November 30 for the first time OPEC agreed to reduce production in eight years by 1.2 million barrels. a day, followed by Russia agreed to reduce production by 0.3 million since 2017. How this decision will affect oil prices, the Russian oil industry, and the largest private Russian oil company LUKOIL, RBC has discussed with its vice-president and co-owner Leonid Fedun. Top-manager claims that, despite the ongoing consolidation of the industry, the company is not threatened by absorption.
"The first job of the OPEC I wrote in 1977."
- How do you estimate OPEC production cuts solution for the industry as a whole and for LUKOIL in particular? How Russian oil production will decrease if there are any risks in the preservation of old wells? And in general, in your opinion, is the decision of OPEC to be done?
- Of course. You know, it turned out that his first work on OPEC I wrote in 1977. For you, it is terrible to think, and then I just was finishing his military school and writing a term paper. Since then, I have a very close look for OPEC. And I was one of the few who believed in 2014 that the crisis created by the OPEC.
The goal of the crisis - the displacement of the market primarily shale oil producers and the suspension of the growth of other high-cost projects. Even then I thought that the OPEC in 2015 will return to quotas and the price of oil will be able to return to previous levels. But I am, and that I am pleased, not only I, but also OPEC experts were wrong in the US financial opportunities. Miscalculated that the mining company in the United States, not having free cash flow and having a crazy debt that is trading at 10 cents on the dollar, nevertheless it receives additional funding. Therefore, until the end of 2016 it became clear that the market is almost balanced. Features OPEC production growth is almost exhausted. The time has come when you can return to quotas, to stabilize the market and to start the trend of rising oil prices.
- As Russia's position, agreed to join the OPEC decision will affect the activities and the economy LUKOIL is the second largest producer in Russia, as well as in the oil industry as a whole?
- Only positive. For the reason, it is better to produce 10 million barrels. priced at $ 60 per barrel than 15 million at a price of $ 40. You save on costs and transport. Secondly, all the same oil - is a non-renewable resource, and it is better to sell it if it can be made more expensive.
- And how much actually physically cut production? And whether it is associated with reduced exports? Not affect whether such a step on the logistics of LUKOIL and the amount of long-term contracts with your customers?
- Of course, first of all, it will lead to a reduction in exports, as domestic oil consumption in Russia is about 100 million tons per year, and we produce more than 550 million tons Everything else -. It is exported either in the form of oil, either in the form of oil. Therefore, reduction of export will happen just at the 300 th. Barrels. per day (on a volume of Russia is ready to cut production -. RBC).
Technologically [cut production] no problems. In winter, the bulk of the repairs carried out on wells. This results in an average reduction of oil production by 150 thousand. Barrels. in year. Plus, all companies have a large number of so-called low-margin wells, ie those wells that have very low profitability and low flow rates, which is very easy to stop.
- In connection with this decision, you will change in the company's budget forecasts for oil prices ($ 50-60 per barrel in 2017, $ 80 - for the next three years) and revise the investment?
- Not yet. The budget is formed, but we have the so-called quarterly adjustments. If, as we expect the second half of , the oil will go steadily at $ 50-55 per barrel and above, then we will be able to revise this forecast. Although do not forget about such a risk, as the Fed's policy in the United States. They have once raised the Fed rate in December. But if they raise one more time and say that there will be an increase, it will not be very good expectations for the US market. How will this affect the currency exchange rate, which is the pressure in general on the dollar and oil quotes, it is very difficult to predict. So we better be conservative.
"There is much to spend money"
- Let us now turn to the loudest recent history - the privatization of "Bashneft". Why LUKOIL did not participate in it?
- Because it is expensive. We felt that the price sought by the State for the asset - is extremely high (in mid-October, "Rosneft" has paid for 50.08% "Bashneft" $ 5.3 billion -. RBC). Plus those tax changes that are taking place and are planned, for example, lead to the fact that that processing, which is now the "Bashneft", is not only the low-margin, but may go into negative values.
