Can not be cut
The meeting of Vladimir Putin with heads of major Russian oil and gas companies will be held on Tuesday. The agenda of the meeting is not officially disclosed (Putin’s press Secretary Dmitry Peskov declined to tell reporters about possible topics for the meeting), but the managers of several companies spoke about three key topics that they can raise during the meeting.
The main issue of concern to oil industry workers, — the reduction or freezing of production in Russia in January 2016, said the sources in “Gazprom Neft”, LUKOIL and “Bashneft”. About the freezing of the mining Minister of energy Alexander Novak agreed on 16 February with three OPEC countries — Saudi Arabia, Qatar and Venezuela.
Two options Novak
Possible scenarios for the reduction of oil production in Russia in case of such agreement with the OPEC countries were discussed at the meeting with the Minister of energy Alexander Novak, with participation of heads of the largest Russian oil and gas companies on January 27, told two sources in oil companies. The first scenario provides for the reduction of oil production in the whole country by 5%. Second — the reduction of exports by 5% and the recommendation of the exporting companies to reduce production in proportion to their share in the total exports of oil to foreign countries. In this case, the main share of reduction of production will fall on exporters, particularly Rosneft, which has so far been a natural production decline at major existing fields. For example, in 2015, its largest production subsidiary Yuganskneftegaz, according to CDU TEK, fell by 3.3%, to 62.4 million tonnes.
At the end of January 2016 at the meeting with the head of the Ministry of energy Alexander Novak virtually all major Russian oil companies have opposed the reduction of production in the country (took place before his meeting with the Ministers of OPEC). Since the position oil had not changed, the sources say .
“We’re a private company, we are not willing to lose their markets and don’t understand why to reduce production, how to do it technically, and most importantly how to monitor the implementation of these agreements by market participants, including partners in OPEC, says a source in LUKOIL. — Reduction of export fraught with fines by the buyers and what share of the market, which will take Russian oil will be occupied by competitors.”
The source in “Gazprom oil” also made it clear that the company is not ready to lower production. “Most importantly, our wish is to see the industry be left alone. And with the increase of the tax burden, and to lower output. At low oil prices the oil companies and it difficult to. We are not asking assistance from the state, please just let us work,” says the Manager of the company.
A source in “Bashneft” has reminded that in the business plan of the company in 2016 plans to increase its oil production (from 19.9 million tonnes to over 20 million tons) by development and recently launched new fields — Trebs and Titov in the Nenets Autonomous district and the number of fields “Burneftegaz” (“daughter” of “Bashneft”) in KHMAO. “The volume of oil stated in the project documentation. If they decline we will deal with the Supervisory bodies of the Ministry of environment. Either the documents will have to be adjusted. Not to mention the decline of revenues from exports,” — says the employee of “Bashneft”.
Who will go to Putin
Among those invited to the meeting with the President — the head of “Rosneft” Igor Sechin, “Gazprom oil” Alexander Dyukov, “Bashneft” Alexander Korsik, LUKOIL Vagit Alekperov, the General Director of Zarubezhneft Sergey Kudryashov. This was told by sources close to several members. And the head of “SIBUR” Dmitry Konov not included in the schedule of the meeting, said the representative of the company. A representative of NOVATEK could not specify, whether the Chairman of the Board of the company Leonid Mikhelson to Putin on Tuesday.
“The reduction or freezing of oil — just a tool. The main question is how to survive the industry in the period of low oil prices, is there any way these rates to increase, what needs support, what people are willing to sacrifice,” adds a source in one of companies.
Since mid 2014 the price of Brent crude oil fell more than threefold, on Monday it was worth $36 per barrel. In January of 2016 oil production with gas condensate in Russia amounted to 46 million tons, which is 1,5% higher than the ratio of 2015, reported “Interfax” with reference to the data CDU TEK.
According to Raiffeisenbank analyst Andrey Polishchuk, the government may oblige state-owned companies to reduce or freeze the oil in accordance with the agreements with OPEC the Ministry of energy (until signed preliminary agreements with three members of OPEC, other producers of Novak hopes to agree by mid-March). But for private companies it may only give such a recommendation. However, as practice shows, the majority of market participants try to follow the recommendations of the first persons of the country, he agreed. “If Russia and OPEC will proportionally reduce the production or export by 5%, the price of oil could rise to $50 per barrel and above,” adds Polishchuk.
But the unilateral step of this kind on the part of Russia will not affect the price of oil, warns analyst Sberbank CIB Valery Nesterov. He believes that the discussion of oil industry workers and officials will come to the position not to reduce oil production in the country and even its exports. While freezing production at the January level, according to Nesterov, will be positive for the market.
