lukoil a-vertically integrated oil company
TRANSCRIPT
LITASCO SALUKOIL INTERNATIONAL TRADING AND SUPPLY COMPANY
LUKOIL – A Vertically Integrated Oil Company
Gati Al-Jebouri, CEO LITASCO SA
Geneva University, Geneva, 3rd October 2008
1
LUKOIL: ONE OF THE WORLD’S MAJOR INTEGRATED OIL & GAS COMPANIES
2
LUKOIL GROUP – A GLOBAL OIL INDUSTRY PLAYER, 2007 DATA
– Operations in over 30 countries
– Market cap near $52Bn**
– 1.3% of global oil reserves and 2.3% ofglobal oil production
– 19% of Russian oil production and 18% ofRussian oil refining
– The second largest company worldwide byproven reserves of hydrocarbons
– The 6th largest oil company worldwide byproduction of hydrocarbons
– The largest Russian oil group with annualturnover near USD 83 billion
– The first Russian company and the mostliquid Eastern European stock on the LSE
– The only private Russian oil companywhose share capital is dominated byminority stakeholders
– Work force of more than 148’000employees
* Includes all marketable hydrocarbons produced crude oil, condensate, NGL, gas **at closing 05/09/08
Refineries throughput: 1.04 mln bpd
Net income: $ 9,511 mln
Production of marketable hydrocarbons:2.23 mln bpd*
Proven hydrocarbon reserves: 20.4 blnbbls
Crude and products export: 1.34 mlnbpd
Refining in Europe: 0.2 mln bpd
3
LUKOIL CRUDE OIL PRODUCTION
LUKOIL crude oil production in 2007 totaled 96.645 mln MT (1.953 mln bpd)
• Crude produced at 361 fields
• 12 new oil fields under development:
− Tsentralno-Stanovoye field(Volga region)
− Chekaldinskoye Vladimirskoyefields (Tatarstan),
−Mokhovskoye, Dozortsevskoye,Sypovskoye and Lesnoye fields(Urals)
− Verkhnee-Volminskoye,Oshskoye, Osvanyurskoye fields(Timan-Pechora)
− Domnovskoye field (KaliningradRegion)
− Kumkol (Kazakhstan)
− Khauzak gas field (Uzbekistan).
• 28,470 production wells, 24,100operated.
4
LUKOIL REFINING
LUKOIL has currently 15 oil refining operations*, 10 of which are fully or partlyowned, in 5 countries: Bulgaria, Italy, Romania, Russia and Ukraine
Overall capacity of LUKOIL Group refineries at the end of 2007 was 59.4 mln tonsof crude oil per year (1.1706 mln bpd) or 1.4% of global capacities
Oil refineries of LUKOIL Group refined at the end of 2007 52.2 mln tons (1.04 mlnbpd) of crude oil in 2007, representing 1.3% of total world refining
Refining at LUKOIL Group refineries at the end of 2007 rose by 56.7% from 2001to 2007, and the Company's share in total world refining rose by nearly 1.4 times.
Capacity utilization rate at Russian refineries of LUKOIL Group in 2007 was 87.8%compared with the Russian average of 83.1%
Depth of refining at refineries of LUKOIL Group is higher than the Russian average
* Including two mini refineries and major processing operations at Ufa, Mozyr and Polotsk
5
LUKOIL REFINERIES AT A GLANCE
157 Isab
Refinery
6
LUKOIL GLOBAL RETAIL OPERATIONS – BY COUNTRY
In July 2008 LUKOIL took over the Turkish network Akpet, 6th largestin Turkey, operating 693 stations
The acquisition brings its market share of Turkish retail market to 5%
2007 data
Legend
7
2007 Results
• Total sales of USD 53.4 billion(about 60% of OAO LUKOILturnover)
• Operating profit of USD 315 mln• Crude oil sales of 44.8 million mt• Product sales of 55.8 million mt
LITASCO Corporate structure
• 100% subsidiary of OAO LUKOIL(Moscow)
• Headquarters and companyregistration in Geneva
• Over 300 staff in 14 countries(~ 180 in Geneva)
KEY DETAILS OF THE LITASCO GROUP
Source: LITASCO SA, LUKOIL
8
WHERE DOES LITASCO ADD VALUE?
