Lukoil · RUS:LKOH
Lukoil — Investor Presentation (April 2002)
46 slides from Lukoil's investor presentation, Apr 22, 2002
Slide 1: LUKOIL: Efficient Growth - Company Restructuring Program
LUKOIL: EFFICIENT GROWTH Company Restructuring Program 22 April 2002
Slide 2: Increasing Shareholder Value is the Objective of Company Performance
Increasing Shareholder Value is the Objective of Company Performance Comparative financial ratios As of April 5, 2002 Share price Market cap P/E Company $ $m 2002E 2003E 2004E • Company stock trades at a significant Russian oil companies LUKOIL 14,27 12 141 5,2x 6,3x 6,1x discount to other emerging
Slide 3: LUKOIL Restructuring Objectives: Increasing Profitability and Shareholder Value
LUKOIL Restructuring Objectives: Increasing Profitability and Shareholder Value • Short-Term (2002-2003) Restructuring Program: immediate measures to raise current profitability: 9Increase of oil product exports 9Acceleration of new prolific fields development 9Reduction of the number of low-margin
Slide 4: Company Restructuring Program
Company Restructuring Program • Short-Term Restructuring Program • Revenue growth • Cost reduction and efficiency increase • Corporate restructuring • 10-year Restructuring Program • Cost and personnel cutting • Upstream capex efficiency • Development of international downstream
Slide 5: Oil and Oil Product Marketing Structure
Oil and Oil Product Marketing Structure Significantly higher (vs. competitors) focus on domestic sales in 2001 had negative impact on financial results 90% oil product exports 80% Share of oil production oil exports 70% 60% 50% 40% 30% LUKOIL Yukos SurgutNG Sources: LUKOIL company data Yukos – Compa
Slide 6: Growth of Oil Product Exports
Growth of Oil Product Exports Growth of exports from LUKOIL’s Russian refineries in the 1Q2002 • Factors of oil product exports growth: 2,787 • Growth of throughput at LUKOIL Exports, thousand tons upgraded refineries 2001 • Domestic demand limits 2002 • LUKOIL has a significant potential 1,487 for
Slide 7: Enhancement of Exports Potential
Enhancement of Exports Potential Varandei terminal, 1.5 mmt. (up to 5) Growth of LUKOIL exports share Oil product pipeline Kstovo – Yaroslavl – Kirishi Terminal (TransNefteProduct) Vysotsk up to 10 mmt 70% Add Map 70% 2001 60% 2005E 56% 50% 50% Oil pipeline Terminal Perm - Almetievsk 41% 40% K
Slide 8: Company Restructuring Program
Company Restructuring Program • Short-Term Restructuring Program • Revenue growth • Cost reduction and efficiency increase • Corporate restructuring • 10-year Restructuring Program • Cost and personnel cutting • Upstream capex efficiency • Development of international downstream
Slide 9: Cost Reduction and Cost Control in Production
Cost Reduction and Cost Control in Production • Reduction of number and share of wells with low flow rate and depleted fields • Acceleration of development of new fields • Increased use of enhanced recovery techniques • Optimization of service companies • Reduction of drilling, transportation and co
Slide 10: Well Stock Optimization
Well Stock Optimization • In the environment of strong oil prices and differentiated oil production excise rates the Company maximized oil production, including operation of a large number of low-margin oil wells. • In 2002, LUKOIL had one of the lowest shares of idle wells in Russia (15%), with up
Slide 11: Optimization of Well Operations
Optimization of Well Operations • Up to 5000 wells with low flow rate (24% of producing well stock) are considered for alternative use, temporary conservation or shut-in. LUKOIL considers possible ways to increase their flow rate and whether continuation of their operation is needed to ensure that t
Slide 12: Distribution of Well Stock by Profitability
