Mark F. Lewis

Managing Director, FGE London

Russia – The oil Perspective

This presentation material contains confidential and privileged information intended solely for MOG Seminar participants. The dissemination, distribution, or copying by any means whatsoever without FGE’s prior written consent is strictly prohibited.

Russia – oil and gas, politics and the relationship to the West NOG seminar Stockholm

18th June 2014

www.FGEnergy.com

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About FGE

FGE is an international energy consultancy group, formed in 1983, that services clients on a regular

basis by producing research, analysis, and forecasts on the international oil and gas markets, in

addition to undertaking specially-commissioned reports, publishing multi-client studies, and running

seminar and training events.

FGE Office Locations:

• London (HQ)

• Singapore (Asian HQ)

• Dubai

• Beijing

• Honolulu

• Tokyo

• Perth (Satellite Office)

• New York (Satellite Office)

• Jakarta (Satellite Office)

• Yokohama (Satellite

Office)

• International Organizations

• Consumer Government Bodies

• Utilities Companies

• Shipping Companies

• Storage Companies

Clients include:

• National Oil Companies

• Major Oil and Gas Companies

• Financial Institutions, Banks and Traders

• Medium and Small Sized Oil Companies

• Independent Refiners

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Russian Oil Reserves & Production in a Global Context (2013)

S. ArabiaIranIraqOther OPECRussiaOther FSUUSACanada

8%

S. ArabiaIranIraqOther OPECRussiaOther FSUUSACanada

14%

Proved Reserves Production

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Russia: Oil Production vs Demand: Long Term Trend

0

2000

4000

6000

8000

10000

12000

19

81

19

83

19

85

19

87

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89

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91

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93

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95

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97

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99

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01

20

03

20

05

20

07

20

09

20

11

20

13

20

15

20

17

20

19

20

21

20

23

20

25

Kb

/d Supply

Demand

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Russian Oil Demand Growth 2013-2023

5

-100

-50

0

50

100

150

Products

Kb

/d

-100

-50

0

50

100

150

200

250

300

Sector

Kb

/d

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MET crude oil

(33%)

MET natural gas

(4%)

Export duty natural gas

(7%)

Export duty crude oil

(39%)

Export duty oil products

(17%)

20%

25%

30%

35%

40%

45%

50%

55%

60%

2008 2009 2010 2011 2012 2013 2014

Share of oil and gas revenues

in Russia’s federal budget,

2008-14

Composition of Russia’s oil and gas

revenues, 2012

Russia’s fiscal dependence on oil revenues

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Russian sovereign wealth funds and federal budget

oil breakeven price, January 2004 – May 2014

Russia’s fiscal dependence on oil revenues

0

20

40

60

80

100

120

140

0

1

2

3

4

5

6

7

8

9

US$

/bb

l

Ru

ble

tri

llio

n

National Wealth Fund

Reserve Fund

Stabilisation Fund

Urals price (RHS)

Budget breakeven oil price (RHS)

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Krasnoyarsk

Far

East

Urals

Volga V.

Northern

Russia

Mongoli

a

Kazakhstan

China

Western

Siberia

Volga

Central Russia

Eastern

Siberia

+65% Total Russia Production

10-15% Total Russia Production

5-10% Total Russia Production

<5% Total Russia Production

+65% Total Russia Production

10-15% Total Russia Production

5-10% Total Russia Production

<5% Total Russia Production

+65% Total Russia Production

10-15% Total Russia Production

5-10% Total Russia Production

<5% Total Russia Production

+65% Total Russia Production

10-15% Total Russia Production

5-10% Total Russia Production

<5% Total Russia Production

>65%

10-15%

5-10%

<5%

Share of national oil production

Russia’s Oil Production still dominated by Western Siberia

63%

Far East Eastern Siberia

Western Siberia Northern Russia

Urals Volga Vyatka

Volga North Caucasis

Central Black Earth Central Russia

NorthWestern Russia Arctic

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…but shifting eastwards

Far East

Urals

Northern Russia

Mongolia

Kazakhstan

China

Western Siberia Volga

Central Russia

Eastern Siberia

Arctic

Vankor

Irkutsk

Kuyumba

Y-T

800 kb/d

Major new E. Siberia field developments (all operated by Rosneft)

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Krasnoyarsk

Far

East

Urals

Volga

V.

Northern

Russia

Mongoli

a

Kazakhstan

China

Western

Siberia

Volga

Central Russia

Eastern

Siberia

BAZHENOV

&

ACHIMOV

KHADUM

DOMANIK

+65% Total Russia Production

10-15% Total Russia Production

5-10% Total Russia Production

<5% Total Russia Production

>65%

10-15%

5-10%

<5%

Share of national oil

production Location of shale play

Russian Production and Tight Oil Development

Rosneft/Exxon – Bazhenov & Achimov Formations in Western Siberia – Target production 300 kb/d

Gazprom/Shell – Bazenov Formation in Western Siberia - Target production 150 – 300 kb/d

Rosneft/Statoil – Domanik Formation in the Volga

Rosneft/Statoil – Khadum Formation in the Volga

Lukoil– Bazhenov Formation in Western Siberia – 99 multi stage frack wells in 2012

Rosneft/Statoil– Bazhenov Formation in Western Siberia – North Komsomolsk

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Krasnoyarsk

KOZMIN

O

SKOVORODIN

O

TAISHE

T

DAQIN

G

Far East

Urals

Volga

V.

