In 2008, Russian refineries processed 260 million tons of crude hydrocarbons (103.2% of the 2007 level). Overall, oil refined as a share of its production increased to 48.5% from 46.6% in 2007. The crude refining yield in 2008 averaged 72% across Russian refineries, versus 71.6% in 2007. The country produced 39.4 million tons of gasoline (101.8% of 2007), 76 million tons of diesel fuel (104.1% of 2007), and 70.4 million tons of heating oil (101.9% of 2007).
Table 2. Refining Input by Russian Vertically Integrated Companies, 2007–2008, in millions of tons
Source: RF Central Dispatching Administration of the Fuel and Energy Industry [TsDU TEKJ].
It is clear from the above data that the vertically integrated company Rosneft Open Joint-Stock Company now leads the Russian oil industry. It was created in 1993 as a 100% state-owned company. The government planned to privatize the company several times in the 1990s, but a lack of investor interest—a result of the company’s difficult straits at the time— repeatedly scuttled such plans. Rosneft’s financial position did not begin to improve until after 1998, and rising oil prices on the world market played an important role in the improvement of its economic indicators. Within several years, it regained control over its subsidiaries and began acquiring new assets. A new phase in the company’s development began with the bankruptcy of Yukos. In late 2004, Rosneft purchased Yuganskneftegaz, and in 2007 it acquired most of Yukos’s remaining assets. This, in turn, enabled Rosneft to assume first place in Russian oil production and refining and to become a leading player in the petroleum products sales market.
Rosneft is currently on Russia’s list of strategic enterprises and organizations. Its authorized capital, after consolidation of 12 subsidiaries, is 105,981,778 rubles and 17 kopecks (10,598,177,817 shares of common stock at a par value of 0.01 ruble per share). The state-owned Rosneftegaz holds 75.16% of Rosneft’s stock, while the remainder belongs to a wide range of strategic, institutional, and individual investors. The company’s net profit in 2008, calculated by US GAAP standards, declined 13.5% compared to 2007, to $11.12 billion.
Rosneft represents Russia’s interests in a variety of international projects, in particular in the project to develop the Kurmangazy structure in Kazakhstan, in the Sakhalin projects, and in the construction of the Burgas-Alexandropol oil pipeline.
The geography of Rosneft’s operations in the exploration and production division encompasses all of Russia’s major oil and gas provinces: Western Siberia, South and Central Russia, Timan-Pechora, Eastern Siberia, and the Far East. The company is also implementing a series of oil projects outside Russia, in Kazakhstan and Algeria.
The size and quality of its upstream reserves guarantee Rosneft a stable leadership position. The company has 22.3 billion BOE of proven reserves, enough to support it for 26 years. Most of these are conventional reserves, which will allow it to increase oil production volumes efficiently in the near future. Rosneft also has 26.6 billion BOE of probable and possible reserves, a future source to replenish proven reserves. The company does most of its geologic exploration in Russia’s most promising oil and gas regions, such as Eastern Siberia and the Far East, as well as on the continental shelves of Russia’s southern seas. This affords it access to approximately 53 billion BOE of prospective resources.
Rosneft’s oil production segment includes: RN-Yuganskneftegaz, RN-Purneftegaz, RN-Severnaya Neft, RN-Samaraneftegaz, Tomskneft, Udmurtneft, RN-Sakhalinmorneftegaz, RN-Krasnodarneftegaz, Grozneftegaz, Sakhalin Projects, RN-Stavropolneftegaz, Northern Lights Company, Vankorneft, Rosneft-Dalneft Oil Company, Dagneftegaz, Verkhnechonskneftegaz, and Eastern Siberia Oil and Gas Company.
Rosneft is also one of the leading independent gas producers in the Russian Federation. The company produces over 423 BCF of natural and associated gas per year and has substantial potential for further growth in production due to its unique portfolio of reserves. Rosneft is currently implementing a program to increase its associated petroleum gas utilization to 95%.