2% of world production
LUKOIL - the largest private oil company in Russia. For the first nine months of 2016 the company produced 606 million barrels. of oil equivalent of oil and gas production: of 2.2 million barrels. BC per day, or more than 2% of the world production. LUKOIL's revenue in January-September 2016 amounted to 3.8 trillion rubles, net profit -. 160.2 billion rubles. According to the memorandum of the company prepared by the end of October 2016, management owned 34.3% stake in LUKOIL, including President Vagit Alekperov - 22.96%, the vice-president Leonid Fedun - 9.78%. In controlled Lukoil Lukoil Investments Cyprus Ltd. - 16.18%, the remaining shares - in the free float. The capitalization of Lukoil on the London Stock Exchange December 2 - $ 43.9 billion.
- What is the price for a share in "Bashneft" would suit you?
- You know, the loser has usually it does not say. W e lost, gone and forgotten about it.
- It turns out that, due to the fact that you have kept these funds at the expense of your other achievements, LUKOIL greatly increased free cash flow. In the first nine months of 2016 it amounted to almost $ 3 billion.
- Where will you spend these funds - on dividends or acquisitions?
- Firstly, we have adopted a new dividend policy (assumes that the company will direct on dividends 25% of net income, the payout to shareholders should be a priority in the allocation of cash flow -. RBC). We are today the most generous oil company in terms of dividend benefits. Secondly, we have plans to develop both in Russia and abroad. Now we had a successful drilling in the Caspian Sea, we have a very promising discoveries in the Baltic Sea. That is, there is much money to spend. We have started ahead of time limits to exploration and drilling operations on the Taimyr Peninsula (East Taimyr subsurface area that Lukoil won in August 2015, beating on konkurce "Rosneft" - RBC.). There can be a huge supply [of oil], and can not be nothing. This exploration, that is, funds will be needed.
By the way, very good results revealed drilling at the tenth block in Iraq (LUKOIL and Japan's Inpex Corporation have acquired the right to the exploration and subsequent development of this area in southern Iraq in May 2012. In June 2016 they began there to drill the first exploration well -.. RBC) . To have these results in Russia - this is a dream, when you get almost 200 m of sandstone saturated with oil. We expect that early next year Iran will publish a new oil contract, which will have the opportunity and put the oil on its balance sheet, and generate revenue from oil price increase. Therefore, we need money, there is room to grow.
- Maybe, "Rosneft" buy shares now? "Rosneft", after the purchase of "Bashneft" has become such a big company, that the purchase of its shares - a kind of investment in the Russian oil industry, which continues to grow, despite the Western sanctions. From this point of view, you might be interested in such a deal?
- What's the point? We are not a financial partner, we have the oil company.
- So you're just like the Chinese: if you have no opportunity to influence the decision, it is better not to participate in the privatization?
- Of course not. We have a better ability to use tools.
- Really I had the opportunity to give up? Indeed, in principle, it was known that President Vladimir Putin has talked about it with your partner, the president of Lukoil Vagit Alekperov October 31 opening deposit them. Filanovsky ...
- And who knows? It seems to me that this is just speculation.
- That is not it?
- At least no Vagit nor I was aware of this.
- That is, there was the meeting at the Yu. Filanovsky?
- The meeting was, but no, we are not in question.
- And in the car Alekperov and Putin did not sit down, as it was written, "Vedomosti", and did not discuss LUKOIL participate in the privatization of "Rosneft"?
- You know, let's leave it is the answer.
- In October, at the forum "Russia Calling!" Putin promised to Lukoil, as one of the companies that have shown interest in the privatization of "Bashneft", different preferences. It was a question of support, including in the field of licensing. "We will support all of our company, if not in this deal, then other areas, ensuring their efficient work in Russia, international markets and improving their capitalization, including giving them a license to expand their activities," - then said Putin. There was some substantive discussion on this forum after the company's management level with the President or his representatives?
