OREANDA-NEWS. In 2015 Company's hydrocarbon production amounted to 254.2 mmtoe (5.16 mmboe/d), the planned annual growth was reached. Such a level of production was achieved due to ramp up of drilling, optimization of well performance and application of modern technologies including horizontal drilling with multistage fracturing, sidetracking, dual completion, bottomhole treatment.

In Q4 2015 liquid hydrocarbon production increased by 0.2% compared to 3Q 2015 and amounted to 51.0 mmtoe. The Company plans to improve the performance further in 2016.

Over 12M 2015 the Company raised production drilling volume by 36% to 6.9 mln meters and commissioned 1,839 new wells (+15% vs. 2014). The Company continues implementing the strategy of developing of internal services which helps to improve Upstream’s efficiency even in challenging macroeconomic conditions. The number of operating rigs grew from 81 in 2013 to 223 units in 2015 (213 in 2014) with the number of crews rising to 208. The share of production drilling performed by the internal service units exceeded 50% (versus 41% in 2014). The Company is successfully integrating new fracturing division, which helps to support growing internal needs with operational capacity.

Commissioning of horizontal wells increased by 24% y-o-y to 555 wells which accounted for 30% of total number of commissioned wells in 2015. The Company continues accelerated introduction of more efficient types of well completion. Growth of drilled horizontal wells with hydrofracturing, completed with construction amounted to over 45%. Sidetracking was performed at more than 1000 wells, which exceeded the 2014 level by more than 44% and resulted in additional production of over 2,6 mmt (+15% compared to 2014).

As a part of setting the Eastern production Hub in the South of the Tyumen Region RN-Uvatneftegaz commissioned 3 new fields - Protozanovskoe, Yuzhno-Gavrikovskoe and Malyka fields and started development drilling at Zapadno-Epasskoe field in 2015. First oil is expected from this field in early 2016 (expected recoverable АВС1+С2 reserves of the 4 fields as of January 1, 2016, amounted to 42 mmt of crude oil and condensate, 1.2 bcm of gas).

The Company started production at the Labaganskoe field in the Nenetsky Autonomous District. In 2016 oil production at this field is expected at ~1 mmtoe.

Rosneft produced over 2 mmt of crude oil since the start of the development of the Northern tip of Chayvo in 2014 in the Sakhalin shelf. In 2015 crude oil at the field was produced via three extended reach wells with horizontal length of 10 km and total daily production of over 6,000 t. In January 2016 the Company commissioned fourth well, drilling of the fifth well is under way.

Gas production in Q4 2015 amounted to 16.62 bcm and increased by 12% compared to Q3 2015, mainly through the implementation of scheduled maintenance in Q3 2015, commissioning in integrated testing mode of the 2nd stage of Novo-Urengoy gas and gas processing plant of Rospan in Q4 2015 and the third well at Northern tip of Chayvo field launching.

In 2015 gas production increased by 10% up to 62.54 bcm compared to 2014. Growth of gas production is mainly supported by the increase in supply of the processed gas in the Unified Gas Supply System from Vankor field where in 2014 the main gas pipeline Vankor-Khalmerpayutinskoe field was constructed, start of gas production at Khadryakhinsky LA of Sibneftegaz in December 2014, commissioning of new gas wells at Tarasovskoe field of Purneftegaz in 2H 2014, gas production increase by Rospan and start of pilot development of North tip of Chayvo field in Sakhalin.

Due to the Target Gas Program aimed at increase of efficiency of utilization of associated petroleum gas (APG), the APG utilization rate in 2015 increased to 87.9% in comparison with 80.9% in 2014. The increase of APG utilization is an important element of the environmental policy.

In 2015 the Company performed 22.6 thousand km of 2D seismic exploration works and 7.2 thousand sq km of 3D seismic exploration works, completed testing of 50 exploration wells. Success rate of exploration drilling was 84% - the highest level for the Company in the last 5 years.

The Company continues offshore exploration to fulfill all license commitments. In 2015 the Company continued implementation of unique 2D offshore seismic program mainly in the East Arctic region (over 20,000 km). The 3D seismic acquisition covered over 1,000 sq km in waters of the Pechora Sea and the Sea of Okhotsk.

Due to exploration in 2015 the Company discovered 7 fields and 117 new deposits1 with total С1+С2 reserves of 232 mmtoe. Reserves increment due to geological survey amounted to 276 mmtoe including 48 mmtoe in Eastern Siberia.

In 2015 expected АВС1+С2 reserves amount to 131 bboe, which exceeds the level of 2014 by 1.5%.

Downstream

On December 15, 2015, all Rosneft refineries completed large-scale program that allowed the Company to complete transition to production only of Euro-5 gasoline and diesel fuel for the Russian market. Initial Technical Regulation of the Customs Union established that transition to production of Euro-5 gasoline and diesel fuel to be completed by January 1, 2016. Therefore, Rosneft fulfilled its commitments for transition to production of Euro-5 quality fuel ahead of the set schedule.

