President of Russia Vladimir Putin: Mr Alekperov, we regularly meet with you at various events and meetings on energy and other issues.
We agreed to have this meeting in order to discuss separately how things are at LUKOIL, one of our largest oil and gas companies.
Let's get to work.
President of LUKOIL Vagit Alekperov: Yes, I have two points to make …
Vladimir Putin: Please, go ahead.
Vagit Alekperov: The first is about 2018, including a report on your instructions.
I would like to say that 2018 was a fairly successful year. Today, we are among the largest taxpayers, the third or fourth largest, with 1.6 trillion rubles paid in taxes. Almost 500 billion rubles have been invested.
You can see that all our numbers are indicative of good performance. We were able to stabilise output and even increase hydrocarbon production by 4 percent compared to last year. Of course, this was due mainly to natural gas. Today, the company is a leader among non-state-owned companies.
Vladimir Putin: So, EBITDA [pre-tax profit] is over a trillion?
Vagit Alekperov: In our case, yes. We have reached a peak. One trillion, which is a good number. As you can see, we rank first and second among non-state companies.
First in terms of proven reserves. In terms of production, we rank fourth among non-state companies. I emphasise that because competing with state-owned companies is difficult.
Most importantly, we are proud that every year we add to our reserves in the volumes equal to what we have produced. We take pride in this accomplishment. These are the key performance indicators of our employees, especially the engineers and technicians that are tied to this particular indicator.
Vladimir Putin: This is important, I agree.
Vagit Alekperov: We also look quite good in terms of efficiency, because the company is implementing a programme to boost efficiency and motivation.
So far, we have motivated almost 12,000 employees, all the way down to the foremen in the fields. That is, everyone is motivated, including through share ownership, which allows us to improve efficiency every year.
That is, we look good enough.
Here (shows materials) are foreign companies, because they operate in a different tax regime, another system. Production sharing is used there.
Vladimir Putin: Investment discipline – this means you fulfil all investment plans?
Vagit Alekperov: Yes, 500 billions of investment per year for development. I will show you, I have a separate presentation here on your instruction. As I said, we have cause for pride.
Our portfolio today is quite extensive. We work in 32 countries: we conduct geological exploration both in the West and in Africa. And today the company is already able to drill at a water depth of almost 2,000–2,500 metres.
This includes West Africa and the Caspian Sea, as well. Today, the depth in some parts of the Caspian Sea exceeds 600 metres. That is, we have gained enough experience to make it easy for our experts to work at such depths in the near future.
All projects are developing quite dynamically. In Western Siberia, which is our bread and butter, we switched to the added income tax; we set up an experiment this year. This is a huge step forward.
Mr President, one of the materials shows what the added income tax means today for Western Siberia. Both the Soviet Union and we all have invested more than two trillion dollars in this region. Utilities, oil pipelines from the Pacific to Western Europe and gas pipelines were built.
Today, the added income tax can give a new impetus to the development of this unique region with good infrastructure – cities, two million people living in the Sredneye Priobye region.
Here (shows the materials) is the effect produced by this tax, which stimulates investment in the so-called low-yield and hard to recover reserves. There are reserves, over six billion in reserves.
Vladimir Putin: A new life is beginning for them…
Vagit Alekperov: Yes. If we extend this experiment to the whole of West Siberian province, we will be able to ensure a stable production volume for our country for decades.
And as for the Northern Caspian, which you took a trip to, I have a separate presentation on the Northern Caspian from the first days of establishing the province. And, as I promised you, we build a new platform every year. Here (shows the materials) is its history from the beginning. This is the first well.
Vladimir Putin: Is this the year 2000?
Vagit Alekperov: Yes. You visited the A platform. This is the launch of the first Korchagin field. This is the Filanovsky field, the flagship of our fields in the Caspian.
Now we, together with Acting Governor of the Astrakhan Region Sergei Morozov, created a new platform…
Vladimir Putin: Does he help you?
Vagit Alekperov: We help each other. I need help from the governor.
Vladimir Putin: And I am asking does he help?
Vagit Alekperov: Yes. I mean he is always available, in direct contact, he always responds and helps. That is, we work together closely.
And the new platform where the field has a lot of hydrogen, similar to Gazprom’s Astrakhan field.
Today the technology exists, the project is ready – the Kuvykin field. We name our fields after famous oil explorers who discovered such provinces as Western Siberia or the Volga Region in the Soviet Union. We have fields named after Filanovsky, Kuvykin and Korchagin.
I think the Kuvykin field will be launched in 2022–2023. That is all on the Caspian region.
Vladimir Putin: The Filanovksy field has already reached…
Vagit Alekperov: Has almost reached its full capacity.
Yes, we are now actively working in the Baltic Sea. You know that we have made quite a successful discovery there. The production forecast in the Baltic Sea is almost two million.
This year we are launching the first D-41 field that will support the production level we have reached today, or 20 percent of today’s production. This is why I hope that we will reach two million when we launch the D-33 field.
Vladimir Putin: This year?
Vagit Alekperov: No, we will launch it in 2023.
Vladimir Putin: Is it near Kaliningrad?
Vagit Alekperov: It is Kaliningrad’s shelf. There are several small fields but the D-33 field will be the key one.
And I guess we are the only company today engaged in oil mining. Our oil is superviscous, wells are 300 metres deep.
Vladimir Putin: Like in Venezuela, for example?
Vagit Alekperov: No, it is even more viscous because it comes from horizontal wells and gateways only. We treat it with heat and it begins to flow.
Vladimir Putin: And where is it refined?
Vagit Alekperov: At the Ukhta Refinery.
Vladimir Putin: It has the equipment?
Vagit Alekperov: Yes, there is the necessary oil-refining equipment.
According to the history of the field, it was discovered back in 1930, but it could not be developed because the technology was complex and costs were high.
But since the law to encourage development of heavy oil fields was adopted, the field produces almost one million tonnes now, although it had always been considered unpromising.
We have an agreement on gas with Gazprom. We feel comfortable with it; we have a strategic partnership that allows us to sell all of our gas and, most importantly, to be paid for it on time. Gazprom deals with any other problems because they pay us by field.
Today, we are working with Gazprom on creating a joint venture in the Nenets Autonomous Area. We are working closely with Mr Miller, so I am sure we will set up a joint venture this year for the benefit of the country.
Vladimir Putin: And what about Timano-Pechory?
Vagit Alekperov: Our Timano-Pechory project is doing fairly well. As you know, we built a terminal in the Barents Sea that is in the Guinness Book of Records as the northernmost terminal. It operates without issue.
Vladimir Putin: Is it going well?
Vagit Alekperov: Yes, it is operating properly. We have some minor issues with Rosneft but the terminal is operating, meeting our needs and the volume produced by our joint ventures.
All of our plants have undergone comprehensive modernization. We produce only Euro-5 standard petroleum, no other grade. We produce enough of it and export almost none; it all goes to the Russian market.
The decisions adopted last year by the Government of the Russian Federation in cooperation with us may be imperfect but they resolved the issues of 2017.
At this point, we have arrived at a common understanding under Mr Kozak…
Vladimir Putin: This was reported to me.
Vagit Alekperov: Yes, price stability will be guaranteed in 2019.