Result of Meeting
LUKOIL BOARD OF DIRECTORS APPROVES THE BASIC INDICATORS OF THE MEDIUM-TERM PLAN
OF THE LUKOIL GROUP FOR 2007-2008
A meeting of LUKOIL Board of Directors was held in Moscow today to consider a number of issues, related to the Company’s further activity development.
In particular, the Board of Directors approved the basic indicators of the Budget, the LUKOIL Group Medium-Term Plan for 2007-2008 and the LUKOIL Group Investment Program for 2007, which were previously considered by The Strategy and Investments Committee.
The main aim of the Medium-Term Plan is to secure further development of the LUKOIL Group in accordance with the Main Principles of the Intensive Growth Strategy for 2007-2016.
The projected plan involves measures to intensify and optimize oil and gas production: a substantial increase of the number of horizontal wells, introduction of geological and hydrodynamic modeling into all oil fields of the Group’s main subsidiaries, and also a shift to the system of continuous improvement of geological and hydrodynamic models, etc.,. The project also includes optimization of resources distribution and concentration of resources on the investment projects of high profitability, as well as steps to improve expenses control and working capital employment.
Main indicators of the Medium-Term Plan for 2007-2008 conform fully to the Intensive Growth Strategy for 2007-2016, recently presented by Vagit Alekperov, LUKOIL President, in New York:
- average annual rate of hydrocarbon production increment for 2007-2008 - 8,2% (against 6,7% strategically planned);
- the LUKOIL Group returns on capital employed - 19,3% in 2007 and 17% in 2008 (against 15-17% strategically planned);
- increase in crude oil refining at the Company’s refineries by 12% during the period of two years;
- production increment of new sorts of Euro-3 and Euro-4 diesel fuel by 10-11% at Russian refineries.
The company plans to invest $8,250 mln and $8,600 mln of capital expenditures in 2007 and 2008 accordingly to secure intensive development of the LUKOIL Group.
As far as Exploration & Production segment is concerned, it’s scheduled to increase expenses on production drilling to maintain the Company’s planned production level, and also to achieve further investments increase in the promising production regions up to 48% and 51% in 2007 and 2008, accordingly. Investments into refining assets in 2007-2008 will be spent on further production growth and efficiency increase of the Company’s refineries, as well as on the gas-chemical complex development.
The projected medium-term plan is designed at a surplus of its own sources of financing. The plan provides for maintenance of financial stability of the LUKOIL Group ( debt to share capital ratio is projected at 10% by the end of 2008).
The Board of Directors also approved the basic aspects of technology and research of the LUKOIL Group for 2007-2008.
The Company’s policy in the area of geology and exploitation is to shift gradually to the system of continuous improvement of geological and hydrodynamic models. It’s planned to increase the number of geological and hydrodynamic models of the Company’s oil fields from 196 to 261. With that, geological and hydrodynamic modeling will be introduced into oil fields of the Company’s main subsidiaries (ООО «LUKOIL-Zapadnaya Sibir», ООО «LUKOIL-Sever», ООО «LUKOIL-Komi» and ООО «LUKOIL-Kaliningradmorneft»).
The use of new technologies of enhanced oil recovery and production intensification will be expanded and the technology of hydrofracturing will be improved by means of using sideholes of minor diameters, which is a crucially new way of field development efficiency increase. The Company will test the new technology of production and injection wells efficiency increase by way of applying solid chemical agents. It’s also planned to increase substantially the number of horizontal wells.
As for refining, a number of projects will be implemented in 2007-2008, which will increase depth of oil refining and motor fuels quality. Conditions will be provided for the facilities to achieve products quality under Euro-3 standard in 2009 and Euro-4 in 2012.
Amount of finance for the implementation of the Annual Coordination Research and Technical Program of the LUKOIL Group for 2007 is estimated at 2,5-2,7 billion roubles.
Scientific and technical progress is an important factor for growth in efficiency of the Company’s operating and management activity. Positive results are being achieved due to wide use of progressive technologies and new equipment. Supplement oil production increased from 14,7 to 22,1 mln tonnes due to EOR methods and reached 24,5% of the total production. The average daily oil flow of new oil wells rose from 24,4 to 41,9 tonnes per day). Depth of oil refining at the refineries of the LUKOIL Group grew by 4,9 percentage points for the same period. The share of high-octane gasolines in motor gasolines total production increased from 60,9% to 79,5%, and the share of the environmentally safe diesel fuel grew by 5,5 times and reached 61,8%.
The present system of the scientific-technical and project support enables the Company to tackle its current and long-range tasks of its development. The OAO LUKOIL scientific and project complex successfully functions after its restructuring. Research and development activities and also design and exploration work carried out by the complex amounted to 3,1 bln roubles, or grew by almost two times for the last five years. The LUKOIL Group owns exclusive rights for the technical solutions the number of which increased by 2,8 times.
The intellectual property commercialization indicator exceeds 40%, which sets LUKOIL among the leading Russian and international companies.
The Board of Directors also considered the information about performance of the Shareholder Agreement between LUKOIL and ConocoPhillips dated by September 29, 2004. The meeting noted that the partnership with CononcoPhillips under the Agreement is constantly expanding and growing strong. Naryanmarneftegas JV is developing and there are plans to start production on the major oil field Ujnoe Hylchuu in 2007. The transport infrastructure reaching the Barents Sea shore is under construction. LUKOIL and Cononcophillips are constantly considering ways of investing jointly into international projects. The Framework Agreement is in force on cooperation between the Companies on personnel exchange, enabling the Companies to exchange experience in the field of oil and gas projects management.
The Board of Directors also approved amendments to Article 1 of minutes of the OAO “LUKOIL” Board of Directors dated by July 20, 2006, “OAO “LUKOIL Executive Committee formation” in connection with introducing a position of First Executive Vice-President. Ravil Maganov is appointed to this post. The issue was previously tackled by the Personnel and Remunerations Committee.
The present press-release contains certain forward-looking statements. Examples of such forward-looking statements include projections of revenues, income, earnings or other financial items, plans and objectives, statements of future economic performance and other projections or statements of assumptions underlying such statements. These statements are “forward-looking” and involve expected events or revenues, earnings, business strategy, competitive position or any other aspects and results of performance. Words such as “to expect”, “to estimate”, “to believe”, “to continue”, “to anticipate”, “possibly”, “intends”, “may”, “plans”, “potential”, “goal”, ”assumption”, “prospect” and similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying such statements. Such forward-looking statements speak only as of the date on which the present press-release is published, are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to predict. Besides that, some forward-looking statements are based on assumptions concerning future events, which might prove false. Therefore, actual outcomes and results may differ materially from what is expressed or forecast in such forward-looking statements. LUKOIL is under no obligation (and whereof declares expressively that it has no such obligations) to update or alter any forward-looking statements, whether as a result of new information, future events or otherwise.