President of Russia Vladimir Putin: Good afternoon, Mr Sechin. There are several matters I wanted to discuss with you.
The first one is about your company’s operations in view of the restrictions caused by the coronavirus pandemic. There are several subitems here. One includes human resources policies and efforts to preserve jobs, and the other deals with making arrangements related to production and technological operations, and everything related to these activities.
The second item on the agenda is related to the first one. Still, I propose that we discuss it separately. I am referring to the contraction of the global and Russian economies, and the resulting oil production cuts under the OPEC+ deal. This situation will run its course sooner or later, and economic growth will resume both internationally and in Russia. By the way, we may well expect the Russian economy to shrink less that in many other countries, including in Europe. We will see when we have the results for this year. Let me reiterate that this situation will end, sooner or later, the global economy will resume its growth, and we will have to respond to this challenge.
In this context, I want to ask about the company’s vision for the future and how it carries out its development plans. I am referring to geological surveys and other elements in this process.
Go ahead, please.
Rosneft CEO and Chairman of the Management Board Igor Sechin: Mr President, Rosneft has been quite consistent in its efforts to deliver on the strategic development goals you have set for us. Our company accounts for about 6 percent of the global output. At the same time, we strictly abide by all the social commitments, despite the unfavourable environment created by the pandemic and the fall in oil price, as well as the illegitimate sanctions. Rosneft fuels Russia’s economic growth, since it accounts for about eight percent of the country’s GDP, and 24 percent of the gross output within the manufacturing sector.
We are vigorously promoting the development of human and technological potential, as you just mentioned. The company employs more than 350,000 highly qualified specialists whose average salary is approximately twice the average pay across the country.
We are financing social projects. A prime example is what we did in Tulun in the Irkutsk Region, where Rosneft built a school for 1,275 children in less than a year. The school is fully operational and will open on September 1.
Vladimir Putin: I know that. The Acting Governor [Igor Kobzev] has reported to me. Thank you.
Igor Sechin: We have been in touch with them to coordinate the connection to utilities, roads, electricity, water and sewerage. It is the first school that has two simultaneously operating swimming pools, a wonderful gym, a library, an assembly hall and themed rooms. And on September 1, the school will open its doors to children.
Mr President, our main priority during the pandemic is keeping our employees safe and healthy. We have approved a system-wide coronavirus-response policy based on the best Russian and international practices; the same standards are applied at all of the company’s facilities.
We have put together a decision-making system for coronavirus measures, which includes the company’s top management, a project office that monitors the current situation, and local response centres. The situation is monitored at all enterprises on a daily basis. More than 245,000 people have been tested for the coronavirus. The number of telecommuters has been maximised wherever possible without compromising production.
The company has also developed measures in case the epidemiological situation worsens. We have deployed 137 observation facilities in places of rotational work, where nearly 17,000 workers arriving for the shift can stay; there are 332 isolation spaces where workers are being tested for COVID. Due to the constant monitoring of the epidemiological situation in all shift camps, we have contained the infection in almost all of the company's production fields.
We are as dedicated as ever to providing an uninterrupted supply of high-quality motor fuel to the Russian consumers. Our plans call for the completion of the hydrocracking units at four oil refineries in Russia – in Komsomolsk-on-Amur, Achinsk, Tuapse and Novokuibyshevsk. The new facilities will help to reduce the output of dark oil products, because the demand for these is gradually decreasing, while increasing the output of light oil products at these refineries by 24 percent.
As a result of the OPEC+ agreement you mentioned, Mr President, and in accordance with the instructions we received, the company is indeed forced to temporarily cut production. We are working to minimise the socioeconomic impacts from the layoffs we just cannot avoid. We are trying to rank the oilfields by efficiency in order to minimise the losses and we are primarily cutting production at low-efficiency depleted fields.
As an example, I would like to cite the reduced production from low-rate deposits on Sakhalin. One is Northern Chayvo, which employs about 2,000 people. Despite the production cuts, we plan on keeping our unique human resources on board, and not lay anyone off, not a single job. We are going to use this time, while we keep production low, to suspend wells and to build new logistics infrastructure. This way, when this period is over, we will be able to join the world markets with greater efficiency.
