Interview with Vadim Yakovlev, Deputy Director General for Economics and Finance of Gazprom Neft
Moscow, March 10, 2010. Reuter.
- Gazprom Neft will increase production by 1.6% up to 51.6 million tons of oil equivalent in 2010.
- Gazprom Neft plans to buy up 50% of the shares of Sibir Energy - Bennfield
- Gazprom Neft expects tax benefits for the new fields.
“The fifth ranking oil producing company in Russia, Gazprom Neft expects to increase hydrocarbon production by 1.6% and increase its share in a minor oil producer, Sibir Energy, in 2010”, said Vadim Yakovlev, Deputy Director General of Gazprom Neft in an interview with Reuter.
“I believe that the pricing shake-up was good for the industry – in 2008 the situation was obviously overheated: This was also reflected in the prices charged by our suppliers. And the estimates given by the owners of assets became far more appropriate and returned to a normal level. “This enabled us to make a number of purchases, Sibir Energy in particular”, Yakovlev said, adding that the company managed to reduce the customers’ and suppliers’ rates on average by 20%.
On Wednesday Gazprom Neft announced that it had lost about one-third of net profit, proceeds and EBITDA in 2009 due to the fall in oil and oil product prices during the crisis . However, Yakovlev assured us that, conditions being the same, in 2008 and 2009 the company improved its financial performance.
“This is first of all EBITDA – under comparable conditions it went up 11%, which is good growth. We achieved this growth both by purchases and by improving our internal effectiveness”, the financial director said, adding that hydrocarbons] production had gone up by 3.5% and refining had increased by 19%. In the current year, Gazprom Neft plans to increase hydrocarbon production by 1.6% to 51.6 million tons of oil equivalent.
“Growth will be achieved by consolidating Sibir Energy’s assets… In addition, growth is expected in the Priobskoye field”, Yakovlev said, adding that production of the Serbian division of NIS would increase by at least 10% from around 1 million tons of oil equivalent as it was in 2009. Gazprom Neft, the oil division of gas behemoth Gazprom, has stipulated in the investment program that the average annual cost of oil will be $75 a barrel and a USD will be 29 rubles; in the current year, it plans to invest 3.9 billion USD in comparison with 2.6 billion USD in 2009; however, it may increase investments in case of purchases, the financial director said.
Considering the purchases, Gazprom Neft spent 4.9 billion USD last year, and in the current year it plans at least one purchase– 50% of shares of Bennfield, the co-owner of Sibir Energy. “All the interested parties understand that it would be most reasonable to conclude an amicable agreement between Shalva Chigirinsky and his main creditors. Such an amicable agreement, we believe, will put an end to the dispute over 50% of Bennfield and will open up an opportunity for us to purchase this package”, Yakovlev said, and added that the company wants to make the deal in the first half of the current year.
In this case, there will be two remaining major shareholders of Sibir Energy over whose package Chigirinsky is at law – Gazprom Neft and the Moscow government with its 19.3%. “We are proceeding from the fact that the resulting ratio of shares of Gazprom and the Moscow government will be 75% to 25%, respectively. If we manage to increase our share and if we come to terms on everything, then the sale of part of the package to the Moscow government may well take place this year” Yakovlev said.
LOANS AND DIVIDENDS
Yakovlev says that in 2010 the company’s main efforts will be aimed at optimizing the credit portfolio by increasing the average life of loans and cheapening them. “Based on the limitation of net debt/EBITDA to not more than 1.5 with a year-end ratio of 1.1. Credit of 1 billion USD will be used entirely for refinancing the credit portfolio, including a Vneshekonombank credit line with a rate of LIBOR + 5%. The current market conditions allow us to attract investments under better conditions than this level”, the financial director said.
He added that the company wanted to reduce the total credit interest rate by at least 0.5% by the end of 2010 from 5.08% at the end of 2009 and place ruble bonds but he gave no details. According to Yakovlev, the company also is also studying non-debt instruments, including a secondary public offering.
By keeping Gazprom’s share at a level of at least 65%, a large package may be placed… We are considering this option, but currently we do not need it”, he said.
Gazprom owns 95.6% of shares of Gazprom Neft, the remaining shares are negotiable in Russia and abroad including American depositary receipts.
Yakovlev said that the company will propose to send 20% of net profit by GAAP for 2009, but adjusted for one-time non-monetary profit and expenses, to dividends.
Gazprom Neft expects to almost double oil production to100 million tons in ten years and expects preferential tax treatment for new fields on which the Russian oil production industry is focusing now.
“In terms of implementing new projects, the existing taxation system is in fact prohibitive. This is understood not only by the industry but by the state as well, which is why these interim decisions are being made (tax benefits)”, Yakovlev said.
“We need a fundamentally new system – taxation of profit on one project or another”, Yakovlev believes. In his words, the calculations of the working group of the Ministry of Energy show that the level of tax burden on proceeds for new fields should amount to about 40-45%.
“The point in question is a general reduction of the export duty and reimbursement of public revenues accruing to the existing production by some increase in the MET rate. Regarding new assets, the introduction of an additional extraction tax is required, which should be the main tax on new fields, while preserving a uniform export duty”, Yakovlev said. He said that the idea was formed by the working group and all companies share it. “To speak about changing of the whole system of taxation of the industry is too revolutionary for the moment, especially against the background of the budget deficit. We need to speak about step-by-step introduction of these proposals instead. It is realistic to start the process as early as 2011, but it is essential to have the good will of all the process participants”, Yakovlev said.