|Chukotka Auton Regn Overview 10 1998||
Oil Company (Sibneft)
Abramovich Canada Visit
Sibneft, managed by Roman Abramovich
now Russia's fifth largest oil company
04-03-02 http://www.gasandoil.com Vremya Novostei via NewsBase
The oil company Sibneft became the fifth largest company in Russia in terms of production in February, leaving behind Tatneft. By the end of the year, the company will boost output by 26 % to 20.7 mm tons, compared with last year, and double output by 2005. Company leadership notes that the company may invest annually the required $ 1 bn if the world oil price is not below $ 16.5 per barrel.
As output grows, Sibneft management will
credit portfolio, which currently stands at $ 840 mm.
This summer, Sibneft intends to borrow $ 200-300 mm for capital investment. In addition, the company will solicit another credit to take part in the privatisation of a 19.68 % stake in Slavneft by the end of the year. This year, Sibneft's main investment will be committed to the Sugmut deposit in the Yamal-Nenets area, the Priobskoye and Palyanovskoye deposits in the Khanty-Mansi area.
In addition, around $ 100 mm will be invested in the Sibneft-Yugra joint venture between Sibneft and Sibir Energy, which develops the Yugorskoye deposit. Last year, the company extracted 80,000 tons of oil at the deposit and aims to produce 500,000 tons in 2002.
|Russian oil at
The latest financials and operating performance ratings for LUKoil, YUKOS, Sibneft, Surgutneftgaz and Tatneft.
Organic growth was low at 1 percent due to the stagnant production in the company’s core western Siberia region, which currently accounts for 72 percent of total production (the region produced 83 percent in 1999). So far, the Komitek acquisition appears to be paying off – production at the three Timan-Pechora subsidiaries (Komitek, Nobel Oil, Bitran) was up 5.7 percent last year and accounted for 9.2 percent of LUKoil’s total output.
Production at international projects continues
at a rapid pace (39 percent last year). Major growth was recorded at
Azeri-Chirag-Guneshli (the Azerbaijani part of the Caspian) and Tengiz
(Kazakstan) oil projects.
The balance sheet appears healthy, with an estimated $2.8 billion in total debt, $1.2 billion in cash and equivalents and equity of $9.8 billion.
Crude oil exports soared 23 percent to 438,000
export/production ratio increased from 40 percent to 44 percent, the
in the sector. Clearly this high share of exports in a period of record
oil prices had an extremely beneficial impact on the bottom line.
Despite generating an estimated $2.4 billion in operating cash flow last year, Yukos’ CAPEX amounted to only $500 million. Note that after subtracting a $1.3 billion improvement to the balance sheet, described above, we still could not allocate $600 million. Company executives cited long-term supplier advances and various investments (Eastern Siberian Oil Company being one) as the uses of extra cash flow.
Sibneft exported 32 percent of its oil production and 21 percent of refined product output last year, largely unchanged from 1999 levels. Refinery throughput was unchanged at 250,000 bpd. Light products amounted to 80 percent of output, which is by far the highest percentage of any major refinery in Russia and is a further improvement from the 78 percent achieved in 1999.
Sibneft acquired a 40 percent stake in Orenburgneft last year for $250 million to $300 million. We expect this equity to be used as a bargaining chip to increase the utilization of Omsk refinery (64 percent at present) by securing additional oil supplies from TNK, Orenburgneft’s majority shareholder; but it is also possible that management may either sell the stake or insist on a joint operation with TNK.
Sibneft has also formed a 50/50 joint venture with Sibir to develop the southern part of the Priobskoye field.
Operating and net margins are below the sector averages due to high depreciation charges. Sibneft carries its U.S. GAAP books in dollars, which has made depreciation expense immune to the ruble devaluation. As a result, Sibneft’s depreciation equals that of LUKoil and Surgutneftegaz, despite production being 72 percent lower.
On a cash basis, margins are traditionally slightly below those of industry peers, due to higher exposure to the domestic market. This, however, should work in Sibneft’s favor this year as domestic prices outperform exports.
Sibneft’s financial position is very stable.
Refinery throughput at the Kirishi refinery fell 7 percent in 2000 to 320,000 bpd after the management decided to stop processing third-party oil. At the same time, Surgutneftegaz deliveries to Kirishi rose 8 percent. Due to an excellent optimization of product output, the refinery’s light-heavy product ratio improved sharply to 68 percent-32 percent from 50 percent-50 percent in 1999. The refinery currently operates at 84.2 percent of capacity, among the highest levels in Russia, and exports approximately two-thirds of its output.
Financial performance Surgutnefetgaz’s own forecasts for 2000 are for revenue of $5.6 billion (up 70 percent year on year), gross profit of $3.5 billion (up 82 percent) and pre-tax income of $3.16 billion (up 82 percent). Although Surgut’s RAS accounts are not directly comparable with U.S. GAAP, we believe that Surgut is the most profitable company in the sector due to tight cost-control. The pre-tax margin stood at 57 percent in 2000, up 400 basis points from 1999.
Kirishi refinery, which is not consolidated in Surgut’s performance, posted a 48 percent gain in revenues to $571 million. Due to a drop in refining volumes, however, its pre-tax margin shrank 900 basis points to 35 percent, and pre-tax income rose only 12 percent to $199 million.
In order to capture downstream margins,
50,000 bpd at the refining unit it leases from Nizhnekamskneftekhim and
marketed the resulting products. As a result of this processing
deliveries to Nizhnekamskneftekhim (NKNH), commonly transacted at a 30
percent discount to market prices, fell to 60,000 bpd last year.
The balance sheet continued to improve due to the company’s ongoing debt reduction program. Total debt fell by $275 million to $620 million at year-end 2000, and the net debt/equity ratio has improved from 0.52 percent in 1999 to 0.21 percent.
