LUKOIL Overview
LUKOIL celebrated its seventeenth anniversary in 2008. We are proud of the major successes achieved by the Company in all business segments so far. LUKOIL has evolved into an international company, working in more than 30 countries worldwide. The greatest achievement has been the rapid and consistent growth of shareholders' value - an achievement made possible by strenuous efforts to increase efficiency and expand business.
In 17 years, LUKOIL has asserted itself as one of the leading oil & gas companies in the world. Company ambitions extend further. In 2006, we designed a new strategy for the Company's development over the next 10 years, combining intensive and efficient growth with further expansion of the geography of LUKOILs businesses in all segments. Our goal is to turn the LUKOIL Group into a global oil & gas company, a match for todays absolute industry leaders in terms of efficiency and scale.LUKOIL continued rapid commissioning and development of new reserves by starting production at 11 fields. Development of large and promising fields continued in the Northern Caspian, Timan-Pechora, Bolshekhetskaya Depression and Uzbekistan where about 2.5 bcm (billion cubic meter) per year of gas were produced in Kandym - Khauzak - Shady Project. The acquisition of SNG Holdings Ltd. (planned production level: 3 bcm per year ) increases total production under LUKOIL projects in Uzbekistan to 15 bcm per year .
Discovery of the Bayandyskoye oil field in Timan-Pechora located close to the Usinskoye field added 3P (proven, possible, probable) reserves volume estimated at about 270 million barrels of crude. The potential proven reserves could exceed 200 million barrels. Even at the exploration well, this field has the significant flow rate of up to 4.9 kbpd (60 times the average flow rate of a standard LUKOIL well).
The Company started production of the Yuzhnaya Khylchuyu (YK) field North of Timan-Pechora jointly with our partner ConocoPhillips. Proven oil reserves as of 1st January 2008 in this field were more than 500 million barrels.
YKs oil quality is superior to the quality of Ural: 35.5 API (Ural: 32.0 API) and sulphur content of 0.71% (Ural: 1.30%). The oil is sold into the international market with a substantial premium to Ural. Planned production level is 7.5 million tonnes of crude oil per year (more than 150 kbpd). Transportation via the Varandey terminal allows year-round oil shipment to Western Europe and to the USA from the fields in the Northern Timan-Pechora. The capacity of the terminal is 12 million tonnes per year (about 240 kbpd).
Fields such as YK, Pyakyakhinskoye, South Messoyakhskoye, Filanovsky and the Kandym - Khauzak - Shady project will be cornerstones for growth of LUKOILs production and value in the medium term.
LUKOIL worked hard to develop international business in the Exploration & Production segment as part of its strategy for global diversification. There were major breakthroughs in implementation of current projects in Kazakhstan, Uzbekistan, Saudi Arabia and Colombia. LUKOIL also stepped up its involvement in Africa by acquiring a stake in an exploration & production PSA on the Cote dIvoire shelf, as well as signing a memorandum on cooperation with State Oil & Gas companies in Algeria and Angola.
By increasing efficiency, throughputs at LUKOILs own refineries grew by 6.8%, to 55.8 million tonnes. High margins in Russia and Europe, coupled with a tax regime which favoured domestic refining, enhanced our refining activities. The Companys new strategy for the coming 10 years includes achievement of a refining-to-production ratio of 70%. As part of this strategy LUKOIL, in June 2008, established a joint venture with ERG S.p.A. to operate the 16 million tonnes per year ISAB refinery complex in Priolo, Italy. On 1st December 2008, the Group completed the acquisition of a 49% stake in the joint venture for EUR 1,347 million (approximately USD 1,743 million as of 1st December 2008), with an option to increase OAO LUKOILs stake in the joint venture in the future. The ISAB refinery complex has the flexibility to process Ural blend crude oil. LUKOIL intends to fully integrate its share of the ISAB refinery into its crude oil supply and refining products marketing and trading operations.
LUKOIL continued modernization of its Russian and foreign refineries in 2007-2008 in order to increase output of products with high value added and better environmental characteristics. Expansion of refining capacities in Russia were added: 3 new isomerisation units with total capacity of 840 thousand tonnes per year and 1 visbreaking unit with capacity of 800 thousand tonnes per year. Currently, 2 visbreaking units and 1 hydrotreating unit are under construction. In the last two years, LUKOIL's refining capacities in Russia alone increased by 2 million tonnes per year.
LUKOIL further developed the distribution segment through major revamp of the existing facilities, acquisition of retail networks, entrance to new markets and an increase in sales volume, as well as through integration of the retail network bought from ConocoPhillips in Poland, Czech Republic and Belgium, with overall retail sales of over 1.4 million tonnes per year. In the domestic market, Rostovneft and marketing assets of Russneft with overall retail sales of over 1.1 million tonnes per year were acquired. Internationally, the major distribution asset acquisition was the purchase of the Akpet Group (Turkey), which operates 693 petrol filling stations and owns/operates eight refined product terminals, five LNG storage tanks, three jet fuel terminals and a lubricant production plant in Turkey.
More information about OAO LUKOIL, including annual reports, can be found on the company website at:
http://www.lukoil.com