Rosneft has seven refineries scattered across Russia, from the Black Sea coast to the Far East. The refineries are advantageously located, considerably increasing the efficiency of petroleum products delivery. Rosneft’s refining segment includes: the Angara Petrochemical Company, the Achinsk Refinery, the RN-Komsomolsk Refinery, the RN-Novokuybyshevsk Refinery, the Kuybyshev Refinery, the Syzran Refinery, the RN-Tuapse Refinery, and the Rosneft-Moscow Nefteprodukt Refinery. The company is currently implementing projects to expand and modernize its refineries in order to continue to improve the balance between oil production and refining volumes, and to increase the output of quality products with high added value, meeting the most up-to-date environmental standards.
An important competitive advantage for Rosneft is its proprietary export terminals at Tuapse, De Kastri, Nakhodka, and Arkhangelsk, enabling it to substantially increase the efficiency of crude oil and petroleum products exports. The company is currently implementing comprehensive terminal expansion and modernization programs to bring capacities in line with planned export volumes.
One of Rosneft’s strategic objectives is the further development of its proprietary petroleum products retail sales network, which currently includes some 1,700 gas stations in 38 regions of the Russian Federation.
LUKOIL Open Joint-Stock Company is one of the largest international vertically integrated oil and gas companies. The company’s principal activities are oil and gas exploration and production, petroleum products and petrochemical production, and end product sale. Most of the company’s exploration and production operations take place within the Russian Federation, and its main resource base is Western Siberia. LUKOIL owns modern refineries, gas processing plants, and petrochemical plants located in Eastern and Western Europe, Russia, and other countries of the former Soviet Union. Most of the company’s products are sold on the international market. LUKOIL sells petroleum products in Eastern and Western Europe, Russia, other countries of the former Soviet Union, and the United States. In terms of proven hydrocarbon reserves, LUKOIL is the second largest private oil and gas company in the world, with a 1.1% share of total world oil reserves. The company also has a 2.3% share of total world oil production. The company plays a key role in the Russian energy sector, accounting for 18% of total Russian oil production and 19% of total Russian refining. According to data audited by Miller and Lents (US), the company’s proven hydrocarbon reserves as of January 1, 2010 amounted to 17.5 billion barrels of oil equivalent, including 13.7 billion barrels of oil and 22.9 TCF of gas. In 2009, expansion of proven reserves through geologic exploration, development drilling, and acquisitions amounted to 782 million BOE, or 95% of its annual production.
LUKOIL’s exploration and production division has a high-quality diversified asset portfolio. The company’s main oil production regions are Western Siberia, the Timan-Pechora oil and gas province, the Volga region, and the Caspian region. LUKOIL’s Russian oil production division includes: LUKOIL-Western Siberia, LUKOIL-Komi, LUKOIL-Naryanmarneftegaz, LUKOIL-Perm, LUKOIL-Kaliningradmorneft, LUKOIL-Nizhnevolzhskneft, LUKOIL-Volgogradneft, and RITEK.
Through a subsidiary, LUKOIL Overseas Holding Ltd., the company also implements oil and gas exploration and production projects outside Russia—in Kazakhstan, Egypt, Azerbaijan, Uzbekistan, Saudi Arabia, Colombia, Venezuela, Côte d’Ivoire, Ghana, and Iraq.
In 2005, when Nakhodka Field came online, LUKOIL began a program under which gas production would grow at accelerated rates, both in Russia and abroad, increasing the share of produced gas to one-third of total hydrocarbon production. The upstream reserves for realizing this program are the fields of the Big Kheta Depression, the Caspian Sea, and the Central Astrakhan field in Russia, as well as the international gas projects at Kandym-Hauzak-Shady in Uzbekistan (where production began in 2007) and Shah-Deniz in Azerbaijan. The leading enterprise in the company’s gas processing segment is Permneftegazpererabotka (Perm).