Bashneft Ank · RUS:BANE
Bashneft Ank — Bashneft — Investor Day (June 2014)
70 slides from Bashneft Ank's investor day presentation, Jun 5, 2014
Slide 1: Investor Day Presentation
Investor Day Presentation 5 June, 2014
Slide 2: Disclaimer
Disclaimer Some of the information herein may contain projections or other forward-looking statements regarding future events or the future financial performance of Bashneft Group. You can identify forward-looking statements by terms such as “expect,” “believe,” “anticipate,” “continue,” “estimate,”
Slide 3: 1. Overview of Bashneft
1. Overview of Bashneft Alexander Korsik President, Chairman of the Management Board JSOC Bashneft
Slide 4: Agenda
Agenda Section Speakers 1. Overview of Bashneft Alexander Korsik 2. Upstream Mikhail Stavskiy Oleg Mikhaylov 3. Downstream Maxim Andriasov Yakov Polunkin 4. Financials Denis Stankevich 5. Corporate Governance Alexander Korsik 6. Questions and Answers 4
Slide 5: Highly Professional Management Team with Strong Track Record
Highly Professional Management Team with Strong Track Record Alexander Korsik Maxim Andriasov President, Chairman of the Management Board First Vice President, Refining and Commerce 19 years in the industry 15 years in the industry Previously First Vice President at Sibneft, Previously Head of P
Slide 6: Bashneft at a Glance
Bashneft at a Glance Efficient vertically-integrated privately owned oil company, an industry leader in terms of shareholder returns Sizeable oil reserve and resource base in three major Russian oil producing regions: RUSSIA — 1P of 2.0 bnbbl (18 year reserve life), 2P of 2.6 bnbbl(1), mainly locate
Slide 7: What We Have Achieved So Far
What We Have Achieved So Far Since acquisition by Sistema in 2009, we have… • Established meaningful presence in all major Russian oil producing regions Increased production and • Increased oil production by 31% and our reserve base (1P) by 61% resource base • Achieved a reserve replacement ratio of
Slide 8: High Quality, High Return Asset Base
High Quality, High Return Asset Base Strong production growth and reserves replacement in Bashkiria. Trebs & Titov delivering strong medium term growth. Best- in-class downstream business Oil reserves replacement ratio (1P)(1) Oil production growth 2013 13,6% 2010 – 2013 201% 7,8% 133% 133% 2013 Ave
Slide 9: Sector Leading Profitability, Cash Flow Generation and Unique Dividend Play
Sector Leading Profitability, Cash Flow Generation and Unique Dividend Play Strong track record of cash return demonstrates focus on shareholder value for all shareholders Leading profitability in Russian oil sector(1) Capex / Operating cash flow (average 2010-2013)(2) 2013 EBITDA per boe, in US$ 77
Slide 10: Consistently Delivered Some of the Highest Shareholder Returns in the Russian Market
Consistently Delivered Some of the Highest Shareholder Returns in the Russian Market Bashneft is one of few Russian oil and gas companies without State ownership – allows full focus on financial returns for its shareholders and ensures capital discipline Consistently delivering some of the highest D
Slide 11: Bashneft Offers A Unique Investment Proposition
Bashneft Offers A Unique Investment Proposition High quality, high return asset base 2 1 Robust, sustainable sector 3 leading production growth High quality reserve and resource base combined with Best-in-class integrated sustainable best in class downstream business replacement results 6 4 Highly p
Slide 12: Key Strategic Initiatives and Targets
Key Strategic Initiatives and Targets Strategic objectives 2014-2020 • Increase upstream production through organic growth and select acquisitions • Continue development of Volga-Urals (brownfields and exploration), Timan-Pechora fields (incl.Trebs & Titov Increase production reaching production of
Slide 13: 2. Upstream
2. Upstream Mikhail Stavskiy Oleg Mikhaylov First Vice President, Upstream Vice President, Production
Slide 14: Balanced Portfolio of Assets in Key Russian Hydrocarbon Provinces
Balanced Portfolio of Assets in Key Russian Hydrocarbon Provinces 1 Volga-Urals(1) PRMS Reserves & Resources as of 2014E Production RUSSIA 31.12.2013 Oil – 3,000 mmbbl 314 kbpd Gas – 33 bcm • High margin, low capex, low risk region • Proved reserves life of 18 years with significant exploration pote
Slide 15: Key Achievements and Strategic Initiatives
Key Achievements and Strategic Initiatives What we have achieved Reinvigorated production and exploration and optimised costs in legacy regions, current production levels of c. 300kbpd 2009-2014 Acquired Trebs & Titov license in Timan-Pechora 2011 Acquired 5 additional Timan-Pechora licences 2011-20
Slide 16: Balanced Portfolio With Significant Growth Potential and Upsides
