An Independents View of Russias Oil and Gas Philip Vorobyov JKX Oil - - PowerPoint PPT Presentation

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An Independents View of Russias Oil and Gas Philip Vorobyov JKX Oil & Gas International Dimension of Russian Oil and Gas BIEE Seminar 5 July 2013, London JKX Oil & Gas: British Independent with 20 Years of Experience in the

SLIDE 1

An Independent’s View of Russia’s Oil and Gas

Philip Vorobyov JKX Oil & Gas

International Dimension of Russian Oil and Gas BIEE Seminar 5 July 2013, London

SLIDE 2

JKX Oil & Gas: British Independent with 20 Years of Experience in the Region

History

1994: Poltava Petroleum Company created in Ukraine 1995: IPO on London Stock Exchange 2005: Entry into Eastern Europe 2007: Entry into Russia 2011: LPG plant launched in Ukraine 2012: Russian production and sales begin 2013: Planned production plateau achieved in Russia

Strategy

Fully realize potential of Ukrainian licenses Maximize production from Russian asset Establish position in E.Europe Leverage experience to expand in area of

perational focus

JKX Oil & Gas production 1995-2013

2 4 6 8 10 12 14

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 1H2013

boepd

SLIDE 3

Russian Gas and Russian Oil: Two Different Stories… With Common Themes

Themes Gas Oil Sector structure

Gradual decentralization

(Novatek , Rosneft and other large oil companies emerge )

New wave of consolidation

(Rosneft+TNK-BP+?)

New JVs with IOCs

Perception of future production

Abundance of new gas projects

(while demand slows)

Risk of decline after 15 years
f growth

Government policy • Increasing tax take

Evolving pricing policy
Reviewing export strategy
Some tax breaks for upstream
…while ‘squeezing’ refining

Common themes

Budget and GDP depend heavily on oil & gas
Challenge of replacing cheap Soviet era ‘inheritance’ with new

much more difficult to extract (and expensive) hydrocarbons

Russian government and large Russian companies are the main

protagonists with IOCs/NOCs in supporting roles

….Is there a role for independent E&P companies in gas and/or oil?

SLIDE 4

Independent production close to 30% in 2012

1998: 6% 2003: 13%

Small gas independents -- a relatively new phenomenon in Russia (0.3% of total production):

14 companies producing non- associated gas 11 companies in various stages of bringing small gas fields on line

4 4

Share of independent gas production in Russia in 2012

Small Gas Independents: A New Bread

71% 29%

Gazprom Independents

87 51 27 16 6 3 2 20 40 60 80 100

Big oil* Novatek PSA Combination (G/BO/N)** Isolated systems (East) Small oil (Associated gas) Small gas independents

Bcm X

Source: InfoTEK *Includes Rospan International and Tomskneft VNK **Arcticgaz, Notgaz, Sibneftegaz

Distribution of independent gas production by companies in 2012, Bcm

10 3 3 6 136 14 1

number of companies

SLIDE 5

Koshekhablskoye Field

Background

Redevelopment project (old Gazprom field) Reserves: 18 bcm (ABC1+2) Technically challenging: Main target: Oxfordian (5,200m+) Next target: Callovian (5,400m) H2S+CO2 Highlights 2012-2013 Initiation of production and gas sales Receipt of final Permit to Operate Ramp-up of production to plant capacity (420 mmcm/y) Forward Program Engineering of expansion project to increase plant capacity 50% (600 mmcm/y) Drilling down to confirm Callovian reserves by 2014 Exploration at Georgiyevskoye neighbouring license (8 bcm of resources)

SLIDE 6

Considerable Potential of Existing and Planned Projects

Producers:
14 companies
Total reserves: 470 bcm
Production potential 15 bcma
Projects in active investment

phase:

11 companies
Reserves 130 bcm
Production potential 5 bcma
Additional potential (1 tcm):
Undistributed fund
Small gas fields on the balance of

big companies

6 6

Potential of small independent gas production through 2020

5000 10000 15000 20000 25000 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 MMCM On production Active investment

SLIDE 7

Russian Gas Prices and Taxes

Growing domestic gas prices and expectations of ‘netback parity,’ key driver for development of independent gas sector But where will gas prices go from here?

Government rethinking domestic price policy Increasing competition in the market (discounts offered to regulated prices)

Gas taxation also increasing as government claims its share Good news for (some) independents: Some projects and some regions may have lower than expected taxes due to differentiation (by depth)

7 5 10 15 20 25 30 200420052006200720082009201020112012201320142015 $/Mcm MET Gazprom MET Independents MET Independents 3300m+

(proposed formula)

GAS PRICES 2000-2013 GAS TAXES 2004-2015

SLIDE 8

Comparative Economics of Small Gas in Russia

Assumptions:

5 bcma recoverable 400 mmcma plateau 20-year project life 10 wells 2000 meters deep MET R630/mcm in 2016 No condensate

Results:

Not all small gas projects will work everywhere in Russia Realized gas price very important Large increases in MET can severely limit potential Projects with H2S most at risk

1,000 1,500 2,000 2,500 3,000 3,500 4,000

Dry gas Far from infrastructure (50 km) Deep (4000 m) Sulfur (0.5%) RUB/Mcm CAPEX Av OPEX Av MET Av Margin Av 20% Sverdlovsk FTS Krasnodar FTS KhMAO FTS YNAO FTS

Economics of small gas in Russia

SLIDE 9

Success in Large Part Depends on Organizational Capability

MANAGEMENT

Interrelated Success Factors

REGULATION TECHNOLOGY Russian and western specialists Technical and commercial Integrated team

Permitting Project documentation Pipeline access

Services industry in Russia Blending domestic and foreign technology

SLIDE 10

Conclusion

Small E&P in Russia offers:

Easy access to small fields and broad choice of exploration licenses Low reserve/resource valuations Commercial advantages in specific projects/regions