised by independent international experts.
As Igor Sechin explained, “Hopefully, the result will change the Company’s image. Vostok Oil was highly praised by analysts and attracted more investors who bought Company shares, which led to an increase in our capitalisation. Since early 2020, when information about the project first became available on the market, our stocks have even outperformed the general market decline, showing a 3 percent gain.”
Discovering the Zapadno-Irkinskoye deposit with over 500 million tonnes of recoverable oil reserves was a momentous event for the Vostok Oil project. Following the drilling of a prospective well, Zapadno-Irkinskaya 31, the Company achieved oil influx; well testing continued.
Following the drilling of the second well, Zapadno-Irkinskaya 32, the Company confirmed the oil potential of the other bank of the Yenisei River. “This creates a promising outlook for our further work,” Igor Sechin argued. “We are in the middle of an engineering survey for the purpose of designing and building the essential facilities. A construction project of an outbound system for delivering oil to the Sever Bay has been submitted to the Main Directorate of State Expert Review. We are surveying routes for mainline pipelines to deliver our product to the Sever Bay.”
In 2021, Rosneft plans to conduct a 3D seismic survey on an area of 500 sq km, as well as to continue exploration well and horizontal well drilling in order to establish production technology in the region.
In his report, Igor Sechin paid particular attention to the Company’s work in the area of carbon management and recalled the words of the Russian President at the Davos Economic Forum on the need to combat global warming.
According to Sechin, Rosneft passed managerial decisions to monitor measures to prevent greenhouse gas emissions and minimise the carbon footprint of our main production facilities. The Company’s strategy includes achieving a leading position with respect to greenhouse gas intensity among similar international companies. “We plan to become a leader in curbing emissions and reach a near-complete utilisation of associated petroleum gas,” he reported. For instance, the Vostok Oil project will be provided with local wind power generation, where possible. There will be special wind farms that will be integrated with Vostok Oil. The relevant meteorological research has already been conducted.
In response to the President’s question about reducing associated gas flaring, Igor Sechin replied that Rosneft was working on that issue consistently. “We plan to reach 95% within the next two years,” Igor Sechin said.