Rosneft Unveils Ambitious Revamp

In a sign of increasing government involvement in the energy sector, state-owned Rosneft said Monday it planned to triple oil production and increase natural gas output tenfold by 2020.

This surge in production would accompany a company-wide reorganization approved by Rosneft's board of directors Friday. The overhaul should result in Rosneft's "integration into world energy markets," the firm said in a statement.

Rosneft's announcement comes at a time of introspection for the oil and gas industries, whose representatives are preparing for a landmark energy summit with U.S. government and company officials scheduled to take place in early October.

After plans for its partial privatization were indefinitely delayed in 2000, Rosneft, with Sergei Bogdanchikov at the helm, has begun to act more like a government agency than the nation's seventh-largest oil company.

President Vladimir Putin turned to Bogdanchikov with the task of rebuilding the once-prosperous oil industry of Chechnya. Rosneft, in tandem with Zarubezhneft, has been appointed the government's agent to negotiate the terms of large-scale products with foreign investors. And, again, it is Rosneft that has acquired a dominant presence in four projects along the Sakhalin Island, an offshore zone considered to be one of Russia's most promising areas of hydrocarbon production. "As a company, we feel we've matured to the point where we feel comfortable making long-term plans," said Rosneft spokesman Dmitry Panteleyev.

As part of its long-term strategy, Rosneft hopes to be producing 35 million to 45 million metric tons of crude oil and 70 billion to 80 billion cubic meters of natural gas by 2020. The firm is also set on expanding its retail network to 1,000 filling stations across Russia.

To compare, No. 1 LUKoil, which revealed its own vision of the future in April, said it was aiming to produce 140 million to 160 million tons of crude oil and about 80 billion cubic meters of gas. LUKoil's filling stations already number at about 2,600 across the globe.

But Rosneft isn't limiting itself to oil and gas. By 2020, it wants to be producing 10 billion to 20 billion kilowatt hours of electricity and extracting 35 million to 40 million tons of coal a year. Most of Russia's oil majors have either already built their own power plants or have expressed an interest in buying into the state power holding Unified Energy Systems. Rosneft said its expansion would be funded from its own cash flow. At an oil price of $25 per barrel, investment in 2003 should total about $2 billion. At $17, that figure falls one third to $1.4 billion.

Meanwhile, Rosneft's board approved an additional share issue to acquire a seafaring vessel from the Property Ministry. Currently under construction, the ship, Ispolin, has a market value of about $20 million and is to be completed in May.