vk.com/id446425943
Russian oil & gas
2019 yearbook
vk.com/id446425943
Russian oil & gas
2019 yearbook
Russia is the third-largest crude producer globally, and the world’s largest exporter of hydrocarbons (including gas).
OPEC+ constraints mask the underlying oil production growth potential, in our view, which is supported by an enviable reserve base, robust exploration activity and attractive economics. Prospects in the gas sector are equally significant, but require a more pragmatic approach to regulation, we think.
High potential
At the micro level, we find the Russian oil industry very healthy. Investments have remained robust, supported by a more attractive fiscal regime. This led to new highs in Russia’s crude production in 2018, fuelled by greenfield launches and the temporary suspension of OPEC+ production restrictions between July-November 2018. Russia’s continuing efforts to curtail production growth via an agreement with
OPEC have an impact on reported statistics and mask the underlying growth potential. Exploration efforts remain solid, allowing for sustainable reserve replacement rates in excess of 100% to what is already a formidable reserve base, with over 25 years of proven reserves life.
High reserve replacement, attractive free cash flow
Russian companies have continued to boost reserves, with a reserve replacement ratio of 136% in both 2018 and a five-year period. The costs of doing so remain very competitive, averaging $6.7/boe over a five-year period, a 68% discount to the international super-majors. After taking into account reserve replacement costs, free cash flow averaged $6.3/bl in 2018 (and $3.1/bl over a five-year period) for the Russian oils, which compares very favourably with international peers.
Refining reformed
Russia’s refining sector has undergone a significant change, with the launch of 33 new hydrocracking, hydrotreating, catalytic cracking, catalytic reforming, delayed coking, visbreaking, isomerisation and alkylation units in 2013-2018, and still 42 more advertised. Accounting for 7% of the world’s refining capacity, Russia is the world’s largest net exporter of oil products.
Gas sector: Approaching boiling point?
Russia’s biggest energy policy challenge, in our view, has remained unchanged for the past 19 years: breaking up Gazprom. We continue to see this as a reasonable prospect after 2020. We expect that by this time Gazprom’s domestic market share will have declined towards 50%, its pipeline infrastructure will have sufficiently expanded, including links to the China and Ukraine bypasses, and other Russian gas producers will have become sufficiently strong to deliver credible competition in the domestic market.
Sector update
Equity Research 20 June 2019
Oil & Gas
Russia
Alexander Burgansky +44 (207) 005-7982 ABurgansky@rencap.com
Oleg Chistyukhin
+44 (207) 005-7954 x4073 Ochistyukhin@rencap.com
Russia: Crude production growth, YoY
15% |
10% |
5% |
0% |
-5% |
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 |
Source: Interfax, Ministry of Energy
Russia oil & gas – 2018 scorecard
Oil reserves, bn bls |
106.2 |
% of world total |
6.1 |
Gas reserves, tcm |
38.9 |
% of world total |
19.8 |
Oil and condensate production, mn b/d |
11.117 |
% growth |
1.7 |
% of world total |
12.4 |
Gas production, bcm |
741 |
% growth |
5.2 |
% of world total |
18.8 |
Refining capacity, mn b/d |
6,451 |
Nelson Complexity Index |
6.2 |
Refinery throughput, mn b/d |
5,741 |
% growth |
2.5 |
Capacity utilisation, % |
89.0% |
Crude exports, mn b/d |
5.22 |
% growth |
3.0 |
Refined products exports, mnt |
150.1 |
% growth |
1.1 |
Liquids exports as % of world total |
11.7 |
Non-FSU gas exports, bcm |
232 |
FSU gas exports, bcm |
36.0 |
Oil and gas capex, $mn |
57,266 |
% growth |
-0.8 |
Industry sample five-year RRR, % |
136 |
Industry sample five-year RRC, $/boe |
6.69 |
Source: Ministry of Energy, company data, BP, Interfax, Argus, Oil & Gas Journal, Renaissance Capital estimates
Russian oil & gas coverage, RUB
|
Ticker |
Rating |
TP |
CP |
Gazprom |
GAZP RX |
BUY |
230 |
232 |
NOVATEK |
NVTK RM |
HOLD |
1,250 |
1,310 |
Rosneft |
ROSN RX |
BUY |
550 |
412 |
LUKOIL |
LKOH RX |
BUY |
6,450 |
5,230 |
Surgutneftegas |
SNGS RX |
HOLD |
130 |
25 |
Surgutneftegas |
SNGSP RX |
BUY |
130 |
41 |
prefs |
|
|
|
|
Gazprom Neft |
SIBN RX |
HOLD |
380 |
402 |
Tatneft |
TATN RM |
HOLD |
820 |
775 |
Tatneft prefs |
TATNP RX |
BUY |
820 |
622 |
Priced at close 18 June 2019
Source: Bloomberg, Renaissance Capital estimates
Important disclosures are found at the Disclosures Appendix. Communicated by Renaissance Securities (Cyprus) Limited, regulated by the Cyprus Securities & Exchange Commission, which together with non-US affiliates operates outside of the USA under the brand name of Renaissance Capital.
