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Russia's Rosneft plans new borrowings this year

June 21, 2016, 21:46 UTC+3

The Russian oil giant plans to boost production in 2016

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MOSCOW, June 21. /TASS/. Russia’s oil major Rosneft plans new borrowings this year, Chairman of the Management Board Igor Sechin said in an interview aired by the Rossiya-24 TV news channel on Tuesday.

"We borrow much in general. We borrow (funds) mainly within project financing for implementation of economically viable projects," he said, adding that the company plans further borrowings as well.

Sechin also said Rosneft plans to boost production in 2016.

"We’re addressing the issue each day. I think taking into consideration the boost of drilling (operations) we’ll see a slight increase by the end of the year versus last year," he said, adding that the company expects crude price at $50-55 per barrel in 2016, at $65 in 2017. 

"The current volatility will persist. We assume that by the end of the year we’ll reach the stable level of $50, probably $55 (per barrel)," he said.

According to Sechin, there are no fundamental factors to back the growth of oil prices by the end of next year. "By the end of 2017 we’ll probably reach the level of $65 per barrel," he added.

Earlier on Tuesday Russia’s Finance Minister Anton Siluanov said the Ministry plans to set the oil price of $40 a barrel in the Russian budget for 2017-2019.

The Finance Ministry suggests setting the oil price of $40 per barrel for the next three years "in order to mitigate budget performance risks in case of further oil price changes," Siluanov added.

Earlier Energy Minister Alexander Novak said oil prices may reach $60-65 per barrel in 2017-2018.

Essar Oil refinery, Vankorneft deal

The CEO also pointed out that Rosneft expected the deal on acquisition of a 49% stake in the Indian Essar Oil refinery to be finalized by October.

"We have the main documents already signed while now we’re going through various bilateral procedures, meaning receiving necessary permissions. The issue of (the deal’s finalization - TASS) depends not solely on us but I think we’ll finalize it by October," he said.

In July 2015 Rosneft and Essar shareholders signed a term sheet on Russian company’s accession to the share capital of Vadinar Refinery with the stake up to 49%. Vadinar Refinery is the second largest oil refinery in India and is among the world’s top twenty largest refineries. The refinery can process heavy oil blends and has an access to a deep-water port.

According to Sechin, the deal on sale of 23.9% stake in Vankorneft to a consortium of Indian companies - Oil India, Indian Oil and Bharat Petro Resources - may exceed $2 bln.

"This is true (the cost of the deal exceeding $2 bln - TASS) though we’ve managed to convince our partners of the fact that the fundamental cost of mining projects is not related to the current environment, and to even improve the initial terms," he said.

According to Sechin, the Indian partners are convinced that "all those operations will be aimed particularly at ensuring India’s energy security."

"The fact that the Indian partners are boosting their share in the Vankorneft capital enables us to take the decision to develop the East-Siberian cluster," he added.

Rosneft and a consortium of Indian companies Oil India, Indian Oil and Bharat PetroResources signed a sale-purchase agreement on a 23.9% stake in Vankorneft and the shareholders' agreement at the St. Petersburg International Economic Forum (SPIEF-2016) last week.

After the closing of the transaction consortium representatives will enter the Board of Directors of Vankorneft. Rosneft will hold the majority in the project, retain the control over the operations of the named company and over 100% of the cluster’s infrastructure (including the Vankor-Purpe pipeline), which was spin-off in the RN-Vankor LLC.

Vankorneft, a subsidiary of Rosneft, was founded in 2004 to carry out the project of the Vankor field development, the largest field to have been discovered and brought into production in Russia in the last 25 years.

The field is located in the northern part of Eastern Siberia, in Turukhansky District of Krasnoyarsk Territory, 142 km from Igarka.

As of January 1, 2016 the 2P hydrocarbon reserves of the Vankor field according to the PRMS Vankor field classification stood at 265 mln tonnes of oil and condensate and 88 bln cubic meters of gas.

Venezuela project, LNG plant

Sechin said Rosneft was planning to implement its offshore gas production project in Venezuela and construct an LNG plant.

"We’ll certainly implement the big offshore gas production project in Venezuela, and will certainly construct an LNG plant there," he said, adding that "Europe will most likely be the key market."

Earlier PDVSA CEO Eulogio del Pino said in an interview with TASS that Rosneft and Venezuelean state owned oil company PDVSA would sign an agreement on joint gas production at Patao and Mejillones fields in July.

At the last SPIEF in 2015, Rosneft and PDVSA signed a memorandum of intention to create a joint venture to produce 25 mln cubic meters of gas a day at two fields. The produced gas will be supplied to the countries of the region by pipeline and in a liquefied form. The project implies the construction of a plant to produce liquefied natural gas. Rosneft plans to complete the feasibility study of the project before signing the agreement in July.

Rosneft signed contracts worth a total of $44-45 bln at the St. Petersburg International Economic Forum (SPIEF-2016) last week.

"The company (Rosneft) signed documents on $44-45 bln," Sechin said, adding that "the estimates that have already been made are preliminary and are far beyond those announced at the forum."

Rosneft privatization

Sechin went on to say that the cost of Rosneft share may range from $56 to $130 bln.

"The corridor here is from $56 bln in current prices to $120 bln, and even $130 bln based on the company’s fundamental cost," he said.

According to Sechin, the company needs a "strategic investor." Sechin expects "such an investor" to have "a relevant qualification, no reclamation risks", he said, adding that it should also "guarantee synergy in its operations with the company.".

The official stressed that the sale of Rosneft stake on the stock exchange would be extremely inefficient and may bring about the deal’s breakdown.

"Amid the current price volatility, amid political instability on the capital market, amid deficit of funds due to various factors, a public sale, a sale on the stock exchange will be extremely inefficient and may even bring about a breakdown of the potential sale," he said.

Taxes, dividends

Sechin assumed Russia’s role on the global oil and gas market would be rising.

"Of course, it (Russia’s role on the oil and gas market - TASS) will be rising as the resource base is one of the best in the world and technologies are there," he said.

According to Sechin, Rosneft would like other efficient companies to substantially support the state budget of the Russian Federation as well.

"Both our tax and dividend burdens are quite significant. According to our auditors, our tax liabilities stand at $25 in current prices from each barrel of oil sold. Unfortunately, we’re the only such company in the country with this level of payments. It is really a great honor for us, of course, but given that the tax burden on the company is substantial we’d like other sources, including efficient companies, to support the budget," he said.

"We are aware of the problems with the budget and we’re making a serious contribution to tackling them. But we would still like to note that the sector’s economic state is getting tougher, especially in refining, and new incentives should be found," he said, adding that the tax burden should also be lowered in the industry.

Sechin said Rosneft was ready for a dialogue with the government on keeping dividend payments at the level of 35% under International Financial Reporting Standards (IFRS).

"Our payments stand at 25% in line with the company’s standards. But we’ve taken into account the government’s request on the need to raise dividend payouts and found relevant sources, so we consider the level of 35% for this year as appropriate for us," Sechin said, adding that this level "does not exceed the investment program."

"The question whether the government will request (dividend payments of 35% under IFRS - TASS) from us next year should be addressed not to me but to the government. If we have to have a dialogue regarding keeping it on, regarding, say, the impact of this level on the investment program we’ll do it. But I see nothing dramatic here," he said, adding that he considers it necessary for all market participants to have equal approaches when defining dividend policy.

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