Development of International Projects in Promising Oil and Gas Regions

Rosneft is a global energy company with a diversified portfolio of international assets. The Company’s mid-term strategic objectives in international expansion include managing its current asset portfolio effectively and engaging partners. Over the longer term, the Company seeks to expand its international presence in the world’s most promising oil and gas regions, grow its resource base, and improve overall performance.

Our main goal of building a sustainable and profitable international presence is the creation of additional value for our shareholders while acquiring new knowledge and expertise for more effective project development both in Russia and abroad.

Operating in regions such as South America, North and East Africa, the Middle East, and the Asia-Pacific Region, the Company actively develops local partnerships that are aimed at mutually beneficial implementation of development projects.

KEY ACHIEVEMENTS

In October 2017, Rosneft closed a deal to acquire a 30% stake in the Zohr gas field offshore Egypt, beginning joint gas production under the project as part of an international consortium with the Italian ENI and British BP in December 2017.

In December 2017, Rosneft was granted a production license for the Patao and Mejillones fields offshore Venezuela with rights to export the produced gas over 30 years.

Rosneft and the Government of Iraq’s autonomous Kurdistan Region signed a production sharing agreement for five production blocks in Iraqi Kurdistan.

Operations were launched by the joint venture Perforosven, S.A. (51% Rosneft, 49% PDVSA Servicios Petroleros, S.A.) as part of a project to develop oilfield services for oil production joint ventures.

Pilot oil production was launched by Petrovictoria JV at the early production site at the Orinoco oil belt (Carabobo 2/4 project).


Rosneft is one of the largest international investors in the Bolivarian Republic of Venezuela (BRV). The Company continues to consistently expand its cooperation in oil and gas production with Petróleos de Venezuela, S.A. (PDVSA), Venezuela’s state oil company. Rosneft is successfully implementing five joint exploration and production projects with PDVSA – Petromonagas (Rosneft’s stake 40%), Petroperijá (40%), Boquerón (26.67%), Petromiranda (32%), and Petrovictoria (40%). Oil production from the Company’s projects in Venezuela was 8.06 mmt in 2017, with 3.14 mmta attributable to Rosneft, a 17,6% increase year-on-year. The production growth was driven by Rosneft raising its stake in Petromonagas JV in May 2016, increased production at Petromiranda JV, and start-up of pilot production at the Carabobo 2/4 project (Petrovictoria JV).

Higher production volumes were achieved at mature fields in Venezuela. The average well construction time at Petromonagas JV was reduced by 13% year-on-year. Drilling efficiency for placing horizontal wells into targeted producing layers was increased to 90% geology-wise. Pilot testing was successfully completed for the application of chemical additives to reduce diluent consumption, with up to 30%–40% reduction targeted.

Petromiranda joint venture was established in 2010 for the development of the Junin–6 project, located in the heavy oil belt of the Orinoco Basin. Phase 1 is currently in progress. It involves further exploration and infrastructure engineering. Pilot development of a priority area is being carried out at the block to characterize the pay zone.

Petrovictoria JV was incorporated in 2014 to implement the Carabobo 2/4 project. Production drilling was started at the early production site of the Carabobo 2/4 project in 2017. As part of a further exploration program, platforms were constructed and the first drilling rig has been mobilized to begin drilling wells. Permanent infrastructure engineering and temporary infrastructure construction are currently underway.

Research for the Junin–6 and Carabobo 2/4 projects was carried out to optimize the overall crude oil upgrading scenario, and the most attractive options were selected for further pre-project activities. The expected synergies between the projects operated by Petromonagas JV and Petrovictoria JV are projected to optimize the Carabobo 2/4 project’s timeframe and the amount of required capex, while improving the project’s overall economics.

Rosneft is actively involved in implementing drilling plans of its joint ventures. The Company engaged its subsidiary, Precision Drilling de Venezuela, to provide drilling services for projects operated by its joint ventures, thereby improving the efficiency of drilling vertical, directional, and horizontal wells. Cycles times for well construction performed by Precision Drilling de Venezuela are much shorter than for other contractors providing drilling services to Rosneft’s joint ventures.

On 16 December 2017, during a visit to Venezuela by Rosneft Chief Executive Officer, Igor Sechin, the Venezuelan Oil Minister signed a resolution granting the Company a production license, published by Venezuela’s Official Gazette on 18 December 2017, for the exploration and extraction of free natural gas in the Mejillones and Patao fields, part of the Mariscal Sucre project. Through its subsidiary, the Company owns a 100% stake in the project, with the option to export the entire gas output, subject to royalty payments in kind. The project’s next phase involves developing concept and basic engineering designs, after which a final investment decision is expected in 2020 on Rosneft’s involvement at the two fields.