- No, we have not discussed. But we believe that support that exists today by the state, is sufficient for us. Enough so that we have successfully worked in Russia.
As for the program which should prepare the Ministry of Energy about the decline in production in the Russian Federation, we expect that it should be a government decree, which will be recorded not only the company's commitment to reduce the [oil], but some measures state support of this decision.
- And what would you like to support measures?
- Let us now is not going to discuss them. I do not want to get ahead and make them publicly available, even through your esteemed publication. We have some requests, these requests, we will try to discuss.
- This tax optimization?
- We'll see. Let's wait for the number of ninth (9 December appointment with OPEC producing countries, not members of the cartel -. RBC).
"I do not feel any threat"
- If you talk a little bit philosophical theme, you are not afraid of enlargement "Rosneft", which is happening now?
- And why should I frighten it? I came to the oil industry, when it was whole state, then there was the oil company LUKOIL and state, now again LUKOIL Oil Company and the State. Nothing wrong. "Surgut" ( "Surgutneftegaz" -. RBC) it is not scary, and I was not scared, and "Tatneft" does not frighten. Consolidation is everywhere. Here ExxonMobil was enlarged to the impossibility, at the time BP is actively involved in this. Q should be in size, and efficiency. If we are effective, then there is no doubt the company's development. Today, in our view, LUKOIL - one of the most efficient companies in the industry.
- But you do not feel the pressure of a large public company, maybe some emanating from her threat?
- What? I think this is no longer the work of journalists. We do not feel it.
- However, on the basis of recent events there is some strong pressure not only on your company. "Bashneft" was the first, and now the whole market tells you the next candidate on the absorption of "Rosneft". You have than to defend themselves?
- I do not feel any threat.
- And even in theory? What do you do if "Rosneft" will try to absorb LUKOIL?
- No, it could theoretically be, relatively speaking. You know, never say never. That is, come to you and say that, relatively speaking, for your company, we offer you a $ 100 billion. Who would not? I personally - not. About Vagit not know. I speak conventionally. And what is now engaged in fortune-telling? If something will be, will be. While those transactions which were, relatively speaking, with the same "Sibneft" (after the sale of "Gazprom" for $ 13 billion in 2005 renamed the "Gazprom Neft"), with "Bashneft", they were market-oriented.
- Did you have a good synergy with the "Bashneft", but after "Rosneft" has bought a controlling stake in it, it is quite important terminated the contracts for the supply of oil to your Bashkir refineries and selling LUKOIL petroleum products from these factories. And now discussing refusal to buy from LUKOIL electricity for the needs of "Bashneft". How do you see the further development of joint projects in the framework of the "Bashneft-Polyus", where 25% of LUKOIL? And whether it is possible to work with a partner like "Rosneft" on the deposits of them. Trebs and Titov, just as you have been working with "Bashneft"?
- We work with "Rosneft", we have a number of joint projects in the Caspian Sea, the Sea of Azov. And no company would not work to the detriment of himself, realizing the project economics. That economy, that has developed today in the "Bashneft-Polus", formed at the expense of infrastructure, which was established by LUKOIL. And I see no economic prerequisites to "Rosneft" to refuse it. We have a lot of projects with "Rosneft" and we have never seen any friction. Yes, there are the usual discussions of an economic nature, which we have always solved.
- And where you direct the oil that "Bashneft" have ceased to buy?
- For export. Especially exports is more favorable today than processing in the country.
- And on the Varandey terminal, owned by Lukoil, if there was any talk about discounts for pumping oil, "Bashneft", which passed under the control of "Rosneft"?
- Wait, there are tariffs, which are offered. If you deem it necessary to spend a lot of money, sent by a different route - we are going to discuss it.
- And now there is this kind of talk?
