Hydrocarbon Exploration and Production

Rosneft is the largest oil and gas company in Russia, and among public oil and gas companies, it is the world’s largest holder of hydrocarbon reserves and producer of hydrocarbon liquids maintaining a steady growth of economically recoverable hydrocarbon reserves. This is achieved through consistent efforts to increase production from brown fields and launch new fields and prospects, as well as through successful implementation of the exploration program. Rosneft places a special focus on exploration and steady reserves growth at existing license areas, including new regions and the Arctic shelf, as well as resource base integration and expansion across new assets and license areas. According to the audit performed by DeGolyer & MacNaughton under the SEC (U.S. Securities and Exchange Commission) life-of-field classification, Rosneft’s proved hydrocarbon reserves totaled 39,907 mmboe (5,395 mmtoe) as of 31 December 2017. Hydrocarbon reserves grew by 2,135 mmboe (284 mmtoe), or 6%, year-on-year. Rosneft’s organic SEC-proved reserve replacement ratio stood at 184%Reserve replacement ratio is calculated in tonnes of oil equivalent; Rosneft’s reserve replacement ratio in barrels of oil equivalent was estimated at 186%., and its SEC-proved reserve life amounted to 20 years. For several years, Rosneft has been a prominent leader among major public international oil companies in proved reserve life and proved reserve replacement ratio, as well as in exploration and development costs.

Global Oil Production in 2017 Source: Wood Mackenzie.
Reserve Replacement and Upstream CostsIncluding affiliates. Rosneft and PetroChina – excluding affiliates. ExxonMobil and Petrobras are not shown in the chart as they demonstrated negative additions.

The pie size reflects the organic reserves additions in 2015–2017.

As at 31 December 2017, the Company’s reserves under the PRMS (Petroleum Resources Management System) classification comprised 46,520 mmboe (6,303 mmtoe) of 1P reserves, 83,838 mmboe (11,357 mmtoe) of 2P reserves, and 120,853 mmboe (16,386 mmtoe) of 3P reserves. 1P reserves grew by 1%, 2P reserves grew by 2%, and total 3P reserves grew by 4% in 2017.

Rosneft is the leader among major Russian and international public oil and gas companies in both volume and cost of organic reserve additions due to its traditionally high efficiency in exploration.

Reserve Life (SEC) in 2017,Including affiliates. Data for PetroChina does not include affiliates. years
Oil and Gas Condensate Production in Russia, mmb per day Source: CDU TEK.
Organic Reserves Growth (SEC),Including affiliates. Data for PetroChina does not include affiliates. bboe

The Company’s share in the total oil production of Russia is 41%, and approximately 6% in global oil production.

For years, Rosneft has steadily maintained high levels of its reserve replacement ratio, and intends to replace at least 100% of its hydrocarbon production in 2018–2022 (reserve replacement cost in 2015–2017 was USD 0.2 per boe). The Company also plans to fast-track development of new reserves with shorter project preparation timelines, accelerate resource transfers to reserves based on viability, and improve exploration drilling success rates within the Russian Federation.

Given Russia’s commitment under the OPEC+ production cut deal, the Company’s average daily liquid hydrocarbons production grew 0.04% (on a pro-forma basis) in 2017 year-on-year (including Bashneft assets from the beginning of 2016). Consolidating production from new assets from the date of acquisition, Rosneft’s daily hydrocarbon production grew by 7.6% in 2017, ranking higher than most public oil and gas companies in addition to leading its competitors in average hydrocarbon production growth rate over a 10-year period.

Long-term production growth is ensured by the Company’s optimal portfolio of new major upstream projects and the use of advanced production technologies at its existing fields. In 2017, Rosneft commissioned the Kondinskoye field of the Erginsky cluster (Khanty-Mansi Autonomous Area) and the Severo-Tyamkinsky, Kosukhinskoye, the Severo-Tamarginskoye field of the Uvat group of fields (Tyumen Region), and the Kuzovatkinskoye field (Khanty-Mansi Autonomous Area). The Company also began comprehensive technological testing of the Yurubcheno-Tokhomskoye field in the Krasnoyarsk Territory. While developing these fields, the Company utilizes new drilling technologies (including horizontal well drilling) that have proved to be efficient at the Company’s existing fields, enabling development of significant oil and gas reserves, including hard-to-recover reserves. In the medium term, the Company’s higher production volumes through organic growth will be ensured by enhancing production from mature fields and developing new high-potential oil and gas projects, including the Vankor cluster, the Erginsky cluster, the Russkoye, Kharampur and North Komsomolskoye fields, Rospan, and the Kynsko-Chaselskoye group of fields.

Against the backdrop of the increasing global production and use of gas as the cleanest fossil fuel, Rosneft continues to expand upon its gas production, keeping its share in total hydrocarbon production volumes at 20% following integration of new, mostly oil, assets. The Company was a leader among independent Russian gas producers in terms of daily average gas production in 2017.

Gas Production in Russia,Gas production including gas used for LH production. bcm per day Source: CDU TEK, for Rosneft – the Central Dispatch Office of Rosneft.

While expanding its resource base and ensuring a stable gas production growth within the Russian Federation, the Company puts a strong focus on developing its gas business, improving production technologies, building the gas value chain, and implementing natural gas monetization strategies effectively, including LNG production projects, the program on NGV fuel market development in the Russian Federation, building a portfolio of long-term contracts for gas supplies to the domestic market, and capturing gas export opportunities.

Development of the Zohr field, one of the largest gas assets, in partnership with world majors and Rosneft’s strategic partners, Eni (60%) and BP (10%), will expand the Company’s expertise in joint development of offshore gas fields and sharpen its competitive edge in new, major international exploration and production projects. Through participating in the development of this unique production asset, Rosneft will rapidly increase its gas production abroad and enter the Egyptian gas market, thereby providing opportunities for the Company to further expand its presence in the country and region.