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ROSNEFTROSNEFT
Credit Suisse Energy Credit Suisse Energy SummitSummit
VailVailFebruaryFebruary, 2011, 2011
2
Important NoticeImportant Notice
The information contained herein has been prepared by the Company. The opinions presented herein are based on general information gathered at the time of writing and are subject to change without notice. The Company relies on information obtained from sources believed to be reliable but does not guarantee its accuracy or completeness.
These materials contain statements about future events and expectations that are forward-looking statements. Any statement in these materials that is not a statement of historical fact is a forward-looking statement that involves known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. We assume no obligations to update the forward-looking statements contained herein to reflect actual results, changes in assumptions or changes in factors affecting these statements.
This presentation does not constitute an offer or invitation to sell, or any solicitation of any offer to subscribe for or purchase any securities and nothing contained herein shall form the basis of any contract or commitment whatsoever. No reliance may be placed for any purposes whatsoever on the information contained in this presentation or on its completeness, accuracy or fairness. The information in this presentation is subject to verification, completion and change. The contents of this presentation have not been verified by the Company. Accordingly, no representation or warranty, express or implied, is made or given by or on behalf of the Company or any of its shareholders, directors, officers or employees or any other person as to the accuracy, completeness or fairness of the information or opinions contained in this presentation. None of the Company nor any of its shareholders, directors, officers or employees nor any other person accepts any liability whatsoever for any loss howsoever arising from any use of this presentation or its contents or otherwise arising in connection therewith.
3
Q4Q4’’10 and 12M10 and 12M’’10 Highlights10 Highlights
Q4`10 - challenges
Growth in transportation tariffs
Strengthening of the RUB against the USD
Domestic prices lagging export netbacks
2011 priorities
Internal optimization: divestment of non-core assets/subsidiaries, optimization of business processes
Meeting 2011 Business plan targets
Continued cost controlIncrease in energy efficiency Work with suppliers and contractorsHeadcount optimization Capex prioritization
Continue discussion to update tax regime
Strong financial results:
• EBITDA – USD 5.4 bln in Q4 and USD 19.2 bln in 12M
• Net income – USD 3.1 bln in Q4 and USD 10.7 bln in 12M
• Operating cash flow – USD 14.9 bln in 12M
• Record free-cash flow generation of USD 5.8 bln in 12M
• Net debt decreased to USD 13.7 bln(pre-2007 acquisitions level), or by USD 4.8 blnfrom December 31, 2009
Crude oil production growth of 6.4% y-on-y
Retail sales volumes growth of 10% y-on-y
Sales of petroleum products through commodity exchanges – 3.4 mln tonnes in 12M, or 16.6% of total domestic sales (x2.9 increase y-on-y)
PositivesPositives Challenges, PrioritiesChallenges, Priorities
4
Macroeconomic Environment:Macroeconomic Environment:Prices Up YPrices Up Y--onon--Y and QY and Q--onon--Q, Real Strengthening of the RubleQ, Real Strengthening of the Ruble
(4.3)%
18.0%
18.2%
26.9%
29.1%
28.9%
, %
(12.5)%
8.8%
31.72
398.0
579.8
348.6
520.7
59.5
12M’09
11.6%
8.8%
30.37
469.5
685.1
442.3
672.3
76.7
12M’10
9.0%464.2506.2Diesel (av. Russia), $/tonne (summer)
(0.3)%706.2704.2High octane gasoline (av. Russia), $/tonne
8.4%427.7463.6Fuel oil 3.5% (FOB/CIF Med), $/tonne
12.4%652.0732.7Gasoil 0.1% (FOB/CIF Med), $/tonne
11.3%75.183.6Urals FOB Primorsk, $/bbl
0.3%
, %
0.2%
1.8%
30.62
Q3’10Q4’10
Average USD/RUB exchange rate 30.71
Inflation for the period, % 2.6%
Real RUB appreciation/(depreciation)compared with the previous period, %
1.8%
5
NonNon--controlled Expenses:controlled Expenses:Transportation Tariffs Up AgainTransportation Tariffs Up Again
45.6%
39.7%
22.5%
17.3%
52.6%
, %
65.8%
39.22
9.91
4.80
1,115
24.51
12M’09
74.4%
57.12
13.84
5.88
1,307
37.40
12M’10
%
USD/bbl
USD/bbl
USD/bbl
RUB/t
USD/bbl
10.2%55.0060.60Total non-controlled costs
15.2%13.3415.37MET
2.7%5.846.00Yugansk – Novorossiysk tariff
3.0%1,3071,347Yugansk – Novorossiysk tariff
73.4%72.5%Non-controlled costs / Urals FOB Novorossiysk
9.5%35.8239.23Export customs duty
, %Q3’10Q4’10
Transneft increased the tariffs three times in 2010: by 15.9% from January 1, by 3.3% from August 1 and by 9.9% from December 1
Zero export duty on East Siberian crude oil was replaced by a special duty calculated according to the following formula: 45% * (Urals – USD 50 bbl). Rosneft accrued USD 236 mln of export duties on Vankor crude oil in Q32010 and USD 312 mln in Q4 2010
6
Q4`10 and 12MQ4`10 and 12M’’10 Results Overview:10 Results Overview:Record EBITDA and FCF, Strong Volume GrowthRecord EBITDA and FCF, Strong Volume Growth
(58.9)%2,04584069.6%3,4435,839Free cash flow before dividends1
(26.1)%
23.2%
38.2%
61.3%
41.6%
34.6%
1.8%
(2.7)%
6.4%
, %
18,489
7,252
10,791
6,472
13,565
46,826
47.06
12.68
2,182
12M’09
13,662
8,931
14,910
10,442
19,203
63,047
47.89
12.34
2,322
12M’10
19.4%2,3182,768Capital expenditures, USD mln
13,952
4,386
2,525
4,638
15, 471
12.42
2.86
2,332
Q3’10
(2.1)%
(15.1)%
17.1%
15.9%
12.4%
(1.4)%
13.6%
0.9%
, %Q4’10
Daily crude oil production, th. bpd 2,352
Gas production, bcm 3.25
Petroleum product output, mln t 12.25
Revenues, USD mln 17,384
EBITDA, USD mln 5,377
Adjusted net Income , USD mln 2,958
Adjusted operating cash flow1 , USD mln 3,722
Net debt , USD mln 13,662
1. Operating cash flow and free cash flow are adjusted for operations with trading securities as part of excess cash management (outflow of USD 472 mln in 12M’09, inflow of USD 262 mln in 12M’10, outflow of USD 32 mln in Q3’10, outflow of USD 86 mln in Q4’10).
