Gazprom Neft Board of Directors Reviews the Company's Strategic Development

27 November 2017

The Gazprom Neft Board of Directors has reviewed updated information on the implementation of the company’s strategic development to 2025.

The company’s current long-term development strategy was approved in 2013. That document outlines the pathway for achieving strategic objectives in key business sectors — hydrocarbon production, oil refining and the sale of oil products — in the light of changing market conditions and global economics. In which context, the company’s overriding objective to 2025 is to increase the shareholder value, through the effective use of the company’s resource base as well as through bringing new oil reserves into production more extensively, developing new sources of business growth, and maximising returns on investment in new projects.

Gazprom Neft is committed to increasing hydrocarbon production volumes to 100 million tonnes of oil equivalent (mtoe) per year to 2020, and to maintaining that level thereafter. The reserves-to-production ratio is expected to be maintained at a level of at least 15 years. Annual refining volumes across the company’s Russian assets will total 40 million tonnes, with a conversion rate of 95 percent, and a light-product yield of 80 percent. In terms of the sales of oil products, Gazprom Neft’s core objective is to sell 100 percent of all output from its Russian refineries through its own sales channels.

Gazprom Neft’s business development throughout 2017 was fully consistent with the long-term plans and objectives outlined under the company’s strategy.

Priority areas of activity in exploration and production remained optimising profitability in bringing new reserves into the company’s resources base, through the implementation and dissemination of new technologies; maintaining market leadership in liquid hydrocarbon production in the north of the Yamalo-Nenets Autonomous Okrug; establishing new production centres in the Russian Federation beyond 2020, as well as creating growth centres based around unconventional reserves — particularly through the development of the Bazhenov Formation; developing international projects; and by further strengthening the company’s position on the Russian Continental Shelf. Gazprom Neft has continued increasing production at major new projects, and is working towards establishing new sources of growth in the long term.

In refining, the company is focussed on further strengthening its market-leading status in operational efficiency and continuing the implementation of its modernisation programme, allowing Gazprom Neft to ensure its refineries meet global standards in terms of both technological performance and environmental and energy-efficiency. Construction of a crude vacuum distillation unit (CDU/VDU) and a packaged hydrogen production unit continued at the Omsk Refinery in 2017 as part of its ongoing modernisation. Major projects in deep refining, based around hydrocracking and delayed coking processes, have gone into construction, with a start made on the construction of wastewater treatment facilities. Gazprom Neft completed construction of the Moscow Refinery’s “Biosphere” biological treatment facilities, while a “Euro+” combined oil refining facility is now in active construction. The Downstream Efficiency Control Centre, directed at improving efficiency and unique to the industry, went into operation in St Petersburg in 2017.

The Gazprom Neft Board of Directors has taken the decision to exclude the company’s development of refining volumes internationally as a benchmark. This is the result of changes to the macroeconomic environment: the market situation being marked by increasing international competition in recent years, significantly reducing demand for oil products on the European market, which is significantly reducing the profitability of potential investments in refining abroad.

Gazprom Neft has also continued moving towards achieving its strategic objective of ensuring 100 percent of its Russian refinery products are sold through its own retail channels, covering the entire value chain. Gazpromneft-Aero’s (operator of the Gazprom Neft aviation refuelling business) directly-owned retail network has increased to 53 units, with the total number of airports at which it has a presence increasing to 249. A new brand of marine lubricants — Gazpromneft Ocean — was introduced to the markets of the Russian Federation and Asia Pacific region, while production and sales of high-technology bitumen materials were also up. The Gazprom Neft retail network now encompasses 34 regions throughout Russia, and four countries of the CIS, with 1,229 filling stations expected to be in operation across the Russian Federation by the end of 2017.

The Gazprom Neft Board of Directors also considered information on the implementation of company strategy on developing the company’s resource base.

Current strategy vis-à-vis developing the resource base was approved by directors in May 2016, the key priority of which is to guarantee Gazprom Neft has the resources to achieve the strategic target of producing 100 mtoe per year by 2020 and maintaining that level thereafter, guaranteeing the proved (1P) reserves-to-production ratio of at least 15 years.

The key areas of the company’s work in developing the resource base over the next five years remain in force: the main objective for Gazprom Neft in this area remaining organic and inorganic growth, the search for development opportunities in new regions, the company bringing more Gazprom PJSC oil assets into development, participating in more licensing rounds and transactions to acquire assets on the market, developing the reserves of the Bazhenov Formation, investigating other kinds of non-traditional reserves, and continuing geological prospecting on the Russian Continental Shelf.

The company successfully completed a programme of geological prospecting works throughout 2016 — 2017, which allowed the company to open up seven new oil and gas fields, including the Neptune field on the continental shelf of the Sea of Okhotsk (the Ayashsky licence block), with initial reserves in place estimated at 255 mtoe. The average size of discoveries in 2016–2017, moreover, reached 26 million tonnes in potential production volumes — a manifold increase in comparison with 2010–2015. These achievements are largely due to implementing new approaches and technologies in geological prospecting works.

Usage rights to three licence blocks belonging to Gazprom PJSC were reissued in 2016–2017, with a further six licence blocks in open acreage being acquired. In addition to this, Gazprom Neft entered into a joint venture with Spain’s Repsol, which is to develop assets in the Karabashsky zone, and includes seven exploration and production licences in the Khanty-Mansiysk Autonomous Okrug.