Letter of Mr. Alexander Dyukov
Dear Shareholders,
Pre-crisis oil prices and the global economic situation recovered during 2010. This allowed our company to advance significantly toward our strategic targets. In 2010, Gazprom Neft demonstrated stable growth in all business directions.
Based on the results of reserves audit conducted by DeGolyer and MacNaughton, the company's proven reserves as per PRMS were 1 bn ВОЕ as of the end of 2010 and the reserves recovery rate has exceeded 110%. Resource base recovery is an essential foundation for further stable production growth.
Systematic work for optimising production field development, as well as new assets, allowed the company to increase hydrocarbon production to 52.8 mn t, compared to 50.2 mn t in 2009. Gas production increased by 26 %. This was mainly due to the start up of the Cenomanian gas project at Muravlenko and Novogodny fields. It was also due to the company's systematic work in the associated gas utilisation program.
In 2010, refinery quantities increased by 13 %.The increase was due to actively realising the refining facilities modernisation program, combined with increasing the company share in authorised capital of the Moscow refinery.
Gazprom Neft continues to increase premium sales, focusing on growing activity in the retail market segment. For example, in 2010, the company's retail sales increased faster than market growth, by 16 % while the Russian market demonstrated growth of 9 %. These figures have been achieved due to modernizing the company's retail network and uniting filling stations under the 'Gazprom Neft' brand. The figures are also a result of the company expanding its own network through acquiring and constructing new filling stations.
In 2010, the new G-Family brand for engine oils was marketed on the Russian and foreign markets. It includes more than 40 types of modern engine oil for the consumer and commercial markets. Furthermore, at the end of last year in the
North-West region of Russia, pilot sales of new premium-class high-octane fuel of the G-Drive brand began.
Financial indicators of activities of the Gazprom Neft Group also demonstrate stable growth. In 2010, EBITDA was more than7bn USD, and the internal rate of return was 16 %. The same year also saw the company's net income (not considering the influence of non-recurring incomes and expenses) increase by 25 %, totaling 3.346 mn USD.
In the area of corporate management and financial policy, we have optimized the structure and conditions for the company's credit portfolio and approved a new dividend policy. The effective interest rate for the debt portfolio has decreased from 5.11 % to 3.96 %, and the average credit payment period increased to 2.1 years.
2010 was successful for the company, not only in terms of its current activities, but in its many highlights for further business development.
Last year, the geography of the Gazprom Neft exploration and production segment expanded significantly. The company became an operator for developing the eastern section of the Gazprom Orenburg field and soon became its owner. In November 2010, Gazprom Neft, in partnership with NOVATEK company, acquired 51 % of Sever Energy shares. Acquiring this asset is another step in developing a strategically important region for the company: the north of Yamal-Nenets Autonomous District. Two major projects are being undertaken in this region: developing the Messoyakha group of deposits (in partnership with TNK-BP) and Novoport deposit of Gazprom.
In 2010, international projects of Gazprom Neft Group also developed rapidly. The work to increase operating efficiency of NIS has continued, resulting in a significant improvement in financial indicators for our Serbian subsidiary. Additionally, we have entered new regions in the Middle East. In January 2010, Gazprom Neft signed a contract with the government of Iraq to develop the Badra deposit
The company continues to accumulate offshore practical experience. We were involved in a production-sharing project in the offshore exploration phase in Equatorial Guinea. At the end of the year, the company also concluded an agreement to acquire a share in an offshore exploration project in Cuba. Moreover, Gazprom Neft became a leader in the Venezuelan project's Russian consortium to develop the Junin-6 deposit.
The most important event in the refining segment was commissioning the lzomalk-2 light naphtha isomerisation complex at the Omsk refinery; the largest complex in Russia and Europe. Also at the Omsk refinery in 2010, construction of a complex for hydro forming cat-cracked gasoline and diesel fuel began. The complex will ensure production of
gasoline and diesel fuel in compliance with classes 4 and 5 of technical regulations.
The company maintains a balanced financial policy. The cash flow from key operation activity is directed toward further business development. Furthermore, the dividend payout level is among the highest in the industry.
We are looking to 2011 with certainty. Gazprom Neft Group management will continue to focus its efforts on maintaining stable production at existing fields, developing new projects, integrating new assets, modernizing refining facilities, and developing the retail network. This should, in turn, result in a further increase in company revenue for shareholders.
Alexander Dyukov
Chairman of the Management Board, JSC Gazprom Neft
