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№ 6 (June 2009)

Rosneft Finds No Shortage of Silver Linings at 2009 General Shareholders’ Meeting

A parade of Rosneft board members and government officials held the Rosneft  corporate banner high at the general shareholders’ meeting on June 19 in Moscow. Many cited gains made despite the crisis, and when shortcomings were noted, they were quickly followed by caveats referring to peer companies being worse off.

By Alexei Chesnokov, Oil&Gas Eurasia

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First Deputy Prime Minister of the Russian Federation Igor Sechin opened the Rosneft Annual Shareholders’ Meeting on June 19 in Moscow with a touch of levity that was quite appropriate for these economic times.

 

Before delving into the accounting standards and overhead costs that often dominate such meetings, Sechin wished three different shareholders a happy birthday. The ensuing laughs fit right in at the annual meeting of a company whereof only 0.6 percent of the stock is held by private individuals.

 

Sechin, who doubles as the chairman of Rosneft’s board, wasted no time in noting Rosneft’s 2008 achievements, saying that it was a trying year but the company held to its “multi-year, goal-oriented plan to be a leader in various sectors and create a solid basis for long term growth.”

 

The results of 2008 show convincingly that this company has an internal dynamism that gave it the tools necessary to carry out the plan effectively even under the conditions of an unpleasant macroeconomic climate.”

 

Sechin went on to tout the proven reserves of Rosneft, good for another 23 years he claimed, that are more than 172 percent larger than thought in 2008 thanks to modern exploration and seismic modeling. Rosneft built upon its preexisting refinery structure to process almost 45 percent of the crude it drilled in 2008. Despite the crisis, Rosneft was able to increase production, streamline its upstream supply chain, and undertake strategic projects like developing the Vankor field and updating its refining capacities with new cracking capabilities. Luckily, the record prices and production levels of crude in the first half of 2008 helped the company maintain good financials through the end of the year.

 

Troika Dialog analyst Oleg Maximov followed Sechin with more good news, citing Rosneft as the only Russian oil company that had rising productivity from its mature fields – all others experienced falling production from mature fields. The amount of drilling that took place in 2008, measured in meters drilled, was second only to 2006 in the last five years 2003-2008.

Maximov analytical meddle was proven when he stated that Rosneft must be given some tax relieve from the government to make some fields profitable: it was the perfect statement to educate shareholders that also happen to make decisions on taxation within the government.

In conclusion Maximov placed Rosneft among other well-positioned and growing Russian company’s that his investment house recommends to long-term investors.

 

The lofty praise continued when Rosneft President Sergei Bogdanchikov took the microphone. He reminded attendees of Rosneft’s huge reserves, enough to last 23 years at current production rates. Rosneft crude production was up nine percent year-on-year from 2007, and gas production was up 2.7 percent. In line with Rosneft’s attempts to become a more vertically-integrated company, its volume of refined products rose 22 percent on increases at its refineries in Tuapse, Samara, Achinsk, Angarsk, and Komsomolsk-on-Amur. The company will invest RUR200 billion in new refining capacity by 2014 as part of a planned modernization.

 

Rosneft’s crude exports indeed fell in 2008 y-on-y, from 63.2 million tonnes to 58.9, which Bogdanchikov reassured as completely normal due to the crisis. Rosneft’s exports of refined products, however, grew 40 percent over the same period. Operating and administrative costs, according to Bogdanchikov’s figures, are the lowest of any Russian oil and gas company. Market capitalization of the company remained in twelfth place among global oil and gas producers.

 

Independent board member Hans-Jörg Rudolph, a Vice President at Barclays Capital and chairman of the Rosneft internal audit committee, stated that since 2006, in his opinion, Rosneft had done much to improve its image among the global business elite. A good image leads to trust and partnerships which are necessary to weather the crisis, and Rosneft should be proud of its survival during the crisis.

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