Board of Directors Meeting
OJSC OC Rosneft Board of Directors considered at its meeting held on February 10 the results of the company’s operational and commercial activities in 2004. Members of the Board stated that Rosneft was keeping on its gradual development during the period. The incremental value of oil and condensate increased at 10.5% in comparison with 2003; the rate is the highest among all the leading domestic oil extracting companies, it exceeds an average sector rate at 1.2 percent. Meanwhile Rosneft still had the lowest rate of relative quantity of out-of-operation wells in its operation stock; and the highest rate of the refining units charge level.
Rosneft remained at the second place in the area of gas extraction; the leader was Surgutneftegas.
Rosneft oil extracting enterprises extracted 21.6 million tons of oil in 2004, it is 2.1 million (10.5%) tons higher than in 2003. The highest increase level was achieved by OJSC Selkupneftegas (299 thousand tons more), OJSC Sakhalinmorneftegas (183 thousand tons more) and OJSC Grozneftegas (195 thousand tons more).
The Rosneft operation wells stock now totals to 8626 wells.
Natural gas extraction totaled to 9.2 billion cubic meters in 2004. That is 2.2 billion cubic meters (31.6%) higher than in 2003. The highest increase rate was reached by OJSC Purneftegas (1.1 billion cubic meters, 40.3%), and OJSC Krasnodarneftegas (18.2%).
In 2004 531.4 thousand meters were drilled, 182 new oil and gas condensate wells were put into operation. Rosneft prospect and exploration drilling advance totaled to 61.1 thousand meters (22.2% higher than the target plan).
As of end of 2004 the company possessed 268 licenses for the right to use subsurface mineral resources, including 217 licenses for extraction, 25 combined licenses (prospect, exploration, and extraction) and 26 licenses for geological exploration.
The amount of 2D seismic prospecting totaled in 2004 to 20.7 thousand linear kilometers, which was by 5 times more that the target task. The amount of 3D seismic prospecting totaled to 3.7 thousand square kilometers last year. Resources growth due to the geological exploration operations (taking into account participating in some new projects) totaled to 19.9 million tons of oil and condensate and 19.4 billion cubic meters of gas in 2004.
The value of crude oil distillation at the Rosneft refining plants (inclusive of customer-owned raw materials) totaled in 2004 to 9.3 million tons, whereof 6.5 million (more than 70%) is the company’s own oil.
The refining extent at the Komsomolsk refinery was fixed at the level of 59.6% in 2004, refining value – at the level of 5.2 million tons. Tuapse refinery reworked 4.1 million tons of materials, which was 1% higher that in 2003. The refining extent totaled there to 55%. In view of conveying the enterprise under the full control of Rosneft (after purchasing the additional stock of 40% shares from minority holders at the end of 2004), the Tuapse Refinery was 100% charged by Rosneft’s oil since December. Other companies’ refineries reworked 466.6 thousand tons of Rosneft’s oil.
Construction works at the hydrotreating and sulfur production units were continued at the Komsomolsk refinery in 2004 in the framework of implementing the program on reconstructing and upgrading the oil refining facilities.
Works targeted at supporting the operating facilities in usable condition were conducted at the Tuapse refinery. Reengineering the heat power plant was completed last year, and provided the refinery’s stable performance.
The Moscow Nefteproduct plant presented in 2004 production volume of 5.1 thousand tons, which was 19.1% higher than in 2003. The plant’s productive facilities were transferred to producing exclusive high profitable and demanded small-tonnage production.
Oil Products Sales
The company had in the books 105 oil storage bases and 636 gasoline filling stations in 2004. The total sales turnover (including transferring and storage services) was fixed in 2004 at the rate of 23.2 million tons, which totaled to 115.8% comparing to 2003. 889 thousand tons of oil products were sold by means of filling stations, which exceeded the rate of 2003 at 14.5%.
A new transportation scheme was designed in order to launch export from the Timano-Pechorsk province oil and gas deposits and Priraslomnoye oil field at the Barents Sea shelf. The scheme offers the transportation route the Privodino station – Arkhangelsk – Murmansk using the Belokamenka floater with the capacity of 360 thousand tons of oil, located off-shore Murmansk in the Kola Bay, for its following loading to customers’ super tankers. Since the beginning of 2004 the whole amount of oil transferred via the Arkhangelsk terminal was transported to the floater in tankers of 15-20 thousand tons deadweight. The final stage of establishing the Privodino – Arkhangelsk – Murmansk scheme was building an oil loading terminal at the Privodino station (the Northern Railways). The terminal’s initiate capacity is 3.2 million tons and it was designed for the oil transported through the JSC Transsneft’s pipeline storage. This route since it was put into operation in December 2004 provides transporting the whole amount of oil extracted by OJSC Severnaya Neft.