7
Daily Crude Oil Production:Daily Crude Oil Production:Continuing to Contribute Majority Continuing to Contribute Majority of Russian Production Growthof Russian Production Growth
* Excluding share in Tomskneft.
Source: CDU TEK, Rosneft.
(2.8)%
(2.2)%
(0.2)%
(0.1)%
0.0%
2.0%
6.4%Rosneft
TNK-BP
Tatneft
Surgutneftegaz
Gazprom Neft*
LUKOIL (in Russia)
Slavneft
Daily Crude Oil Production in Russia, 2010 vs. 2009Daily Crude Oil Production in Russia, 2010 vs. 2009
Russ
ia’s
ave
rage
+2.2
%
Crude oil output in Russia, th. bpd
10,123
9,905
6810140
9,300
9,800
10,300
2009 Rosneft Otherintegrated oils
Othercompanies
2010
+2.2%
8
Daily Crude Oil ProductionDaily Crude Oil ProductionImplementing Sustainable Growth StrategyImplementing Sustainable Growth Strategy
Key priorities for 2011Key priorities for 2011
Production growth by ~1%
Construction works at Vankor to ramp-up production in the middle of the year by 45,000 bpd and continue ramp up in the end of 2011 through gradual launch of the second stage of the project
Plateau production at Yugansk of ~1.3 mln bpd
Focus on efficient recovery of drilled but not recovered reserves – growth of recovery ratio –increase in reserves and stabilization of production at developed fields at lowest cost
Drilling risk management to maximize capexefficiency – additional seismic works and other geological information to enhance field development models and make better placement of wells1,900
2,000
2,100
2,200
2,300
2,400
2,500
2009 2010 2011
th. bpd Launch of production at
Vankor
Extremely low temperatures in Western Siberia
Jan Feb Mar Jun Jul Aug Sep Oct Nov DecMayApr
Turnaround works at
Sakhalin-1
9
726
470
332
3,043
Vankor Rosneftaverage
Yugansk Russia'saverage
Drilling Activity and Wells ProductivityDrilling Activity and Wells ProductivityDrilling More Wells with Industry Leading Flow RatesDrilling More Wells with Industry Leading Flow Rates
530 533605
700779
1 1
76
71
71
90 84
52
64
117
2007 2008 2009 2010 2011BP
Yugansk Vankor All other
New production and injection wells put into operation by Rosneft’s subsidiariesNew production and injection wells put into operation by Rosneft’s subsidiaries
* Including injection wells.
Average flow rates of the new wells, 9M’10Average flow rates of the new wells, 9M’10
bpd
10
1,250
1,300
1,350
2009 2010 2011
1,291
1,324
13
5
15
1,280
1,290
1,300
1,310
1,320
1,330
2010 Plan Higher flowrates of new
wells
Additionalwells
Higherefficiency of
wellinterventions
2010 Actual
0
400
800
1,200
1,600
Yuganskneftegaz Daily Crude Oil Production, ‘000 bpdYuganskneftegaz Daily Crude Oil Production, ‘000 bpd
Yugansk: Yugansk: 2.6% Ahead of Plan in 20102.6% Ahead of Plan in 2010
Plan-fact Analysis, ‘000 bpdPlan-fact Analysis, ‘000 bpd
Jan Feb Nov DecSep OctAugMar Apr May Jun Jul
Initial flow rates of new wells, bpdInitial flow rates of new wells, bpd
Stabilized
2005 2006 2007 2008 2009 2010
11
0
50
100
150
200
250
300
350
0
50
100
150
200
250
300
350
Vankor:Vankor:Above Midpoint Guidance for 2010, Expanding Capacities in 2011 Above Midpoint Guidance for 2010, Expanding Capacities in 2011
2009 2010
‘000 bpd
July 20, 2009 - start of ‘zero’ production
stage, filling of the pipeline
‘Extended zero’ stage, 260 th. bpd just within
8 months
Jan Jan
‘000 bpd
2011
Current output -280 th. bpd
Increase in capacity of the
Southern oil treatment unit
Gradual launch of the Central oil
treatment unit
2011 plans:
Average daily production ~300,000 bpd
CAPEX - USD 2.6 bln
Production growth factors:
~70 production and injection wells
Increase in capacity of the Southern oil treatment unit
Gradual launch of the Central oil treatment unit
Jan Dec
12
Refinery Upgrade ProgressRefinery Upgrade Progresson Scheduleon Schedule
upgradeCDU-VDU
upgradeReforming
upgradeReforming
upgradeVisbreaking
upgradeupgradeReforming
upgradeIsomerization
newIsomerization
Komsomolsk
newDelayed coking
Syzran
newHydrogen production
Kuibyshev
newHydrogen production
Angarsk
newIsomerization
newHydrogen concentration
Novokuibyshevsk
201120102009
Completed construction and upgrades and plan for 2011Completed construction and upgrades and plan for 2011
CDU-VDU, hydrocracking, hydrotreatment, isomerization, catalytical reforming, flexicokingTuapse
alkylation, hydrotreatment, MTBE productionAngarsk
delayed coking, reforming, hydrocracking+ hydrotreatmentAchinsk
FCC complex, hydrotreatmentSyzran
FCC complex, isomerizationKuibyshev
catalytical reforming, hydrocracking + hydrotreatment, second stage of isomerizationNovokuibyshevsk
hydrocracking + hydrotreatmentKomsomolsk
Key new units to be completed after 2011Key new units to be completed after 2011
2011 capex – USD 2.1* bln (USD 1.5 bln in 2010)
Upgrades to be completed by 2015
Capacity to increase by 150,000 bpd
Nelson complexity to increase from 4 to more than 7
Light product yield to grow from 57% to 78%
IRR above 20% (including at 60/66 scenario)
* At 30.5 RUB/USD. Not including the capitalized expenses on the expansion of the pipeline to the Tuapse refinery.
