Rosneft Sees 2% Output Increase in 2009, Plans Drilling for 704 New Wells

January 14, 2009

(The Moscow Times) - Russia's largest oil producer Rosneft expects to boost oil and gas condensate output by 2 percent in 2009 and maintain positive free cash flow given that oil prices are above $50 per barrel, it said Monday.

Rosneft said in a statement that its oil and gas condensate output is expected to reach 112.3 million tons in 2009 (2.26 million barrels per day), up from 110.1 million tons the company produced last year.

The increase is expected mainly because of accelerated production drilling -- the company plans to drill 704 new wells -- and the launch of Vankor, its major oil and gas field in eastern Siberia, the company said.

The 2008 production represented a 9 percent growth compared with the previous year, less than the initial forecast of 11 percent, which was revised down in September after the company delayed the launch of Vankor by a year.

Rosneft also said it plans to increase marketable gas production to 11.9 billion cubic meters in 2009, up by 6 percent from 11.2 bcm in 2008.

Rosneft was one of Russia's few major oil companies that managed to increase oil production last year, which was the first year in the last decade when the country's overall oil output fell following large increases in the previous years.

Analysts expect that the decline -- by 0.9 percent to 9.87 bpd -- is likely to continue because of aging reserves and plunging oil prices, which combined with heavy taxation, leave producers with limited cash to invest in new fields.

Many oil companies are cutting their investment programs because of the global financial crisis, which is expected to further affect oil production.

Oil export revenues are key for the budget of Russia, the world's second-largest oil exporter, and the oil output decline has become a major concern for the government.

Rosneft said its board of directors on Dec. 31 approved a business plan for 2009 and reviewed a set of measures aimed at reducing operating and administrative expenses to minimize the impact of the global financial turmoil.

"Inter alia, these measures will ensure additional cash to finance Rosneft's strategic investment projects and reduce debt," the company said, adding that its business plan envisioned positive free cash flow at an oil price of $50 per barrel.

Rosneft said in December that it would seek a Western bridging loan of $1 billion to $1.5 billion in the first quarter 2009 and up to $4 billion from state bank VEB this year to refinance its foreign debt, which totaled $19.4 billion at the end of the third quarter of 2008.

Rosneft said it would continue to implement core modernization and upgrade programs at its refineries and plans to refine 49.6 million tons of crude in 2009, up by 0.7 percent compared with last year.

It expects its refined products output to rise by 0.5 percent to 47.4 million tons.

Rosneft, whose reserves of 21.699 billion barrels of oil equivalent are some of the biggest among the