Balanced Portfolio With Significant Growth Potential and Upsides Volga-Urals Unconventional Timan-Pechora and Western Siberia Exploration • Long-term Volga-Urals Gas resources growth Development potential • Over 9,100 km2 in Volga-Urals Appraisal highly prospective • Currently evaluating and Explora
Slide 17: Massive Reserve and Resource Base and Strong Track Record of Reserves Replacement
Massive Reserve and Resource Base and Strong Track Record of Reserves Replacement Reserves and resources, mmbbl/mmboe Proved reserves life of 18 years First reserves at Trebs & Titov and gas reserves booked in 2013 Organic proved reserves replacement ratio: – Previous reserves replacement achieved a
Slide 18: Sector Leading Upstream Growth
Sector Leading Upstream Growth Production rejuvenated under current management from c. Production evolution in new clusters, kbpd 240 kbpd in 2009 to c. 350 kbpd in 2014E By 2020 more than third of total oil production to come from new production clusters in Timan-Pechora and Western c.140 Siberia A
Slide 19: Strong Production Performance
Volga- Urals Strong Production Performance Production Development Appraisal / Exploration Volga-Urals is a mature oil region, production since 1932 Volga-Urals production in historical context, kbpd 400 – Low natural decline rates 4 fields account for 39% of proved reserves and 35% of 2013 300 produ
Slide 20: Robust Production Outlook
Volga- Urals Robust Production Outlook Production Development Appraisal / Exploration Growth in 2010–2014 primarily achieved through optimization techniques, fracking, sidetracking and drilling of new wells Production expected to be stable for next several years at c. 300 kbpd Volga-Urals production
Slide 21: Focus on Production Efficiency
Volga- Urals Focus on Production Efficiency Production Development Appraisal / Exploration Wellstock significantly optimized since 2009 by focusing on Number of producing wells more profitable wells Watercut declined every year since 2009 mainly due to: ― Reducing produced water volumes 17 180 16 24
Slide 22: Focus on Production Efficiency (cont'd)
Volga- Urals Focus on Production Efficiency (cont’d) Production Development Appraisal / Exploration Average well production rate, bpd Range of interventions applied with strong focus on operational and cost efficiency 20,4 21,2 21,9 Average well production rate has improved by 58% since 2008 18,3 ―
Slide 23: Focus on Production Efficiency (cont'd)
Volga- Urals Focus on Production Efficiency (cont’d) Production Development Appraisal / Exploration Consistently stable / improving efficiency of low cost well interventions Optimization Description Initial Flow Rate Increase, bpd Technique 269 170 Drilling of an additional wellbore from an existing
Slide 24: Low-cost Production Growth
Low-cost Production Growth Volga- Appraisal / Production Development Urals Exploration Focus on operational and cost efficiency reflected in strong cost Upstream capex and operating costs 2009 - 2013, US$/boe performance Among the lowest upstream capex / bbl and overall cost base in the Russian oil
Slide 25: Drilling Efficiency
Volga- Urals Drilling Efficiency Production Development Appraisal / Exploration Radically increased drilling efficiency through the utilization of Drilling Support Centre advanced drilling technology (e.g. establishment of Research and Designed by Schlumberger and opened in June 2013 in Ufa Drilling
Slide 26: SarBer Gas Development and Gas Exploration Potential
Volga- Urals SarBer Gas Development and Gas Exploration Potential Production Development Appraisal / Exploration Key facts Reserves 3P gas reserves: 24.5 bcm 162 mmboe Perm 3P condensate reserves: 7.8 mmbbl C1 reserves: 52 bcm – significant PRMS booking potential Number of fields 4 Production start
Slide 27: Exploration – Substantial Potential
Volga- Urals Exploration – Substantial Potential Production Development Appraisal / Exploration Underexplored regions in Bashkiria Although Bashkiria is a mature province it remains underexplored – Limited use of modern seismic, applied very successfully in adjacent regions; some parts of Bashkiria
Slide 28: Exploration – Substantial Potential (cont'd)
Volga- Urals Exploration – Substantial Potential (cont’d) Production Development Appraisal / Exploration 3D seismic in Bashkiria, km2 Case study: Afanasyevskoe field 3 158 In December 2012 , following seismic surveys and drilling of exploration wells, the Afanasyevskoe field was discovered – 4 produ
Slide 29: Unconventional Resources – Substantial Upside to Reserves
Volga- Urals Unconventional Resources – Substantial Upside to Reserves Production Development Appraisal / Exploration Unconventional resource potential identified to date Programme in place to evaluate Bashkiria’s significant unconventional potential – 3 key unconventional plays identified to date C
Slide 30: Trebs & Titov – Significant Source of Mid-Term Growth