13
46,826
63,047350135176623131,3641,524
(726)
3,2732,100
7,650
12M'09 Oil exportsprice
Oil exportsvolume
Productexports
price
Productexportsvolume
Productdomestic
price
Productdomesticvolume
Bunkerfuel salesto end-
users
Gas Petroche-micals
Oildomestic
Other 12M'10
Revenues Reconciliation, USD mlnRevenues Reconciliation, USD mln
15,471
17,384583
(253)(5)
23
1,142350
157
(77) (34)
4 23
Q3'10 Oil exportsprice
Oil exportsvolume
Productexports
price
Productexportsvolume
Productdomestic
price
Productdomesticvolume
Bunker fuelsales to
end-users
Gas Petroche-micals
Oil domestic Other Q4'10
12M
`10
vs. 1
2M`0
912
M`1
0vs
. 12M
`09
Q4’
10 v
s. Q
3’10
Q4’
10 v
s. Q
3’10
+12.4%
+34.6%
14
Expenses DynamicsExpenses DynamicsDecreasing in Real TermsDecreasing in Real Terms
Upstream Operating Expenses, USD/bbl of oil producedUpstream Operating Expenses, USD/bbl of oil produced Refining Operating Expenses, USD/bbl of oil processedRefining Operating Expenses, USD/bbl of oil processed
SG&A Expenses, USD/bbl of oil producedSG&A Expenses, USD/bbl of oil produced Transportation Expenses, USD/bbl of oil producedTransportation Expenses, USD/bbl of oil produced
2.832.57
3.413.48
0
1
2
3
4
2007 2008 2009 2010
2.001.88
2.342.19
0
1
2
3
2007 2008 2009 2010
2.031.94
2.31
1.88
0
1
2
3
2007 2008 2009 2010
8.967.448.02
5.93
0
3
6
9
12
2007 2008 2009 2010
Upstream operating expenses include materials and electricity, workover, wages and salaries, and cost of transport to a trunk pipeline.
Selling, general and administrative expenses include payroll at headquarters and management-related subsidiaries, payroll of top management of operating subsidiaries, audit & consulting expenses, bad debt allowance and other costs.
Transportation costs include costs to transport crude oil for refining and to end customers, and to deliver petroleum products from refineries to end customers (cost of pipeline and railroad transportation, handling, port fees, sea freight and other costs).
+10.1% y-on-yat 12% real ruble appreciation
+6.4% y-on-yat 12% real ruble appreciation
+4.6% y-on-yat 12% real ruble appreciation
+20.4% y-on-yat 12% real ruble appreciation
15
18.6324.65
(0.09)(0.74)(1.52)(0.47)
(7.77)
16.61
12M'09 Revenue Taxes Purchases Transport OPEX SG&A 12M'10
+32.3%
EBITDA and Net Income per bbl Reconciliation:EBITDA and Net Income per bbl Reconciliation:1212MM’’1010 vs. vs. 1212MM’’0909
EBITD
A, U
SD/b
blEB
ITDA
, USD
/bbl
Net
Inco
me,
USD
/bbl
Net
Inco
me,
USD
/bbl
8.95
(0.33)(0.06)(1.23)(0.09)(0.74)(1.52)(0.47)
(7.77)
16.61
13.35
12M'09 Revenue Taxes Purchases Transport OPEX SG&A DD&A FX Income taxand others
12M'10
+49.2%
16
Operating Cash Flow ReconciliationOperating Cash Flow Reconciliation
10,79114,910
(677)216
5,717 (603)(469)(248)183
12M'09 Increase in netincome before FXand deferred tax
effect
Difference inreceivables change
Difference inadvances issued
and other currentassets change
Difference in tradepayables change
Difference in taxespayable change
Difference in otherworking capital
change
Other 12M'10
+38.2%
12M
’10
vs.1
2M’0
912
M’1
0 vs
.12M
’09
Q4’
10vs
. Q3’
10Q
4’10
vs. Q
3’10
649
4,3863,722
(497)(475)
230(191) (107) (273)
Q3'10 Increase in netincome before FXand deferred tax
effect
Difference inreceivables change
Difference inadvances issued
and other currentassets change
Difference in tradepayables change
Difference in taxespayable change
Difference in otherworking capital
change
Other Q4'10
-15.1%
Operating Cash Flow Reconciliation, USD mlnOperating Cash Flow Reconciliation, USD mln
17
Sources and Uses of Cash:Sources and Uses of Cash:Strongest Cash Flow GenerationStrongest Cash Flow Generation
170
Sources Uses
Dividends paid and rights for Sochi-2014
trademarks repayment
Increase in cash and investments
5,250
759
Capital expenditures and
licenses acquisition
9,071
Net increase in debt
Operations 14,910
12M’201012M’2010 Q4’2010Q4’2010
2,882
Operations3,722
2,912
Sources Uses
Dividends paid and other
outflows
737
Increase in cash
and investments
3,015
Capital expenditures and
licenses acquisition
Net increase in debt
Operating cash flow is adjusted for operations with trading securities as part of excess cash management (inflow of USD 262 mln in 12M’10, outflow of USD 86 mln in Q4’10).
