The Investment Program in 2018
Rosneft’s 2018+ Investment Program was approved as part of the Business Plan for 2018–2019 at the Board of Directors meeting held on 18 December 2017 (Minutes No. 8 dated 21 December 2017). Rosneft’s 2019+ Investment Program was approved as part of the Business Plan for 2019–2020 at the Board of Directors meeting held on 20 December 2018 (Minutes No. 12 dated 20 December 2018).
With the unchanged strategic priorities and continuity of business plans, Rosneft’s Investment Program pursues the same key targets, including hydrocarbons production growth and launch of new large-scale projects focused on investment and operating efficiency. The flexibility of Investment Program achieved through managing investment portfolio and ranking projects by economic efficiency with respect to production materiality and impact on cash flow, as well as their readiness for implementation allows for immediate response to all changes in macroeconomic environment or medium-term tasks of the Company.
In 2018, the actual capex totaled RUB 936 bln and remained almost unchanged year-on-year. In 2018, the year-on-year growth of the 2018 Investment Program in ruble terms amounted to 1.5%, while in U.S. dollar terms it slipped down by 5% due to currency rate effect.
The Company’s Investment Program is aimed at implementing highly efficient oil and gas upstream projects to ensure their sequential launch and volume growth to production plateau, projects for construction and renovation of processing facilities and complexes at the refineries to increase refining depth and light product yield, to develop in-house oilfield services and to maintain the existing assets under the approved Business Plan and Strategy of the Company.
The Company’s investments are mainly concentrated in Russia, with a share of over 92% of the total volume; about 20% of this share comes from the Eastern Siberian and the Russian Far Eastern projects. In 2018, about 90% of investments were allocated for upstream segment (including gas projects) and 8% – for downstream (refining, marketing, and logistics) segment. In total, over 80% of the Investment Program are spent on development projects.
While implementing the intensive Investment Program, the Company retains its leading position in the unit efficiency of the capital invested in upstream segment (USD 6.8 per boe in 2018) taking into account the achievement of the hydrocarbon production growth target and continuous optimization of the investment portfolio.
Mature fields are the main source of liquid hydrocarbons production (over 90%), generating stable positive cash flow for the Company and creating a base for further investment in development and shareholder income. To maintain a stable level of production, the volume of drilling and commissioning of new wells is increasing a complex of well interventions at mature fields is performed while keeping the investment efficiency at a high level.
In 2018, the investments (Capex) into mature fields reached c. RUB 480 bln. These investments amounted to over 50% of the Company’s total investments, with over 75% of them accounting for development projects aimed at maximizing return on capital invested.
The Company is developing a significant portfolio of large oil upstream projects that are in the active development phase. In 2018, the Capex of such projects amounted to over RUB 200 bln, or about 22% of the Company’s total investments.
With the development of new fields, the following large hydrocarbon production centers are formed with the total production of over 20 mmtoe in 2018:
- in the Eastern Siberia and the Far East: in the Krasnoyarsk Territory (the Suzunskoye, Tagulskoye, Lodochnoye, Yurubcheno-Tokhomskoye, and Kuyumbinskoye fields), in Yakutia (the Srednebotuobinskoye field);
- at the north of the Western Siberia: East Messoyakha field, Russkoye field;
- in traditional production regions in synergy with mature fields: the Erginsky cluster (the Erginsky license area, the Kondinskoye, Chaprovskoye, West Erginskoye field, the South Erginsky license area, and the Endyrskoye field) and the East Salymsky license area near the license areas operated by RN Yuganskneftegas, the North Komsomolskoye field in close proximity to the fields operated by RN Purneftegas, and the Danilovsky cluster (the North Danilovskoye field) in synergy with the Verkhnechonskoye field.
In 2019–2022, the Company plans to commission several Erginsky cluster fields, and the North Komsomolskoye, Lodochnoye, and North Danilovskoye fields.
Upon sequential launching of all new fields and setting them to the production plateau, including satellite fields, which are currently at the exploration stage, in 2022, the production under these projects will reach about 20% of the total liquid hydrocarbons production by the Company with further potential growth on the basis of to the exploration results.
The Company provides effective and adaptive management of new projects, including timing, flexible response to environmental challenges and fiscal changes. The key priority is to achieve the target KPIs and to deliver the projects within the planned schedule and budget.
According to the results of 2018, the following projects were introduced:
- The Taas-Yuryakh field: commissioning the second phase of field facilities (an oil pipeline, a central production facility, and a metering station) ensuring the oil treatment and delivery capacity of up to 5 mtpa. In 2018, production volume at the Srednebotuobinskoye field amounted to 2.9 mmt.
- The Tagulskoye field: the pilot production phase is completed. The field was commissioned; 2018 production volume using mobile oil treatment units totaled 1.3 mmt that corresponds to the level of the approved initial field development plan.
- The Russkoye field: was commissioned using advanced technologies for multilateral and multihole wells drilling. In 2018, production volume totaled 0.3 mmt that corresponds to the current project documentation.
- The Kuyumbinskoye field: was commissioned, the main field facility – a central production facility was started-up. In 2018, oil production totaled 0.5 mmt From 100% according to the approved project document.
- The East Salymsky license area: commercial development of the East Salymskoye license area operated by RN-Yuganskneftegas began with the commissioning of the Sorovsky field with oil production of 0.5 mmt in 2018.
In 2018, the Company invested RUB 15 bln in the Russian offshore projects both in the existing production projects and exploration projects aimed at replacing and developing the resource base.
In 2018, the Company focused on analysis, processing and interpretation of considerable volume of seismic data on the offshore projects obtained in 2016−2017.
The largest production projects of the Company on the Russian shelf are Sakhalin-1 and northern tip of the Chaivo field.