Distribution of Well Stock by Profitability • Vast majority of LUKOIL’s production (more than 80%) comes from highly-profitable wells with average costs* of $2/bbl • Only 0.5% of production comes from unprofitable wells with variable costs of over $10/bbl, 3% of company production comes from high co
Slide 13: Distribution of Well Stock by Profitability and Productivity
Distribution of Well Stock by Profitability and Productivity • The Company is actively monitoring efficiency of its well stock • LUKOIL possesses high quality extractable reserves – some 80% of the Company production comes from 8,500 highly productive wells • The Company considers a possibility of d
Slide 14: Transition to new technologies in well drilling and facilitation
Transition to new technologies in well drilling and facilitation Moving a subsidiary drilling company off the balance sheet and simultaneous signing of long- term contracts with global engineering companies will enable to accomplish the following objectives by 2003-2004: • Significantly decrease cos
Slide 15: Efficiency of service companies in LUKOIL Group
Efficiency of service companies in LUKOIL Group • Service companies have lower efficiency than average for LUKOIL Group; • Gradual divestment of service companies will increase the efficiency of LUKOIL Group $ m* Net Net income Total Net margin, Return on revenue assets % assets, % Drilling 400 25 2
Slide 16: Reorganization of LUKOIL Drilling
Reorganization of LUKOIL Drilling Current situation After reorganization Major service LUKOIL LUKOIL company 100% Independent drilling LUKOIL Drilling companies Subsidiaries • High-quality and technologically- advanced services • High cost of services • Creation of competitive environment • High adm
Slide 17: Comparative Analysis of LUKOIL Drilling
Comparative Analysis of LUKOIL Drilling Comparison of LUKOIL Drilling and a western peer company $m LUKOIL Drilling* Parker Drilling** Revenues 400 488 Net Profit 25 11 Assets 200 1,105 Net Debt 46.5 521 Sales profitability % 6.3% 2.2% Personnel 18,573 3,654 Number of rigs 91 79 Capitalization $388
Slide 18: Increase of Upstream Efficiency
Increase of Upstream Efficiency • Optimization of the existing well stock utilization • Accelerated development of new fields • Increasing efficiency of LUKOIL’s service operations through partnerships with leading international service companies • Concentration of exploratory activities in promisin
Slide 19: Alternative approaches to field development
Alternative approaches to field development 800 Accelerated development Traditional method Traditional method Cumulative cash 600 flows, $ mln 400 Accelerated development 200 0 KEY KEYFIGURES: FIGURES: -200 0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 Project year -400 Method: Accele- Tradi- Method: Acce
Slide 20: Accelerated Field Development
Accelerated Field Development Comparing development forecasts for one of Timan-Pechora fields 140 New wells commissioning Current Current Accelerated 120 development plan development development 100 plan Accelerated 80 development Reserves, mmbbl 161.6 161.6 60 Capex, mmbbl 357.8 357.8 40 Peak produ
Slide 21: Company Restructuring Program
Company Restructuring Program • Short-Term Restructuring Program • Revenue growth • Cost reduction and efficiency increase • Corporate restructuring • 10-year Restructuring Program • Cost and personnel cutting • Upstream capex efficiency • Development of international downstream
Slide 22: LUKOIL Group Restructuring: Divestments
LUKOIL Group Restructuring Estimated results of the 2001-2002 stage Before restructuring After restructuring 37 12 LUKOIL Affiliates LUKOIL Affiliates 63 55 Subsidiaries with 184 Subsidiaries with the 82 LUKOIL's direct control Affiliates of subsidiaries LUKOIL's direct control Affiliates of the sub
Slide 23: Restructuring of petroleum product marketing sector