18
2,768
2,318
2,091
1,754
Q1 Q2 Q3 Q4Q1 Q2 Q3 Q4Q1 Q2 Q3 Q4
Capital Expenditures:Capital Expenditures:At the Lower End of the Initial Guidance in 2010At the Lower End of the Initial Guidance in 2010
2007 2008 2009 2010 2011
Upstream Yugansk Upstream Vankor Other Upstream
Refining Marketing Other**
6,780
8,732
7,252
~11,000*
8,931
** Other includes net change in construction materials, capex of service companies and other capex.
USD mln
20102011
USD mln
* At 30.5 RUB/USD. Not including the capitalized expenses on the expansion of the pipeline to the Tuapse refinery.
19
Net Debt Reconciliation:Net Debt Reconciliation:Reaching preReaching pre--2007 Acquisitions Level2007 Acquisitions Level
18,489
(25)278
9,830
(14,910)
13,662
Adjusted net debt as ofDecember 31, 2009
Adjusted operating cashflow
CAPEX, licenses, Sochi-2014 trademark and
dividends
Net acquisition ofavailable for sale
securities
Other Adjusted net debt as ofDecember 31, 2010
Decreased by USD 4.8 bln
USD mln
Net debt is adjusted for short and medium term bank deposits and other short-term investments as part of the excess cash management.Operating cash flow is adjusted for operations with trading securities as part of excess cash management
13.715.8
18.519.221.321.4
26.324.8
13.3
31.12.06 30.06.07 31.12.07 30.06.08 31.12.08 30.06.09 31.12.09 30.06.10 31.12.10
USD bln
20
Credit ProfileCredit ProfileStrengthened FurtherStrengthened Further
18.4913.66Net debt, USD bln
16.628.2LTM EBITDA interest coverage
29.2%20.0%Gearing (Net Debt to Net Debt + Equity)
66.7%76.7%Long-term debt, %
2.32%3.53%Weighted av. cost of debt
85.2%88.4%USD denominated debt, %
23.523.6Total debt, USD bln
1.36
Dec. 31, 2009
0.71
Dec. 31,2010
Net debt / LTM EBITDA
Repayment profile*, USD blnRepayment profile*, USD bln
BBB- (stable)
1 (stable)
BBB- (positive)
Fitch
Moody’s
S&P
Credit ratingCredit rating
5.76
1.040.620.66
2.14
3.16
2010 2011 2012 2013 2014 2015
Repaid as of Dec. 31, 2010 To be repaid
The China Development Bank facility (USD 15 bln) was fully drawn by Dec. 31, 2010
Repayment starts in 2014
* Future repayments include only long-term debt with its current portion.
21
Strategic Alliance with BPStrategic Alliance with BPBeginning of the Arctic HistoryBeginning of the Arctic History
Estimated resources (Russian classifications)
5.71.6East-Prinovozemelsky-3
10.335.8Total
2.212.5East-Prinovozemelsky-2
2.421.7East-Prinovozemelsky-1
Gas, tcmOil, bln bbls
World-class joint exploration program in the South Kara Sea (Rosneft to have 66.67% stake in the Joint Operating Company, BP to carry financing of the initial exploration stage)
Formation of an ‘Arctic Technology Centre’ -access to additional technological expertise to kick start works on the Russian Arctic shelf
Formation of a ‘Mobile Emergency Preventionand Rapid Reaction Centre’
Strategic equity swap – Rosneft to acquire 5% of BP in exchange for 9.5% of Rosneft (treasury shares)
Discussion of potential joint international projects
125,000 sq. km
22
Black Sea Exploration Efforts Black Sea Exploration Efforts High Potential to Share with PartnersHigh Potential to Share with Partners
Prospective recoverable oil resources(D&M estimate as of 31.12.09)Prospective recoverable oil resources(D&M estimate as of 31.12.09)
Acreage – 20,600 sq.kmSea depth from 30 to 2,250 metersBlocks are estimated to hold mainly crude oil
8.2 bln bblsTuapse Trough
West-Chernomorsky 6.3 bln bbls
Total 14.5 bln bbls
Chevron will be the partner for the West Chernomorsky block
ExxonMobil will be the partner for the Tuapse Trough block
Rosneft is estimated to hold 67% stake in the operating companies
Partners will carry financing of the initial exploration stage – Rosneft’s initial exploration risks will be reduced to zero
Partners will contribute the technological and managerial expertise
The partnership provides for other potential joint projects
First well may be drilled as early as 2013
23
ArcticArctic and Far East and Far East ShelfShelf ProspectsProspects::BestBest Access to Large Resource BaseAccess to Large Resource Base
Total Total Resources (30(30 blocks)blocks):
oil 129.2 bln bblsgas 29.3 tcmhydrocarbon 304.9 bln boe
Western Arctic –1-st Priority
Crude oil resources: 61.6 bln bblGas resources: 14.6 tcm
Eastern ArcticCrude oil resources: 58.2 bln bblGas resources: 12.8 tcm
Licenses receivedApplication for licenses filed
Far EastCrude oil resources: 9.4 bln bblGas resources: 2.5 tcm
RUSSIA
24
