Message from Rosneft’s Chief Executive Officer, Chairman of the Management Board
Chairman of the Management Board, Chief Executive Officer
2017 was a milestone year for Rosneft – we completed a cycle of strategic acquisitions and adopted a new development strategy aimed at achieving technology leadership, optimizing our organizational structure and management framework, and improving margins across the entire value chain.
Rosneft demonstrated strong operating results for 2017: we reached a new record for hydrocarbon production, extracting 281.7 mmtoe of hydrocarbons, up by 6.2% year-on-year, and sustaining our global leadership on unit production costsAmong publicly quoted companies.. In 2017, the Company reinforced its position as Russia’s largest independent gas producer, having produced 68.4 bcm of gas. We increased production drilling by 29.5% year-on-year to 12 million meters while maintaining a 60% rate of in-house oilfield services in total footage drilled. Through our exploration campaigns in 2017, we discovered 162 new deposits and 31 fields with a combined total of 233 mmtoe in reserves.
Rosneft maintained its leadership position among global oil and gas majors by total volume of proved reserves and reserve replacement ratio. The Company’s total SEC-proved reserves grew by 6% to almost 40 bboe, while its proved reserve replacement ratio grew to an impressive 184%.
We increased oil refining volumes at the Company’s Russian refineries by 15% to 100.6 mmt while improving qualitative performance metrics, with light product yields increasing to 58.4% and improved conversion rates at 75.2%. Supported by the Company’s ambitious upgrade program for its Russian production assets.
The Company’s strong operating results and successful performance improvement initiatives were also supported by a solid financial performance. Rosneft’s revenue increased by 20.6%, while its operating profit before depreciation and amortisation grew by 9.8%. Net profit attributable to the Company’s shareholders doubled in Q4, reaching RUB 222 billion by year-end and a 27.6% increase year-on-year – a strong base for dividend distributions, which were increased from 35% to 50% of Rosneft’s net profit under IFRS in line with the new dividend policy and the President of Russia’s instruction.
Rosneft has successfully entered the new, strategic markets of India and Egypt, including through closing a deal to acquire a 49% stake in Essar Oil Limited, generating additional synergies through its provision of feedstock supplies and expanding the Company’s portfolio with a fitting, high-quality asset. Rosneft has gained a foothold in the high-potential, high-growth Indian petroleum products market, and is meanwhile greatly expanding the geographical distribution of its petroleum products across Asia Pacific. The Company also acquired a stake in a project to develop the Zohr field offshore Egypt – one of the world’s largest gas assets – operated by our long-standing partners, ENI and BP. Production commenced at the field in December 2017.
Rosneft successfully continued its strategy to maximize the efficiency of resource development and production growth. We launched production at the Yurubcheno-Tokhomskoye field in 2017, and put three fields on stream within the Uvat project. Rosneft commissioned a start-up complex at the Erginsky cluster, which contains a total 256 mmt in oil reserves and has a projected plateau rate of over 8 mmt. The cluster was built by integrating Kondaneft’s assets with the Erginsky license area, the largest open acreage block in Russia, acquired by the Company through auction.
The Company takes an integral approach to business development, acquiring stakes in promising assets and engaging foreign partners in its projects. In 2017, we closed a deal with China’s Beijing Gas to sell 20% of Verkhnechonskneftegaz.
Rosneft continued to focus on the Zvezda Shipyard project in Russia’s Far East, its launch strongly reflecting the interests of our business. Rosneft has placed anchor orders for vessels, with the shipyard’s product range expected to include tankers, ice class vessels, and offshore drilling platforms for oil and gas exploration. Rosneft’s involvement in the project demonstrates the need for a multifaceted approach in the development of a robust infrastructure, encompassing and stimulating multiple industries, including those which inherently produce innovations.
Rosneft’s operations are sustainably scaling upward, which drives our stronger focus on protecting the health and safety of our employees, partners, and the local residents in the regions in which we operate. Over the past four years, we have invested over RUB 230 billion into reducing our operational impact on the environment and are now moving to a new development stage. Our Rosneft–2022 Strategy, approved by the Board of Directors, sets key development targets for the next five years. These include, above all, increasing business profitability and improving the performance of existing assets, focusing on implementing key projects on time and on budget, achieving target synergies and adjusting our management model to enable the accelerated rollout of new technologies while taking the Company to a fundamentally new level in the face of challenges posed by the digital era.