President of Russia Vladimir Putin: Mr Mikhelson, let’s start with the company’s state of affairs and then look at what is currently your main project – Yamal LNG.
NOVATEK CEO Leonid Mikhelson: I prepared a brief presentation on NOVATEK’s results for 2015. To sum up our results: they turned out not bad at all.
NOVATEK’s gas production increased by nine percent in 2015, with around 68 billion cubic metres in total, and the growth of liquid hydrocarbons, mostly gas condensate and oil, amounted to 51 percent.
The increase in gas condensate production meant that all of our large processing facilities reached full capacity last year.
Our sales revenue went up by 33 percent last year, which is no doubt also important, and this meant that we were able to increase the company’s personnel by 12 percent.
We have maintained in full all of our social programmes and continue to carry out all of our charity projects. We have social projects in all regions. We have cut nothing back; everything is going ahead.
As of today, NOVATEK accounts for 11 percent of gas extraction on the Russian gas market. We are supplying gas to 33 regions, including 100 percent of the supply to two regions. This accounts for about 19 percent of the total domestic Russian gas market. This is our geography of supplies to liquid hydrocarbon markets. You see, our sales grew from 4.5 to 9 million tonnes, and we are selling nearly worldwide. We invested about 420 billion rubles from 2013 through 2015, not counting our large-scale Yamal LNG project. The investment programme provides orders to about1,400 Russian companies. We have brought six large deposits into production with a capacity of 30 billion cubic metres for gas and 12 million tonnes for condensate and oil.
The capacity at the Purovsky plant has increased from 5 to 11 million tonnes and we have built a 6 million tonne fractionation complex in Ust-Luga. The wide spread of light hydrocarbons from our plant provides a petrochemical platform for SIBUR in Tobolsk.
The expansion of the Sverdlovsk railway has been financed through the prepayment of rail tariffs at 30 billion rubles. And transfers to budgets at all levels have increased by 71 percent in this time.
Vladimir Putin: That’s good.
Leonid Mikhelson: Here we have photos of these six implemented production fields.
Vladimir Putin: And you have increased employment?
Leonid Mikhelson: We have increased it by 12 percent. Today, we have about 11,000 staff, a number that has grown thanks to increased processing capacity in Ust-Luga and the Purovsky plant.
Vladimir Putin: What is the average salary?
Leonid Mikhelson: The average salary is about 110,000 rubles. It is high – after all, it is the North, they are mostly working in the North…
Vladimir Putin: The work is hard, in harsh conditions.
Leonid Mikhelson: We try to create good conditions. You visited our Yurkharovsky deposit and, if you recall, it has a swimming pool and a gym. Although they are working in shifts, we have created good conditions there.
Vladimir Putin: I saw it, it’s good.
Leonid Mikhelson: For the Yamal LNG project, as you recall, we are bringing 16.5 million tonnes into operation in 2017. The shareholders are NOVATEK at 60 percent, and CNPC and Total with 20 percent each. In December 2015, at the end of the year, we signed off on the entry of the Chinese Silk Roadinvestment fund for 9.9 percent. Corresponding documents have now been signed and this agreement will be up for ratification in the State Duma; the deal should then be closed in the coming weeks.
Last February, we launched an airport, which is really helping our work. By the way, we did this without public funding. Since then – in less than a year – it has already served 130,000 passengers. A cargo port is operating year-round, with four terminals. Last year, we loaded over 3 million tonnes of construction materials.
A 376-megawatt power plant is being built by Technopromexport (Rostec corporation), and four gas turbines have already been installed. The first stage launch will occur at the end of this year. We are building enormous reservoirs of 160,000 cubic metres very quickly. First, we need two reservoirs – there is no doubt that they will be ready on time. This photo shows construction of the reservoir’s internal walls.
Vladimir Putin: It is enormous. Where else can you find similar ones?
Leonid Mikhelson: There are reservoirs of this size for all LNG projects. But we ultimately decided to use concrete shells for two reasons: we reduced the distance between them and were able to work year-round. It is the Arctic, with gale winds. And we do not regret using this construction method. This is an overall view of the construction site, Mr President.
Vladimir Putin: What are the current temperatures there?
Leonid Mikhelson: It is not even just the temperatures; there are very frequent gales. As all northerners say, every metre per second is a drop in temperature by two degrees. That is why we have built such temporary structures, where we finish assembling the modules, which allows us to keep construction time as planned and to keep working.
The plant was built in a modular design. You see, here are the modules. This will allow us to reduce construction time by 1.5 to 2 years. The first reservoirs have been mounted. This year, we plan to complete 72 more modules. Here is an image of a module under construction, and here, you can see these modules being unloaded in our port.
Vladimir Putin: There are good prospects for developing the port.
Leonid Mikhelson: Yes, I will tell you about Rosmorport’s budgetary allocations. Nearly all procurement will be finished in February. This photo shows a cryogenic apparatus: it weighs 400 tonnes and is 46 metres tall.
Vladimir Putin: How was it delivered?
Leonid Mikhelson: A single train transported it to the port, and a single ship delivered it. Here it is being unloaded in our port. First stage compressors have already been delivered and mounted.
The next page shows federal facilities. Everything here is also going according to plan; dredging work has been completed for nearly 50 million cubic metres, a border crossing point has been equipped and we are completing construction of the southern root section onto which the terminals for shipping LNG will be mounted.
The first stage is already 56 percent complete. We currently have 13,000 builders working on the platform, and we will probably have a peak of around 18,000 people working in the summer. Overall, we have over 650 enterprises from 55 of Russia’s federal constituent entities working on the project. In total, we have over 60,000 people working on our orders, and 540 billion rubles’ worth of orders. So everything is going according to plan and we should launch the first stage in 2017.
Vladimir Putin: How are your partner relations?
Leonid Mikhelson: We have good partners, and everyone is working hard. These are tough times, and NOVATEK is on the sanctions lists. Thank you very much for your help in providing money from the National Welfare Fund. We received the second tranche at the end of 2015 and naturally, continue the financing, together with our partners. Overall, the current financing stands at about $15 billion, of which 2.3 billion came from the National Welfare Fund, while 12.6 billion came from shareholders.
Vladimir Putin: How much have foreign shareholders invested?
Leonid Mikhelson: I will give you the exact figures: the Chinese invested about $5 billion, and the French invested about $3.7 billion.
Vladimir Putin: Good.