Blocks at the South of Eastern SiberiaBlocks at the South of Eastern Siberia3 3 bln bln bblsbbls of Likely C1+C2 Reserves Discovered in Just 2 Yearsof Likely C1+C2 Reserves Discovered in Just 2 Years
Prospective recoverable resources (as of 31.12.09)Prospective recoverable resources (as of 31.12.09)
720 bcm
1,059 mln tonnes
Gas
Oil
16
1,150
0
2014
8
1,300
0
20152013201220112010
13
1,550
300
4
250
310
16
450
850
4
0
570
3D seismic work, sq. km
2D seismic work, linear km
Number of exploration wells, wells
Exploration worksExploration works
Exploration region of strategic priority
15 blocks at 50-600 km from the ESPO
Complex geology
Commercial viability depends on tax regime
2009 — Savostyanov field discovered at East-Sugdinskyand Mogdinsky blocks. Current C1+C2 reserves of the field are estimated at 1.5 bln bbls
2010 — 2 new fields discovered at Sanarsky and Preobrazhensky blocks. C1+C2 reserves are estimated at 1.5 bln bbls
2011 plans – 4 wells (Mogdinsky, Preobrazhensky, Sanarsky, Danilovsky)
25
Q4Q4’’1010 andand 12M`10 12M`10 US GAAP Financial ResultsUS GAAP Financial Results
Appendix
26
13.7
11.3
10.5
10.3
8.9
7.0
5.7
4.9
4.0
3.5
13.7
18.1Rosneft (PRMS)
Rosneft (SEC)
LUKOIL
PetroChina
BP
Petrobras
Exxon
Chevron
Total
ConocoPhillips
Shell
ENI
1,448
5,40814,877
3,644
18,089
31.12.2005 Production in2006-2010
Acquisitions of2007
Organicincrease in2006-2010
31.12.2010
ReservesReserves
Proved Crude Oil Reserves (bln bbls)Proved Crude Oil Reserves (bln bbls)
PRMS Proved Gas Reserves - 787 bcm (27.8 tcf)Source: companies information. Note: PRMS for specified companies, SEC for other companies.
Oil Reserve Replacement (2006-2010)Oil Reserve Replacement (2006-2010)
Average organic reserve replacement ratio – 148%
2010 replacement ratio – 104%
27
2,322
2,182
8 6
(2)(16)
(14)(24)
182
12M'09 WesternSiberia
Timan-Pechora
SouthernRussia
Far East Vankor Other EastSiberia
CentralRussia
12M'10 Jan'11
2,364
Daily Crude Oil Production:Daily Crude Oil Production:Vankor Vankor –– the Key Driverthe Key Driver
mln bblDaily Crude Oil Production Reconciliation, 12M’10 vs. 12M`09Daily Crude Oil Production Reconciliation, 12M’10 vs. 12M`09
‘000 bpd
+6.4%
28
BlocksBlocks around Vankoraround Vankor
5
2014 2015201320122011As of 31.12.10
7
200
4
546
200
6
400
8
150
7,113
3D seismic work, sq. km
2D seismic work, linear km
Number of exploration wells, wells 7
Prospective recoverable oil and gas resources (D&M estimate as of 31.12.09)Prospective recoverable oil and gas resources (D&M estimate as of 31.12.09)
9 exploration blocks
2009 — discovery of the Baikalovskoye field adjacent to Vankor (total 1 and 2 recoverable reserves – 53.1 mln tonnes of oil and gas condensate and 28.2 bcm of gas)
2010 results — 17,600 meters of exploration drilling, 4 wells completed (Baykalovsky, Samoedsky, Tukolandsky, North Vankorsky), no new major discoveries, but the results are very important for the future exploration works
2011 plans – 13,100 meters of exploration drilling, 4 wells (Baykalovsky - 1, Samoedsky – 2, West-Lodochny -1)
126 bcmGas
Oil 2.5 bln bbls
WorksWorks
29
P&L: Key Line Item AnalysisP&L: Key Line Item Analysis
59.66%6,51410,400Net income
In line with statutory tax rate due to stable FX rate32.20%2,0002,644Income tax
Increase in capex: more wells drilled, construction at Vankor and refinery upgrades28.67%4,3505,597DD&A
Growth in revenues, cost control partially offset by growth in tax payments and tariffs of natural monopolies and real ruble appreciation of 12%41.56%13,56519,203EBITDA
Increase in MET following the growth of crude oil prices35.47%8,06110,920Taxes other than on income
Increase in export duty rate following the growth in crude oil prices and export volumes38.02%12,13116,743Export duty
Volume growth and inflation, per-unit expenses down in real terms19.09%4,0244,792
Operating expenses
Increase in tariffs of natural monopolies and higher transportation volumes due to increase in crude oil production at the Vankor field28.93%5,4146,980
Transportation expenses
Higher prices and volumes34.64%46,82663,047Revenues
, %12M’0912M’10
30
Interest ExpenseInterest Expense
* Capitalized interests are estimated in accordance with FASB ASC 835-20 ‘Capitalization of interest’.The capitalization rate is calculated by dividing interest expenses on loans related to capital expenditures by the average balance of these loans. Interests capitalized are calculated by multiplying the average balance of construction in progress by the capitalization rate.
