12 December 2017, 10:27
This strategy and the oil price growth allowed RussNeft to reverse the production fall from mid-2016 stabilizing it at a level of 140 thousand barrels per day in 2017”, the agency reports.
According to Moody’s, RussNeft intends to increase its production by means of the hard-to-recover oil of Bazhenov and Achimov deposits already eligible for tax exemption and consequently to a higher price for export sales. Development of the two fields will allow RussNeft to achieve a production level of 8.2 million tonnes (164 thousand barrels per day) by 2020 (apart from ForteInvest Orenburg assets and production at GEA Azerbaijan Joint Venture).
Probable acquisition of the Orenburg assets will help RussNeft to achieve the planned level of production in the long-term perspective, but will add $270-390 million to the company’s debt, the rating agency states. In such scenario, the deal will add 14 million tonnes of 2P reserves (proved and possible) and 20 thousand barrels per day (1 million tonnes per year) to the stabilized level of the oil production in 2019-2024, allowing RussNeft to achieve its strategic aim – exceed the level of production of 9 million tonnes per year by 2020-2021.
“However, we believe that in mid-term the operating cash flow and EBITDA received through operation of such assets, will not fully cover the additional indebtedness resulting from such deal”, Moody’s analysts think.
According to the agency, the company’s strategy provides for effective monetization of the reserves in amount of 217 million tonnes which will allow the company to rise its oil production from the current level in amount of 7 million tonnes per year to over 9 million tonnes per year by 2020 (over 10 million tonnes by 2025, subject to zero OPEC limitations). RussNeft intends to achieve such indicators by building up the production drilling into the formations with hard-to-recover oil eligible for various special tax exemptions, as well as by means of a potential acquisition of ForteInvest production assets.
The key reserves of RussNeft used for production are located in West Siberia. That region provided for 67% of the total volume of the company’s production in 2016. The most important fields for the company’s mid-term strategy implementation (by 2020-2021) are Tagrinskoye, Verkhne-Shapshinskoye fields (Achimov formation with hard-to-recover oil has low permeability), as well as Sredne-Shapshinskoye field where the production is still to be raised (Bazhenov formation with hard-to-recover oil has a complex geological structure, low permeability, dramatic production fall, and unavailability of technologies for effective monetization of such reserves).
Production at those fields shall facilitate a higher net export price (sales price after export fees and MET) due to lower or zero MET applicable to that fields. Consequently, the share of the production from the three given fields within the consolidated production of RussNeft (excluding ForteInvest) shall increase from 33% in 2016 to 47% by 2020.