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Contents
Foreword |
5 |
Industry snapshot |
6 |
Reserves |
7 |
Oil output |
10 |
Gas output |
12 |
Refining |
14 |
Upstream |
15 |
Oil output |
16 |
Gas output |
20 |
New wells |
23 |
Well-stock management |
24 |
Well productivity |
27 |
Well flow rates |
27 |
A global view |
28 |
Organic decline rates |
29 |
Reserves |
31 |
Oil reserves |
32 |
Gas reserves |
35 |
Reserve replacement |
37 |
Methodology |
37 |
Per-barrel economics |
37 |
Per-barrel economics |
37 |
Reserve replacement |
37 |
Full-cycle cash flow |
38 |
Upstream performance – reserve replacement costs |
42 |
Full-cycle cash flow |
43 |
Refining |
45 |
Capacity, throughput, utilisation |
46 |
Refining capacity Refining capacity |
46 |
Capacity utilisation |
54 |
Throughput |
56 |
Light products yield |
59 |
Transition to Euro-5 completed in 2016 |
62 |
Complexity |
64 |
Modernisation plans |
67 |
Capex |
74 |
Oil & gas sector capex |
75 |
Upstream oil capex is decreasing… |
76 |
…as well as refining capex |
77 |
Transportation capex on the way down |
78 |
Gas capex to level off in 2019 |
80 |
Upstream capex by company |
81 |
Exploration drilling |
82 |
Development drilling |
83 |
Crude exports |
86 |
Crude exports by market, company and direction |
87 |
Crude exports by market |
87 |
Non-FSU crude exports by company |
87 |
Crude exports by direction |
88 |
Russian crude exports in the FSU context |
89 |
Crude export proceeds |
90 |
Refined products exports |
91 |
Analysis by product |
92 |
Renaissance Capital
20 June 2019
Russian oil & gas
2
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Renaissance Capital
20 June 2019
Russian oil & gas
Gas balance |
93 |
Gas balance |
94 |
Non-FSU exports |
96 |
FSU exports |
97 |
Domestic sales |
98 |
UGSS balance |
99 |
Appendix I: Reserves classifications |
101 |
Russian reserves definitions |
102 |
Western reserves definitions |
104 |
SPE-PRMS or SEC? |
104 |
Kinds of reserves |
105 |
Proved reserves |
105 |
Proved developed reserves |
105 |
Proved undeveloped reserves |
105 |
Probable reserves |
105 |
Possible reserves |
106 |
Contingent resources |
106 |
Prospective resources |
106 |
Reconciling the two |
106 |
Appendix II: Pricing |
108 |
Monthly pricing trends |
109 |
International crude oil pricing |
110 |
Overview |
110 |
Freight |
110 |
OPEC output |
111 |
Specific supply/demand considerations |
112 |
Domestic crude oil pricing |
114 |
Domestic product pricing |
115 |
International gas pricing |
117 |
Domestic gas pricing |
118 |
Dual-structure to Gazprom’s disadvantage |
118 |
Spot gas trading |
122 |
Gas tariffs |
124 |
Appendix III: Regulation and tax |
126 |
Regulatory overview |
127 |
Work in progress |
127 |
Federal meets regional meets local… |
128 |
…bar in the offshore areas… |
128 |
…while PSAs stand alone |
128 |
Licensing |
130 |
Introduction |
130 |
Getting them… |
130 |
…and keeping them |
131 |
Land-use permits |
132 |
Subsoil licensing fees |
132 |
Operating approvals |
132 |
Environmental protection |
133 |
Introduction |
133 |
The challenges |
133 |
Oil and product transportation |
