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Strategic Review / Strategy Implementation

IN 2012, OJSC GAZPROM NEFT ACHIEVED A NUMBER OF ITS 2020 TARGETS AHEAD OF SCHEDULE:

Implementing the Company’s efficient growth strategy

Gazprom Neft today 25 % increase in average pumping at filling stations 100 number of airports locations x2 increase in average turnover of tank farms33 % Gazprom Neft’s share of the Russian bitumen market
Gazprom Neft Tomorrow

A large, Russian-based global market player, with a regionally-diversified portfolio of assets across the entire value chain, actively participating in regional development and with a strong commitment to social and environmental responsibility.

Progress Update on Implementation of Company Strategy in 2012

In 2012 the Gazprom Neft resource base increased by 500 million tonnes of oil equivalent in Category ABC1, an increase of 22.4% compared to 2011. The additional main reserves (460 million tonnes of oil equivalent) were achieved by acquiring new assets (the Baleykinskoye, Yuzhno-Kinyaminskoye and Novoportovskoye fields). In addition, following the successful execution of an appraisal program, additional reserves of 52 million tonnes of oil equivalent were recorded, while production drilling and oil recovery recounts produced another 101 million tonnes of oil equivalent. In 2012, Gazprom Neft’s incremental proven hydrocarbon reserves at PRMS standards were 70 million tonnes of oil equivalent.

Increased production and acquisition of assets in the Orenburg Region in the autumn of 2011, initial production at the SeverEnergy fields and the implementation of a program to increase APG utilization, alowed the Company to record production volumes of 59.7 million tonnes of oil equivalent, a 4.2% increase over 2011. The rate of production growth achieved by the Company was well above the industry average in 2012.

In 2012, the Company continued to improve its refining volumes. During the reporting year, OJSC Gazprom Neft was among Russia’s top three companies by refining volumes, and the Omsk Refinery was the leading domestic refinery in terms of refining volumes. At year-end 2012, the Omsk Refinery also retained its position as one of the domestic oil industry leaders in terms of refining depth (88.8%) and was ranked first in the Russian Federation in terms of light petroleum product yield (67.5%). In addition, obtaining access to refining capacity in Belarus has become one of the important factors in refining growth, which has been 7% annually.

Given the above factors, despite routine repairs and maintenance at the Moscow refinery and a decrease in refining volumes at the NIS refinery (due to reduced market demand), OJSC Gazprom Neft’s refining volumes reached 43.3 million tonnes (including shares in joint ventures). This surpasses the targets set in the 2020 Development Strategy.

In the reporting year: Resource base in Category ABC1 increased by 500 million tonnes of oil equivalent
Increasing production of petroleum products 59.7 million tonnes of oil equivalent
Growth of hydrocarbon production 2.7 million tonnes
Total increase in premium-grade products sales33 %

2012 was a breakthrough year for OJSC Gazprom Neft. During the reporting year, sustainable growth in operating performance was achieved in all major areas of Gazprom Neft's businesses. This was demonstrated through reaching a number of targets laid out in the Company's 2020 Development Strategy ahead of plan.

The Company’s broadening resource base, increased production and growth in refining and sales all contributed to its improved operating performance.

 

OJSC GAZPROM NEFT – A LEADER IN EFFICENCY

№ 2in operating cash flow per BOE
№ 1in operating income per BOE
№ 2in return on investment

During 2012, the Company's focus on maintaining high refining margins influenced its sales and marketing policy. For example, sales of petroleum products on the domestic market increased, due to it being more profitable than foreign markets. The Company continued the intensive development of business units operating in the premium retail product segments, such as in-plane filling, bunkering, production and sales of oils and lubricants. In 2012, the Russian-based product business units of OJSC Gazprom Neft sold 22% more aviation fuel, 28% more bunker fuel, and 25% more oils than in 2011. The reporting year saw a 33% increase in the volume of petroleum products sold at filling stations. In 2012, the Company strengthened its position as the largest supplier of light petroleum products to the Russian market, having increased its market share to 21.6%. The total increase in premium sales (including those by product business units and the NIS) was 15% in 2012.

OJSC Gazprom Neft’s performance also improved in 2012 compared with the previous year – adjusted EBITDA increased by 8%, and net income increased by 10%, which was the result of the integration of new acquisitions, organic growth in production and refining, improved production configurations, the sales of petroleum products, as well as measures implemented to improve production efficiency and reduce costs.

At the end of the year the Company carried out an analysis of the financial results of its competitors, which confirmed that OJSC Gazprom Neft’s strong performance was one of the best in the industry. At year-end 2012, the Company was ranked first in terms of operating income per BOE, second in terms of operating cash flow per BOE, and second in terms of return on investments.

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