Rosneft expects to boost market cap by 25%-30% with strategy to 2022 - CEO
MOSCOW. June 27 (Interfax) - Rosneft expects the new strategy to 2022 that it is now working on to help increase its market capitalization by 25%-30% and ensure additional production of 500 million tonnes over 20 years compared to current plans, the Russian state oil major's CEO, Igor Sechin said in an article called "Rosneft 2022: Strategy of the Future," published by Izvestia.
"I think that the new strategy will enable us to pay out dividends at a level of 50% of profit, which will facilitate the growth of shares and, accordingly, the company's market capitalization. We expect that the implementation of the Rosneft 2022 strategy will increase capitalization by 25%-30%, and [yield] 500 million tonnes of additional production over 20 years compared to our current plans. But the main thing is the significant increase in efficiency and competiveness. We have set before the company the goal of achieving production costs at the level of Saudi Aramco in the long term. This guarantees Rosneft and Russia's oil and gas industry leadership in world energy," Sechin said in the article.
Sechin presented the main points of the strategy to 2022 at Rosneft's annual general meeting on June 22, and proposed increasing the company's dividends from the current 35% of IFRS net profit to 50% for 2017. The strategy will be presented to the company's board of directors by the end of the year.
In the article, Sechin said that the "world has changed, the oil market has changed, and Rosneft's strategy must change." However, he said he is confident that the main burden on meeting the global economy's energy needs will ultimately fall on oil and gas.
"Hydrocarbon energy will be in demand until 2050 and beyond. I note that if oil prices remain at a level of $40 per barrel for a fairly long time, half of the oil production in the world will be loss-making. Production will be unprofitable in the deepwater sands of Brazil, the oil sands of Canada. Difficulties will arise among producers of shale oil, with the exception of highly efficient blocks in the Perm basin. Only the producers of Russia, Saudi Arabia, a number of efficient projects in the United States, Iran and projects in some other countries that have relatively low costs are capable of maintaining stability amid low oil prices. The remaining producers will be forced to leave. All this creates new opportunities for Rosneft and for Russia in general," Sechin said.
Outlining Rosneft's strategic plans for each segment of its business, Sechin said that in production the company primarily aims to accelerate commercial drilling, implement multistage hydrofracking and increase the share of horizontal drilling.
He also said Rosneft needs to change its approach to oilfield services, "change their strategy of 'dependency' and force services to change taking into account oil market trends toward decreasing oil prices and ever increasing competition in terms of costs."
"Ultimately, our oilfield services business must become more independent, develop cooperation with outside customers. In turn, customers within the company should have the opportunity to get proposals for services on the market," Sechin said.
He said petrochemicals, as well as logistics and trading, have a special place in the new strategy, and the company plans to actively develop these areas based on Russian and international assets.
In the gas business, Rosneft aims to become the third biggest company in the world in the next decade, and by 2020 increase gas production to 100 billion cubic meters and its share of the Russian market to 20%. Concurrently, the company is expanding its gas business internationally, investing in the strategic Zohr project off the coast of Egypt, and promising projects in Venezuela, Brazil, Mozambique, Vietnam and Norway.
The transition from a centralized management structure to a holding structure is expected to become a new stage in Rosneft's development. "Considering the growth of the scale of the business, the decision to transition to a holding model is absolutely logical," Sechin said.
"First of all, this is great responsibility of business units for financial results and a more flexible system of decision making that will simplify the introduction of innovations at the level of the business. Secondly, this is an opportunity for individual segments of the business to compete for capital, which simplifies raising project financing for individual projects. Ultimately, we expect that the holding structure will enable us to more efficiently distribute financial resources, raise the return on invested capital and increase returns for our shareholders," Sechin said.
Rosneft will also strive for technological leadership, he said. "We realize that it will be difficult to compete without advanced information technologies in a world where information is becoming an ever more valuable asset. At the shareholder meeting I proposed forming a technology council at the company that will include such respected representatives of business and science as BP president Robert Dudley, GE Oil & Gas president Lorenzo Simonelli and Moscow State University rector Viktor Sadovnichii," Sechin said.