Rosneft leads Russian oil output to new high

Updated 02 January 2013
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Rosneft leads Russian oil output to new high

MOSCOW: More crude from state-owned top producer Rosneft kept Russian oil output the highest in the world last year, Energy Ministry data showed yesterday.
Crude output edged up almost 1 percent to a new post-Soviet high of 10.37 million barrels per day (bpd), but the increase could halt this year due to depleted oil fields in West Siberia.
Russia, whose proceeds from oil gas constitute around half of budget revenues, aims to keep its crude production at no less than 10 million bpd until 2020. The Kremlin has increased its share in the oil industry to over 50 percent after top oil producer Rosneft clinched an agreement to acquire Anglo-Russian TNK-BP for around $ 55 billion in a cash-and-stock deal.
After the acquisition, expected to be completed in the first half of this year, Rosneft will become the world's largest listed oil producer with hydrocarbon output of some 4.6 million barrels of oil equivalent per day.
In tons, Russia's crude production was 518.018 million last year, the ministry said, up from 511.432 million tonnes in 2011, which was one day shorter than 2012.
In December, Russia's oil production edged down to 10.48 million bpd from 10.50 million in November, a post-Soviet high.
Rosneft reported one of the largest rises in crude output among the Russian oil majors last year, with an increase of 2.3 percent to 117.473 million tonnes (2.4 million bpd) on a daily basis thanks to increased production at its East Siberia's Vankor field to 367,000 bpd.
LUKOIL, Russia's second-largest oil producer, saw a 1 percent decline in domestic output, to 84.620 million tons. LUKOIL has tried to increase its exposure to overseas oil deposits as it has been unable to offset a production decline at its mature West Siberian oil fields. It owns 75 percent of Iraq's huge West Qurna-2 deposit.
Saudi Arabia has restrained its output to steady oil prices, which reached a record high last year.
Brent crude averaged over $111 a barrel in 2012, the highest on record. The international benchmark gained 3.5 percent for the year, after rising 13.3 percent in 2011.

The windfall has helped oil production in Russia, where the extent of the crude output rise surprised many analysts. Moscow hopes the momentum will continue with so-called tight oil, hidden in layers of rock.
However Russia has yet to follow the United States in deploying advanced horizontal drilling and hydraulic fracturing technologies, which is known as fracking, on a commercial scale.
Last month, Rosneft has agreed with ExxonMobil to tap the shale oil in West Siberia.
The International Energy Agency (IEA) expects non-OPEC supplies to grow by 900,000 bpd to 54.17 million bpd in 2013, taking total consumption up to an average of 90.52 million bpd, while production in Russia will decline.
"We expect Russia's crude production to be lower by around 100,000 barrels per day in 2013 mainly because brownfield production declines should outpace greenfield supply growth," IEA's supply analyst Michael Cohen told Reuters.
Brownfield, or established, oil production in Russia accounts for over 80 percent of total output.
Vienna-based JBC energy consultancy expects Russian oil production to remain flat this year.
"We see Russian total oil output virtually unchanged this year as more widespread EOR (enhanced oil recovery) application and an increase in output in recently developed fields compensate for the declines in the mature fields," it said.
The far-flung deposits of East Siberia are viewed as vital in offsetting declining production in West Siberia. Last month, Russia completed an expansion of its Asian oil pipeline to the Pacific port of Kozmino, filled by crude from East Siberia.
Russia has been steadily increasing its crude exports to Asia at the expense of deliveries to Europe. It shipped 16.3 million tons to Kozmino this year, 1.1 million up compared to 2011.
Next year, exports via Kozmino will rise further, to around 21-22 million tons.
The ministry data also showed that Russia's total oil exports via oil pipeline monopoly Transneft and other routes edged down 0.3 percent to 234.3 million tons last year.
The oil resources at Russia's offshore fields — estimated at 100 billion tonnes of oil equivalent — are also seen as the next source of domestic oil production. Most are in the Arctic where only state-owned companies, such as Rosneft, have access.
Daily gas production jumped 10.4 percent, month-on-month, to 2.12 billion cubic meters (bcm) in December thanks to a rise in seasonal demand.
Production for 2012 declined to 1.79 bcm from 1.84 bcm in 2011 on a daily basis. Gas output from Gazprom, the world's leading producer, decreased in 2012 to 1.31 bcm a day from 1.4 bcm in 2011 as Europeans used cheaper alternatives such as liquefied natural gas (LNG) and spot market supplies.
Output at Russia's second-largest gas producer, Novatek , fell to 51 bcm from 53.3 bcm in 2011.
The ministry expected gas production to increase in 2013 to 1.87 bcm a day, or a total 683 bcm, although a 1.2 percent lower than previously seen.
The data for 2012 gas exports was not yet available.