134 |
Regulation |
134 |
Access |
134 |
Tariffs |
134 |
Transportation costs |
136 |
Crude via Transneft |
136 |
Products via whatever means available |
138 |
Typical crude export route costs |
139 |
Volume and price controls for gas |
140 |
The Gas Supply Law |
140 |
The Unified Gas Supply System (UGSS) |
140 |
Export monopoly |
141 |
Gas pipeline tariff regulation |
141 |
Associated gas |
142 |
3
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Renaissance Capital
20 June 2019
Russian oil & gas
Tax regime |
143 |
General taxation regime |
143 |
Profit tax |
143 |
VAT |
144 |
Other taxes |
144 |
Mineral Extraction Tax (MET) |
146 |
In place since 2002 |
146 |
MET exemptions |
147 |
Different rules for the taxation of gas condensate |
149 |
Next steps? |
149 |
Crude-export duty |
151 |
Export duty exemptions |
152 |
Next steps? |
154 |
Excess profits tax |
155 |
EPT vs existing tax regimes |
155 |
Oil product taxation |
159 |
Exports |
159 |
Domestic sales |
160 |
Reverse excise and the damper |
161 |
Specific taxes applied to natural gas |
164 |
A very different regime |
164 |
A formula-based approach to gas & gas condensate MET |
165 |
Additional gas tax exemptions |
167 |
Taxation of offshore projects – special treatment |
168 |
Appendix IV: Sanctions |
169 |
Summary |
170 |
US sanctions |
172 |
EU sanctions |
173 |
Sanctions by Canada and other countries |
174 |
Other sanctions |
174 |
Appendix V: Who’s Who |
175 |
Key policymakers |
176 |
Vladimir Putin – President of the Russian Federation |
176 |
Dmitry Medvedev – Prime Minister of the Russian Federation |
176 |
Dmitry Kozak - Deputy Prime Minister of the Russian Federation |
177 |
Anton Siluanov – Minister of Finance |
177 |
Alexander Novak – Minister of Energy, Transneft chairman |
177 |
Maxim Oreshkin – Minister of Economic Development |
178 |
Dmitry Kobylkin – Minister of Natural Resources and Ecology |
178 |
Igor Artemyev – Head of the Federal Antimonopoly Service |
178 |
Andrei Belousov – presidential aide |
178 |
Evgueny Kiselev – Head of the Federal Agency of Subsoil Use (Rosnedra) |
179 |
Svetlana Radionova – Head of the Federal Service for Nature Management |
|
Supervision (Rosprirodnadzor) |
179 |
Company heads |
180 |
Alexei Miller – Chairman of the Management Committee, Gazprom deputy chairman, |
|
Gazprom Neft chairman |
180 |
Viktor Zubkov – Gazprom chairman |
180 |
Igor Sechin – Chief Executive Officer, Chairman of the Management Board, |
|
Rosneft deputy chairman |
181 |
Vagit Alekperov – LUKOIL president and CEO |
182 |
Vladimir Bogdanov – Surgutneftegas CEO |
182 |
Alexander Dyukov – Gazprom Neft chairman of the management board and CEO |
182 |
Leonid Mikhelson – Novatek chairman of the management board |
183 |
Gennady Timchenko – Novatek member of the board of directors |
183 |
Mikhail Osipov – Slavneft president, chairman of the management board |
184 |
Nail Maganov – Tatneft general director |
184 |
Nikolai Tokarev – Transneft president, chairman of the management board |
184 |
Mikhail Gutseriev – RussNeft president |
184 |
Disclosures appendix |
185 |
4