- Not yet. But Varandey economy today is more preferable. "Bashneft" the same as it did not work at a loss. They managed to get exactly the conditions under which we agreed to. Always process the agreement - it is as if the consent of the product in the non-resistance of the parties.
"Ring with brilliantikom - the future of this industry"
- What is your view on the future of oil? The head of Sberbank German Gref has often been said that the data - this new oil. Many already are predicting the imminent end of the raw material economy, the transition to a new state.
- Today I have all their presentation [at the conference "The future shape of the global energy sector: new challenges, priorities and opportunities"] tried to show that in my life - I do not know, as in yours, - the oil will remain the main energy source for transport. And after some time in the future and maybe even engineering. In the world of 2.5 billion cars and other moving tools that run on gasoline or diesel. After 15 years, 160 million electric cars will be in the world but, sorry, this is only 8% - in the best case, even with the most violent fantasies - 10% of the existing market. If there were no electric cars, we would have to produce the world about 3.5-5 million barrels. of oil per day more than now. And where can I get it? That is, in fact, electric cars, hybrids, other means of improving the efficiency and reducing fuel consumption - they are allies, since they keep the market from overheating and swelling of the high prices. A high price is much more dangerous.
It is much more important than another. I do not think that the internal combustion engine when our life will disappear. There is a technology that allows you to receive diesel fuel from bacteria and algae. Not so, as soon as they are processed, and how is alcohol: yeast, sugar and alcohol. And here the sun, salt water and diesel fuel flows. But while the cost of more than $ 150 per barrel.
But if the price [of oil] will be high, the technology will be improved, then there is an alternative to oil is quite serious. Therefore, today we are trying to say that the $ 80 per barrel of oil - this is such a golden price (the price of gold -. RBC), which allows, on the one hand, to satisfy the needs of consumers - quite cheap gasoline, cheap diesel fuel, cheap transport component. On the other hand, to ensure the reproduction of the oil industry resources in sufficient quantities. Third, it hinders the improvement of the same internal combustion engine, the emergence of alternative fuels, holding back the rapid development of the same electric cars, as they are at $ 80 per barrel of oil continues to remain a kind of "ecological toy." Therefore, in an ideal world, of course we want to live with the price of oil at $ 80 per barrel plus inflation.
- Even before the "Bashneft" has replaced the owner, you have resumed buying shares of Lukoil together with your partner Vagit Alekperov. As far as the share of management has grown on the basis of recent acquisitions?
- Every year we publish reports that says that anyone what share of the company's capital. I have not interrupted the 10%, it is not broke 25%.
- And why do you actively bought the paper now?
- The price was very low, and, in my opinion, relatively speaking, 80% per annum in the currency of which has an asset you offer? Shares of Lukoil - please.
- On Friday, LUKOIL sold diamond company "Archangelskgeoldobycha" for $ 1.45 billion "Discovery Holding", in which you also co-owners.
- Well, very minor. 9% from us.
- Buyer still became the main owner of "discovery" Vadim Belyaev. As far as we know, he had long dreamed of some real asset purchase.
- For us it is clear that this is also a hydrocarbon, but it's slightly different hydrocarbon. The diamond differs from coal and oil. Although in terms of business is a good oil field, with reserves of 200 million tonnes at an entirely different tax environment. I personally remember how did this deal for many, many years ago when I bought "Archangelskgeoldobycha". We have invested in the most advanced company in the industry and the world. Not in Russia and in the world. This asset is a very good diamond reserves.
For what it is necessary to "open", it is better to ask them. But as I understand it, it is important to have an asset that generates foreign exchange earnings. Since diamonds are sold in Antwerp, the price is growing all the time. The main merit of the company De Beers [in creating] engagement rings (wedding rings -. RBC), which are always daryatsya diamond for a wedding, including the Chinese. Although 30 years ago they had diamond was considered a widow's stone. Now is a good Chinese bride wants to have a ring on her finger with brilliantikom, in which the future of this industry.