President of Russia Vladimir Putin: Mr Alekperov, how did last year go?
Lukoil President Vagit Alekperov: Mr President, we succeeded in stabilising oil production in Western Siberia. Development is underway now. We also think that we laid unique foundations for our projects in the Caspian region in 2014.
Vladimir Putin: Essentially, you have not stopped any of your projects?
Vagit Alekperov: 2015 will see us bring a maximum number of new assets into operation – assets worth a total of over $5 billion. This includes oil refineries and catalytic cracking facilities. You signed the order needed to make sure that all the approvals follow a faster procedure. We have completed the project and I will invite you in June to open this unique new facility.
We will complete modernisation of a plant in Perm this year, and in Volgograd. As we see it, we will make big progress in 2015.
Then there’s the production side too. We will be bringing this field into operation (shows the information material). As you can see from the presentation, this is all in Astrakhan Region.
Vladimir Putin: Yes, I know. Thank you.
Vagit Alekperov: Here, we are talking about more than 100,000 tonnes of constructions. The orders for this work were placed in Astrakhan. This is all Russian-made production and involves around 20,000 people.
We have built unique barges for freight transportation, and are installing cutting edge facilities on the platform, as you can see from the presentation.
After revising all of our budgets to cover for all possible developments, we took the decision not to lay off any of our workers in 2015 and will increase labour productivity. We are covering the human resources needs of the new facilities we are bringing into operation by redistributing employees from existing sites. Labour productivity will grow in both the oil production and refinery areas. This will make our company more efficient and we are confident that we will be competitive compared to our colleagues in developing refinery activity and oil production.
We are getting this facility [an ice-resistant stationary oil production platform] ready for the final pre-launch preparations. USC [United Shipping Corporation] and the other shipyards have worked very well and the final preparations are underway at sea now, the helicopter launch pad is up and running, and 600 people are living on the platform and getting it ready for the start of operations.
Vladimir Putin: What are your production figures?
Vagit Alekperov: This year, we will produce 86 million tonnes in the Russian Federation. We are maintaining our production levels by opening new fields. But everything is becoming more complicated, unfortunately, because, as you know, we are limited to dry land. We opened another field in the Caspian last year and have nearly completed our geological exploration work there.
We have new initiatives, which the Government is currently examining, for beginning work to open up new fields in places where geological exploration work has not yet been carried out. Our company has built up capabilities that it must continue to develop of course, and development means exploring new fields and launching new projects. I therefore ask for your support so that we can begin this work without delay.
Vladimir Putin: You will have our support.
I know that you are in the process of diversifying your business. I visited one of your new facilities recently, a diamond mine. How is the work going there?
Vagit Alekperov: We have been increasing production there every year and this year expect to reach a figure of 1.5 million carats. This is not much compared to ALROSA, but the project is starting to pay for itself now. The project is not a high-profit venture and has an IRR of only 16 percent, but we are sure that it will prove its worth over 5–6 years.
Most important today is that we have ensured the necessary social conditions for the workers and together with Gokhran [Russian State Precious Metals and Gems Repository] have developed a unique system for processing, valuing and selling the products. In other words, we are not taking care of the valuation ourselves. All of this is being done by the state.
We therefore see this as a stable, conservative business that will bring money into the budget. Arkhangelsk Region is already feeling the effect of this project’s launch and is seeing the benefits for its budget. I am sure that this project will continue its stable development.
Vladimir Putin: You mentioned social conditions. I know that your company has quite a few social projects.
Vagit Alekperov: Mr President, we opened four kindergartens last year, as you know. We have opened kindergartens in all of the regions where we have active operations, and have equipped them and handed them over to the local authorities. We build housing for our own workers, but in the towns where we are the main employer, as a rule, we do not differentiate between our actual company staff and people in the businesses servicing them. After all, everyone has come with the same aim of developing the fields and supporting production, the teachers and doctors too. This approach means that the social situation is stable in our towns.
I am visiting all of the different sites right now. We usually get together all of the residents, not just the company employees. I am sure that we can afford to index their wages and bring our new facilities into operation without having to seek support from the country’s budget.
Vladimir Putin: Good.