Rosneft Slashes Investments by 21%
Russia's Rosneft plans to cut its investments by 21% in 2020, compared with the level last year, in light of the oil price collapse and Opec+ cuts, its CEO Igor Sechin told Russian president Vladimir Putin in a meeting on May 12.
The country's biggest oil producer invested some rubles 950bn ($13bn) in its operations in 2019 – equivalent to more than 11% of its total revenues that year. However, oil prices have tumbled this year as the Covid-19 pandemic has wreaked havoc on oil demand. Rosneft and other Russian producers are also having to make a steep cut to production under the new Opec+ deal, aimed at helping the market to rebalance. Sechin has been a vocal opponent of Russia's participation in Opec+ for years.
"Taking into account, so to say, the dramatic conditions of the global oil market on the whole and due to the decision on the production cuts, we, of course, will have to optimise part of the capital expenditures," Sechin was quoted as saying on the Kremlin's website. "We will try to keep our investment programme at around rubles 750bn."
"A rubles 200bn reduction in capital costs is a lot," Putin replied. "It is very important for us to maintain the whole chain of your contractors and subcontractors, because your orders provide work for a large number of industrial enterprises."
The president then asked Sechin what the state could do to support Rosneft and keep its investments at the "optimal" level.
Sechin, a close ally of Putin, asked the president to postpone taxes for geological exploration and lower oil transport tariffs to reflect current oil prices. Rosneft has locked horns with Russian oil pipeline operator Transneft a number of times over the years, accusing the latter of charging unfair tariffs.
The company chief also requested that Putin ensure a softer banking policy that would provide companies with easier access to credit. Rosneft had a net debt to Ebitda ratio of 1.4 in 2019, having settled rubles 174bn during the course of the year.
The meeting ended with Sechin announcing the start of exploration drilling at the Vostok Oil project in the Russian Arctic. Vostok Oil brings together Rosneft's Vankor oilfields, private firm Neftegazholding's Paiyakha fields and deposits controlled by Yermak-Neftegaz, a joint venture between Rosneft and BP.
Sechin has suggested the Vostok Oil could flow up to 2mn b/d of oil one day, helping to counter decline at mature fields further south, if the tax conditions are right. The Russian government agreed to provide the project $9bn in tax breaks last year, although this was less than the company had requested.
Rosneft is also reportedly seeking fiscal incentives for developing hard-to-recover gas resources in Western Siberia's Berezovskaya formation, the RBC news agency reported on May 12, citing a copy of a letter from Sechin to Russian prime minister Mikhail Mishustin. Potential tax breaks would benefit the Kharampurskoye field Rosneft is developing with BP.
The pair are focused on exploiting gas in the field's Cenomanian layer, with the aim of producing more than 10bn m3/yr. But Kharampurskoye also contains Berezovskaya reservoirs. Neither BP nor Rosneft have said when first gas from the Cenomanian layer will be achieved, although they hired Turkish contractor Tekfen in January to complete a pipeline connecting the field with Russia's national gas grid by May 2021.