In December 2017, a social project to construct the President Hugo Chávez Legacy Institute in Sabaneta was completed with the Company’s involvement. The project passed the acceptance process and was passed on to the city council. Rosneft is strongly focused on providing systematic workforce training and educational opportunities for Venezuelan students, signing several documents regarding academic research and education with PDVSA and the Gubkin Russian State University of Oil and Gas (National Research University) between 2014 and 2017.

On 20 July 2017, Rosneft, PDVSA, and the Gubkin Russian State University of Oil and Gas signed a tripartite agreement providing for fee-based training services for 30 Venezuelan nationals to be trained in three Master’s programs in the fields of exploration and production; refining, processing, and oil upgrading; and transport and logistics. The students are also scheduled to take a preparatory Russian language course during the first 2017/2018 academic year.

Starting from 2014, the Company has signed a number of contracts to purchase oil and petroleum products from PDVSA state oil company on a prepayment basis. As at the end of 2017, PDVSA supplied over USD 2.5 billion worth of oil and petroleum products, including supplies worth USD 1.9 billion in 2017, against the prepayments made, including the interest accrued.

To improve project performance, Rosneft and PDVSA established Perforosven, a joint venture focused on oilfield services (Rosneft 51%, PDVSA 49%), which launched operations in 2017.

Junin–6 and Carabobo 2/4 are the Company’s largest projects in terms of reserve volume.

The Company plans further bidding in licensing rounds for new exploration blocks.


Rosneft participates in exploration projects and a joint gas and condensate production project at Block 06.1 in the Socialist Republic of Vietnam (Rosneft Vietnam B.V. 35%, ONGC 45%, and PetroVietnam 20%).

The Company signed a production sharing agreement for the development of Block 05.3/11 in 2013 – the project is currently at the exploration stage. Rosneft also participates in the offshore Nam Con Son pipeline project, which involves the transportation and treatment of gas and gas condensate produced at offshore blocks in the Nam Con Son Basin (Rosneft Vietnam Pipelines B.V. 32.7%, Perenco 16.3%, and PetroVietnam 51%).

Block 06.1

Production in 2017 (100% of the project) totaled 2.99 bcm of gas and 0.07 mmt of gas condensate (Rosneft’s share: 0.6 bcm of gas and 14.7 thousand tonnes of gas condensate). An estimated 3.4 bcm of in-place commercial gas reserves was discovered at the PLD prospect of Block 06.1 through drilling, which can be tied back to existing infrastructure of Block 06.1. Mobilization of a semi-submersible rig is planned for April 2018 to reactivate the PLD-1X well by sidetracking.

3D marine seismic surveys were conducted on Block 06.1 in 2016 to map deep-lying prospects for the support of future organic growth. 3D seismic processing and interpretation carried out in 2017 identified a number of potential prospects for exploration in the near term.

Block 05.3/11

License obligations on seismic surveys at the Block have been fully met, and drilling of the first exploration well was completed in 2016. The Company made efforts in securing the extension of its prospecting program, and confirmation was obtained from PetroVietnam indicating that Vietnam’s Ministry of Industry and Trade approved the extension of Phase 1 exploration until the end of 2018. Drilling of the second exploration well on Block 05.3/11 is scheduled for the second half of 2018.

The Nam Con Son pipeline has a capacity of 7.7 bcm per year, carrying approximately 6.03 bcm of gas in 2017, including the gas produced from Block 06.1 and other operators in the Nam Con Son Basin. In 2017, the Governments of Vietnam and Indonesia signed a memorandum on potential hydrocarbon supplies from Indonesian fields to Vietnam. The infrastructure of Block 06.1 and Nam Con Son pipeline can be used to support the performance of this agreement, which will provide an additional revenue stream for the Company from its Vietnamese projects.

Production in Vietnam in 2017 (100% of the project) totaled 2.99 bcm of gas and 0.07 mmt of gas condensate (Rosneft’s share: 0.6 bcm of gas and 14.7 thousand tonnes of gas condensate).



7.7 bcm per year Capacity of the Nam Con Son pipeline

In 2017, the Company’s subsidiary, Rosneft Vietnam B.V., was named Operator of the Year 2016 by Vietnam’s Ministry of Industry and Trade.