After MSCI upgrade, Tadawul chief turns to the next challenge for Saudi Arabia

Updated 14 min 40 sec ago
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After MSCI upgrade, Tadawul chief turns to the next challenge for Saudi Arabia

DUBAI: Khalid Al-Hussan seemed to be enjoying himself last Thursday at the Riyadh headquarters of Tadawul, the Saudi Arabia stock exchange, of which he is chief executive. In fact, a quiet smile of satisfaction rarely left his face, even under the bright glare of the television lights of the international media.
“We’ve all worked very hard and we’re very pleased,” he told Arab News once the TV cameras had left, adding that it had been “one of the best days” of his professional career.
Al-Hussan had just left the podium of a press conference — shared with Tadawul chairperson Sarah Al-Suhaimi and the chairman of the Capital Markets Authority, Mohammed Al-Kuwaiz — to announce the fact that, after three years of preparation, Saudi Arabia had finally been included in MSCI’s Emerging Markets index.
It was actually more of a celebration than an announcement. MSCI had broken the news some hours earlier that Saudi Arabia was to be classed as an emerging market (EM), rather than a frontier market, putting the Kingdom on the radar of international investors in a big way. All three of the market dignitaries were in effusive mood, gratefully accepting multiple “mabrouks” from the media pack.
The move by MSCI, it is estimated, will pull in as much as $45 billion in foreign investment to the Saudi exchange; that figure could rise sharply if the Saudi Aramco listing goes ahead on the bourse. That is a huge boost for a market with a current market capitalization of about $520 billion.
It has already been quite a year for the Tadawul chief, with a lot of the hard work of his previous three years in the job paying off handsomely. In March, another international index compiler, FTSE Russell, had also upgraded Saudi to emerging market status, and there have been launches and bolt-ons of other services essential for a modern stock market, such as a central clearing system.
Perhaps most importantly of all, the Tadawul has been one of the best-performing markets in the world in 2018, with a 13 percent rise in the first six months. “It has been one of the best years, rather than just a good day today,” Al-Hussan said.
“MSCI inclusion is a reflection of how our reforms have been widely accepted, by local and international markets. It was designed as a plan to achieve what we have today,” he added.
The Riyadh exchange has always been the biggest in the Arabian Gulf region, but since 2015 it has been transformed into one of the most modern and efficient too.
New, internationally recognized settlement systems have been introduced, governance systems upgraded, and foreign investors welcomed. The status upgrades by global investing organizations — there is another due from S&P before the end of the year — are the logical end of all this work.
It has not been without its challenges, Al-Hussan remarked. “To balance the needs of international and local investors was sometimes a challenge, especially in the move to new settlements systems. But if you understand the market, and know where you’re trying to get to, it’s possible to get both of them working together,” he said.
There is another challenge, which in some ways the MSCI upgrade is designed to overcome: the nature of share trading and stock markets within the broader economic context of Saudi Arabia and the Arabian Gulf. It is an issue of the perception of the region in the world as much as anything else.
While analysts generally welcomed news of the MSCI upgrade, some delivered the opinion that inclusion in international indices was not in itself so significant for regional markets, and the Saudi market in particular.
Other factors ultimately determined the health and appeal of Gulf markets, the theory went, in a part of the world where the oil price is the single most important economic factor, and regional geopolitical events color global investors’ overall views. Foreign confidence in Saudi Arabia was also hesitant, given the sheer pace of the change going on in the Kingdom under the Vision 2030 strategy, it had been argued.
It is a line Al-Hussan has heard before, and he has a ready answer. “I disagree that MSCI inclusion is less important than these other factors. It is a sign of the confidence of international investors in the Saudi market, and a reflection of how confident they feel here,” he said.
