General Director's statement
The past year has confirmed the viability of the strategy we approved in 2014. By basing our operations on the UPSTREAM key segment and our chosen niche, we managed to form a business model that would be sustainable in the widest possible range of conditions. Despite the unstable foreign market environment, the difficult geopolitical situation and significant fluctuations in oil prices, we not only achieved and maintained the planned performance indicators, but also continued working on transforming the Company all the year round by improving management quality, accumulating, analyzing and implementing best practices.
Cumulative oil production in the effective share of the Company’s ownership in 2018 amounted to more than 5.1 million tons of oil equivalent, which exceeded the planned figure by 95 thousand tons of oil equivalent. This was achieved through efficient geological and technical measures that were implemented as per the approved production program.
As per the 2018 year-end results, the consolidated proceeds index has increased by 45% compared to 2017 figures. The consolidated EBITDA indicator value increased by RUB 19.3 billion, which is more than 2 times higher than the 2017 level. This, in its turn, will allow the Company to maintain its leading position in dividend payments relative to its financial results. It will also enable it to undertake commitments to pay dividends amounting to RUB 4 billion to the state in 2019.
Part of our activities over the reporting year included continuing our work to develop the UPSTREAM segment, increasing its efficiency, as well as entering new projects. Following the world structure dynamics for reserves, we continue to maintain our focus on small, difficult-to-develop fields and fields with a high degree of depletion. There has been ongoing work on expanding the resource base on existing assets. The reserve increment for 2018, to which our Vietnamese asset JV “Vietsovpetro” contributed the most significant share, amounted to 12 million tons of oil equivalent.
LLC “JC “RUSVIETPETRO” completed the year successfully. The Company increased its EBITDA and net-profit indicators significantly compared to 2017, owing to the surge in the oil selling price, the full implementation of the production program, the introduction of cost optimization measures, as well as tax benefit utilization, which included extension of the right to utilize privileges on export duties levied on oil coming in from the West-Khosedayu Field.
In the reporting year, the South-Syurkharatinskoye and Urernyrdskoye oil fields were launched on a permanent basis. For the sixth year in a row, the production activity at the Company's fields amounted to 3 million tons, and in general, the gross production from the commissioning of the Central Khoreyver Uplift fields amounted to 22 million tons. The company, which is our largest asset in Russia, celebrated its 10th anniversary with such successes.
2018 was also filled with significant events for our other subsidiary – Zarubezhneft-Dobycha Kharyaga LLC. In July 2018, an addendum to the Kharyaga PSA was signed that extended the term of the Agreement to December 31, 2031. The company also continues working on cost optimization. Thus, the results of the events held in 2018 show that the specific OPEX indicator was a little over USD 4 per barrel of oil, while in 2016, the specific OPEX indicator was USD 7.4 per barrel. During the two years of operations, we have managed to almost double the state and partners’ revenues.
The Company has actively been working on introducing methods for enhancing oil recovery and replenishing the resource base to maintain a stable rate of production. The deepening of the lateral hole of one of the wells in 2018 led to the discovery of a new oil reservoir with the geological reserves exceeding 2 million tons (as per preliminary estimates).
Active work on expanding the activities of the Group of Companies continues. Of note is the recent acquisition of a 100% stake in VRJ and obtaining of an investment license for Block 09-3. Documents were also signed on the sidelines of a meeting between Russian Federation President Vladimir Putin and Secretary General of the Communist Party of Vietnam Nguyen Phú Trong for JV “Vietsovpetro” and Zarubezhneft JSC to enter the Block 09-2/09. We will obtain the investment license for this section in 2019, while the first oil will come in before the end of 2022. New assets are expected to balance the production decline at the White Tiger and Dragon fields (Block 09-1), which are in their final stages of development.
In the DOWNSTREAM segment, the surge in oil price (and, consequently, in the price of petroleum products) has allowed us to achieve the set business plan indicators and increase revenue by 4% compared to 2017. I hereby separately note the 2018 continuation of implementation of an important project involving the gasification of Brod Refinery . During my meeting with President of the Republic of Croatia Kolinda Grabar-Kitarovic, the positive results of the work performed were noted and agreements were reached on comprehensive support for the project and its continuation until full completion. Using natural gas as a fuel at the oil refinery will help solve the current environmental issues of the plant and bring the levels of emissions from refinery furnaces to EU standards.
In addition, the project for the construction of an oil-sludge utilization plant at Brod Refinery was completed. The plant has already been commissioned. The New Boiler-house Construction project has almost been fully completed.
Two large investment projects have been implemented at Modriča Motor Oil Plant – replacement of filters at the base oil-dewaxing plant, which will reduce the risk of unplanned shut down in subsequent periods, and the repair of three packing and filling lines.
The company has continued to work on creating a basis for entering new projects. Arrangements with specialized state authorities and oil and gas sector companies have been put in place, while a geological and technical base has been developed for entering new projects in Egypt, Ecuador, Gabon, Sudan, Iraq and Argentina. Negotiations on entering the projects in Uzbekistan have been highly elaborated. Finally, work has begun on entering projects in Cambodia.
Responding to the industry challenges, Zarubezhneft JSC has been implementing a series of projects for digital transformation. At this stage, most of the initiatives relate to the core segment “Geologic Exploration and Production”. Nevertheless, this is a strategic direction that will require the input and participation of the entire management structure of the Group of Companies. The allocation of a digital transformation section as part of a Long-term Development Program has already been agreed upon.
Taking into account the growing competition of technologies, projects have been initiated in the area of renewable energy; the Company highlights the corresponding direction in its business development unit. The main prospects are related to the construction of a 100 MW solar power plant in the countries of current activity – Cuba and Vietnam. Hevel Company has become a strategic partner of Zarubezhneft JSC in the area of solar power generation.
In 2018, we achieved excellent results. Our Company once more demonstrated high efficiency.
In 2019, we will continue pursuing the goals stated in the strategy, carrying out high-quality transformation and focusing on best market practices and trends. We shall begin by supporting primary production, ensuring the timely commissioning of Blocks 12/11, 09/3-12 and the Lutseyakhskoye Field, as well as continuing to expand the resource base with existing and new assets.
General Director of Zarubezhneft JSC