In 2016, Rosneft signed binding documents with ENI for acquisition of a stake in the Shorouk Block concession to develop the super-giant Zohr gas field located 190 km off the Egyptian coast in the southern part of the Mediterranean Sea.

In October 2017, Rosneft closed a deal to acquire a 30% stake in the concession, with Eni (60%) and BP (10%) holding the remaining stakes.

The Zohr field was discovered by ENI in 2015 and covers an area of 231 sq. km, with sea depths ranging from 1.2 thousand m to 1.7 thousand m and a gas deposit located at a water depth of 3.4 km to 4 km. Zohr is one the biggest offshore fields in the Mediterranean Sea, with estimated in-place gas reserves exceeding 850 bcm.

Gas production at the Zohr field began in December 2017, and the entire volume of produced gas will be supplied into Egypt’s national gas grid.

Joint development of the unique production asset with global majors and strategic partners enables the Company to:

  • participate in the development of one of the largest discoveries made in recent years (containing over 30% of Egypt’s total gas reserves) and boost gas production from foreign assets in the near future
  • enter the Egyptian gas market with potential for further expansion both in the country and region as a whole
  • build up expertise in joint offshore field development
  • acquire experience in the development of carbonate reservoirs to utilize in its projects in the Black Sea.

Through its subsidiary, Rosneft Brasil E&P, Rosneft is implementing a hydrocarbon exploration and development project at license areas in the Solimões River basin gas play in the State of Amazonas, Brazil, holding a 100% stake and operatorship in these licenses.

An exploration well was drilled in the southern section of the oil and gas basin in 2017, which helped detail the resource potential of the targeted license areas and identify further development needs. Drilling of the second exploration well began on one of the prospects following 3D seismic surveys which began in Q4 2017.

Rosneft became a full-fledged participant in the Zohr project in 2017, with a 30% stake.

> 850 bcm the field’s estimated in-place gas reserves

Gas production at the field started in December 2017.


IRAQ

The Rosneft subsidiary, Bashneft International B.V, successfully drilled the Salman-1 exploration well at Block 12 in southwestern Iraq during 2017. The well was constructed on time and on budget, with zero incidents.

Resource formations were penetrated during the drilling process, indicating the area’s high potential.

Bashneft International B.V. is the project operator and owns a 100% stake in the hydrocarbon exploration and production agreement for Block 12.

IRAQ (KURDISTAN)

On the sidelines of the 21st St. Petersburg International Economic Forum, Rosneft and the Government of Iraq’s autonomous Kurdistan Region signed a series of agreements on cooperation in the exploration and production of hydrocarbons, particularly regarding five blocks with significant geological potential in Iraqi Kurdistan.

In October 2017, the Company and the Government of Iraq’s autonomous Kurdistan Region signed binding documents to effect Production Sharing Agreements (PSAs) for the five production blocks in the Kurdish Autonomous Region with a conservative estimate of 670 mln barrels of total recoverable oil reserves. The heads of agreements and the basic principles of product sharing are similar to the PSAs signed in Iraqi Kurdistan by other international oil and gas companies.

Rosneft holds an 80% stake in the PSAs and has operatorship of the project.

PROJECTS OFFSHORE MOZAMBIQUE

Within efforts to expand strategic cooperation, Rosneft and ExxonMobil formed a consortium to bid for exploration licenses in deep-water areas offshore Mozambique for geological study and estimation of the resource potential of the blocks. Following a tender in October 2015, the Government of Mozambique awarded three blocks (А5В, Z5-C, and Z5-D) to the Rosneft–ExxonMobil consortium, in which the Company’s stake is 20%. Joint development of the project will help Rosneft share its costs and optimize its risk capital. The consortium is in the final stage of negotiations with the upstream regulator, Mozambique’s National Petroleum Institute (INP), on the terms of the Exploration and Production Agreement and Joint Operating Agreement.

MYANMAR

During 2017, seismic surveys were conducted on Block ЕР-4 onshore Myanmar, and the first exploration well will be spudded upon the results of their analyses. The Company is the project operator, holding a 90% stake in the production sharing agreement.

PROJECTS OFFSHORE NORWAY

Rosneft considers the Norwegian shelf with high prospects for taking part in its development, and actively participates in licensing rounds for areas on the continental shelf of the Norwegian sector of the Barents Sea through its subsidiary RN Nordic Oil AS (RNNO).