ROSNEFT: NUMBER ONE
Rosneft will shift its focus from acquisitions to new projects after a period of aggressive dealmaking that has transformed the Russian energy industry, as the country's economy is hit by US and European sanctions.
The move marks a significant strategic change for the state-controlled oil group which, in the two years since Igor Sechin, a close ally of president Vladimir Putin, took over as chief executive has embarked on one of the most aggressive runs of acquisitions in industry to become the world's largest listed oil company by output.
Svyatoslav Slavinsky, chief financial officer, said the Russian state-controlled oil group's strategy was "all about organic growth".
"We never say we will never do a deal, but you can see where the focus is," he told the Financial Times in an interview. "We are number one by size, number one by growth, number one by reserve base, number one by efficiency: we don't have to buy more."
Rosneft is aiming for a 30 per cent increase in production by 2020 and to double its total oil and gas output to 10m barrels of oil equivalent per day in the next 20 years, Mr Slavinsky said.
It plans to develop new oil resources, from east Siberia to the Arctic sea, which geologists believe is one of the last major untapped sources of oil and gas in the world, where it will start drilling with ExxonMobil this summer. With Mr Putin participating by video link, Mr Sechin this month launched the world's largest offshore drilling platform to explore the Sea of Okhotsk.
"Today it's a stable 5mboe/d, we can potentially become 10mboe/d – which is clearly the largest in the world, and will be the largest in the world by a huge margin," said Mr Slavinsky.
Rosneft's ambitious organic growth plans are an indirect riposte to Washington, which has imposed sanctions on Mr Sechin personally and hinted that it could to extend them to restrict sales of US oil and gas technology to Russia.
Karen Kostanian, oil and gas analyst at Bank of America Merrill Lynch in Moscow, said that the clarity over Rosneft's long-term plans would offer reassurance that the Kremlin "does not really want to establish a full control over the energy sector".
Mr Slavinsky said Rosneft had seen "no impact whatsoever" from western sanctions, and that it had built up a safety net of cash on its balance sheet – $20bn at the end of March – that would allow it to weather any sanctions-induced volatility in financial markets.
Rosneft's aim to boost production outside of Russia's traditional oil patch in west Siberia will be crucial for the Russian economy, which depends on energy for more than half of government revenues but is facing the prospect of a drop in production from ageing fields developed in Soviet times.
The company's rapacious appetite for acquisitions has dominated the Russian energy industry in recent years, with market rumours linking it to almost every other company in the sector. In addition to the $55bn purchase of TNK-BP finalised last year, the company has made a string of deals to buy gas producers, refineries, and drilling companies.
Mr Slavinsky added that Rosneft would continue to look for acquisition opportunities in its drilling and services division, but that they would be "small in size". The company is also awaiting regulatory approval of the acquisition of Morgan Stanley's oil trading division, a process he said was on track despite the political environment. "So far we haven't had any negative signals," he said.
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EIA - Brent crude oil spot prices averaged $79 per barrel (b) in September, up $6/b from August. EIA expects Brent spot prices will average $74/b in 2018 and $75/b in 2019. EIA expects West Texas Intermediate (WTI) crude oil prices will average about $6/b lower than Brent prices in 2018 and in 2019.