Privatization and taxes
Another topic of the meeting, Putin should be the privatization of state assets in the oil sector, especially the state shareholding in Bashneft, said the sources . Earlier, the President of LUKOIL Vagit Alekperov stated about the interest in this asset provided attractive rates and clear terms and conditions of privatization. On Friday it became known that the Ministry of economic development proposes to sell all of 50,08% of the company’s shares owned by the government.
Investors are betting on growth
Confidence in Brent
During the week 16 to 23 February, the net long position (long positions minus short), courtyard by speculative buyers of futures and options on Brent crude on the ICE stock exchange increased by more than 12% and exceeded 320 thousand, according to Reuters. According to the Agency, such amount of long positions on ICE were not recorded from the beginning of the statistics, i.e. since 2011. According to ICE, the net long position of hedge funds and other speculative players almost 28 thousand exceeded the previous record, recorded on the stock exchange on 2 February 2016 (to 292.3 million). This rapid growth demonstrates the confidence of investors that the price of Brent will grow. Simultaneously, the number of long positions opened by the buyers of futures and options on WTI crude oil increased last week by 14%, reaching the highest level since November of last year, according to Bloomberg. According to John Kilduff, partner of new York hedge Fund Again Capital, the reason reports of possible freeze of the largest oil producers in the volume of its production. “While there is only a lot of talk and no action, but affected,” — said the expert.
In anticipation of freezing
In mid February 2016, the representatives of the ministries of energy of Russia, Qatar, Saudi Arabia and Venezuela have agreed on the possibility to freeze oil production at the level of 11 January. Later its support for the initiative in one form or another, stated the representatives of several other oil-producing countries. March 1, Russian President Vladimir Putin plans to meet with the heads of major Russian oil companies. The theme of the meeting is not officially announced, but according to a source, the President may discuss with industry leaders the issues relating to the freezing of oil production.
At the meeting in the Ministry on Monday discussed the sale of the share of Bashkortostan (owns 25% of “Bashneft”), which will bring privatiziruemih stake to 75%, said one of the participants. But there had been no decision, he added. Previously the Bashkir authorities strongly opposed the package. Surely this question would be discussed and at a meeting with Putin, said a source close to one of the oil company.
The third theme, which I plan to discuss with the President of the oilmen, the growth of the tax burden. Following the increase in excise duty (from April 1, the second time they will grow on average by 2 roubles for 1 litre petrol and 1. on diesel) they do not exclude correction of the formula of met and increase of penalty payments through the revision of the environmental charges. Some fees are already excessive in the face of low oil prices, says one of the interlocutors.
In conversation with the correspondent oil workers expressed the view that there is bargaining: the decline in production in exchange for the refusal to increase the tax burden and providing new sources of investment in the industry.
Official representatives of LUKOIL, “Gazprom Neft”, “Bashneft” and “Rosneft” have refused comments.
An optimistic scenario is not considered
Worst case — $25
The Bank of Russia calculates the optimistic scenario of the monetary policy, providing for high oil prices. This was stated by the head of the Central Bank Elvira Nabiullina, speaking to reporters in Shanghai, where these days there passes a meeting of Ministers of Finance and heads of Central banks of G20 countries. According to her, now the Central Bank must clarify the hypotheses for oil price for the baseline and risk scenario. The latter option assumes an oil price of $25 per barrel. On 12 February the first Deputy Chairman of Bank of Russia Dmitry Tulin has declared to journalists that the Bank of Russia may lay in an updated risk scenario for 2016 the price of oil at $25 per barrel. Baseline scenario the Central Bank is able to calculate based on the price of $35 per barrel, now is a stressful scenario.
“There is no specific assessment”
Earlier, the head of monetary policy Department of the Central Bank Igor Dmitriev said that the Bank of Russia sees no need to revise risk scenario. Answering the question of which values can drop the price of oil, Dmitriev said: “Such assessments are not. We assume that the price can be under the risk scenario and claimed below $35 per barrel, but no specific evaluation. For the purposes of the scenario there is no such need” (quoted by “Interfax”). The baseline scenario of macroeconomic development of the Bank of Russia now assumes that oil prices in 2016 will remain at $50 per barrel. “But increased the likelihood that this will not happen and prices will remain lower for a longer period,” — said Nabiullina in December 2015. The trajectory of oil prices in the third quarter was located between the base and stress scenario and the likelihood of prices remaining below $50 became higher, she added.