President of Russia Vladimir Putin: Mr Sechin, as far as I know, you have reviewed nearly all aspects of the company’s performance in 2020, and you can report on them now. Of course, I would also like to ask you how the company’s operations were organised during the period of coronavirus restrictions, as well as about your involvement, including and first of all, the involvement of your employees in the vaccination efforts.
Rosneft CEO Igor Sechin: Mr President, I would like to begin with the most important aspect, vaccination and the provision of the necessary medical assistance to our personnel. As I have already told you, we have organised this work at the company. In a word, we have organised isolation units and observation facilities for the incoming shifts. The duration of shifts has been extended and the number of medical staff in the production areas has been increased. This helps us to deal with the problems of the current period.
Vladimir Putin: Have you extended the shifts so as not to replace personnel too often?
Igor Sechin: Quite correct, Mr President. Our personnel have a 14-day observation period prior to their shifts.
Vladimir Putin: Quarantine.
Igor Sechin: Yes, so that if there are any doubts regarding their health we can place them in isolation units under medical observation, while those who are healthy can start working, and the duration of shifts has been extended, of course.
Considering that there are registered vaccines and in light of our contacts with the Government, with Deputy Prime Minister Tatyana Golikova and the Healthcare Ministry, we have sent a request to the Healthcare Ministry to reserve enough vaccines for 300,000 people. This matter is under discussion, and 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. Therefore, we hope that 100 percent of our personnel will receive the vaccine in March, that is, all those whom the doctors allow to be vaccinated.
Vladimir Putin: Good.
Igor Sechin: Now regarding the 2020 report, we have recently presented our public reports in accordance with international standards; it is extremely positive for the company, and I must tell you that, despite the dramatic impact of the pandemic, Rosneft has actually shown a profit for the year, the only global major to show a profit so far.
We have published our consolidated financial statements. In 2020, the company posted 147 billion rubles in net profit, in contrast, as I said, with a number of international majors, including respected companies such as ExxonMobil, Chevron, Shell, Total (they closed the year in the red). Despite the deterioration in the macro environment, this result allowed us to create a reserve to pay dividends for the last year in the amount of 50 percent, just as you instructed us.
So, the only company from the global oil and gas sector that is still profitable today is us.
Vladimir Putin: Truly the only one?
Igor Sechin: As of today, yes. I’ll accept that some other leaders may appear once other companies release their end-of-year results, but right now this is the case.
Vladimir Putin: Mr Sechin, you have made a profit despite our production-cutting agreements with OPEC, OPEC Plus.
Igor Sechin: Even with the Government directives to cut production, and all the events related to the pandemic, and the shrinking consumption, we were able to find solutions, to reduce operating costs, overhead costs, despite the reduction in capital expenditure, and still make a profit. It is not as high as in previous years of course, but nevertheless, taking into account the situation we are in, we still have 147 billion rubles, approximately $2.2 billion, which allow us to pay dividends for the past year.
At the same time, we were able to further reduce the financial debt by almost $10 billion. In addition, last year was a record year for us in terms of discovering new oil and gas fields. We discovered three very large fields, the three largest fields in the world – two in the Kara Sea, named after our victorious marshals – Marshal Georgy Zhukov and Marshal Konstantin Rokossovsky, as well as the Zapadno-Irkinskoye field in the north of Taimyr.
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 our 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.
According to the reports, 2020 production volumes totalled 256.2 million tonnes of oil equivalent. As you have already noted, this figure takes the Government’s production limitation directives into account. Despite this, with due consideration for the latest adjustments that were made, we were able to expand the output of liquid hydrocarbons by 1.4 percent; and oil and gas production are up 0.2 and 6.4 percent, respectively.
Rosneft increased the volume of production drilling by 9.1 percent against the previous year.
Vladimir Putin: Where did you drill most wells?