Timan- Trebs & Titov – Significant Source of Mid-Term Growth Appraisal / Production Development Pechora Exploration Launched in 18 months from license acquisition and within budget Barents Sea Demonstrates Bashneft’s ability to execute complex and large-scale upstream projects Varandey Partnership w
Slide 31: Trebs & Titov – Significant Source of Mid-Term Growth (cont'd)
Timan- Pechora Trebs & Titov – Significant Source of Mid-Term Growth (cont’d) Production Development Appraisal / Exploration Development divided into three stages in order to optimize capex and minimize execution risks Development timeline 1st Stage 2nd Stage 3rd Stage • 2D and 3D seismic • Drilling
Slide 32: Vostok NAO – Long-term Growth Potential
Timan- Vostok NAO – Long-term Growth Potential Appraisal / Production Development Pechora Exploration Vostok NAO – JV with Lukoil (50/50%) to develop 7 licenses in Timan-Pechora formed in April 2014 Barents Sea Kara Sea – Area of 7,918 km2 in close proximity to Trebs & Titov Trebs & Titov fields Ver
Slide 33: New Oil Production Cluster
New Oil Production Cluster Western Appraisal / Production Development Siberia Exploration Vostochno-Vuemskiy area (Sorovskoye field) Licence area 319 km2 Licence valid until 2032 Current status Commercial production Number of production wells 33 Jan – Feb 2014 production 12 kbpd Tortasinskiy, Severo
Slide 34: International Assets
International Assets Iraq Myanmar Baghdad Samawah 12 Naypyitaw EP-4 License areas Gas pipeline Oil pipeline Yangon City Iraq Myanmar Partners Premier Oil (30%) Sun Apex Holding (10%) Block size 8,000 km2 841 km2 • US$ 120 mm for geological exploration program • US$ 38 mm for geological exploration p
Slide 35: Key Takeaways
Key Takeaways Balanced portfolio of assets in key Russian hydrocarbon provinces: Volga-Urals, Timan-Pechora and Western Siberia Massive reserve and resource base with strong track record of reserves replacement Sector leading production growth since acquisition by Sistema Robust production outlook i
Slide 36: 3. Downstream
3. Downstream Maxim Andriasov Yakov Polunkin First Vice President, Refining General Manager, and Commerce Ufa Refinery
Slide 37: Best-In-Class Integrated Downstream Business with Significant Upsides
Best-In-Class Integrated Downstream Business with Significant Upsides Expansion in Retail Niche Products • Expansion of retail chain to over 700 own stations by 2017 Further Upgrade • Significant increase in retail • Significant increase in of Refinery Complex production and sales of high sales (201
Slide 38: Focused Integrated Business Model (data as of 2013)
Focused Integrated Business Model (data as of 2013) Purchased crude oil and Outside the Customs Crude oil production condensate Union 16.1 mmt (117 mmbbl) 10.5 mmt (76.7 mmbbl) 4.1 mmt (30.0 mmbbl) Exports 4.7 mmt (33.9 mmbbl) To the Customs Union Crude oil balance 0.5 mmt (3.8 mmbbl) Crude oil sale
Slide 39: Reduction of Upstream / Downstream Portfolio Disbalance
Reduction of Upstream / Downstream Portfolio Disbalance Bashneft will further balance its upstream and downstream segments as a result of production growth in Timan Pechora, West Siberia and Bashkiria Crude oil production growth potential mmt Development Timan Pechora West Siberia (Trebs and Titov f
Slide 40: Key Achievements and Strategic Targets
Key Achievements and Strategic Targets What we have achieved Best-in-class integrated downstream business compliant with all current Russian fuel 2014 quality specifications More than doubled the size of our retail network 2013 Created trading and distribution system focused on margin optimization 2
Slide 41: Overview of the Single Refinery Complex
Overview of the Single Refinery Complex Single refinery complex consisting of three interconnected units(1) Total installed Utilization rate: Total refinery output: Refining depth: Light product yield: Nelson Index: capacity: 88.9% 19.6 mmt 84.7% 60.4% 8.83 24.1 mmt (0.5 mmbpd) Three interconnected
Slide 42: Bashneft Refining Business Overview
Bashneft Refining Business Overview Highly profitable oil product mix One of the highest light product yields in Russian oil and gas sector Gasoline 77.4% 13% 61.6% 60.4% 25% Diesel 55.6% 53.5% 54.4% 9% 44.5% 41.4% Fuel oil 19.6 mmt 15% VGO 38% Other (incl.niche Niche products) SNG Tatn ORSN LKOH Ru
Slide 43: Cost - Efficient Refinery Business
Cost - Efficient Refinery Business Technologically advanced refining capacities allow Bashneft to produce Downstream capex and refining costs 2011 – 2013 average, a wide range of high quality petroleum products at low cost US$/boe (1) One of the industry leaders in terms of downstream business effic
Slide 44: Downstream Strategy Aimed at Maximization of High Margin Products Share
Downstream Strategy Aimed at Maximization of High Margin Products Share Indicative spread between oil Group of Products product prices and oil price as Comments products of YE2013, US$ / t(1) Gasoline 304 High margin products • Significant premium to dark products • Favorable market conditions: expe