LITASCO’s mission as LUKOIL’s trading arm, is to add value to LUKOIL’scrude and products after they leave the export location point
Point of final sale
Refinery gateDelivered toend customer
Inlandtransportation
Shore tanks Sea transport
Hydrocarbon flow - from wellhead to pump
LITASCO value add area
Wellhead
9
TRADING FOCUS OF LITASCO’S MAIN INTERNATIONAL OFFICES
LUKOIL
Pan AmericasLUKOIL
Benelux
LUKOIL
Hamburg
LITASCO
Sweden
Mainmarketsserved
Transatlantic
Caribbean US
Benelux coast
Baltic-Benelux
Benelux-FarEast/US
Africa-WesternEurope
Intra-Scandinavian(Gothenburg-Copenhagen)
Volumetraded 2007
million mt
LUKOIL
Asia Pacific
Focus ofoperations
Crude oil and allproducts
Local marketfuel oil andmarine fuels
Naphtha
Gasoil
Gasoline
Local marketgasoil sales
Marine fuels inSingapore
Trading allproducts inSingapore andthe Middle East
New Jersey
GenevaHamburg
Stockholm
Dubai
Singapore
Rotterdam
Persian Gulf–India–SE Asia
10.3
0.7
4.7 6.2
LITASCO
Geneva
Baltic - W Europe
Black Sea –Mediterranean
NW Russia - Europe
Crude oil
All products
Petrochemicals
85.8
3.1
10
GLOBAL OIL DEMAND VS PRODUCTION BY REGION THROUGH 2030
26.717.4 18
5.5
16
3.5
16
3.4
8.6 9 9.24.9
12.5
6.3
17.2
6.9
18.9
15.5
7.7
24.3
8.4
30.8
8.7
6.2
25.4
8.2
31.1
9.5
33.7
2.9
4
4.3
17
5.6 7.2
7 9.7
7.8 12.3
15.2
2825.1
15.5
0.90.90.7
10.4
14.9
Mln bbls per day
OECD North America
OECD Europe
OECD Asia
Non-OECD Europe & Eurasia
Non-OECD Asia
Middle East
AfricaCentral and S. America
Demand Production Demand Production Demand Production
84.3
90.46 90.46
84.6
101.5 103.0
112.5 112.9
• World overall oil consumption is forecast to grow at 1.2% per year over the next 25 years• OECD world oil demand is forecast to grow at 0.3% per year over the same period while non-OECD world oil demand is forecast to
grow at 2.2% per year• The fastest growing market will be China (+3.4% per year over the next 5 years)• World oil production capacity is forecast to grow at 1.4% per year over the next 25 years• Large oil producers are forecast to meet the increase in demand over the same period:
• OPEC: +1.3% per year• Caspian area: +3.6% per year
• Large oil consumers will see their local production lag behind:• North America: +0.7% per year over the next 25 years
2007 2020 2030
Trading is the natural result ofregional demand and supplyimbalances
Source: History: Energy Information Administration (EIA),Office of Energy Markets and End Use, 2008. Projections: EIA, Generate World Oil Balance Model (2008),
International oil outlook 2008, Litasco SA analysis
11
WHAT DOES A TRADING COMPANY DO?
• Buy and sell physical and paper barrels
• Match supplier and consumer requirements through:
• flexible pricing / financing
• customized delivery patterns
• price risk management
• Trading companies take advantage of location or qualityimbalances, shipping optimization and price structure. Theyrely on financial instruments to hedge or manage their pricerisk exposure
• By doing so, they ensure that customer’s demandrequirements are met while sourcing from prevailing, mostcommercially attractive supply region
12
MAIN CATEGORIES OF PARTICIPANTS IN THE INTERNATIONALOIL MARKET
Participation in the market
National OilCompanies (NOCs)
– Trade energy and other commodities while holding few or noproduction assets
– Actively trade in spot physical and derivatives markets
International OilMajors and TheirTrading Arms
– Privately owned international majors are large vertically integratedcompanies that are present in all the activities along the supplychain (upstream exploration and production, refining, trading,downstream distribution and marketing through fuel distributionnetworks)
– Majors do not trade all of their production, because an importantpart of it is devoted to the needs of their own supply chain system
– Majors have a risk aversion corporate profile that discourages highlevels of exposure to price risks and the resulting “speculation”
– Trade a wide spectrum of commodities while offering other financialproducts and services
– Have a controlled speculative exposure in oil derivatives markets,similar to other financial markets
Independent OilTrading Companies
Financial houses andnon industryspeculators
Examples
Morgan Stanley,
J. Aron,
hedge funds, etc
Saudi Aramco, INOC,
PDVSA, KPC, etc
ExxonMobil, Total,
Chevron, ConocoPhillips,BP, Shell, LUKOIL , etc
Vitol, Glencore,
Sempra, Trafigura, etc
– NOCs mostly sell under term contracts (NOCs account for 70% ofworld production and for most of the OPEC production)
– Limited number of term contracts prevent re-selling to third parties
13
NEW OIL MARKET PARTICIPANTS CHANGE MARKET NATURE
Oil
companiesOil
traders
Banks
related to
oil trade
Global
trading
housess
Hedge
funds
Other
Financial
institutions
Oil companies
Oil traders
Banks
related to
oil trade
The market today features a radically different set of players with varied agendas andtargets as well as the capability of playing various commodity markets against each other
and against stock market or money market
BEFORE NOW
14
Volumes Traded Annually
3% 5%
92%
OPEC productionRest of the world productionTotal volume (physical+paper) traded
Evolution of oil trading - Physical commodity markets, derivativesmarkets and price determination
Paper market=10 to 15 timesthe size of thephysical market
Crude oil and all major refined petroleum productstrade on international markets
Liquid and transparent futures markets allowparticipants to « hedge » their spot and termsupply contracts prices in the forward months
Appropriate financial instruments enable industryparticipants to manage their price risk exposureand offer additional profit opportunities
The main price indexes known to the generalpublic today are futures
– WTI: traded on the NYMEX
– Brent: traded on the ICE in London
In the modern oil markets, far greater volumes are traded on the derivatives(paper) markets than on physical markets
Because of the vast liquidity and transparency of the futures contracts, physicaloil prices are driven by the paper market
Financial players and “speculators” such as hedge funds trade on these marketsin addition to traditional industry participants (producers, refiners, end users)
15
Since the start of crude price rise in 1999NYMEX paper market grew 30+fold from $700
billion to $23 trillion
Paper market growth – what does it mean in US$ terms?