162180155835808. Interest expense as reflected in P&L
(1-4+5+6+7)
16151720687. Other
71687386. Debt issue cost
406058(18)1405. Interest SWAP loss/(gain)
7383911003474. Interest capitalized*
-63130(134)130633. Change in interest payables (1-2)
23542297446182. Interest paid (cash)
1721721631746811. Interest accrued according to loan agreements
Q1’10Q2’10Q3'10Q4'1012M’10USD mln
31
Income TaxIncome Tax
16%
596
14
-
(1)
93
(4)
(266)
30
730
20%
3,652
Q4’10
(65)(331)Effect of income tax preferences
20%
2,644
55
(155)
(20)
362
20
50
2,663
20%
13,316
12M’10
41Other
21%
2,048
(155)
(19)
269
24
20
1,933
20%
9,664
9M’10
Deferred tax on undistributed earnings
Income tax
Effective tax rate
Non-deductible items, net
Foreign exchange effects, net
Unrecognized income tax benefits
Statutory income tax rate
Change in valuation allowance
Add/(deduct) tax effect of:
Theoretical income tax
Income before income tax
USD mln
32
NetNetback Ladderback Ladder2010 vs. 20092010 vs. 2009
2010
2010 $42.1
$35.3$39.9
Rosneft refineriesTransneft export
1. Urals average price: USD 78.3/bbl2. Crude Export Duty: USD 37.4/bbl3. Implied crude net export revenue (1-2) = USD 40.9/bbl4. Weighted average netback: USD 39.9/bbl 5. Av. netback vs crude net export revenue (4-3) = USD (1.0)/bbl
Total sales: 811 mln bbl
38% 1%13%
Non-Transneft export
45%
CIS Transneft export: $35.0
Domestic sales: $30.4
3%
2009
2009 $33.2
$29.6$29.9
Rosneft refineries Transneft export
1. Urals average price: USD 61.0/bbl2. Crude Export Duty: USD 24.5/bbl3. Implied crude net export revenue (1-2) = USD 36.5/bbl4. Weighted average netback: USD 31.5/bbl 5. Av. netback vs crude net export revenue (4-3) = USD (5.0)/bbl
Total sales: 760 mln bbl
34% 1%15%
Non-Transneft export
46%
CIS Transneft export: $31.8
Domestic sales: $25.9
4%
2010
2010
2009
2009
33
NetNetback Ladderback LadderQ4Q4’’10 vs. Q310 vs. Q3’’1010
Q4’
10Q
4’10
$46.1$42.1$43.5
Rosneft refineriesTransneft export
1. Urals average price: USD 85.2/bbl2. Crude Export Duty: USD 39.2/bbl3. Implied crude net export revenue (1-2) = USD 46.0/bbl4. Weighted average netback: USD 44.1/bbl 5. Av. netback vs crude net export revenue (4-3) = USD (1.9)/bbl
Total sales: 206 mln bbl
38%1%13%
Non-Transneft export
45%
CIS Transneft export: $39.8
Domestic sales: $34.7
3%
Q3’
10Q
3’10 $39.4
$31.6$39.1
Rosneft refineriesTransneft export
1. Urals average price: USD 75.6/bbl2. Crude Export Duty: USD 35.8/bbl3. Implied crude net export revenue (1-2) = USD 39.8/bbl4. Weighted average netback: USD 38.0/bbl 5. Av. netback vs crude net export revenue (4-3) = USD (1.8)/bbl
Total sales: 206 mln bbl
38% 1%13%
Non-Transneft export
46%
CIS Transneft export: $34.7
Domestic sales: $28.1
2%
34
0
20
40
60
80
100
120
140
Q4'09 Q3'10 Q4'10
Europe and other directions Asia CIS Domestic
Crude Oil SalesCrude Oil Sales
58.0%54.3%
56.8%
0
20
40
60
80
100
120
140
Q4'09 Q3'10 Q4'100%
10%
20%
30%
40%
50%
60%
Europe and other directions Asia
CIS Domestic
Share in total sales volume
USD/bbl
86.4
84.3
85.2
86.5
04’10
Rosneft export
75.674.3Urals (average Med+NWE) (Platts)
75.072.3Europe and other directions
75.575.0Asia
76.974.6Average Brent (Platts)
Q3’10Q4'09
Crude Oil and Condensate Sales Volumes, mln bblCrude Oil and Condensate Sales Volumes, mln bbl Average Prices, USD/bblAverage Prices, USD/bbl
114.0 111.9117.2
35
27.0 31.023.6 26.1 23.2
28.7 30.822.9 21.6
26.8 26.0 26.130.6 29.4 31.8 32.4
26.2 26.5
32.931.6
37.036.5
37.034.7
36.8
38.8 39.934.0 36.1 37.4
36.4 39.741.5 43.4
47.4 47.1
12.613.4
12.813.3
12.713.5
14.8
12.7 12.9 13.0 13.3 13.714.6
15.216.4
17.116.5 16.5
28.430.6
26.327.1 26.1 25.1
0
10
20
30
40
50
60
70
80
90
100
Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb* Mar*
Net export revenue before transport Export duty Mineral extraction tax
Urals (Platt's) Average net export revenue for the quarter
2009 2010 2011
Net Revenue of an Oil ExporterNet Revenue of an Oil Exporter
USD/bbl
* Assuming Urals price of USD 90 per bbl in February and March.