Restructuring of petroleum product marketing sector Initial structure – 68 entities Target structure – 14 entities LUKOIL 100% LUKOIL 100% 11 petroleum product marketing companies 100% LUKOIL- Holding-Service 14 petroleum product Controlling stakes marketing companies 26 regional subsidiaries Subsid
Slide 24: Company Restructuring Program
Company Restructuring Program • Short-Term Restructuring Program • Revenue growth • Cost reduction and efficiency increase • Corporate restructuring • 10-year Restructuring Program • Cost and personnel cutting • Upstream capex efficiency • Development of international downstream
Slide 25: Reaching Competitive Cost Level Control
Reaching Competitive Cost Level Control $5,0 Per barrel production costs, USD $4,5 $4,0 Restructuring, Ageing of reserves, active reservoir $3,5 Average for Russia cost increase management, in production development of Average for LUKOIL $3,0 Average for LUKOIL highly productive Average for Russia $
Slide 26: Reduction and optimization of personnel
Reduction and optimization of personnel Service Marketing and transport 160 140 thousand. Refining and chemicals 4,5% 140 p.a. 115 thousand E&P (new projects) E&P 120 Personnel, thousand 4% p.a. manpower in new reduction in core 85 thousand redeployment of 100 businesses, Headcount regions eliminati
Slide 27: Company Restructuring Program
Company Restructuring Program • Short-Term Restructuring Program • Revenue growth • Cost reduction and efficiency increase • Corporate restructuring • 10-year Restructuring Program • Cost and personnel cutting • Upstream capex efficiency • Development of international downstream
Slide 28: Capital Expenditures in new projects
Capital Expenditures in new projects LUKOIL’s Capex in New E&P and Pipeline Projects USD MM 1999 2000 2001 E&P in Russia - New regions* 50.0 236.9 445.8 Caspian E&P Projects** 184.3 229.1 244.9 Other International E&P 3.2 0.8 3.5 CPC 72.8 166.1 120.2 TOTAL 310.3 632.9 814.4 * Includes Timan-Pechora
Slide 29: Long-Term Production Growth in Timan-Pechora
Long-Term Production Growth in Timan-Pechora 25,00 Oil production, million tons 20,00 15,00 10,00 5,00 0,00 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Existing fields in Timan-Pechora: AGD, KomiTEK, Northern Territories (100%) 2000-2001: actual data 2002 – 2010: LUKOIL estimates
Slide 30: Long-Term Growth in International Projects
Long-Term Growth in International Projects 16,00 14,00 Oil production, million tons 12,00 10,00 8,00 6,00 4,00 2,00 0,00 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Existing international projects, excluding Iraq 2001: actual data 2002 – 2010: LUKOIL estimates
Slide 31: International projects: forecast of production growth
International projects: forecast of production growth Aggregate forecast of production and cash flows for Azeri, Chirag, 10 Gyuneshli, Kumkol and Karachaganak projects 500 9 400 8 300 7 Production, mm ton 200 Cash flows, $mm 6 100 5 0 4 -100 3 Oil and gas production -200 2 Capex 1 Free cash flow -30
Slide 32: North Caspian – opening of a new province
North Caspian – opening of a new province Large reserve base is found and production and transport infrastructure is created in the area previously believed to be of low commercial attractiveness – Over 3.3 bn boe of extractable reserves with potential for significant increase. – Significantly large
Slide 33: Long-term production growth by regions
Long-term production growth by regions Timan Western Western Siberia Siberia Timan Pechora Pechora 2001 2001 2001 –– 51.1 51.1 million million tons tons of of oil oil 2001 –– 8.9 8.9 million million tons tons of of oil oil 2010Е 2010Е 2010Е –– 45-50 45-50 million million tons tons of of oil oil 2010
Slide 34: Considerable increase in gas production
Considerable increase in gas production • LUKOIL expects significant growth in gas production at its fields • Revenue growth through development of projects in CIS and bigger pipeline exports volumes • Opportunity to find additional sources of gas Gas production and exports from LUKOIL fields 90 80