At the moment we are supplying this oil from Sakhalin to the Komsomolsk Refinery 600 kilometres away. We have now connected the plant to the main ESPO oil pipeline [Eastern Siberia–Pacific Ocean], from the south, and we will shut down the old pipe and build an access to the sea terminal in De-Kastri. This way the project will be as environmentally friendly as it can, to the highest degree, and will have direct access to world markets and ensure a more reliable supply of the Komsomolsk Refinery, which will certainly benefit consumers in the Far East.
So in a year and a half or two years, this field will return to regular operation, and for the time being, its personnel will be involved in rearranging routes, in the mothballing of wells and in other projects.
Furthermore, to compensate for the shortfall of associated petroleum gas we are using to fuel the thermal power station in Okha …
Vladimir Putin: This is a very important point.
Igor Sechin: We have reached an agreement with the Sakhalin-1 project and will temporarily replace this gas with Sakhalin-1 gas.
Vladimir Putin: Do they have enough?
Igor Sechin: Yes. We have already signed all the contracts.
Vladimir Putin: It is important that the consumers are not affected.
Igor Sechin: We certainly understand this. The towns of Okha and Nogliki will be reliably supplied with electricity throughout this period of time.
Certainly, Rosneft will continue the policy of responsible deliveries for domestic consumption, which are picking up in this country following a certain decline. Actually, we do not export anything in the second half of the year, and all fuel volumes produced by us are delivered to the domestic market alone. Moreover, in an effort to supply the fuel market in Russia’s Far East during seasonal demand for vehicle petrol, the Komsomolsk Refinery started meeting only domestic demand in July and August.
Although the Komsomolsk Refinery is operating at full capacity to meet Far Eastern demand, we, nevertheless, have to supply rather substantial volumes from other regions in order to meet rising demand, the current increase considered.
Mr President, it should be said that we have a shortage of refining facilities in the Far East. Consumption volumes total about six million tonnes of commercial petroleum derivatives, and both refineries in Komsomolsk and Khabarovsk can provide only about three million tonnes. Consequently, almost 50 percent is delivered from other regions, and higher prices are stipulated in this region.
Mr President, if you remember, we had plans to build a new Eastern petrochemical complex for producing petrochemical goods and petroleum derivatives.
Vladimir Putin: Yes.
Igor Sechin: We were forced to delay this project’s implementation for a while because of tax regime changes. At the same time, we are ready to resume it in conditions of a fiscal regime that would guarantee the project’s profitability and return on investment. Mr President, we need a stable tax regime for this purpose, provided that you make a decision on this matter. This tax regime would make it possible to plan this company’s economic performance for at least 30 years.
Vladimir Putin: Could you please remind me where you were going to do this?
Igor Sechin: Mr President, a plot of land was allocated in Nakhodka, and it is possible to build a marine terminal there. This is close to the oil main and a railway.
Vladimir Putin: Nakhodka is a good place, it is convenient.
Igor Sechin: It is a good place. We need about 3.5 billion cubic metres of gas per year to provide energy for this plant. It will create a powerful point of growth in that region. I believe this plan will create about 100,000 new jobs, including production, transport, oil refinery and energy in this entire complex.
Vladimir Putin: Mr Sechin, please formulate these proposals and submit them for review.
Igor Sechin: Certainly, Mr President, I will do so.
I would also like to note another new project, Vostok Oil. I have regularly reported to you about the development of this project. Today, I would be happy to give you a sample of the first oil received from the 31st well site at the Zapadno-Ikrinsky deposit. Its qualities are astounding: the sulphur content is 0.02 percent.
Vladimir Putin: As in the Middle East?
Igor Sechin: This is premium oil, one of the best or probably the best in the world.
Vladimir Putin: As in the Middle East.
Igor Sechin: Even better…
Vladimir Putin: Of course, better.
Igor Sechin: Of course, ours is better. The oil density is 0.826 grams per cubic cm, this is high barrelisation ratio. Argus assessed our premium at $11 per barrel. And this is our oil that has been produced without any incentives as a result of prospecting in the 31st well.
Vladimir Putin: How are you doing in geology in general, in oil prospecting?
Igor Sechin: We are working on it. This concerns Vostok Oil, where we are involved in active geological prospecting, but we continue drilling on the shelf as well. We have an operating platform in the Kara Sea.
(Shows a video clip.)
Vladimir Putin: Congratulations. This is very good.
Igor Sechin: Mr President, we work not only in the Kara Sea, as I said, but also on Taimyr. We are getting ready for the end of the global economic crisis so that by 2023–2024 we will be able to offer new volumes of oil to the markets that are bound to grow.
Vladimir Putin: All right.