the head of the company “Gazprom Neft” Alexander Dyukov in an exclusive interview to TV channel “Russia 24” told about the current situation in the oil market. According to him, has not yet achieved the balance of supply and demand.
— Alexander V., Hello! The first issue related to the annual General meeting of shareholders. According to tradition, always interested in all the results of last year, but this year the situation has changed. We see that the financial reporting “Gazprom oil” at the end of the first quarter showed a loss. When do you think will be able to restore this situation and to quit in plus?
— Perhaps you will agree that investors and shareholders are unimportant, the performance of the company last year, and everyone is interested in only the current situation, because, first, that the record profits that we received last year (400 billion rubles) will allow us to pay a record in the history of dividends. For the whole year will receive 180 billion rubles. Secondly, I think it’s also important for investors and shareholders, and that is a decent financial performance last year, as in previous years, allowed us to approach this crisis, for a pandemic with a good financial condition with low debt. And, I think, it’s still important for investors and shareholders.
If we talk about the year 2020, especially about its beginning, it was not best for the oil industry in General and for the global economy. We’re all faced with an unprecedented decline as demand and prices. And, of course, the loss, which was received by the company in the first quarter, is 13 billion rubles, it was to be expected. I want to say that if you evaluate this loss, we understand that the loss of paper. This loss related primarily to foreign exchange differences and the revaluation of assets, which was mandatory in the fall, lowering prices.
If we talk about the OPEration of the company’s profits, then operationally, we continue to operate at a profit, and, accordingly, if we talk about cash flow, then cash flow is positive.
the second quarter is, of course, will not be easy, and all the oil companies, not only “Gazprom oil” will feel it the pressure of the market and market situation, our net income. We know that April and may, especially April, have become probably the most difficult for the oil market over the last 30 years, if not longer. And of course this has an impact on the financial results, but, nevertheless, we hope that financial results in the whole first half of the year will be better and we will see a net profit, our financial results are already positive.
the Forecast for third quarter is more positive and financial performance will improve. We are confident that you will finish this year with a profit, and this profit is not only operating, but corresponding with our accounts and with all these paper characteristics. Even this will not prevent us to show in our reports net income.
— Speaking of those optimistic projections, which you just said, do I understand correctly that in the future you also plan to pay 50 percent of the profits of the company in dividends? And whether this year’s interim dividend, whether they expect?
We have already made the transition on payment of 50 per cent of our profits in the form of dividends. And if to speak about the results of the II quarter of 2019, respectively, the decision to allocate 50 percent of the profits for the second half of the year has been made. Today, by the way, the AGM approved this decision, respectively, in the month of July will occur the payment of dividends for the year 2019.
As for interim dividends, then, of course, this practice of paying interim dividends will continue. If we talk about schedules, timing of payments, and also if we talk about sizeerach, the more accurately we can say, if we talk about the size in absolute terms, when will be clear the situation on the oil markets.
6 June OPEC+ decided to extend the restrictions on 9.7 million barrels per day total for the whole Alliance instead of 7.7, as planned earlier. That is, more stringent restrictions were imposed. How do you assess this decision?
— If to speak about the company “Gazprom Neft”, we supported this decision. On the one hand, we see that the situation in the oil market is recovering and this contributes certainly mitigate those quarantine measures that have been introduced in various countries. Now the government took the path of easing or abolition of quarantine restrictions and it certainly has helped the recovery, including economic activity, rising consumption of oil products, including in the Russian Federation. And this factor in conjunction with the new deal, OPEC+ led to the fact that we saw growth in oil prices. This is certainly important for the Russian budget, since he basically formed it and laid the price close to 40 dollars per barrel. But, on the other hand, we can say that, of course, the balance of supply and demand has not yet been achieved, and still the market is quite a lot of excess reserves that have been formed in recent months. And, of course, need some time.
If we talk about certain sectors of the world economy, in some sectors there is still a lot of uncertainties. If you take the same air travel, and air travel contribute significantly to the demand for jet fuel, it is not clear how to recover this sector. In this regard, in terms of what we have just come out of quarantine, an extension of the maximum month of production cuts, of course, is logical.
— And how many “Gazprom oil” reduces production? And how do you choose the same field where it will be reduced? In the future you expect her to recover?
We, like other Russian companies have reduced the volume of output of around 19 percent from the production level in February. Accordingly, we carry out those recommendations that we received from the Department of energy. As for production cuts, it has affected most of our fields, but mainly we are reducing production at those fields with the highest degree of proficiency. How we judge and how we do it? We either stop or well preserved, where possible, we reduce the productivity of pumping equipment in wells. In making decisions to help us, in particular, a set of integrated optimization programs, we suggest the most correct economic decisions. That is, the decisions that we make economic decisions, they consider not so much the economy of some particular well, but mainly just the economy of the whole “Bush” of wells, taking into account, in particular, those costs that we bear for the maintenance, including ground equipment, the arrangement of which helps in oil production. Of course, we must consider factors of production and how quickly we will be able, when required, recover the loot. In principle, we have already had the experience of the reduction and recovery of production, at the moment we do not see any risk that some significant part of the spoil which we have reduced, we will not be able to recover.
— in addition, we also saw, of course, the fall in demand for refined products. Here’s how, from the point of view of oil refineries, went to the company this period?
