Message from the Chief Executive Officer and Chairman of the Management Board
Dear shareholders and investors,
In 2020, Rosneft significantly strengthened its financial position despite the pandemic-related restrictions and temporary cuts in oil production under the OPEC+ agreement we have committed to in compliance with the government directives.
The health and well-being of Rosneft employees is and has always been our top priority. We acted promptly to develop and roll out measures to prevent the spread of COVID-19 that meet the world's best practices. We monitor the situation on a daily basis at all Rosneft facilities, with as many of our personnel as possible working remotely. Strict observance by all employees of anti-pandemic rules and requirements helped prevent the spread of COVID-19 at our production facilities.
We have developed a Carbon Management Plan for the period until 2035 that outlines a framework for the Company's transition to a low-carbon economy. Successful implementation of the plan will cement our position as a leading player in the global energy market in the context of energy transition and help maximise monetisation of the Company's proved reserves.
Rosneft is actively introducing its own innovative technologies. One example of this is the progress in Associated Petroleum Gas (APG) utilization enabling us to not only inject it into the reservoir, thus maintaining formation pressure, but also to generate electricity. In recent years, we have invested more than RUB 164 bln in APG utilisation at our production assets.
In the reporting year, Rosneft continued working consistently towards our 2022 strategic goals approved by the Board of Directors. Launching the Vostok Oil project marked a major milestone both for the Company and the country’s economy, paving the way for the development of the world's largest oil and gas province in Russia’s north. Vostok Oil’s potential is confirmed by thorough feasibility studies and analysis of geological data and development technologies conducted by Rosneft specialists. Our findings are corroborated by leading international experts. Going forward, we plan to create a new world-class cluster, the only one of its kind today.
The project’s key advantage is its close proximity to the unique Northern Sea Route, enabling feedstock supplies to both Europe and Asia. Additionally, Vostok Oil will help increase cargo flow along the route as prescribed by the Russian President.
In 2020, Rosneft transformed and improved the quality of its production assets portfolio. In particular, we sold some of the depleted and high water-cut tail assets that were expensive to operate and had a low rate of return on invested capital. We also focused on large high-margin projects with quality reserves and low carbon footprint. In late 2020, Trafigura Group Pte. Ltd, one of the world’s leading trading companies, joined the ranks of Vostok Oil’s shareholders – an important step towards the formation of the project shareholder structure.
In 2020, Rosneft launched two new major project
During 2020, Rosneft continued with its large-scale exploration programme discovering three of the world’s largest oil and gas fields: Zapadno-Irkinskoye on the Taimyr Peninsula and Marshal Zhukov and Marshal Rokossovsky in the Kara Sea. The fields’ average resource potential is over 4 bboe.
In the forth quarter of 2020, the Company increased daily production of liquid hydrocarbons and gas by 1.9% and 7.5% quarter-on-quarter respectively, responding to positive changes in the market. With its state-of-the-art technologies, Rosneft can effectively manage the production process. We can rapidly boost hydrocarbon production as the demand for oil recovers.
Unit OPEX in hydrocarbon production went down by 7.1% year-on-year in the fourth quarter of 2020 to USD 2.6 per boe, while the annual rate was at USD 2.8 per boe, down by 9.7% year-on-year (USD 3.1 per boe in 2019).
In 2020, Rosneft continued developing its gas assets, with gas exceeding 20% in the Company’s total hydrocarbon production. This is in line with the strategy to increase the share of gas in our production portfolio.
In 2020, Rosneft spent RUB 785 bln in capital expenditures, meeting the optimisation target for its CAPEX programme originally approved at RUB1 trln. When deciding to optimise the CAPEX programme, the Company's management remained conscious of the need to continue investing in new production projects. It is worth noting that the CAPEX reductions in the production segment were introduced for the ongoing projects most affected by the OPEC+ production cuts.
Despite all the challenges, Rosneft delivered solid net profit in 2020, which reached record RUB 324 bln in the fourth quarter and RUB 147 bln for the year as a whole. The Company's free cash flow remained positive in 2020 at RUB 425 bln, allowing for consistent shareholder payments and servicing of debt.
In the reporting year’s complex market environment, Rosneft was able to promptly react to and successfully tackle the external challenges. This helped maintain and reinforce our leading positions in the energy market. I am confident that the decisions and strategies implemented in 2020 will enable the Company to deliver strong results across its business sectors both in Russia and abroad.
Chief Executive Officer and Chairman of the Management Board