Russian oil and gas companies marked a dramatic turnaround in operating and financial results in 1999-2000.
The improving outlook generated a relative boom in capital spending for upstream oil and gas work.
1999 spending spike
The first recent big increase in capital spending by Russian oil companies in 1999 occurred almost across the board.
Annual reports by Russian oil companies for 1999 showed that all of them-except OAO Sibneft and OAO Yukos-managed to step up investment in oil production in Russia substantially from the previous year.
Total investment in Russian oil production (with no breakout of exploration spending) amounted to 42.9 billion rubles, or a 60.6% rise from 1998. (The current exchange rate for the ruble is 29:$1, vs. 28:$1 in 2000.)
The jump in spending was fueled by increased export income owing to higher oil prices. Russia's five largest oil companies posted 1999 net profits totaling more than $3.5 billion, including $1.25 billion each for OAO Lukoil and OAO Surgutneftegaz.
The largest growth in investment was posted by Surgutneftegaz-more than 13 billion rubles, or 3.23 times that of the 1998 level.
Lukoil was second with 5.89 billion rubles, a 51% increase vs. 1998.
OAO Tatneft was third, having invested 5.72 billion rubles, 2.05 times that of the year before. OAO Rosneft invested 3.77 billion rubles, while investment by Sidanco, Tyumen Oil Co. (TNK), Yukos, and Sibneft fell into a range of 2.2-2.2 billion rubles.
OAO Bashneft and Orenburg Oil Co. (Onako) each invested less than 2 billion rubles.
2000 results
The improvement in financial and operating results continued in 2000, fueling still more spending for upstream oil and gas work last year.
Individual company results follow:
- Lukoil's oil production last year was up 2.8% from 1999, to 77.7 million tonnes. Oil production grew even faster in the company's new areas of activities-for example, 9% in Timan-Pechora and 18% in the Caspian region and Kazakhstan. Modern technologies are playing a more important role in Lukoil's operations. One in every 6 tonnes of oil the company produced last year was via improved and enhanced oil recovery techniques. Last year, the scope of exploration work, as measured by seismic and exploratory drilling, by Lukoil was 2.7 times greater than the year before. This resulted in substantial additions to reserves, about 70 million tonnes of oil equivalent. A new oil and gas province was discovered in the Russian sector of the Caspian Sea. The company posted record financial results for 2000. Pretax profits were 112.6 billion rubles (about $4 billion), which is 2.7 times more in current prices than in 1999. Lukoil's sales grew by a factor of 2.4, reaching 119 billion rubles. Capitalized revenues amounted to 3 billion rubles (an increase of 61%). The profits tax paid by the company grew to 16.2 billion rubles from 9.5 billion rubles in 1999.
The Lukoil group's net consolidated income was 102.5 billion rubles.
- TNK's oil production in 2000 was up 34.5% to 26.98 million tonnes, vs. 1999. It works in 24 fields. TNK commissioned 327 new producing and 142 injection wells. Last year, the company earmarked 13.7 billion for capital spending (10.8 billion rubles more than in 1999). TNK sales totaled 54.1 billion rubles, or 1.4 times more than in 1999. Net profits were 7.7 billion rubles, of which 4.83 billion rubles were allocated to finance capital investment.
- Yukos last year produced 49.6 million tonnes and refined 26.7 million tonnes, an increase of 11.4% and 3.9%, respectively, from 1999. Yukos's nonconsolidated sales were 36 billion rubles, and profits were 9.9 billion rubles. The group's consolidated sales (in line with US Generally Accepted Accounting Principles, confirmed by PricewaterhouseCoopers' audit), totaled 276.9 billion rubles, and profits were 93.7 billion rubles. Last year, Yukos stepped up investment, including the acquisition of new assets, by 80.4% to 38.4 billion rubles (about $1.4 billion). In 1999, the company spent 21.3 billion rubles (about $756 million) for those purposes. The sharp increase in investment reflects Yukos's intention to expand its technological and production base.
- Sibneft sales, according to the company's financial report for 2000, prepared in line with GAAP standards, were up 37% from 1999 to $2.4 billion. Growth was even more impressive in Sibneft's net profits-$674.8 million last year, compared with $315 million in 1999. This allowed Sibneft to expand its activities in its traditional operating area in Western Siberia and launch new projects, in particular by starting prospecting for oil on the Chukotka Peninsula and taking an interest in oil production projects in other state of the former Soviet Union.