Slide 35: Acquisition of high-value assets
Acquisition of high-value assets LUKOIL strategy is aimed at the increase in reserves by profitable acquisitions and exploration 2001 reserve additions bn boe NPV* bn $ Proved 3.61 $4.35 Possible 1.57 $1.75 Probable 3.25 $1.44 Total 8.43 $7.54 Total upstream capex and exploration expenses in 2001 am
Slide 36: Leadership in hydrocarbon reserves additions
Leadership in hydrocarbon reserves additions Hydrocarbon reserves additions by leading Russian oil companies 150 Reserve additions, mln tons 128,8 LUKOIL 125 Surgut Tyumen Oil Company 100 Yukos 75 70,1 52,7 54,8 42,3 41,1 48,5 50 33,6 32,1 32,2 35,7 31,6 37,8 35,5 21,3 25,4 29,5 34,8 25 27,2 10,9 21
Slide 37: Value of new E&P projects
Value of new E&P projects Projects LUKOIL Cumulative Comparable Minimum Comparable Investments cash flows(2) transactions DCF value transaction $ mm $ mm value, $ mm $ mm INTERNATIONAL PROJECTS (1) Azeri 309 254 731 Devon / Ramco 02/2001 Karachaganak 498 140 1,301 Expert estimate Market value of Kum
Slide 38: Company Restructuring Program
Company Restructuring Program • Short-Term Restructuring Program • Revenue growth • Cost reduction and efficiency increase • Corporate restructuring • 10-year Restructuring Program • Cost and personnel cutting • Upstream capex efficiency • Development of international downstream
Slide 39: Refinery acquisition strategy
Refinery acquisition strategy Comparative investment value of Mazeikiu Nafta and LUKOIL refineries on the Balkans* $1.2 bn 350 $0.8 bn Refining capacity – Investment Refining capacity 15.0 mln tons program – 15.2 mln tons Nelson complexity – Financial debt 357 Nelson complexity – 6.6 470 7.8 0 Servi
Slide 40: Map of LUKOIL Operations
Map of LUKOIL Operations Lia ne Rare Ain Production Refining Weg Petrochemicals ic Marketing «= Tanker fleet
Slide 41: LUKOIL-International profitability
LUKOIL-International profitability Assets in Eastern Europe Earnings before income tax and and Getty Petroleum extraordinary expenses Refineries 2000 2001E Service $ 90.5 mln $ 48.4 mln stations Wholesale trading
Slide 42: Participation in Hellenic Petroleum Privatization
Participation in Hellenic Petroleum Privatization • LUKOIL participates in the privatization of Hellenic Petroleum, Greek national oil company. • Hellenic Petroleum assets include – Two refineries in Greece, petrochemical plants – Refineries in Macedonia and marketing capacities – Network of 1,500 s
Slide 43: Economic forecast for Southern Europe
Economic forecast for Southern Europe GDP and long-term growth GDP per capita* 14 US$ bn (97 purchasing power) 200 +2.9% US$ 000 (97 purchasing power) 12 150 10 +5.2% 8 100 6 +3.8% +4.6% 4 50 +4.7% +2.3% +5.4% 2 +4.3% +5.4% 0 0 ia ia nia c e ria ia ia tia ia e ce nia nia aria via nia atia nia r an o
Slide 44: Strategy for Hellenic Petroleum
Strategy for Hellenic Petroleum Hellenic Petroleum deal would give LUKOIL access to Greek market and considerably strengthen LUKOIL positions in the Balkans • High growth rate in oil consumption is expected in the Balkans – more than 33% till 2015, mainly, in the countries of former Yugoslavia. Many
Slide 45: Greek Natural Gas Market Prospects
Greek Natural Gas Market Prospects Hellenic Petroleum, via its strategic stake in DEPA, is one of the best ways to participate in the dynamic gas market of Greece 8 • Gas demand is expected to grow in all 7 Power generation sectors Industry • In the residential and commercial Residential/Commercial
Slide 46: LUKOIL: restructuring program
LUKOIL: restructuring program INCREASE INCREASE OF OF COMPANY COMPANY VALUE VALUE PROFIT PROFIT GROWTH GROWTH Increasing Increasing Reducing Reducing Accelerating Accelerating Improving Improving export export operating operating development developmentof of return returnon on sales sales costs cost