Translated material
In Russia only to mine
LUKOIL does not intend to build oil refineries
The head of LUKOIL, Vagit Alekperov, yesterday in New York, as part of the campaign that has been taking place over the past few months to present his new strategy for 2007-2017, announced that he does not intend to build new oil refineries in Russia. According to him, the company abandoned these plans and decided to increase the capacity of existing plants in Volgograd and Perm by 30% (by 15-20 million tons per year). But LUKOIL is not refusing to buy existing plants in Europe. “We are holding consultations with ConocoPhillips about assets in Europe,” Mr. Alekperov noted. In particular, the company is considering a proposal to purchase a plant in southern Europe. “We don’t want to acquire in order to acquire, we want to build a cost-effective chain,” Mr. Alekperov pointed out. As LUKOIL representatives have repeatedly said before, it is economically more efficient to export crude oil from Russia and process it close to the markets for petroleum products. It is precisely by this logic that Russia’s still largest oil company intends to operate in the next ten years.According to LUKOIL's strategy, oil refining volume should increase by 70% by 2017, to 2 million barrels per day (100 million tons per year). As follows from the presentation, about 70% of the total refining volume is now accounted for by the company’s Russian refineries. In ten years, this share should be reduced to 56% - in favor of Europe (about 30%) and America (14%). “We are preparing for a large project in Venezuela, we are considering the option of supplying oil to the American market, processing it and selling it at our gas stations,” Mr. Alekperov said. As a result, as follows from the presentation, by the end of 2016 LUKOIL plans to produce only high-octane gasoline, and all products will comply with the Euro-5 standard.
At the same time, the head of the company is confident that LUKOIL will not have problems with the supply of raw materials. He also emphasized that LUKOIL's development forecasts are based on the company's existing reserves. The growth rate of average annual hydrocarbon production over the decade should increase by almost 50% (up to 6.7% per year), and volumes should increase to 4 million barrels of oil equivalent per day (almost 180 million tons per year). The largest projects in the field of oil production will be the development of new oil and gas provinces in the north of the European part of Russia and on the Russian shelf of the Caspian Sea. At the same time, Mr. Alekperov is not afraid of Rosprirodnadzor. “Don’t let the current inspections scare you. I am confident that our dialogue with the regulatory authorities will allow us to get out of this situation without losses and with the preservation of all assets,” he said during his speech, without explaining how he intended to negotiate with the chief inspector of environmental activities, Oleg Mitvol.
However, a significant increase in production can be brought to LUKOIL not by Russian subsoil, but by foreign ones. Mr. Alekperov mentioned the possible start of negotiations on the development of the giant West Qurna-2 field in Iraq (after all, it was because of connections with the Americans that Saddam Hussein announced the termination of the contract with LUKOIL, but could not try to do this in an international court), as well as reported “a number of proposals in Central Asia that might be of interest to the company.” According to the head of the company, negotiations with the Venezuelan government on the development of heavy oil deposits in the Orinoco Basin are “at the finish line.”
In addition, as Mr. Alekperov said, he is discussing with Rosneft the possibility of creating a consortium to supply oil to China. “We are discussing with Rosneft the possibility of creating a consortium. There is nothing to do there alone. We have just begun to study the needs of this region,” he told news agencies, declining to provide details of the project.
A separate point of the strategy is to increase gas production. It is planned that by 2017 the share of gas in LUKOIL’s total hydrocarbon production will increase from 6 to 33% and amount to 70 billion cubic meters per year. The main production regions will be the Russian Bolshekhetskaya Depression (Yamalo-Nenets District) and the Caspian region. Among foreign projects, the strategy highlights such gas projects as Karachaganak in Kazakhstan, Kandym-Khauzak-Shady in Uzbekistan, Shah Deniz in Azerbaijan and a project in Saudi Arabia. LUKOIL explains its desire by the growth in consumption and prices for this type of fuel both on the world and on the domestic Russian market. “Oil has a powerful competitor - natural gas. Currently, the growth rate of gas consumption (in the world - Ed. ) is twice as high as that for oil,” Mr. Alekperov said. In Russia, according to his forecast, next year the price of gas may almost double.
The implementation of the strategy could cost LUKOIL, depending on world oil prices, $78–112 billion. Moreover, about a third of the investments are needed for new acquisitions. As a result, according to Mr. Alekperov, even with a conservative assessment, the growth potential of the company’s value will increase by 2-2.5 times, and its capitalization may increase to $150-200 billion. At the same time, the strategy notes that in the financial LUKOIL intends to maintain a conservative approach to its policy. In particular, the ratio of debt to total capital will not exceed 30%. This policy will ensure that the return on invested capital is maintained at the level of 15-17%. As the vice-president of the company Alexander Matytsyn noted, LUKOIL is already “capable of raising up to $15 billion without much damage to the company’s credit rating.”
One way or another, LUKOIL has already repeatedly presented various long-term strategies, but all of them were adjusted after a few years. And the main reasons for this were changing oil prices and Russian legislation in the field of taxes and fees, as well as customs duties. The same Mr. Alekperov has said more than once, including in New York, that his company is forced to give up to 90% of its revenue to the state due to the fact that the mineral extraction tax and export duty depend on world oil prices. However, as follows from the company's financial statements published yesterday according to international standards for the first half of this year, LUKOIL's net profit increased by 55% - this is a record growth for the company.