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. Last Updated: 07/27/2016

Surgutneftegaz Combats Oil Crisis




Oil holding company Surgutneftegaz will not cut production this year to cope with falling world oil prices but will scale back investment plans and focus on lowering costs, company President Vladimir Bogdanov said at a Thursday news conference.


Surgutneftegaz, known for its comparatively heavy investment in production, had planned to spend from $900 million to $1 billion this year, but will cut spending by 10 percent to 12 percent, Bogdanov said.


"We won't panic. There may be some corrections in our investment program by 10 to 12 percent, but the basic plan we will fulfill," Bogdanov said. "If we don't fulfill it today, in two to three years the result will be much worse when prices on oil and oil products rise."


Oil prices have plummeted by almost 40 percent since last fall, hit by increased production worldwide and falling demand in financially troubled Asia. The dilemma has all but sapped the profit from Russian oil exports, leaving producers to decide how to cut costs.


Oil giant Yuksi announced that it will cut production by 5 percent and trim refining activity to cope with lower world prices. The company, under formation through a merger of Yukos and Sibneft, will also alter its domestic distribution strategy in an attempt to increase domestic sales by 10 percent, the company said in a statement Thursday.


"We have already begun to implement the cost-reduction strategy and capitalize on the very real synergies created by this merger," said Eugene Shvidler, the chief financial officer of Yuksi.


Surgutneftegaz, Yuksi and five other oil majors have urged the government to lower their crippling tax burdens in light of falling prices.


Prime Minister Viktor Chernomyrdin said Thursday the government "will naturally take the necessary steps" to aid oil majors, Interfax reported. A decision will be announced next week, he said, without elaborating.


Bogdanov said weak market conditions will prevent Surgutneftegaz from consolidating its daughter company shares into one holding company share this year.


On capital markets, OAO Surgutneftegaz, the holding company's main oil producer, will begin offering its preferred shares as American Depository Receipts in the coming months, Bogdanov said.


There are plans to list the holding company's ADRs on the New York Stock Exchange by mid-1999, he said.