The amount of the company’s investments in 2004 totaled to 41 billion rubles. Besides, the foreign partners invested 8.9 billion rubles in the projects in which they participated, the sum was 2.75 billions (45%) higher than is 2003. The main company’s assets (57%) were invested in the projects in effect. 7.3 billion rubles were used for purchasing licenses and shares.
In December 2004 Rosneft bought 100% shares stock of Baikalfinancegroup LLC, which had won the auction on selling 76.79% of OJSC Yuganskneftegas shares. Taking into consideration that Baikalfinancegroup had not paid off the whole sum for the Yuganskneftegas stock before it sold the shares to Rosneft, Rosneft paid 260.7 billion rubles for the purchase within the end of the year.
As regards the Priraslomnoye deposit exploration, the company continued works on building the caisson, deepening and widening the sea channel for the platform output, constructing its upper unit and a multifunctional ice-braking vessel. The specialists adjusted the geological structure of the deposit, estimated the recoverable resources and prepared a Production Sharing Agreement project as well as some necessary RF Government resolutions projects and the Federal Law on the Agreement project, which were then conveyed to the RF Government consideration.
In reference to the Vankor field exploration, the seismic exploration works in 2004 were finished by drilling the three wells with oil influx. In August 2003 Rosneft managed to gain 10 licenses for exploring the deposits neighboring to the Vankor field. The project investments schedule doubled during the year.
Besides these projects the company financed the following programs: the Adaysky deposit and the Kurmangazy structure in Kazakhstan development; oil-and-gas resources on the territory of Algeria development; the Black Sea, the Sea of Azov and the Caspian Sea shelves exploration; fitting-out the Ispolin vessel and its reequipment to a floating drilling unit; the Sakhalin-3 project (Venin block). Some other Sakhalin projects in operation were invested by Rosneft foreign partners. The 2004 investing program used 90% of the assets owned by the company and its branch enterprises, and 10% of borrowed assets.
Economics and Finance
The total amount of the company’s balance-sheet profit in 2004 was 34.4 billion rubles, which was 2.6 billion rubles (8%) higher than in 2003. All the productive joint stock corporations proved profitable.
The company’s clear profit in 2004 totaled to 25.8 billion rubles, which was 5.4% higher than the 2003 rate. The net profit after paying off the earnings per share would be used for investing program.
Payments to Budgets
The value of taxes paid to all-levels budgets and extra-budgetary funds in 2004 increased at 47.7% and totaled to 63.1 billion rubles. Such huge increase is provided by the rise of production volume, oil prices and natural resources extraction tax escalation.
The company designed in 2004 its social program according to the medium-term program on improving the OJSC OC Rosneft employee’s social living conditions. The program envisaged that some measures aimed at productive social sphere development should be undertaken: building new shift camps and dormitories, developing the now operating settlements, purchasing portable houses for operation teams, keeping social sphere objects, paying social and retiring payments. Some measures aimed at social sphere development in regions were also needed: building accommodations, medical facilities, sport units and other social and cultural constructions; charity work.
Social payments increased at 18.5% in 2004 in comparison with 2003, and totaled to 434.1 million rubles. Retiring pension payments through the Neftegarant accumulative retiring pension fund, which is a part of the Rosneft corporative structure, totaled to 345.2 million rubles.
Within the regional social development program the company invested assets in building 6654 square meters of accommodation for the sum of 186 million dollars, in purchasing 1682.3 square meters of accommodation for branch enterprises employees (172% in comparison with 2003), and in building two medical complexes and seven social-cultural units.
Scientific and Engineering Works
Geological, science-technical, engineering, forecasting and analytic works were conducted during the previous year with the total investments sum of 403 million rubles. Most of the works (more than 70%) were conducted by the Rosneft corporative scientific-engineering branches: OJSC RosNIPItermneft, RC Roylsoft, SakhalinNIPImorneft and LLC RN-Perspektiva.
According to the estimations, an average volume of ecological payments comparing to the year 2003 increased by 2.3 times. The total number of Rosneft environmental protection measures investments was 825.2 million dollars, and rose at 5.6% in comparison with 2003. Industrial security investments totaled to 785.4 million rubles.
According to the calculations the company spent 150.7 million rubles on economic security (not taking into account the OJSC Grozneftegas security). As the result of the 357 special operations, damage with the total value of 25.5 million rubles was prevented: 41 illegal pipeline branch joints and 14 hand-build mini-units for oil processing were found and destroyed.
The company invested 514.8 million rubles in providing security at the Grozneftegas units operating on the Chechen Republic territory. Oil losses resulted from criminal encroachment totaled to 73.7 thousand tons. The enterprise specialists succeeded in removing more than 490 illegal pipeline branch joints (1562 joints in 2003).
The Agreement on cooperation signed by OJSC OC Rosneft and the Chechen Republic Government in November 2004 envisaged some definite offers concerning the Republic’s oil and gas complex security.