For 2001, we expect a 33 percent drop in
EBITDA on a 13
percent decline in revenues. In the absence of downstream business,
performance is inherently more sensitive to oil-price volatility. But a
moderate reduction in working capital needs, combined with higher
expense, should still allow Tatneft to generate operating cash flow of
|Draft law on production
sharing ignores investors
Several pieces of legislation have been adopted recently that will help form a special tax regime for projects operating under production sharing agreements.
The draft law "On Direct Production Sharing" is awaiting the president’s signature. It was adopted by the Federation Council and establishes a simplified procedure for production sharing between the government and investors.
It is well known that the law "On Production Sharing Agreements" (PSA) basically substitutes some taxes and duties for production sharing. In other words, an investor running a PSA project is exempt from taxes and duties, except royalties, profit tax, universal social tax and duties on the use of land and natural resources.
A special taxation system for PSA needs to meet the following two basic requirements. It must fit in with the principles established in the law "On Production Sharing Agreements" and be compatible with the Russian Tax Code and other legal and executive acts concerning taxation.
The State Duma Committee on Budget and Taxes, together with representatives of the fiscal structures, drafted a relevant document that was submitted to the Duma on January 23, 2001. But on April 26 the Finance Ministry refused to cooperate and put forward its own draft. Finally, it was decided that the latter document should be finalized and submitted to the government by June 20, 2001.
The Finance Ministry’s draft provides for a dramatic increase in the number of taxes (from four to 22) and, what is worse, establishes that investors’ expenses cannot be reimbursed in excess of the limits set by the agreement. This means that it will not be long before such "limits" appear in every PSA. And the larger the number of taxes the less production is left to be shared between the parties of a PSA. This is a step back toward the existing taxation system that we have been trying to put straight for six years.
On April 13, 2001, the Consultative Council on Foreign Investments in Russia, the European Business Club, the American Chamber of Commerce’s Russian branch, the German Economic Union and the Oil Consultative Forum, who represent the interests of foreign investors in Russia, sent a letter to Economic Development Minister German Gref where they clearly stated that the Finance Ministry’s draft law was not in line with the law "On Production Sharing Agreements." They said it "will not help create any adequate conditions for investments," that it "undermines the foundations of the production sharing principles and ideas," and "leaves no opportunity for any long-term economic assessments."
The letter, which definitely deserved serious attention, was shown little respect by the government. As if deriding it, the government meeting that convened shortly after it was received resolved "to uphold the main principles of the Finance Ministry’s draft."
Without waiting for the deadline of June 20, the Finance Ministry finalized the draft and submitted it to the government on May 11. Compared with the initial draft, the final version showed some improvements as well as some changes for the worse. For example, a number of purely conventional payments, such as "compensation to the state for exploratory and prospecting work," were classified as taxes.
In their letter, the investors gave a highly positive appraisal of the draft law prepared by the State Duma Committee on Budget and Taxes. The letter said that the adoption of this draft "with some amendments and appendices would be a major step forward and … would signal the improvement of Russia’s investment climate in the oil and gas industry."
The investors’ opinion was ignored, and the Duma’s Committee’s proposals were rejected right away.
Another dangerous provision in the government’s draft substitutes "royalties" for "extraction tax." As things stand, the "royalty" rate varies between 6 percent and 16 percent and is specified in a PSA license, while the government’s draft calls for setting the "extraction tax" at 16.5 percent. Obviously, this may push some of the PSA projects out of business.
According to estimates made by the head of the YUKOS oil company, Mikhail Khodorkovsky, the substitution of "royalties" for "extraction tax" will nearly double the tax burden.
The cost of oil production and operational efficiency of an oil company strongly depend on the deposit’s location, depth of the oil layer, deposit’s capacity, and so on. The proposed "extraction tax" does not take these differences into account.
So, the "extraction tax," if introduced, will cause numerous problems and require existing licenses to be revised. What is worse, the tax will destroy the present rational use of natural resources and provoke social and political destabilization in a number of regions. For many oil provinces, especially the old ones located in Tatarstan and Bashkortostan, the tax may well turn out to be too much.
In other words, the government’s draft law will stimulate operations at the richest oilfields and will force companies to abandon deposits as soon as oil production costs increase, leaving the problems to future generations.
Meanwhile, the adoption of the draft law "On
Sharing" has made both the Duma and Finance Ministry drafts obsolete.
gives all interested parties – the State Duma and the government – one
more chance to draft a sensible version of the Tax Code’s article "On
Sharing" to make it possible for Russia to take part in serious talks
potential investors. (The author is a member of the Expert Council,
of a State Duma commission in charge of Production Sharing
By MIKHAIL SUBBOTIN / Special to Oil, Gas and Energy
ARCO has signed preliminary agreements with two local governments covering E&P in the Soviet Far East.
ARCO's protocols with regional councils of Magadan and the Chukotka Autonomous Area pave the way for ARCO to negotiate for exclusive rights for onshore and offshore E&D. Target areas will be identified in subsequent negotiations. The councils will help ARCO obtain required legal approvals of the Soviet and Russian Federation governments.
January 12, 1993
In a deal that could lead to a joint venture agreement, IPC and Chukotneftegasgeologia have a joint study agreement covering an area in the Chukotka region. The two will assess the technical and economic feasibility of producing small onshore oil fields in the ANADYR ANDKAHTYRKA BASINS,aimed at yielding exports for western markets.
Crude from the two basins has a high wax content, but it is low in sulfur and the fields are close to the Pacific Coast.
IPC said depending on results of the study, it could enter a production agreement with Chukotneftegasgeologia in the next 2-5 years.