Strategy

The strategic objective of JSC Gazprom Neft is to become a major international player of Russian origin, proud of its regionally diversified package of assets along the entire revenue chain, actively participating in the development of regions and having high social and environmental responsibility.

JSC Gazprom Neft is a subsidiary of OJSC Gazprom whose operations are aimed at providing a reliable supply of oil and petroleum products to national and international consumers, integrating high technologies of production and refining which help to raise the effectiveness of operations and consolidate competitive positions both on the Russian and global markets.

The Company’s philosophy is to build maximum return for shareholders in tandem with actively participating in the development of regions and having high social and environmental responsibility.

The development strategy of JSC Gazprom Neft until 2020 will determine the major principles, objectives, directions and expected results of the operations of JSC Gazprom Neft, including that of subsidiaries and equity investees. 

In 2009 the Company’s Board of Directors approved the Development Strategy for exploration and production, of oil refining and the Strategy for sales of petroleum products until 2020. In 2010 the Company will continue applying a systematic approach to the concept of continuous strategic development. In order to coordinate the management’s actions at all levels and in all directions a gradual transition to the integrated system of long-term strategy development and defense of medium-term business plans are also being planned.

Exploration and Production

By 2020 the Company, including its subsidiaries and associated companies, intends to increase oil production to 100 mln TOE per year. Reserves-to-production ratio should be maintained on the same level for not less than 20 years, and the share of projects at an initial development stage should account for not less than 50% of production by the year 2020. These indicators should be achieved thanks to the phased launch of Gazprom Neft’s explored oil fields and Slavneft’s and Tomskneft’s fields where Gazprom Neft controls 50% of the equity and also of Gazprom’s oil assets. The target level will be reached with the help of the existing assets and Gazprom Neft’s equity projects. Furthermore the Company also plans to expand the asset portfolio by acquiring plots of open acreage and purchasing assets on the Russian market.

The share of foreign projects should account for 10% of the total Gazprom Neft Group’s production. 

An important task in raising the efficiency of the operations is rational use of gas resources, including raising the level of recovery of associated gas up to 95%

Refining

The amount of oil refining of JSC Gazprom Neft will reach 70 mln tons a year by 2020.  This will be achieved as a result of the increase in the Company’s own oil refining capacities in Russia of up to 40 mln tons plus an increase in capacities abroad of up to 25-30 mln tons. Therefore, the target ratio of allocation of oil resources will be the following: 40% - refining in Russia, 25-30% - refining abroad, 20-25% direct sales of oil.

The priorities of JSC Gazprom Neft is to implement programs focused on raising the quality of motor fuels, oil processing depth, and operational improvements at all of the Company’s Russian refineries. The task of raising the revenue capacity of the existing refineries will be achieved by making changes to the regulatory and legal framework that are under review by the Russian Government and additionally though taking into account the anticipated changes in the market environment.

The implementation of the quality program meets the requirements of the technical regulations that by 2015, will forbid the circulation of motor fuels lower than class 5 on the territory of the Russian Federation. The program of raising oil processing depth will allow an increase to the cost of the basket of petroleum products made from one ton of oil to a significant extent due to raising the technology level of the Company’s oil refineries to the European level.

With due regard to key efficiency indicators (level of the operational availability, dead weight losses, etc) the operational improvements programs will help reach the level of the leading European refineries and will increase the competitive performance of the Company on the domestic market.

The growth of refining in Russia will be reached by completing consolidation and increasing capacity of the Moscow Refinery. The level of refining in Russia, some 40 mln tons a year, is an optimum for the Company in terms diversifying the risks of deliveries of oil, and the production volume planned to meet Russia’s domestic and external markets.

The basis of growth of refining and sales business outside Russia is the task of reducing risks and raising effectiveness of allocation of crude oil. It should be achieved not only through equity participation in refining capacities, but also through long-term contracts, including processing agreements.

Marketing and Sales

As far as marketing of petroleum products is concerned, the strategic objectives of the Company until 2020 are: selling 40 mln tons of petroleum products through marginal distribution channels in Russia and abroad, creating a strong retail brand, increasing average circulation at filling stations by 20% and doubling the share of related goods and services within the revenue stream.

Within the Russian and CIS markets sources of retail network growth will come from the following:

• Expansion of the retail network until the quantity of motor fuels sold totals 8.1 mln tons a year – through the Company’s own network of filling stations, together with wholesale to smaller outlets – 13 mln tons a year;
• developing dedicated businesses for the promotion of jet fuel, lubricants, bitumens, petrochemicals and bunkering raising total sales up to more than 11 mln tons a year.

Each product sphere has its own separate strategic development plan.  
The increase of oil refining outside Russia will form the basis for development of the respective retailing business and will help reach the mentioned level of 40 mln tons of total retail sales.  
Priorities of the sales strategy development:

• extension of the value chain;
• retail development under the new brand;
• search, estimation, acquisition and integration of filling stations of independent networks and tank farms;
• effective major construction work.

Strategy implemenetation

The investment program of 80 bn USD (including investments of 100% of subsidiaries and equity investees in proportion to the share of JSC Gazprom Neft) has been drawn up for implementation of the investment projects aimed at achieving the strategic objectives by 2020.
In addition to this, the Company needs to carry out joint work with state bodies to reform the existing fiscal system which currently provides no stimulus to long-term development either of the sector as a whole, or JSC Gazprom Neft in particular. 

Setting up joint ventures by pooling assets with international oil companies is another key tool for successful development. In addition to solving the tasks of financing and unbundling of risks, it enables the use of leading-edge technologies and the partner’s experience in implementation of large-scale projects.   

Increasing business scale will provide Gazprom Neft with the largest  total shareholder return amongst Russia’s oil companies and maintain the Company as one of the three leaders in effectiveness among Russia’s vertically integrated oil companies.

Implementation of these plans enables JSC Gazprom Neft to become an international oil and gas company with a regionally diversified package of assets along the entire value chain and to be a worthy competitor on the global energy markets.

Among the main tasks for 2010 there are: strategy updates for particular business areas, improvement in the management of business processes; increasing effectiveness of operations for depleted resource potential. For 2010 it is also planned to continue implementing large-scale projects to prepare for the development of the Messoyakhskiye and Novoportovskoye fields in the North of the YNAD, and for the development of the Company abroad. Some of the tasks that the Company started to address in the second half of 2009 will remain of importance in 2010. The most significant of them are optimization of business processes and cost reduction.

In downstreaming the year 2010 will be the year of active implementation of projects for raising the quality level and oil processing depth at the company’s plants, and continued renovation and rebranding of the filling stations.