Slide 45: Focused and Value Creative Downstream Investment Programme
Focused and Value Creative Downstream Investment Programme By the end of 2014 we will be fully compliant with all future Russian fuel standards with minimal additional investments required. Key objective of subsequent investment programme is margin expansion through increase of light product yield 2
Slide 46: Value Creation by Maximization of High Margin Products Share in the Product Slate
Value Creation by Maximization of High Margin Products Share in the Product Slate Low margin products to be ..and share of high margin products will Comments eliminated by 2019.. be significantly increased Downstream development strategy is value 24% 1% creative: ― Improves economics due to margin a
Slide 47: High Value Niche Products Output Growth
High Value Niche Products Output Growth Niche products output growth, mmt Niche products sales strategy ― Optimization of current structure of filled and packed lubricants business ― Key focus area is sales increase via own channels, increase in number Lubricants of the end customers, development of
Slide 48: Focused Expansion of Retail Network
Focused Expansion of Retail Network Successful track-record of development of the retail network Retail network covers large part of Central Russia and plans for further expansion… 800 - 900 Moscow 764 100 - 200 732 690 547 259 279 225 229 700 465 473 485 318 2010 2011 2012 2013 2017E network before
Slide 49: Ambitious Rebranding Programme
Ambitious Rebranding Programme Rebranding programme highlights In 2013-2015 Bashneft plans to invest approximately US$200 mm in retail network rebranding The new concept and designs were developed by Minale Tattersfield, a world- famous company which worked on similar projects with global oil and ga
Slide 50: Impact of the Rebranding Programme on a Filling Station Performance
Impact of the Rebranding Programme on a Filling Station Performance Bashneft positions its rebranded / reconstructed stations as a modern retail complex that is both customer friendly and can be built by local contractors with relevant experience Rebranding of the Company’s network will allow: ― Cre
Slide 51: Key Takeaways
Key Takeaways Best-in-class integrated downstream business compliant with all current Russian fuel technical standards Bashneft will further balance its Upstream and Downstream segments on the back of Burneftegas acquisition and development of Timan Pechora cluster Completion of the Single Refinery
Slide 52: 4. Financials
4. Financials Denis Stankevich Vice-President, Economics and Finance, Chief Financial Officer
Slide 53: Financial Policies and Objectives
Financial Policies and Objectives We aim to continue to be a leader in operational and cost efficiency, profitability and shareholder returns among our peers • Maintain leading sector profitability and returns through control of operating costs and disciplined approach to CapEx and M&A Operational a
Slide 54: Summary Financials at a Glance
Summary Financials at a Glance Strong financial performance generated by high quality, high return asset base and efficient management despite the lacklustre macroeconomic environment Muted macroeconomic trends Strong financial performance Average oil price (Brent), US$ mm EBITDA, US$ mm 111 112 109
Slide 55: Sector Leading Cash Flow Generation and Returns
Sector Leading Cash Flow Generation and Returns Strong free cash flow generation and returns supported by conservative, efficient investment program and focused M&A strategy Operating cash flow, US$ mm Capex / Operating cash flow (average 2010-2013) 2 600 2 232 2 287 77% 68% 69% 65% 56% 1 410 38% 20
Slide 56: Moderate Capex Program
Moderate Capex Program Conservative, efficient upstream investment program and disciplined, value-creative downstream investment program are a key strength of Bashneft, and will continue to drive strong free cash flow generation Capex (2014-2018), US$ mm Key capex programs Retail & Wholesale Capex S
Slide 57: Sector Leading Dividends
Sector Leading Dividends We have historically been the Russian oil & gas sector leader in terms of dividend payments and are committed to maintaining them at a high level Total dividends paid & share buybacks(1), US$ mm 2013 Dividend payments to Net Income(4) (5) 546 (2) 68% 505 36% 1 289 1 299 34%
Slide 58: Efficient Debt Management
Efficient Debt Management Debt breakdown as of the end of 1Q2014 As of March 31, 2014, total debt amounted to US$ 4.1 bn compared to US$ 2.8 bn as of December 31, 2013 PXF 16% In March 2014 Bashneft formed liquidity reserves in the amount of US$ 1.6 bn, using credit lines of key partner banks, inclu
Slide 59: Efficient Debt Management (cont.)