36
41.6 43.9
37.8
0
10
20
30
40
50
60
70
80
Q4'09 Q3'10 Q4'10
Other Far East Southern Russia
Western Siberia Average price
Gas Production and SalesGas Production and Sales
3.253.44
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
Q4'09 Q3'10 Q4'10
Western Siberia Southern Russia
Far East Other
Sales
Production by subsidiaries
2.86
Gas Sales vs. Production, bcmGas Sales vs. Production, bcm Gas Sales Prices, USD per 1,000 cubic metersGas Sales Prices, USD per 1,000 cubic meters
37
Gas Sales PricesGas Sales Prices
43.941.641.427.528.2 30.1 31.6 41.2 40.7 40.3 33.6 28.8 33.5 33.3 37.8 42.8
1,347
1,2741,251
1,279
1,113
1,0441,078
977
915
9769611,000
780767
710742
20
25
30
35
40
45
50
55
Q1 '07 Q2 '07 Q3 '07 Q4 '07 Q1 '08 Q2 '08 Q3 '08 Q4 '08 Q1 '09 Q2 '09 Q3 '09 Q4 '09 Q1 '10 Q2'10 Q3'10 Q4'10
500
600
700
800
900
1,000
1,100
1,200
1,300
1,400
USD per 1,000 cubic meters RUB per 1,000 cubic meters
USD RUB
38
Petroleum Product RevenuesPetroleum Product Revenues
Q1’10Q4’09 Q2’10
432
12.69
5,488
1,173
6,661
439
11.73
5,148
1,190
6,338
425
11.74
4,988
1,220
6,208
439
11.11
4,878
1,110
5,988Revenue, USD mln 7,037Excise and export duty, USD mln
1,234
Net revenue, USD mln 5,803
Volume sold, mln tonnes11.96
Net revenue per tonne, USD
485
Petroleum Products: Average Prices and Volume BreakdownPetroleum Products: Average Prices and Volume Breakdown
800
600
400
200
0
USD/t
2 3High octane gasoline Naphtha Low octane gasoline Diesel fuel Kerosine Fuel oil Other
12%
3%6%
36%
$779
$667
$435
$556$503
$641
1%
$419
35%7%
1,000
11%
3%
7%35%
$707$698
$445
$561$478
$573
1%
$413
37%6%
12%
3%
7%
35%
$769
$688
$414
$580$551
$614
$384
34%
6%
3%
Q3’10
12%
3%
6%
35%
$789
$648
$422
$548$528
$627
$401
34%7%
3%
Q4’10
12%
2%
6%
36%
35%6%
3%
$790 $779
$439
$636$585
$649
$438
39
0
200
400
600
Jan-09
Feb-09
Mar-09
Apr-09
May-09
Jun-09
Jul-09 Aug-09
Sep-09
Oct-09
Nov-09
Dec-09
Jan-10
Feb-10
Mar-10
Apr-10
May-10
Jun-10
Jul-10 Aug-10
Sep-10
Oct-10
Nov-10
Dec-10
Diesel (export netback) Fuel oil (export netback) Straight-run gasoline (export netback)
Diesel (domestic wholesale) Fuel oil (domestic wholesale)
Petroleum Product Prices in Petroleum Product Prices in 20020099--20102010(Rosneft Refineries)* (Rosneft Refineries)*
USD/t
* Refinery-gate export netback or domestic wholesale price net of VAT and excise (average for Rosneft refineries).
40
0.1
-1.4
7.3 7.7
5.46.1
7.5
13.515.0
16.1
4.4
8.4
6.3
16.017.617.3
-5
0
5
10
15
20
25
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
Actual net refining margin (difference between netbacks of crude deliveries to refineries and exports through Transneft system)
Tax base of the margin (difference between export duty for crude oil and export duty for a 50/50 (dark/light) product basket)
2009 2010
Net Refining MarginNet Refining Margin
USD/bblDomestic prices lag export
netbacks. To normalize in Q1 2011.
41
Key Processes Planned within Refinery Upgrade ProgramKey Processes Planned within Refinery Upgrade Program
New units:Novokuibyshevsk, Achinsk, Tuapse,
Upgrades:Syzran, Kuibyshev, Komsomolsk
Production of gasoline meeting Euro standards.
Uses naphta as input. Produces high-octane gasoline components.
Catalytic reforming (CCR)
New units:Syzran, Angarsk
Upgrades:Kuibyshev
Production of diesel meeting Euro standards
Uses high-sulfur diesel fractions. Produces low-sulphur diesel fuel.
Hydrotreatment of diesel
New units:Syzran, Kuibyshev, Novokuibyshevsk, Achinsk, Angarsk, Komsomolsk, Tuapse
Upgrades:Novokuibyshevsk
• Production of high-octane gasoline components with low aromatics content to meet Euro standards
• Decrease in naphta production
Uses naphta as input and produces high-octane gasoline components.
Isomerization
Relevance to Rosneft refineries
Result of construction / upgradeDescription of processUnit/process
42
Key Processes Planned within Refinery Upgrade ProgramKey Processes Planned within Refinery Upgrade Program
Relevance to Rosneft refineries
Result of construction / upgradeDescription of ProcessUnit/process
New units:Komsomolsk, Achinsk, Tuapse
Upgrades:Novokuibyshevsk
Processing of heavy residues, increase in light product yield of a refinery,
Conversion process. Uses heavy vacuum, FCC and Hydro Cracking residues. Produces light products – high-sulfurdiesel, gasoline, coke.
Delayed coking
New units:Syzran, Kuibyshev
• Production of high-octane gasoline components with low aromatics content from dark input (vacuum gasoil) to meet Euro standards for gasoline
• Increase in light product yield of a refinery and share of gasoline in total refinery output
Conversion process. Uses vacuum gasoil as input. Produces high-octane gasoline components, diesel fuel, gases and heavy residues. Share of gasoline components in total output is higher than share of diesel.
Fluid Catalytic Cracking (FCC)
New units:Novokuibyshevsk, Achinsk, Komsomolsk, Tuapse
• Production of low-sulfur diesel component from dark input (vacuum gasoil) to meet Euro standards for diesel
• Increase in light product yield of a refinery and share of diesel in total output
Conversion process. Uses vacuum gasoil as input. Produces low-sulfur diesel components, gasoline, gases and heavy residues. Share of diesel components in total output is higher than share of gasoline.