Siberian refineries of the Company - Angarsk Petrochemical Company and Achinsk refinery completed transition to production of Euro-5 fuel. Earlier Komsomolsk, Kuibyshev, Novokuibyshevsk, Syzran refineries, Ryazan Oil Refining Company, Saratov and Yaroslavl refineries started production of Euro-5 oil products. Isomerization plants were commissioned in 2015 in Kuibyshev and Novokuibyshevsk refineries and in Ryazan Oil Refining Company. Additionally, the reconstruction of catalytic reforming plants was completed at Syzran and Kuibyshev refineries and MTBE plant was commissioned at Angarsk petrochemical company.

The Company is the largest oil refiner in Russia. Oil refining at Russian refineries in 2015 amounted to 84.7 mmt which became an optimum level for the Company amid current demand and prices for oil and oil products. Light oil products output increased from 54.8% in 2014 to 55.3% in 2015 and conversion rate increased from 65.3% in 2014 to 66.5% in 2015 due to increase of production of vacuum gasoil and optimization of secondary processes. Reduction of total of oil refining output (incl. foreign refineries of the Company) to 96.9 mmt (-3%) in 2015 compared to 2014 is mainly related to the redistribution of volumes towards a higher margin sales channels due to weak market conditions and negative implications from the tax maneuver and temporary suspension of refining at Mozyr refinery under processing agreement in Q1 2015 and re-allocation of oil to a higher margin sales channels. Q4 2015 was characterized by intensive seasonal turnarounds at Company's refineries, resulting in the refining volume dropping by 6.4% vs. Q3 2015.

As part of import substitution program the Company started production and successful application of own catalysts for reforming and hydrogen plants. All catalytic cracking plants use only Russian catalysts.

Sales of oil products and petrochemicals in 2015 amounted to 97 mmt, 1% increase compared to 2014. The growth was driven by realization of inventories accumulated in 2014 and additional effective trading operations. Oil Supplies in the Eastern direction increased by 18.5% y-o-y to 39.7 mmt. In 2015 the range of products supplied to Asia-Pacific Region markets was expanded in the result of successful sale of heavy export fuel produced at Komsomolsk and Angarsk refineries of the Company through Vanino port .

Despite intensive turnarounds and worsening of macroeconomic environment all commitments of Rosneft for supplying oil products to the domestic market were fulfilled. In 2015 the Company increased the sales of motor fuel at stock trading by 9% guaranteeing the supply for independent market players. The Company exceeds the required level for all types of oil products sold at exchange.

International operations

Today Rosneft is the leader of gas production in Vietnam and keeps the status of a reliable hydrocarbons supplier to the domestic market. Two important milestones were achieved: 13 years of offshore operations without accidents (which is one of the best results in the industry) and reaching 300 mmboe cumulative production since the start of the Block 06.1 development (Nam Kon Son basin), where Rosneft Vietnam B.V. acts as the project’s operator. The Company’s activity was rewarded by the governmental award of the Socialist Republic of Vietnam for the contribution to the country’s petroleum industry. In the first half of 2016 the Company plans to drill two exploration wells at Block 06.1 and Block 05.3/11 of Nam Kon Son basin (Vietnamese Shelf).

PetroMiranda joint venture (JV with PDVSA and Gazprom Neft), has drilled an unprecedented horizontal well GG1-14 at the Junin-6 block. The well is unique for the shallow depth of only 1,140 feet or about 347 meters. The total length of the well is 6,059 feet (about 1,847 meters). This result was achieved due to the use of an advanced rextaotary steerable system (RSS), which had been introduced at the Junin-6 block with the support from Rosneft engineers. Drilling of such shallow wells improves the prospects for the Venezuelan Orinoco Oil Belt hydrocarbon reserves potential development.

In the end of October consortium of Rosneft and ExxonMobil won 3 blocks in the fifth license round organized by the Republic of Mozambique Institute of National Petroleum (Instituto Nacional de Petr?leo). Rosneft and ExxonMobil has a strategic partnership which is proven by successful implementation of both international and domestic projects, including Sakhalin-1 project.

In October 2015 Rosneft represented by Rosneft Brasil (Rosneft’s subsidiary) closed the deal on acquiring PetroRio’s 55% stake in the Solim?es project, receiving control and full operatorship in the project. Rosneft and Petrobras continue studying the options for joint monetization of gas from the companies’ fields in the Solim?es basin.

As a part of attracting strategic partners in upstream projects the Company sold a 20% stake in Taas-Yuryakh Neftegazodobycha LLC to BP. This deal targets strengthening the strategic partnership between Rosneft and BP. Attracting new partner allows accelerating the field’s development and sharing risks of technologically complex and capital-intensive project.