— of Course, we all saw the decline in consumption of petroleum products in the world and in Russia. But now we are already seeing a recovery in demand. And if you take the APR and the consumption of gasoline, then gasoline consumption in Russia declined, in my opinion, at 34 percent. This “year to gode” — April 2020 April 2019. If we are talking about June, our forecast for the reduction in the consumption of “year to year will amount to only 10 percent. However, if you talk about how was organized and carried out implementation of the same gasoline company “Gazprom Neft”, then we saw the decrease in sales volumes of gasoline by April 2019, only 20%, so we outperformed the market. The overall reduction in consumption of diesel fuel, gasoline on the market, of course, affected the operation of refineries. But really, what I said, the fact that our sales channels were working well, and in addition, we used a variety of integrated programs and solutions that have allowed us to plan the whole chain from factory to sales that allowed us to mitigate the sharp reduction in production at our processing. In the moment of the maximum reduction in the processing that does not exceed 15 percent.
— All things we’ve discussed will affect the investment policy of “Gazprom oil” or not?
— the Company “Gazpromneft” as the rest of the company this year forced to revise our investment program. If to speak about volumes, the reduction will be about 20 percent. But what is important is that we do not give up and continue to implement all our major important projects to one side. On the other hand, we do not reject the implementation of those strategic bets that were made at the time of the company. When I talk about strategic stakes in exploration, production, I understand the key directions of development of our company, such as the development and use of technologies in tertiary production, which allow to increase oil recovery, oil recovery from Mature fields, as a job with low productivity stocks, as an podgotovili hallof zhami as work with the Achimov thickness, work in the Arctic. These strategically bet I can name more, none of them we have not given up and continue to work on all of these strategic areas. But besides the fact that we have revised our investment program, we have optimized our operating expenses, and administrative costs. And just here is the optimization of administrative costs will allow us to offset the additional costs that are now incurred by the company in connection with the struggle of a new coronavirus infection.
— How do you assess the period of holidays and global situation with COVID-19? How all together influenced the work of the company “Gazprom Neft”?
— I believe that we survived this period and even, perhaps, to use a word like “successful”. I can’t say that we were prepared in advance to this pandemic, but I want to note that the company “Gazprom Neft” very quickly responded to the situation. We quickly developed and began to implement the program of “antivirus”. This program was designed to protect, primarily, our employees, our contractors, our partners, consumers from COVID-19. On the other hand, it was important for us to maintain the continuity of production of our company’s activity, financial stability. And of course we had to help the regions of our presence, the regions of our activities. And so with all these challenges, I think that we coped. And this program has shown its effectiveness.
But, despite the fact that we see the improvement of the epidemiological situation and, in principle, we begin to return the old familiar formats and model work, certain activities of this programme we continue to implement. For example, such as the use of the buffer terminals are those terminals that are undergoing testing.
these decisions, here are the protocols and rules of action, which could be expanded and applied, they should probably be a must-have for big business. It is clear that after some time we’ll get the whole story associated with COVID-19, but, unfortunately, if we talk about the trends that are present in the world, and globalization, and other factors suggests that an outbreak like this, and the risks of their occurrence, unfortunately, will continue and grow. And therefore, big business, and this is the task we set before “Gazpromneft” should be ready to such situations, to react quickly and deploy the appropriate counter.
— If a little to deviate from the topic of the pandemic. “Gazprom Neft” has sent emergency rescue teams under the Norilsk for liquidation of consequences of emergency situations. What are the results achieved?
— First of all, I want to mention how quickly we managed to mobilize our rescue squad team. We did this within 24 hours mobilized people and gathered the required special equipment and cargo aircraft, cargo helicopters took them to the place. Barely 24 hours as they have already begun to work. This team was formed out of our employees working in different cities of our presence, and what distinguishes this team is that it is able to work autonomously and not depend on the aid of any other organizations. We sent not only the people we sent there and a special technique is pumping and oil collection is a special equipment, it’s the buggies, this boat special is the bonds, including drones who help in this work. At the moment we are coordinating our activities with the MOE, with other companies working in the region. We got the water segment, and on the river bed Barn our emergency rescue squad progresses, eliminating this spill. On the first site that we were allocated for the work we have already done the work and now they are deployed to another area where we work. Currently we plan to allocate additional machinery and equipment for works on elimination of the spill.
— I Have one last question for you: last year it was announced that “Gazprom Neft” together with “Gazprom”, “SIBUR” and “Tatneft” creates a single organization in order to have common technological standards in the industry. What results have already been achieved in this work?
— If you are talking about Institute of petroleum technology initiatives, the Institute created, it works, and there are already first achievements. The goal, the goal we set in creating this institution, it is the task of facilitating the participation of Russian manufacturers of equipment of Russian companies in realization of projects on oil refining in the petrochemical industry and in other projects that use Western foreign technology. Creating this initiative and this institution, we promote dialogue between Western technology owners, on the one hand, and, on the other hand, the Russian equipment manufacturers. The result will be the creation of new standards, in particular, the first standard developed is English and Russian version of the standard for the production and application of centrifugal pumps. In the development of this standard has involved Russian experts and Western, representing the Western licensors. This is the first important step forward.