The Company also participates in implementing offshore projects abroad. Among the highest priority foreign offshore upstream projects are the Company's projects in Egypt, Venezuela and Vietnam.
In 2018, Capex for gas projects was RUB 55 bln.
In 2018, the Company continued the active construction phase of key industrial infrastructure facilities of the Novo-Urengoysky and East-Urengoysky license areas of the Rospan project. Its full-scale development will in the near future result in the overall material growth of gas, gas condensate and hydrocarbons.
In Q2 2018, the Company, in partnership with BP, began an active phase of development of the Kharampurskoye and Festivalnoye license areas.
Implementing major gas projects with a focus on achieving the target KPIs, execution of projects on schedule and within budget enables Rosneft to achieve its strategic goal of increasing gas production to over 100 bcm of gas per annum. The launch of Rospan and Kharampur projects is scheduled for 2019–2020.
Natural gas production growth of 2.4% against the backdrop of some decrease in associated petroleum gas output in 2018 was supported by the accelerated development of the Zohr field offshore Egypt as part of an international consortium with Eni, BP, Mubadala, and EGAS, Egyptian State Oil and Gas Company. Less than a year after the launch of the field, daily gas production reached ~ 57 mmcm per day From 100% . The plan for 2019 is to continue the construction of infrastructure facilities and achieve design capacity by the end of the year.
Leadership in Launching New Projects
The Company continues to implement its in-house oilfield services development strategy, maintaining the in-house drilling service share at a level of 50%. In 2018, investments allocated for in-house service development amounted to about RUB 25 bln. Key Capex areas are the purchase of new drilling rigs and the application of new technological solutions. The Company carried out testing and application of up-to-date advanced technologies (drilling of horizontal wells with multi-stage hydraulic fracturing, original well design) and improved the efficiency of the production segment.
In 2018 downstream segment capex amounted RUB 77 bln.
Main investments in the crude oil refining and petrochemical segments are directed at construction and renovation of processing facilities and complexes at oil refineries in order to increase the refining depth and output of high-quality petroleum products to meet market demand, as well as implementation of the refinery maintenance program.
In 2018, Rosneft’s main investments in commerce and logistics assets were focused on maintaining and upgrading retail assets, oil depot facilities, marine terminals, and aircraft refueling facilities.
2018 Refining Highlights
- the Ryazan Refinery launched output of high-octane AI-100 grade gasoline and completed major retrofitting of the diesel fuel hydrotreater LCh-24/7, thereby improving the performance indicators of this unit.
- The Angarsk Refinery completed the replacement of the gas fractionation unit column.
- The Novokuibyshevsk Refinery introduced an innovative environmentally friendly water treatment technology ensuring the highest degree of waste water purification.
- The central laboratory of the Syzran Refinery and the operator room in the production control center at the Komsomolsk Refinery were equipped with advanced technical equipment.
- The Ufa group of refineries and the Saratov Refinery started the production of improved high-octane motor gasolines of Euro-6 class
Investment Process Organization
Rosneft’s investment management process is based on the best global standards and practices, including initiation, expertise, approval, monitoring of the investment projects, and management of the Company’s investment portfolio. The investment process is integrated with all related processes, including strategic and business planning, budgeting, reporting and financial control, and project and corporate management.
Rational capital distribution with a focus on cash flow, debt reduction, and return on equity increase creates the potential for a unique growth in the Company’s value based on the first-class resource base of existing mature assets with low unit costs and risk level as well as new highly profitable projects which are competitive on a global scale.
As part of the investment process, the Company continues to pursue its main goals:
- improvement of Rosneft’s performance across all business segments by thoroughly identifying its investment requirements, building upon the knowledge and expertise of Company’s personnel involved in investment management, and providing efficient management, monitoring, and follow-up of projects;
- robust business growth through attracting investments to the most competitive and high value-added projects, increasing investment returns, consistently optimizing the project portfolio, and mitigating investment risks;
- a disciplined investment strategy through comprehensive project-screening and improving relevant project identification and classification processes;
- compliance with the Company’s principles of high social responsibility regarding environmental and industrial safety, safe working conditions, healthcare, a higher quality of life for employees and their families, educational support, and contribution to the social and economic development of local communities.
The objectives related to organization of investment process for 2018 and the subsequent years are focused on maintaining and improving the current processes in order to enhance the Company’s investment management expertise.
- Discipline and responsibility: Business projects are approved through delegating the decision-making process within the authorized investment limits as per investment mandate following a regulated comprehensive due diligence.
- Investment decisions: high-quality investment decisions, reduced terms for endorsement and review of investment memorandums, accountability of investment project managers and supervisors for the delivery of projects on schedule, within budget and with proper quality and KPIs.
- Monitoring and control: regular and high-quality monitoring of projects at all Company’s levels, change management process; automated control over the availability of investment decisions when entering into financial obligations (“two-key” principle) The “two-key” principle comprises control over the availability of investment decisions and necessary funds within the approved business-plan. at all stages of project planning and implementation.
- Portfolio analysis: forming a balanced and flexible portfolio of the Company’s investment projects; applying the principles of projects comprehensive ranking by economic efficiency also taking into account their materiality, readiness to implementation, impact on the cash flow, and other factors, with due regard to the Company's Strategy and its current priorities; the Company’s Development Strategy and the current priorities; using the portfolio scenario analysis tools.
- Development and automation of Information technologies: automating the management process for the Company’s investment project portfolio and the processes for tracking the planned, actual and forecast data on the progress of projects in the context of business segments and Capex items.
Project Portfolio Management
Project Portfolio Management
A tool for strategic management and maximization of business benefits through the selection, optimization, and implementation of investment projects in line with Rosneft’s goals.