President of Russia Vladimir Putin: Mr Sechin, we had a meeting – online, but still a full-fledged meeting – with nearly all representatives of our major oil and gas companies, with representatives of the industry. We discussed the situation unfolding in the industry today in these, frankly, difficult times, challenging for the oil industry workers as well as for energy sector workers in general, for gas workers – well, really the entire power industry.
Rosneft is our leading company, the biggest company, the largest taxpayer, one of the largest, in any case, maybe the largest. This is why I wanted to have this one-on-one meeting with you, as we agreed, to talk about how you, as the head of our largest company, see the situation in the industry, how is Rosneft doing, and which problems you consider the most pressing ones. It is clear that the drop in global demand is the most important problem for everyone; but for us, for the Russian power sector, for Russian oil industry workers – what issues do you consider the most relevant and how, in your opinion, does the state need to support the industry?
Rosneft CEO Igor Sechin: Mr President, thank you very much.
Indeed, last year Rosneft showed high production and financial and economic results and was the largest taxpayer, having generated 18 percent of the federal revenues. Rosneft operations support our corporate ecosystem of 2.5 million people – these include contractors, equipment manufacturers, and service companies. Last year our investment programme amounted to about 950 billion rubles.
Vladimir Putin: You have mentioned a very important topic, by the way. What was the plan this year?
Igor Sechin: Let’s say that, considering the general dramatic state of the global oil market and the decisions made on cutting the production, we, of course, will have to minimise part of the capital costs. We will try to preserve our investment programme at about 750 billion.
Vladimir Putin: Was it 950?
Igor Sechin: 950.
Vladimir Putin: So you want to decrease it by 200 billion?
Igor Sechin: About 200 billion. Due to the decrease in production, Mr President, we will have to make such decisions on optimisation to maintain the company’s financial and economic stability.
At the same time we understand our main responsibility: to preserve the health of our employees, their families and other people. In order to do this, the company has organised 250 isolation facilities and also 68 observation rooms in the regions of its operations where workers have to go before their shifts. We have extended the time between shifts from 30 to 90 days; people are very understanding. This has its results.
The situation is fully under control. We work constantly with the regional authorities and Rospotrebnadzor offices. This work is daily and we will try to monitor the developments daily, too.
Vladimir Putin: Still, 200 billion is a large reduction in capital costs. It is very important for us to preserve the entire chain of your contractors and subcontractors, because your orders provide work to a large number of industrial enterprises.
What does the state have to do to support you and preserve your investment as far as is possible?
Igor Sechin: Mr President, we will try to maintain investment growth. Our main priority, where we require the state’s help, is to ease the banking policy on the accessibility of loans and working capital. As you have noted, this is not only important for us, but also for our contractors and subcontractors. If there was an opportunity to increase the limit per lender, this would help us to support our investment programme and even help us start some new ones bearing in mind than in two or three years we will overcome the crisis and will have to provide new volumes of hydrocarbons to the market.
So I would like to present our new project.
Vladimir Putin: You are not talking about beneficial loans, but simply about the accessibility of loans?
Igor Sechin: Mr President, this is about the accessibility of loans under the terms that are currently approved by the Central Bank: ruble loans within the limits of our banking system.
In addition to this, Mr President, we would like you to take note of the developments in exploration. If the payment of taxes from exploration projects were postponed until a later period, this would help us to better prepare for emerging from the crisis.
Another key subject for us is the adjustment of the transport monopolies’ tariffs to current market prices. Oil cost some 1,100 rubles in 2008 and the current price is 1,200 rubles, which are comparable figures. But oil transportation cost 822 rubles per tonne in the past, while the current cost is 2,100 rubles.
Vladimir Putin: I understand your concerns. We will certainly discuss them.
Igor Sechin: We are not asking for any special benefits, but such an adjustment in light of the falling oil prices would do us a great deal of good. At present, transportation costs account for 32 percent of the price of oil.
Vladimir Putin: The end price?
Igor Sechin: Yes. This is a great deal for us.
Vladimir Putin: Speaking about exploration, we had a similar discussion with your colleagues on the establishment of a fund for drilling companies. The idea is comparable.
Igor Sechin: Not quite. As far as I am aware their idea was a bit different. It concerned a local project to complete certain wells that have almost been completely drilled down but not right to the bottomhole. They wonder what would happen if they fail to complete this job. Would they be able to use these wells in the future? In this sense, it is a local project, which most likely needs to be given support.
What we are asking for is funds for exploration.
Vladimir Putin: So we are talking about exploration in general.
Igor Sechin: Yes, about exploration in general and also about exploration drilling. We would like to ask you to postpone the payment of taxes from these hard times to a period when the prices are higher.
Vladimir Putin: Now I see. Do you have your proposals written down?
Igor Sechin: Yes, of course.
Vladimir Putin: Very good then.
Igor Sechin: One of our new and promising projects, which can produce a new volume after market stabilisation, is Vostok Oil, where we have started exploration drilling. Here is the situation on Taimyr.
(Demonstration of a video about the Vostok Oil project.)
Igor Sechin: The first Aframax tanker that can run on natural gas motor fuel has been completed at the Zvezda Shipyard.
Vladimir Putin: Congratulations.
Igor Sechin: Nobody believed we would do this either.
Vladimir Putin: I know. It is a real victory. My congratulations.