Russia’s Oil Companies Make Plans for the Future

March 24, 2012

   Yet many industry players faced difficulties on the domestic market: some produced less oil, some failed to upgrade refineries in time, others did not get the tax incentives for field development, while the last spring’s “gasoline crisis” has drawn sharp criticism from government officials. This year, both problems and priorities will largely remain the same.

Rosneft Pumps into Refining

   Rosneft got tops on all major directions: production, processing, sales – notes the company’s head Edward Khudainatov on the 2011 results. Hydrocarbon production edged up 2.6 percent to 2,586,000 BOE/day. In the Q4 2011 the company produced the record 2,622,000 BOE/day; by nine months’ results Rosneft has overtaken ExxonMobil as the world’s leading oil producer. Oil and gas condensate production for the year grew to 122.5 million tons (+2.5 percent on 2010), natural gas production – to 12.8 billion cubic meters (+3.6 percent).
Last May the state-owned producer acquired stakes in four German refineries of Ruhr Oel GmbH, boosting its refining 15.6 percent to 55.4 million tons Interestingly, BP did join the Rosneft in this project, though the companies failed to smith a strategic alliance for entering the Arctic shelf. In that, the company replaced the Brits by ExxonMobil. The company also planned to buy a network of filling stations in Europe for selling the products of German refineries.

   Still, this year Rosneft should brace up for significant spending in Russia. The state has set a challenge for the oil companies – a phased (by 2015) switching of all refineries to light oil products. The 2011 turned out to be a crisis year for the Russian oil industry – the companies failed to comply with a new drafted by the state white-paper on winding down production and circulation of Euro-2 fuel – this, in turn, led to last spring’s shortage of gasoline on the domestic market. This problem is most challenging for Rosneft – the company owns seven refineries in Russia, and all require major upgrading. For this Rosneft has already set aside about one-third of its record investment program of $15.5 billion. This significant boost of spending figures did not please the investors – within a week (from 3 to 10 February) the company’s shares fell 9 percent on MICEX RTS. Investment banks expect reduction of Rosneft’s cash flow, which means that shareholders should not rely on high dividends, they warn.

   In addition to upgrading its refineries, the company is yet to solve issues linked to the development of Yurubcheno-Tokhomskoye deposit (second-largest project of this producer in eastern Siberia, after the Vankor). Rosneft is waiting for tax incentives for field development and so far holds back the investment decision on the project, constantly postponing the launch date.

   This year the officials should finally resolve their polemic on whether or not Rosneft will be privatized. Igor Sechin, Deputy Prime Minister in charge of energy segment, believes that this issue should be put on hold. Sechin argues that the company is facing serious investments in Russia, which