Transneft' AK : Management of Transneft, JSC Held a Meeting with the Mass Media

Photo: meeting of Transneft, JSC's management with representatives of top-tier Russian and foreign media

On 13 January 2016, the Day of the Russian Press, the management of Transneft, JSC met with representatives of the top-tier Russian and foreign media.

Nikolay Petrovich Tokarev, President of Transneft, JSC, congratulated journalists on their professional holiday. Speaking about the Company's results in 2015, he noted that the year was overall efficient, and all large-scale tasks were implemented by the Company in good time and in full.

President of Transneft, JSC also emphasized that the indicators used to evaluate the Company's performance were fulfilled and even exceeded in some of the criteria. The Company's performance was evaluated under a new methodology - the number of criteria grew from 4 to 26, Nikolay Tokarev noted.

Moreover, the Company's president said that no staff reductions were scheduled. Conversely, the staff strength will be increased as new production facilities are brought online; this is primarily the case for facilities in Siberia and the Far East. According to Mr Tokarev, the wages at the Company would likewise be indexed, up to 4% in eastern Russia and within 1.5% in Moscow.

The meeting was also attended by Maksim Grishanin, First Vice President, Vice President Aleksey Sapsay, Vice President Sergey Andronov, Vice President Mikhail Margelov, by Vladimir Nazarov, Deputy Vice President - Director of the Oil Products Transportation, Metering and Quality Department, and by Pavel Serikov, Deputy Vice President - Director of the Department of Economy. The journalists received replies to questions related to the Company's operations.

Applicability of borrowed funds

The possibility for additional issue of Transneft, JSC's preferred shares would depend on the Company's needs for finance, said Maksim Grishanin, First Vice President. The resolution on additional issue of preferred shares might be passed should the Company need funding to implement the investment program, assuming that all other options for obtaining borrowed funding would have be exhausted.

In his turn, Pavel Serikov, Deputy Vice President and Director of the Department of Economy said that until 2020 Transneft, JSC would need RUB 100-150 billion, of which RUB 65-70 billion could be raised this year.

The Company was keeping an eye on the situation, and borrowed funds could be raised in 2016 in case the environment was favorable, Pavel Serikov highlighted. He also ascertained that the amount of RUB 65-70 billion was based on expert evaluation of the current financial market capacity. The need for fundraising was caused by the resolution regarding the Company's service rates. Long-term ruble-nominated financing remains the priority for Transneft, JSC.

Resolutions regarding operations of NCSP and NFOT

Shareholders of the Novorossiysk Commercial Sea Port (NCSP) decided not to pay interim dividends, said Maksim Grishanin, First Vice President. He explained that an extraordinary shareholder meeting was scheduled for summer 2015 to address the issue. However, after the macroeconomic environment deteriorated at year-end it was decided to preserve the money to ensure stable operation of NCSP. So, the issue of splitting NCSP is irrelevant at the moment.

Maksim Grishanin also said that Transneft, JSC agreed the terms of purchasing 50% of the Novorossiysk Fuel Oil Terminal (NFOT) from Gunvor. As of now, the transaction has not been closed yet, but its major parameters have been agreed.

Investment program implementation and new oil trunk pipelines commissioning dates

All investment projects envisaged by the Transneft, JSC Investment Program until 2020 would be implemented on schedule, Vice President Aleksey Sapsay noted when communicating with the journalists. The Company has no intention to cut the scope of the investment program. 'The investment program will not be adjusted downwards, all the projects it envisages will be brought online in good time and in full,' he stressed.

Filling the Zapolyarye-Purpe oil trunk pipeline with process oil would start in Q2 2016, to be followed by start-up and comprehensive testing, Aleksey Sapsay noted. The Zapolyarye-Purpe oil pipeline would be put into operation by late 2016.

Speaking about the new Kuyumba-Taishet oil trunk pipeline, Aleksey Sapsay said that the relevant construction and installation operations and diagnostics had been completed, and filling it with process oil would start in Q3 2016, to bring it online by the end of the year. The filling would be conducted in Q3 2016 with the so-called reverse flow (starting from Taishet), since the oil companies would not yet ensure oil delivery this year. The technology developed enables to fill in the oil pipeline. Combined with a series of other technology measures, this would enable to start using the oil pipeline and avoid having it mothballed.

In 2016, the volumes of oil delivery to the Zapolyarye-Purpe oil pipeline will total some 1.2 million tons, followed by circa 9.5 million tons in 2017. Since 2018, the Kuyumba-Taishet oil pipeline will start receiving oil from oil majors at the approximate volume of 1 million tons.

In view of the current economic environment, the Company adjusted the Technical Upgrading, Revamping and Overhaul Program. In 2016, the program funding was cut by RUB 7 billion. The plan for the current year is now RUB 326.3 billion (against RUB 333.3 billion in 2015). Aleksey Sapsay added that starting from 2017 the investment under the TUR&OH Program would be cut by some RUB 30-50 billion annually, and implementation of some projects would be postponed for 2021.