Igor Sechin: First, we expanded the Samotlor oilfield. As you remember, we discussed investment incentives with the Finance Ministry. Acting on your decision to support the Samotlor oilfield in terms of water cut, we expanded our drilling volumes there. This made it possible to increase and maintain local production levels and to fulfil investment agreements, signed with the Finance Ministry. This enables us to maintain our pace for developing oilfields and social stability in single-company towns linked with our production facilities.
Vladimir Putin: What are your company’s average wages? Of course, this figure always leads to many questions; nevertheless, we have to be guided by certain average levels.
Igor Sechin: In principle, they depend on workers’ qualifications and on their work at the oilfields and refineries.
Vladimir Putin: I see.
Igor Sechin: On the whole, average monthly wages exceed 80,000 rubles. Workers are paid handsomely. High-category drillers and professional managers, as well as skilled employees, hold on to their jobs, and we have extremely low staff turnover rates.
In 2020, we opened 2,600 commercial wells, including 1,800 highly effective horizontal wells, the number of which is up 6 percent on 2019. On the whole, horizontal wells account for 44 percent of all wells drilled. This is a very good indicator, all the more so as horizontal drilling makes it possible to boost the efficiency of hard-to-extract deposits and depleted deposits.
Vladimir Putin: How far do horizontal wells extend?
Igor Sechin: We have set our own records; for example, some wells on Sakhalin Island are up to 15,000 metres long. This is world record-breaking. The average length of horizontal wells is three to four kilometres.
We have set some records in terms of commercial speeds for drilling horizontal wells. The industry’s maximum daily drilling rates were 27,542 metres.
Vladimir Putin: Is your drilling logistics centre located in Moscow? Where is the centre that manages all these processes, physically?
Igor Sechin: The operational control is done from Moscow, and all active production, injection and auxiliary wells are managed from here, we use satellites to manage them and monitor their condition.
Vladimir Putin: And the drilling process?
Igor Sechin: We have a large contractor of our own, RN-drilling. Rosneft performs about half of the drilling services with its own resources, while outsourcing the other half to Russian contractors on the market. This allows us to be in the market, monitor the reference prices for drilling services, and maintain the efficiency of our own facilities, too.
Having our own resources hedges us against risks and failures in difficult conditions. In this sense, it is certainly a necessity in this industry.
As I said, we are reducing unit operating costs; in production, they came down 9.7 percent compared to 2019, to $2.8 per barrel of oil equivalent as of now. This is one of the best indicators in the global industry. As for general and administrative expenses, those have gone down by almost a third, and interest expenses, by 15 percent.
We continue to work with our international partners. We signed a deal with the Norwegian company 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.
In addition to upgrading our resources portfolio, we have completed several reconfiguration projects to boost our efficiency. Since my previous report, the company has closed a series of deals to build an asset portfolio for the Vostok Oil project in the northern Taimyr Peninsula, and 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.
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.
As I already noted, 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, we achieved oil influx. Well testing continues. Following the drilling of the second well, Zapadno-Irkinskaya 32, we confirmed the oil potential of the other bank of the Yenisei River. This creates a promising outlook for our further work. 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.
This year, we plan 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.
We have not forgotten about the message you sent during the World Economic Forum in Davos concerning the need to combat global warming. We 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. We conducted meteorological research that allows us to provide the Vostok Oil project with local wind power generation – where possible, of course. There will be special wind farms that will be integrated with Vostok Oil.
Vladimir Putin: Have you managed to curb associated gas flaring over the past few years?
Igor Sechin: We are working on this constantly. Right now, the average level of associated gas utilisation is 83 percent. We plan to reach 95 percent within the next two years.
Vladimir Putin: Good. It was below 60 percent only recently.
Igor Sechin: Yes, we are working constantly. At certain deposits, it is possible to dispose of 90 percent of associated gas. The average rate, as I already mentioned, is 83 percent. We will finally solve this issue in the next two years.
Vladimir Putin: Excellent.