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. Last Updated: 07/27/2016

LUKoil Chief Interested in More Than Output

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The largest Russian oil company LUKoil is guaranteed regular media attention. Analysts and journalists intently follow the dynamics of the company's development. Its corporate news provokes changes in the stock market.

LUKoil's oil production has not grown recently as much as that of other companies, but LUKoil president Vagit Alekperov said this is not a bad sign. Alekperov, named on Forbes magazine's 2001 list of the world's richest men, said his company is not inclined to "abrupt movements" and puts its emphasis on the economics of production and not on its volume.

Q: President Putin has started to regularly meet with representatives of big business. Do such meetings yield concrete results?


A: The biggest plus in this is that we have the opportunity personally to tell the head of state about the problems that arise in all sectors because, as a rule, he meets with representatives of the fuel and energy sector as well as the food, banking, machine building and automotive industries. It's significant. Officials understand that we now have the opportunity to address issues that we had previously discussed with the president but remain unresolved. This allows us to effectively open a dialogue with government officials and exert influence over the drafting of legislation. Look, all the laws that the government submits to the State Duma with the approval of the president are directed toward stimulating economic resources. Of course, these laws are not always the result of our meetings, but the meetings unquestionably play a role.

Q: With the appearance of a new government, how has the attitude toward your company changed abroad?


A: On its own, a national company cannot enjoy greater respect abroad than the country itself. Today, it is possible to predict the actions of the president and the government; there is certainty in the longevity of its programs. Accordingly, companies' positions have grown stronger outside of Russia. We feel that.

Q: Since last year, oil production has started to grow significantly, and companies have encountered problems with sales on the domestic market. Are oil producers threatened by an overproduction crisis?


A: The [production] potential in Russia fluctuates from 340 million to 380 million tons of oil. Of course, given today's reserves, it would be possible to produce more, but that would cost a colossal sum of money. For that reason, we believe production volumes in the coming years should be around 350 million tons. That is the minimum volume — after the utilization of the Baltic pipeline system, the Caspian pipeline consortium and the northern export route we built at Varandei — that will allow us to balance the volume of production with the development and export of our production to the European market.

Today, what is most important for us is to receive the Russian government's forecasts for energy use within the country. We are now preparing local forecasts for those regions where the company works. … In general, the Energy Ministry should play a more active role in guaranteeing people's well-being in a country where 90 percent of the territory is covered by snow for more than half of the year.

Q: How do you explain that the growth in your production is low in comparison to other companies?


A: Over the years, we have worked to raise the effectiveness of the stock of oil wells, and if we look at the dynamics of LUKoil from 1991, the company has increased its production by a small amount every year. Several other companies experienced a longer fall in production, and a large number of their oil wells became idle. Now they've received money and are organizing production operations; therefore, such surges [in production volumes] have appeared. But we believe that abrupt movements are not worthwhile. After all, everything depends on the economics of the company and not the production volume.

Q: One of the most dramatic and unexpected scandals on the oil market was the agreement between oil company Yukos and the American company Williams International about the inclusion of a Russian company in the list of stockholders and the main suppliers of raw materials to the American-managed Lithuanian oil concern Mazheikiu Nafta. Previously, LUKoil had expressed interest in Mazheikiu Nafta. Has LUKoil retained its interest in that project?


A: Our company has been and continues to be a major supplier and coordinator of supplies of oil to [Lithuania]. But throughout all these years, our interests have not once coincided. LUKoil will not be a passive shareholder. We set before ourselves the task that we would participate in that project on condition that we are either granted an operator's functions or that we establish an operational company jointly with the Americans. The advantage of the project should be the objective price of the shares. Our colleagues perceived the project differently. That is their right.

Q: LUKoil has a very strong position on the Moscow market. Could your company become a shareholder of the Moscow Oil Co., which is currently being formed?


A: We are shareholders of the Moscow Oil Refinery and Mosnefteprodukt. We have a network of gasoline stations in the city and the surrounding region. We have strong relations with the Moscow Oil Co. and are prepared to speak with them on any matter.

Q: From the moment LUKoil was established, its strategic goal has been to operate according to international standards. What do you need to do to achieve that goal?


A: Our volume of oil production outside of Russia is not sufficiently high. It is essential that we raise the level of our management, the level of motivation of our managers to work, and more actively participate in the formation of international consortiums.

Q: Not long ago, the American magazine Forbes included you on the list of the richest people in the world, estimating your personal wealth at $1.3 billion. How close is that to the truth?


A: I talk about it with a smile because Forbes compiled its ratings subjectively. They took the supposed packet of shares I am said to own, multiplied it by the capitalization of the company and from that produced some abstract sum. I don't think I'm a poor person, but all the same, I'm not nearly as rich as Forbes suggests.