Hydrocracking
43
Key Processes Planned within Refinery Upgrade ProgramKey Processes Planned within Refinery Upgrade Program
New units:Angarsk, Kuibyshev, Syzran
Production of octane booster to meet Euro standards for gasoline
Uses refinery gases as input. Produces octane booster.
MTBE (methyl tertiarybutyl ether)
Relevance to Rosneft refineries
Result of construction / upgradeDescription of ProcessUnit/process
Upgrade:Kuibyshev
Processing of heavy residues into fuel oil.
Conversion process. Uses heavy vacuum, FCC and Hydro Cracking residues. Produces fuel oil component.
Visbreaking
New units:Angarsk
Production of high-octane gasoline components to meet Euro standards for gasoline
Uses refinery gases as input. Produces high octane gasoline component
Alkylation
New units:Angarsk
Production of high-octane gasoline components to meet Euro standards for gasoline
Uses gasoline fractions from delayed coking, FCC and pyrolysis units. Produces high octane gasoline components.
Etherification
44
Transportation Costs DynamicsTransportation Costs DynamicsTariffs and FX Tariffs and FX –– Key Growth FactorsKey Growth Factors
6,980
5,414
12M'09 Tariffs Volume Mix FX 12M'10
1,788
1,393
12M'09 Tariffs Volume Mix FX 12M'10
Total Transportation Costs, USD mlnTotal Transportation Costs, USD mln Transportation Costs for Crude Exports, USD mlnTransportation Costs for Crude Exports, USD mln
Transportation Costs for Crude Deliveries to Refineries, USD mlnTransportation Costs for Crude Deliveries to Refineries, USD mln Transportation Costs for Product Exports, USD mlnTransportation Costs for Product Exports, USD mln
1,4571,280
12M'09 Tariffs Volume Mix FX 12M'10
2,316
3,059
12M'09 Tarriffs Volume Mix FX 12M'10
45
Transportation Costs, Factor Analysis: Transportation Costs, Factor Analysis: Q4Q4’’10 vs. Q310 vs. Q3’’1010
1,7011,763
Q3'10 Tariffs Volume Mix FX Q4'10
751 796
Q3'10 Tariffs Volume Mix FX Q4'10
427489
Q3'10 Tariffs Volume Mix FX Q4'10
Total Transportation Costs, USD mlnTotal Transportation Costs, USD mln Transportation Costs for Crude Exports, USD mlnTransportation Costs for Crude Exports, USD mln
Transportation Costs for Crude Deliveries to Refineries, USD mlnTransportation Costs for Crude Deliveries to Refineries, USD mln
294
375
Q3'10 Tariffs Volume Mix FX Q4'10
Transportation Costs for Product Exports, USD mlnTransportation Costs for Product Exports, USD mln
46
23.52 27.03
0.12(2.08)
(0.24)(0.08)
(3.16)
8.95
Q3'10 Revenue Taxes Purchases Transport OPEX SG&A Q4'10
+14.9%
EBITDA and Net Income per bbl Reconciliation:EBITDA and Net Income per bbl Reconciliation:Q4Q4’’1010 vs. Q3vs. Q3’’1010
EBITD
A, U
SD/b
blEB
ITDA
, USD
/bbl
Net
Inco
me,
USD
/bbl
Net
Inco
me,
USD
/bbl
12.63
(2.08)
(0.84)
0.12(0.24)(0.08)
(3.16)
8.95
(0.62)
0.37
15.10
0.05
Q3'10 Revenue Taxes Purchases Transport OPEX SG&A DD&A FX Net interest
Income taxand others
Q4'10
+19.6%
47
Excess Cash ManagementExcess Cash Management
Rosneft’s total cash position including cash and equivalent and short-term investments related to excess cash management was USD 9.9 bln as of December 31, 2010
Excess cash management is based on analysis of different alternatives (including risk analysis) to choose the best investment for a specific period of time
Cash portfolio includes:
– USD 4.2 bln of cash and equivalents
– USD 4.7 bln of short-term deposits denominated in foreign currency placed in leading local banks
– USD 0.4 bln of short-term deposits denominated in RUB placed in leading local banks
– USD 0.4 bln of liquid securities received under REPO deals
– USD 0.2 bln of short-term investments into state and corporate bonds and other securities
48
Progress on Tax RegimeProgress on Tax RegimeThe Right Direction The Right Direction
Rosneft IPO
Export duty calculation methodology adjusted to reduce lag effectedIncome tax reduced from 24% to 20% (effective since January 1, 2009)
Mineral Extraction Tax holidays in East Siberia (Republic of Sakha (Yakutia), Irkutsk region, Krasnoyarsk territory)
Zero Mineral Extraction Tax rate for high-viscosity crude
Reduced Mineral Extraction Tax rate for fields depleted by more than 80%
In effect sinceJanuary 1, 2007
Mineral Extraction Tax formula reviewed, rate reduced by USD 1.3/bbl
Mineral Extraction Tax holidays (to the north of the Polar Circle, offshore Azov and Caspian seas, Nenets autonomous district, the YamalPeninsula)
Cancellation of requirement to use direct method of oil volumes calculation for fields depleted by more than 80%
Shortened depreciation period for oil and gas assets
In effect sinceJanuary 1, 2009
Zero export duty on East Siberian crude oil from December 1
Jul 06 Dec 08Jul–Aug 06 Jul 08 Dec 09 Dec 10
Rebalancing upstream vs. downstream (60%/66% concept)
MET to reflect inflation of transportation tariffs
Profit based taxation for the greenfields
Appropriate tax regime for the Arctic shelf
Resolution to gradually equalize export duties on light and dark products by 2013
2011 +
49
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