In 2016, the Company intends to replace 1,482 km of pipelines in the linear portion (which is by 15% more than in 2015), plus to revamp 63 tanks.

Potential risks of oil transportation via the Black Sea straits

In the context of potential risks related to hydrocarbons transportation via the Black Sea straits, Vice President Mikhail Margelov noted that the crude was sold at Russian ports on FOB basis, and oil owned already by foreign nations was transported via the said straits, primarily aboard the vessels under the flags of foreign states.

It was noted that even in case of hypothetical occurrence of negative man-made events Transneft, JSC was prepared to such scenarios and would redirect the entire volumes of Russian oil westwards using other routes for further transportation by consumers.

Up to now, delays in ships arrival for loading have been caused solely by weather.

Oil and oil products transportation indicators

Based on the requests received by Transneft, JSC from oil companies, the 2016 oil transportation plan amounted to some 476.7 million tons, including 215.8 million tons for export, said Sergey Andronov, Vice President of the Company. In 2015, the trunk pipeline system of Transneft, JSC transported 481.4 million tons of oil, and exported 229.6 million tons.

Mentioning the 2016 schedule of oil shipment at sea ports of the Russian Federation, Sergey Andronov said that the figure was about 116.5 million tons of oil, with breakdown to 27 million tons for Novorossiysk, 35.5 million tons for Primorsk, 23 million tons for Ust-Luga, 31 million tons for Kozmino.

Increasing the high sulfur share in the oil pipeline system

In close partnership with the Minenergo of Russia, Transneft, JSC was continuously monitoring the situation with flows of high-sulfur oil in the system of oil trunk pipelines, Sergey Andronov said. He stressed that the annual increase in delivery of high-sulfur oil into the oil pipeline system of Transneft, JSC was about 3-3.5 million tons, which adversely affected the overall quality of oil in the system.

Oil deliveries to China

The concerted efforts of Transneft, JSC and the Chinese party enabled to increase the pumping volumes of the Skovorodino-Mohe route from 16 million tons to 16.5 million tons in 2016, said Sergey Andronov, Vice President of the Company. 'We submitted the technical delivery capacity figures (about 31 million tons) of the Kozmino port to the Minenergo of Russia. The ministry is to decide on how to allocate that,' Sergey Andronov added.

He also mentioned the possibility of oil transportation to China via Kazakhstan; in 2015, this indicator totaled some 7.5 million tons. In view of revamping the Skovorodino-Mohe oil pipeline, in H2 2016 the capacity on the route will be boosted to 10 million tons annually.

The vice president noted that Rosneft Oil Company, OJSC applied to the Company apropos arranging railway deliveries of oil to China outside the framework of the existing intergovernmental agreement. Transneft, JSC confirmed the possibility of shipping about 3 million tons via the Meget station.

Exchange trading in oil and oil products

Transneft, JSC has been closely working with St Petersburg International Mercantile Exchange on the matters of exchange trading in hydrocarbons. For its part, the Company guarantees transportation of oil volumes, which the oil companies would deliver to the oil pipeline system.

In 2015, the Company was actively partnering with the SPIMEX, noted Vladimir Nazarov, Deputy Vice President - Director of the Oil Products Transportation, Metering and Quality Department. In fact, Transneft, JSC believes that when selling fuel at an exchange the transportation basis should be one of the exchange deal conditions, rather than be determined by the buyer. The position was seconded by the FAS of Russia. So, in Q4 2015 the oil companies started to sell using both the international shipment vehicles, and the pipeline shipments. Transneft, JSC maintains that this positive result is aimed at boosting the volumes of fuel transportation to the domestic market by using the exchange instruments.

Oil products transportation

In 2015, the target volumes of oil products transportation totaled 31.9 million tons, and the actual figures slightly exceeded 32 million tons (by 4% higher than in 2014). Export directions accounted for substantial growth. Reduced deliveries to the domestic market were recorded due to some intrinsic reasons, such as slumping demand, competition with the railway.

The drastic growth of export transportation was noted at the Primorsk port wherein shipments totaled 14.3 million tons in 2015 - by nearly 3 million tons more than in 2014. The growth was partially due to redistribution of flows from foreign ports towards the Russian ports.

In 2015, the Company completed transition to Euro 5 diesel transportation, and since December last year had been guaranteeing delivery of Euro 5 diesel to the customers at all final destinations, Deputy Vice President Vladimir Nazarov said.

A number of projects on converting the oil pipelines for oil products transportation were implemented in 2015, Vladimir Nazarov also noted. Specifically, acceptance of Euro 5 diesel from the Antipinsky Refinery started using the Tyumen-Yurgamysh oil pipeline.

Photo: meeting of Transneft, JSC's management with representatives of top-tier Russian and foreign media