Value of WTI trades at NYMEX
73
1.2
11
20
.0
97
3.2
11
95
.1
14
11
.7
21
94
.0
35
06
.0
46
91
.1
92
75
.9
22
61
2.3
0
5,000
10,000
15,000
20,000
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
US
Db
illi
on
Source: Nymex, Litasco * 2008 Extrapolated from Jan-Sept 2008 results
Lots traded monthly in 2007-2008
0
5,000,000
10,000,000
15,000,000
20,000,000
25,000,000
30,000,000
JAN
MAR
MAY
JUL
SEP
NOV
JAN
MAR
MAY
JUL
SEP
Lo
ts,
1L
ot
=1
,00
0b
bls
Average monthly WTI price 2007-2008
54
.14
59
.31
60
.62
63
.84
63.4
067
.44
74
.10
72
.36
79
.98
85
.87
94
.74
91
.37
92.9
89
5.3
9 10
5.4
51
12.6
3 12
5.3
81
33
.93
13
3.3
011
6.5
81
02
.95
40.00
50.00
60.00
70.00
80.00
90.00
100.00
110.00
120.00
130.00
140.00
150.00
JAN
MAR
MAY
JUL
SEPNO
VJA
NM
ARM
AYJU
LSEP
US
D/b
bl
Annual trades and WTI price
37.9
36.9
37.5
45.7
45.4
52
.9
62.0
71
.1
12
8.5
198
.4
19.31 30
.37
25.93
26.16
31.0
7 41.49
56.59 66
.02
72.20
114.
00
0.00
50.00
100.00
150.00
200.00
250.00
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
Mil
lio
nlo
ts
0.00
20.00
40.00
60.00
80.00
100.00
120.00
US
D/b
bl
16
Paper market influence over oil prices
Source: CFTC / LITASCO
Non commercial players(hedge funds, investors andentities with no directinvolvement in oil) drive themarket prices according totheir global investmentpositions
When building up long netpositions oil prices rise…
…Conversely when thoselong positions are unwoundor when they initiate shortpositions first oil pricesdecline
As traded paper barrelsoutnumber physical barrels(about: x10 times) oilproducers have limitedleverage to drive prices
*Net position: “Longs” minus “Shorts”
17
THE OIL MARKET EVOLUTION
Paper (Derivatives =10/15x Physical Volumes)
Physical OnlyType of Business
Global RegionalTrade
Fundamentals andSentiments
FundamentalsMarket Forces
Numerous LimitedParticipants
Volatile StablePrice
TodayBefore
18
Key elements affecting prices and price trends
Source: IMF, EIA, PIRA, LITASCO
2004 to mid 2006
Near term demand-supplytightness
– Stronger than expectedeconomic and oil demandgrowth
– Less non-OPEC supply growthLess OPEC spare capacity
– Refining capacity nearmaximum utilisation
Medium/ L-T supply-demandtightness
– Projected L-T demand growth– Slower growth/peaking non-
OPEC– Lack of increases in OPEC
capacity
Concerns over supplydisruptions
– Geopolitical risks, hurricanes
Greater investors’ interest incommodities
2007
Near term outlook
– Warm weather. Fears of ahard USA economiclanding
– Non-OPEC growth– Despite OPEC cuts spare
capacity concerns remain– More Bio fuels capacity
Medium term outlook
– Bio-fuels/CO2
– Slower growth/peakingnon-OPEC
– Lack of increases in OPECcapacity
Concerns over supplydisruptions
– Same risks
Investors keep on buyingcommodities
2008
Near term outlook– Spread of US banking crisis
and global demanddeterioration
– Non-OPEC growth lowerthan expected, OPEC keepsustained production. Lowinventories
– New capacity added– Bio fuels
Medium term outlook
– Lower demand due to globaleconomy downturn
– Slower growth in both OPECand non-OPEC
– Lack of increases in OPECcapacity
Concerns over supplydisruptions
– Same risks
Too high prices affectdemand and prices fall
19
THANK YOU!
Visit our web sites:
www.lukoil.com
www.litasco.com