Efficient Debt Management (cont.) Latest changes in funding in 2014, US$ bn (1) 1,7 (1) 1,2 (1) 0,03 0,2 1,6 4,1 4,1 4,1 4,7 4,5 4,6 2,8 2,8 Total debt as of Borrowings 1Q2014 External debt of Total debt as of Borrowings 2Q2014 Repayment of short-term Early repayments, PXF Total debt as of 31.12.201
Slide 60: Key Takeaways
Key Takeaways High quality, high return asset base and efficient management have generated strong financial performance despite the lacklustre macro economic environment Conservative and efficient upstream investment program, and disciplined, value-creative downstream investment program continue to
Slide 61: 5. Corporate Governance
5. Corporate Governance Alexander Korsik President, Chairman of the Management Board JSOC Bashneft
Slide 62: Simplification of Corporate Structure and Streamlining of Business
Simplification of Corporate Structure and Streamlining of Business Recently completed reorganization has streamlined Bashneft’s shareholding and management structure and monetized non- core assets Corporate structure pre reorganization Corporate structure post reorganization Free Float JSFC Sistema
Slide 63: Alignment of Interests – Management and Shareholders
Alignment of Interests – Management and Shareholders KPI framework which measures management’s performance on both operational and financial basis, complemented by ESOP program 50% 50% 100% Base salary KPI-based Long term discretionary bonus(1) incentive plan Transparent KPI system ESOP program supp
Slide 64: Thank you for your attention! Question and Answers
Thank you for your attention! Question and Answers
Slide 65: Appendix
BASHNEFT JOINT STOCK OIL COMPANY Appendix
Slide 66: Commitment to Highest Governance Standards
Commitment to Highest Governance Standards GENERAL SHAREHOLDER MEETING Candidates for the Board of Directors Felix Evtushenkov CEO Acting Chairman (President) Alexander Korsik Alexander Management Vsevolod Rozanov Board CEO Goncharuk Charles Watson Sergei Drozdov Mikhail Cherniy Independent Director
Slide 67: Simplification of Corporate Structure and Streamlining of Business – Sistema Invest
Simplification of Corporate Structure and Streamlining of Business – Sistema Invest Structure 2014 pre reorganisation Bashneft-Invest spin-off Final structure 2014 post reorganisation Bashneft-Invest JSFC Sistema Minorities (100% owned by Bashneft) JSFC Sistema Minorities 50.6% 100% (50.6%) Shares o
Slide 68: Operations Under Standard Russian Fiscal Regime without Company-Specific Tax Benefits
Operations Under Standard Russian Fiscal Regime without Company-Specific Tax Benefits Bashneft benefits from certain standard tax breaks, put in place for all producers to encourage key Mineral extraction tax, US$/bbl government aims in the sector: (US$6.0) (US$6.7) • Tax breaks to encourage efficie
Slide 69: Key Financial & Operational Results
Key Financial & Operational Results Key Financial Results USD mln 2009 2010 2011 2012 2013 EBITDA 1,249 2,732 3,194 3,182 3,190 Net Income 473 1,546 1,815 1,826 1,956(1) Operating Cash Flow 1,249 1,400 2,232 2,287 2,600 Capex 589 492 851 990 957 Dividends Announced 739 1,558 690 171 1,423(2) Dividen
Slide 70: Abbreviations and Conversion Factors
Abbreviations and Conversion Factors Abbreviations Conversion factors (continued) Bbl Barrels RUB/US$ average exchange rate (CBR) Bnbbl Billion barrels 2009 31.7 Bnboe Billion barrels of oil equivalent 2010 30.4 Boe Barrels of oil equivalent 2011 29.4 Kbpd Thousand barrels per day 2012 31.1 Mmbbl Mi