“The new cash that we can expect from international investors — around $40 billion — is not small or insignificant, and these people will not take risks lightly. The people at MSCI are pretty intelligent too. They have never moved a country from the watchlist to full EM status so fast — in just 12 months — so that tells you about their confidence, and the confidence of their clients, in Saudi Arabia,” he added.
And, finally, there is the clinching argument that non-market factors can always have a profound effect on financial markets, and not just in Saudi Arabia or the Gulf countries. “Economic and geopolitical factors could have an effect on markets anywhere in the world, not just here,” he said.
An engineer by training, Al-Hussan was educated in the US to MBA standard, and qualified as a certified entrepreneur from the University of Colorado. His previous career in the insurance industry made him aware of the need to weigh risk; 10 years at Tadawul — working across virtually all its functions from business development to strategy and operations before becoming CEO ­— has seen him apply those lessons in the context of financial markets.
There is a lot more to do, Al-Hussan insisted. “Our plans never end. I’m more excited about what’s to come as we continue to enhance the market’s future” he said, before outlining the strategy to launch a full national clearing system that would enable Tadawul to launch derivatives trading platforms by the end of 2020 in a staged process.
There is also the plan to enhance the market-making function, so that traders can operate to international best practice standards by the end of this year. “There is already a model in place, but it will be perfected to global standards by the end of the year,” he said, rejecting suggestions that the innovations at the Tadawul might encourage the inflow of speculative “hot money” into the Kingdom.
All this reform and improvement is desirable in itself, of course, and for the good of the Kingdom’s financial markets. But there is a big goal in sight that Al-Hussan and Tadawul are aware they must keep in focus: the historic initial public offering of Saudi Aramco, as well as the other multibillion-dollar privatizations that are planned under the Vision 2030 plan.
“Of course, there is Aramco,” he said as he contemplated the list of tasks ahead. The IPO of the biggest oil company in the world is the centerpiece of the Kingdom’s plans to transform its economy away from oil dependency, and Tadawul has been designated the “home market” for the IPO.
The biggest stock exchanges in the world — New York, London, Hong Kong — have all been mentioned as possible venues for Aramco, but it is certain that Tadawul will also play a big part in the sell-off.
Al-Hussan caused quite a stir at last year’s Future Investment Initiative in Riyadh when he declared his “aspiration” to stage the IPO exclusively on Tadawul. He has since repeated his confidence that the Saudi exchange could handle the whole issue, which could be worth as much as $100 billion.
“Of course, I would like to have all of it, but that is a decision for Aramco and for its shareholder, the government. We will support whatever decision they reach,” he said. He also confirmed that Aramco would not have to wait until the MSCI upgrade — coming into force in two stages from May of next of year — is fully implemented. “We will be ready for it as soon as the decision on the IPO is made,” he said.
If the government did decide to put the whole of the Aramco IPO on Tadawul, it would change the character of the exchange completely, and alter MSCI’s calculations significantly.
MSCI awarded Tadawul a weighting of 2.6 percent of its global EM market, but that would increase enormously if Aramco were included. Al-Hussan agreed it could double the amount of funds flowing into the Saudi Arabian market.
It could also tie the fortunes of the Tadawul to the global oil industry in a way it is not now, by making it dominated by the biggest energy company in the world. Part of his philosophy has been to make the Tadawul — where banks and heavy industrial companies play a dominant role — more attractive to other sectors and more reflective of the changing national economy.
“We still aspire to do it. It would be a challenge, of course, but I think over the past three years, and with the upgrades, we’ve shown that we meet challenges,” he said.