ROSNEFT & SAUDI MERGER
Oil giant Rosneft is interested in the privatization of Saudi Arabia's national petroleum company Saudi Aramco, according to Rosneft CEO Igor Sechin who made the statement at the International Petroleum Week forum in London.
"We are very interested in possible privatization of Saudi Aramco and we would support such a decision. We think that moving in this direction will help the company increase transparency of its operation and give market participants a significant volume of new information about its potential including resources and effectiveness of its work," he said.
According to the official, the privatization of Saudi Aramco could take 2 years after the decision to go ahead with it.
"I think, they will have to go through some preparation period for it, to estimate the geological base, to analyze the company's structure in order to understand what exactly will be privatized – the holding, service companies which form the group, drilling department, transport or something else. It will take time up to two years to make a decision," – Sechin said.
Sechin said that participation of private investors in fully state-owned oil companies, albeit with minority stakes, reduces the dependence of decision making in these companies on purely political factors, increases management's responsibility to shareholders, and in global terms – "helps us equalize the conditions of our work."
In January, it was reported that Saudi Arabia is considering holding an initial public offering (IPO) of its state oil company Saudi Aramco. According to "The Economist", the decision on listing of the company's shares will be made in the next few months.
Saudi Arabia is trying to balance the budget of the country against the backdrop of falling oil prices below $35 per barrel and tensions with Iran. According to officials, Saudi Aramco worth "trillions of dollars", despite the fact that it is one of the most closed oil companies in the world, which did not provide any information about its income.
The company official also dwelt on the future of the oil industry. Sechin noted that Rosneft views the future of Russia's oil sector positively.
"The Russian oil sector's prospects are quite positive," he said, adding that hydrocarbon production may go up in Russia. "In favorable environment, which surely includes the market giving clear signals about the need for additional supplies, production across the country and by Rosneft may well rise. We'll be ready for this course of events both from the technological and business viewpoints," Sechin said.
As for the oil output in the United States, the Rosneft CEO expects it will no longer grow at the pace registered in 2012-2014.
"Under no reasonable hypothesis, will US oil output be able to repeat the growth leap of the 2012-2014 period," Sechin said.
"This is a very important but yet underestimated factor," Sechin said.
Sechin pointed out the price for shale oil plunged three-fold on the US market while production dropped by 15%.
"Prices [for shale oil] plunged three-fold, the number of drilling crews [decreased] more than two-fold while production is down by no more than 15% so far," Sechin said, adding that this means that the US shale oil market "has demonstrated a fairly flexible technological response to price shocks."
Oil export from Iran
Discussing the Iranian oil issue, the Russian official noted that oil production in Iran may be increased by 43% to 4.5 mln barrels per day by 2020.
"[Iran's] base case scenario implies a 43% surge (in oil production) to 4.5 mln barrels per day by 2020 only on operational or preserved capacities. The optimistic scenario implies that oil production in Iran will exceed 5 mln barrels per day by 2020 and 6 mln barrels per day by 2025 due to sufficient foreign investment and implementation of a number of PSA (production sharing agreements) projects," Sechin said.
According to Iranian oil ministry's estimate, the country will need to attract around $30 bln worth of investment by 2018 and $180-220 bln in the long-term for the oil and gas sector, Sechin said, adding that "this will be no easy to task to do this due to investors' circumspective approach related to political risks ahead of 2017 election in the Islamic Republic."
Oil export from Iran will surge by 85% to 2.4 mln barrels per day by 2020, Sechin said.
"The volume of oil to be exported from Iran will surge from 1.27 mln barrels per day in 2014 by 85% by 2020 – to 2.4 mln barrels per day," he said.
According to Sechin, export of oil from reserves of Iran's tanker fleet consisting of 49 ships with gross displacement of around 11 mln tonnes, may trigger short-term increase in supply.
"However, many experts say this factor is unlikely to have a substantial impact on the market's supply-demand balance as skunk gasoline, which has a narrow market, makes the bulk (around two thirds) of those hydrocarbons," President said.
Anti-Iran sanctions were lifted on January 16, after Tehran and the "six" of international mediators (the five permanent UN Security Council members and Germany) announced the start of implementation of the nuclear deal.
Earlier Iran's oil industry leadership repeatedly stated that Iran was ready to increase production and export of oil by 500,000 barrels per day immediately after the lifting of sanctions.
The country's draft budget for next year (Iranian calendar begins on March 21) implies daily volume of exports at 2.25 million barrels. To date, exports accounted for about 1 million barrels a day.
Cooperation prospects with China
Rosneft CEO said there is no doubt about prospects of the company's cooperation with the People's Republic of China.
"Rosneft has a huge positive experience of being a major long-term oil supplier to China, and we don't doubt the prospects of development of our cooperation," he said.
Rosneft privatization possible at $100 per barrel
The official says the company's efficient privatization is possible at $100 per barrel oil price.
"This is a very simple question if we consider it at the expert level – we just have to wait for $100 per barrel (oil) price," he said.
"However, I think other circumstances should be taken into account here, such as issues related to generation of additional budget revenues," he added.
Rosneft's management will accept any decision made by the government regarding the company's privatization, Sechin also said.
"The company's management will obviously implement any decisions made," he said, adding that the issue (regarding privatization – TASS) should be addressed to the government. "The question should be addressed to the government, not me," he said.
Oil prices and supply
Sechin said the current oil prices are at their lowest level since 1973.
"Taking into consideration many-fold increases in costs for unit and capital costs I would say that today's prices are the lowest since 1973," he said.
Oil supply currently exceeds demand by 1.5-1.7 mln barrels per day while demand for liquid hydrocarbons will be growing by 1.3-1.5% per year, Rosneft CEO added.
"Taking into account a certain slowdown in growth rates of the global economy's oil capacity particularly due to plunging oil prices, it's very likely that annual demand for liquid hydrocarbons will be going up by around 1.3-1.5% in the mid-term... Currently, supply exceeds demand by 1.5-1.7 mln barrel per day, which is roughly equivalent to excess of the total quota accorded by the OPEC countries on supplies (30 mln barrel per day excluding Indonesia)," President said.
According to Sechin, global oil demand may increase by 1.4-1.5 mln barrels per day by the end of 2016 while oil production is likely to face mixed trends: decrease of oil output in the US by 0.7 mln barrels per day amid ongoing increase of production by OPEC states by 0.6 mln barrels per day (mainly due to expected production growth in Iran).
"Thus, the imbalance between oil demand and supply may be seriously reduced already by the end of 2016 while in end-2017 a lack of oil supply may emerge on the market (up to 0.7 mln barrels per day), though it may be replaced by reduction of oil commercial reserves accumulated over the recent years," Sechin said.
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