During the Eastern Economic Forum Rosneft signed the agreement on sale of 15% in Vankorneft to ONGC Videsh Limited and the shareholders agreement in regard of the enterprise management. Rosneft will keep 100% control over Vankor infrastructure (including Vankor-Purpe pipeline). On 24 March, 2016 the state commission on control over foreign investments approved the deal. Collaboration in such a large-scale project will allow establishing a brand new level of strategic cooperation between Rosneft and ONGC Videsh.

As part of the strategic cooperation with ChemChina (China National Chemical Corporation) Rosneft signed a contract to supply oil of up to 2.4 mln t until July 2016, which guarantees additional stable and efficient distribution channel. Actual oil supplies to ChemChina in 2015 amounted to 1 mln t. The Company is gradually increasing its oil supplies to China, mainly as part of long-term contracts. In December 2015 the Company performed a pilot Mongolia transit oil delivery to China amounted to 20 th. t. These supply delivery volumes are targeted to increase. At the end of 2015 the volume of oil supplies under direct contracts with Chinese partners was increased by 14% to 31.1 mln t.

In December 2015 Rosneft and Polski Koncern Naftowy ORLEN S.A. signed supplementary agreement to a contract for oil supply to Poland from February 1st 2013. The renewed commercial terms envisage extending of contract duration for three years (from February 1st 2016 till January 31st 2019) and increase in oil supplies volume up to 25.2 mln t. The partnership relations with the major consumers in the traditional sales regions lead to a better oil sales efficiency and meet interests of consumers through energy security strengthening.

As part of expanding cooperation with the CIS companies Rosneft signed direct contracts with KazMunayGas for supply of gasoline to Kazakhstan. The acquired Petrol Market (Armenia), a network of 22 fueling stations and 3 bulk plants. Sustainable supply to Armenian market was established. Kyrgyz Republic oil products retail market share was increased. Bishkek market share amounted to around 30%. Supply of the own retail network in Georgia was started.

As part of the strategy of refining development and expanding presence on the international market the Company closed the deal on acquiring 16.67% stake in PCK Raffinerie GmbH (Germany) from Total. Together with the asset swap of Ruhr Oel GmbH JV (legally binding documents were signed on December 21st, 2015, deal closure is planned until the end of 2016) this acquisition will enable Rosneft to increase its stake in Schwedt refinery up to more than 54% as well as to occupy more than a half of the Berlin-Brandenburg region market and increase Rosneft’s oil deliveries via the Druzhba pipeline.

Key operational indicators in 2015 and Q4 15:

  2015 2014. y/y
%		 Q4 15 Q3 15 y/y
%
Hydrocarbon production (thboe/d) 5,159 5,106 1.0% 5,207 5,081 2.5%
Liquids production (mmt) 202.8 204.9 (1.0)% 51.0 50.9 0.2%
Gas production (bcm) 62.54 56.73 10.2% 16.62 14.83 12.1%
APG utilization level 87.9% 80.9% 7.0 pp. 90,9% 86,3% 4.6 pp.
Development drilling (mln m)* 6.94 5.10 35.9% 2.02 1.88 7.4%
Own drilling rigs* 223 213 4.7%      
2D seismic (km)* 22,636 7,517 >100% 10,823 9,729 11.2%
3D (sq km)* 7,207 13,318 (45.9)% 927 1,770 (47.6)%
HC reserves АВС1+С2 reserves (bboe) 131 129 1.5%      
Oil Refinery throughput (mmt) 96.90 99.83 (2.9%) 23.59 25.21 (6.4%)
Crude oil processing at Rosneft’s refineries in Russia (mmt) 84.70 86.59 (2.2%) 20.52 21.96 (6.6%)
Crude oil processing outside Russia (mmt) 12.20 13.24 (7.9%) 3.07 3.25 (5.5%)
Oil product output in Russia (mmt) 82.91 83.88 (1.2%) 20.08 21.47 (6.5%)
Gasoline (mmt) 11.26 10.76 4.6% 2.79 2.90 (3.8%)
Naphta (mmt) 5.58 5.79 (3.6%) 1.37 1.52 (9.9%)
Diesel fuel (mmt) 26.26 26.94 (2.5%) 6.32 6.81 (7.2%)
Fuel oil (mmt) 26.62 28.16 (5.5%) 6.35 6.68 (4.9%)
Kerosene (mmt) 3.12 3.50 (10.9%) 0.72 0.94 (23.4%)
Petrochemicals (mmt) 0.95 0.77 23.4% 0.27 0.19 42.1%
Other (mmt) 9.12 7.96 14.6% 2.26 2.43 (7.0%)
Oil product output outside Russia (mmt) 12.45 13.19 (5.6%) 3.15 3.40 (7.4%)

1 Taking into account the joints projects with partners

*According to management data