Northern

Russia

Mongoli

a

Kazakhstan

China

Angarsk

Tomsk

Pavlodar

Omsk

Western

Siberia

UST-LUGA

PRIMORS

K

NOVOROSSIYSK

Volga

Central Russia

DRUZHBA

Eastern

Siberia

Vankor

Purpe

Irkutsk

Zapolyarye

Kuyumba

Atasu Alashankou

Kumkol

Atyrau

Arals

k

Transneft Pipelines

Kazakhstan Pipeline

Network

BTC Pipeline

ESPO Pipeline

Vankor-Purpe Pipeline

Zapolyarye-Purpe

Pipeline

Kuyumba-Taishet (2016)

Samara

Kenkiya

k

Orsk

Caspian Sea

Black Sea

Baltic Sea

1.6 mmb/d

2.2 mmb/d

1.5 mmb/d

FSU Crude Exports by Route - 2013

1.0 mmb/d

TO

CENTRAL

EUROPE

Turkmenist

an

Iran

Azerbaijan

Baku

Ceyhan

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The East Siberia-Pacific Ocean Oil Pipeline (ESPO)

12

Phase 1 – Taishet

to Skovorodino

Phase 2 – Skovorodino to

Kozmino

Taishet Skovorodino

Daqing Kozmino

Russia

Mongolia

China

Phase 1– to link oil fields near Taishet in East Siberia with Skovorodino in Russia’s Far East, near the border of China; initial capacity 600 kb/d, started December 2009

Most of this would initially come from West Siberia, but ultimate 1.6 mmb/d capacity would depend on development of new East Siberian deposits

Phase 2– from Skovorodino to the port of Kozmino, increasing pipeline's capacity to 1 mmb/d, started December 2012

Rosneft Refinery

(target date of 2017)

Once fully operational:

300 kb/d to China

100 kb/d to Rosneft’s refinery

300 kb/d to existing Far Eastern refineries

Remaining 900 kb/d-1 mmb/d kb/d to be exported from Kozmino

URALS Year ESPO

3.3 mmb/d 2013 0.8 mmb/d

2.9 mmb/d 2015 1.2 mmb/d

2.5 mmb/d 2020 1.6 mmb/d

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LUKOIL

Russian companies’ consolidation

KOMITEK

NORSI OIL

YUKOS

EASTERN OIL

ONAKO

TNK

LUKOIL

SLAVNEFT

SIBNEFT GAZPROM NEFT

YUKOS

TNK-BP

SIBNEFT

ROSNEFT ROSNEFT

GAZPROM

LUKOIL

SIDANKO

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Main indicators

Market cap (USD billion)

P/E (x)

Oil

Production (mmbd)

Proved Oil

Reserves (bbl billion)

75.8 6.6 25.2 2.4 1.0

99.7 2.9 5.3 1.0 1.5

51.9 6.5 13.4 1.8 1.3

435.7 13.8 9.0 2.2 6.2

255.2 19.4 6.2 1.6 3.3

Refining

capacity (mmbd)

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Oil E&P overseas activities of major Russian companies

Exploration stage

Production stage

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FSU: Changing Crude/Products Mix

0

500

1000

1500

2000

2500

3000

3500

2008 2009 2010 2011 2012 2013

kb/d

Total FSU Products Exports by Route

Baltic+North Black Sea C. Europe Far East

-300

-200

-100

0

100

200

300

400

500

2008 2009 2010 2011 2012 2013

kb/d

Change in FSU Crude & Products Exports

Crude

Products

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Who has bought European Refineries?

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-100

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300

-100

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100

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2007

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20

Thermal cracking/visbreaking Coking

Residue Catalytic Cracking Residue Hydrocracking

VGO Catalytic Cracking VGO hydrocracking

Crude distillation

kb/d

FSU net product trade (mmb/d) FSU Capacity Additions (kb/d)

FSU: Russian Refining Upgrades = More Diesel Exports

0

500

1000

1500

2000

2500

3000

3500

LPG Naphtha Gasoline Jet

Gasoil Fuel Oil Other

kb/d

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• Russia will remain a major force in international oil supplies for the foreseeable future;

• Production & exports have probably peaked, however; • It remains vulnerable to a downturn in prices but not

export embargoes; • It needs foreign oil company expertise to maintain

production levels; • The political objective of quasi state companies will

continue to hamper new developments; • It will be partially successful in shifting exports eastwards,

and moving western exports more towards products; • It will remain politically high risk for foreign company

investments until a major change in government.

Conclusions

Thank You

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