* * *
President of Russia Vladimir Putin: Mr Sechin, let us begin with the company's performance in 2012.
Rosneft President and CEO Igor Sechin: Mr President, 2012 was a successful year for Rosneft in every respect: in production, finance and in terms of strategic initiatives that set the pace for long-term development. Thus, production increased by 2.7%, or by 3.3 million tonnes of oil.
Vladimir Putin: How much oil did you produce in total?
Igor Sechin: In the aggregate, all our companies produced 125.8 million tonnes of oil last year.
Vladimir Putin: How does that compare to 2011?
Igor Sechin: We increased production by 3.3 million tonnes: last year it was approximately 122.5 million tonnes.
Vladimir Putin: What about mineral resources regeneration?
Igor Sechin: That is a highly relevant question. We regenerated oil resources at the same time last year as a result of exploration and by acquiring [TNK-BP]. Exploration alone allowed us to increase our reserves by 155 million tonnes, and the total figure, together with acquisition and revaluation, is an increase by 240 million tonnes, or 191%.
Vladimir Putin: Good, that is a very good indicator.
Igor Sechin: The company’s total booked reserves have reached 6.1 billion tonnes of oil.
Vladimir Putin: How does that compare to other international companies?
Igor Sechin: In this regard Rosneft is a world leader in the energy sector.
Vladimir Putin: Of the total raw materials you processed, what is the volume of oil products you supplied to the domestic market?
Igor Sechin: In total, the company’s plants in Russia and in Germany – we now own a share in four German plants – processed 61.7 million tonnes of oil, which is 7% more than in 2011. We supplied one third of that amount to the domestic market, which amounted to 26% of all petroleum products sold in Russia and 15% of the retail sector.
Vladimir Putin: Mr Sechin, production is up, reserves have increased and the company made some very large purchases. How did that affect the capitalisation?
Igor Sechin: The market reacted positively to the company’s strategic initiatives and its capitalisation increased by 35% last year. If at the beginning of 2012 each share cost $6.6, on December 31, 2012 the share price rose to about $8.9.
Vladimir Putin: What is the total worth, somewhere around 90 billion?
Igor Sechin: That’s right. Rosneft is now worth about $92 billion: the company's market capitalisation has reached $92 billion. At the same time, Mr President, as a result of the decision to sell 5.6% of BP, the remainder of the state’s share has increased in price by $13 billion. In terms of the market and from the point of view of the state’s interests, this is a very positive event, and it creates growth prospects as well.
Vladimir Putin: The capitalisation could be higher given the increase in the reserves and growing production, as well as the acquisition of significant assets. I think it has the potential to grow to at least $100–120 billion.
Igor Sechin: Mr President, that is the company’s target for the current year. If the macroeconomic indicators are stable, if they are not volatile, if the global oil price does not fall and the company continues to operate efficiently (last year we reduced the cost of materials and equipment by 15%, saving about 21 billion rubles), in that case we will be able to reach the target capitalisation of $120 billion. We will try to achieve this through the completion of the merger and the projects the company is currently implementing.
Vladimir Putin: How much did the shareholders’ profits increase?
Igor Sechin: I have partially reported already that the shareholders’ profits increased by 35%, from $6.6 to $8.9 per share. The market capitalisation on December 31, 2012 was $94.4 billion.
We have fulfilled the instructions you issued in May 2012 and increased the dividend payments to 25%, nearly tripling the dividend payments.
The state as a major shareholder received 60 billion rubles [$2 billion] last year.
Vladimir Putin: In general, how did the company pay taxes to the state budgets of all levels?
Igor Sechin: Rosneft is the leader in contributing to the budget of the Russian Federation: in 2012, we paid 1.7 trillion rubles to the budgets of different levels.
Vladimir Putin: Are you the biggest taxpayer in the country?
Igor Sechin: Yes, we are the biggest taxpayer in the country, Mr President.
Vladimir Putin: Ok.
What about social issues – the average salary and other things? I mean everything related to providing a decent standard of living for the staff.
Igor Sechin: Our average salary is more or less standard for our sector, i.e., 50,700 rubles per month. At the same time, we had a good rate of growth last year – 16 percent. Over the course of the year, we invested approximately 23 billion rubles in the social sector: we built eight new and renovated 47 existing preschools. We built one brand new school in Ingushetia, completely modernised a school in Stavropol, which is now basically a new school, renovated 38 more schools, built two new and renovated about ten existing sports grounds. This is a significant part of our work.
We have 27 agreements on joint work with the regions. We get tax incentives from regional authorities in places where we work, and we use these funds to resolve social challenges. So this is large-scale work, Mr President.
Vladimir Putin: What problems and difficulties do you see in the near future and in the recent past, and what are your plans for this year?
Igor Sechin: We will continue our current work: this involves modernising plants, and here, we are trying to adhere to the schedules approved by the four-party agreements [between the Federal Anti-Monopoly Service, oil companies, the Federal Agency [for Technical Regulation] and Metrology (Rosstandart) and the Federal Service for Environmental, Technological and Nuclear Supervision (Rostekhnadzor) on modernising refining capacity].
We are working to increase production because an oil company’s resource base has a direct influence on its capitalisation. In this regard, of course, our priority will be the development of offshore projects. We are implementing major projects within the framework of our strategic agreements with key partners. Last year, we conducted seismic surveys in the Kara Sea, covering about 5,300 line kilometres in 2D and 3,800 kilometres in 3D surveys. These surveys allowed us to identify a drilling site in the Kara Sea, and in 2014, we will begin prospect drilling; we have already chartered platforms. This will allow us to find deposits in the Kara Sea.
Vladimir Putin: I very much expect that the orders the companies will place will largely be placed with Russian shipbuilders.
Igor Sechin: Mr President, our agreements with our strategic partners stipulate that 70 percent of equipment orders are to be localised in Russia. We signed an agreement in Vladivostok in your presence with our shipbuilders in the Far East on constructing offshore production platforms. We will, of course, carry out this work diligently.
Among our other primary areas of work, strategic significance will be given to integrating new assets, whose acquisition will be completed in the first half of this year. Our company has therefore created a special integration management committee. Its members include Rosneft executives and representatives from BP, which will be our second largest shareholder after the government once we close the transaction. In addition to BP executive Bob Dudley, the committee will also include one of the leading Bain & Company consultants, Rob Fisher, who was responsible for the Exxon-Mobil merger.
Vladimir Putin: How are your relations with foreign partners going overall? I mean your joint work and perhaps your exchange of assets both here in Russia and in other parts of the world?
Igor Sechin: The oil and gas sector is known for being global. And naturally, we are exchanging technology and assets. This work allows us to strengthen trust, consolidate our positions on the market, exchange technology, and increase staff qualification. And we are not just doing this offshore. We are doing the same with hard-to-recover reserves, and we also establish corresponding joint companies to work on our deposits, which were not being developed before – this includes the Bazhenov Suite, a deposit with shale and bitumen oil. We are, of course, doing this work.
Vladimir Putin: And do your foreign partners give you the opportunity to work, as I said before, in other parts of the world aside from Russia?
Igor Sechin: Of course. Currently, the company is present in the United States and Venezuela. We are working in China and getting new offers from our Norwegian partners. We have just submitted a tender application jointly with Statoil for several deposits on the Norwegian continental shelf. This is a condition included in our agreements, and we work on this matter in full cooperation and mutual understanding with our western partners.