Hydrocarbons exploration and production (E&P)

The Exploration and Production segment is Zarubezhneft Group’s key segment. The Company’s strategic development is based on improving asset performance and developing new promising projects.

Summary segment indicators

Revenue in 2019 was 3 bln RUB, or 7%, lower than in the previous year. This is primarily due to the decline in the average 5% annualized decline of the Ruble price of oil (in 2018, it was 4,387 RUB/bbl; in 2019, it was 4,135 RUB/bbl). Another negative factor affecting revenue is the decrease in production volumes and oil sales compared to 2018: oil sales decreased by 519 thous. tons (-13%) for JV Vietsovpetro Block 09-1 and by 11 thous. tons (-12%) for Block 09-3. The decline in this indicator is partially offset by additional revenue of 2.4 bln RUB from supplies of third-party oil via Orenburgnefteotdacha JSC.

EBITDA for this segment in 2019 exceeded 30 bln RUB and dropped 16% compared to 2018. This indicator has also been negatively affected by lower oil prices, the sales volumes of the Vietnamese assets, and decreased effect of concession for export duty for JC RUSVIETPETRO LLC due to the reduced volume covered by the concession.

We also saw a significant reduction of investments compared to 2018 amounting to -2.7 bln RUB for JC RUSVIETPETRO LLC as a result of resulted from the completion of the active phase of exploration works and drilling of Block 4 fields.

Investment volumes in 2019 increased by 1.8 or 5% compared to 2018. We saw growth for ZARUBEZHNEFT-Dobycha Kharyaga LLC’s assets of +2.1 bln RUB (increased pace of construction of facilities and increased number of wells completed by drilling, +2 wells), +1.1 bln RUB for JV Vietsovpetro Block 09-1 due to commissioning of the new wellhead platform WHP-20, completion of the reconstruction project and expansion of compressor capacities.

Current portfolio of assets/projects of the segment

In 2019, Zarubezhneft Group owned 17 licenses, 9 of which were for prospecting and exploration of hydrocarbons, 2 for prospecting and evaluating hydrocarbon reservoirs and 6 for geological survey, exploration and production of hydrocarbons.

A license auction took place on June 27, 2019, for the purpose of geological survey, exploration and production of hydrocarbons at the Zapadno-Yareyaginsky site. JC RUSVIETPETRO LLC was the successful bidder.

Condition of resources and feedstock

As of January 1, 2020, the total remaining geological reserves of А+В₁+C₁ and 2РThe reserves are taken into account by category 2P for the fields of the Socialist Republic of Vietnam (Vietnamese classification) and by category 1P for the fields of the Arab Republic of Egypt (SPE-PRMS international classification). category hydrocarbons of Zarubezhneft Group in Russia and abroad are 1,072.7 MM t.o.e. with no regard to the Company’s participating interest, and 548.3 MM t.o.e. with regard to the participating interest. The amount of total remaining recoverable reserves is 200.07 MM t.o.e. with no regard to the Company’s participating interest and 103.815 MM t.o.e. with regard to the participating interest.

37% of А+В₁+С₁ reserves are JC RUSVIETPETRO LLC reserves. The primary share of the hydrocarbon reserves is concentrated at the blocks of Severo-Khosedayuskoye and Zapadno-Khosedayuskoye fields.

The share of JV Vietsovpetro reserves is 33%, primarily concentrated at the White Tiger and the Dragon fields.

As of January 1, 2020, the balance of Zarubezhneft JSC includes oil, gas and condensate reserves of 26 fields under development: White Tiger, Dragon, Southern Dragon – Sea Turtle, White Bear, White Rabbit, Beluga, Severo-Khosedayuskoye, Visovoye, Vostochno-Yanemdeyskoye, Zapadno-Khosedayuskoye, Severo-Oshkotynskoye, Severo-Sikhoreyskoye, Sikhoreyskoye, Urernyrdskoye, Syurkharatinskoye, Pashkinskoye, Kirsanovskoye, Chernovskoye, Kondakovskoye, Ruzhnevskoye, Slavkinskoye, Sulakskoye, Kharyaga; fields of South Alamyshyk, East Khartoum and Khartoum (Republic of Uzbekistan), and 15 fields under exploration: White Cat, Thien Ung-Mang Cau, Thien-Nga, Gold Tiger structure (Block 16-1/15, Socialist Republic of Vietnam), KNT and KTN structures (Block 09-2/09, Socialist Republic of Vietnam), West Ashrafi, North Ras El Ush (Arab Republic of Egypt), Verkhnekolvinskoye, Vostochno-Sikhoreyskoye, Pyuseyskoye, Yuzhno-Syurkharatinskoye, Zapadno-Yareyaginskoye, Nizhnemazinksoye, Lutseyakhskoye.

Pilot commercial development was carried out at the Boca de Jaruco field in 2019 for implementing enhanced oil recovery methods.

As a result of prospecting drilling in 2019, the increment of Zarubezhneft JSC hydrocarbons reserves without regard to the share was:

• 6,841 thous. tons in JV Vietsovpetro;
• 321 thous. tons in JC RUSVIETPETRO LLC;
• 22 thous. tons in Orenburgnefteotdacha JSC.
• 1,082 thous. tons at the Kharyaga field.

The balance of the hydrocarbon reserves for Zarubezhneft Group in 2019 also included the hydrocarbon reserves for new assets: Block 09-2/09 (structures КTN and KNT under exploration), West Ashrafi and North Ras El Ush fields (Arab Republic of Egypt), South Alamyschyk, West Khartoum and Khartoum fields (Republic of Uzbekistan).

JC RUSVIETPETRO LLC won the bid in 2019 in the license tender for the purpose of geological survey, exploration and production of hydrocarbons at the Zapadno-Yareyaginsky site in the Nenets Autonomous Area.

Recoverable reserves of JC RUSVIETPETRO LLC in 2019 increased by

899 thous. tons

Geologic exploration

The Companyʼs strategic goal is to ensure a stable growth of HCs production in the medium- and long-term perspective by exploring and expanding the hydrocarbons resource base.

In 2019, exploration works were carried out at the facilities of the Socialist Republic of Vietnam and in the Russian Federation.

The scope of exploratory drilling in 2019 was about 53.2 thous. m. The primary goal was to specify structures containing non-drilled reserves at the active fields and to recognize inferred reserves at new blocks.

In the fiscal year, the construction of seven exploration wells was completed offshore the Socialist Republic of Vietnam, as well as two wells in the Nenets Autonomous Area and one well in the Orenburg Region.

Hydrocarbons production

In 2019, the Company focused on the production stabilization by taking a number of geological, organizational and technical measures as per the production program.

34 new wells have been commissioned at the Russian segment fields, a number of successful well interventions have been completed (side-tracking, hydraulic fracture, re-completion), as well as 117 other WIs.

The primary production assets in 2019 still were JC RUSVIETPETRO LLC, JV Vietsovpetro, ZARUBEZHNEFT-Dobycha Kharyaga LLC.

Taking into account the share of Zarubezhneft JSC, the HC production in 2019 was 4,770 K t.o.e., which is less than in previous year by 7.4%. The target indicator (4,515 K t.o.e.) was exceeded by 5.6%. The decline in production was caused by large fields of JV Vietsovpetro, the White Tiger and the Dragon, entering the complex final stage of development.