"The prices will stabilize"
- Let's start with one of the most discussed news - fuel excises. The authorities agreed to reduce them. There are statements that this will help stabilize gasoline prices. This is true?
- Today, the price of oil demonstrates a record growth. Nobody, in my opinion, expected such an effect from the OPEC + agreement (the agreement on the reduction of oil production, which was concluded by the OPEC countries, Russia and the countries that joined them, operates until the end of 2018. - RBC). Therefore, today the disproportion that has developed in the domestic fuel market with respect to exports, of course, it pushes to the fact that a lot of goods are exported.
Plus, the Russian retail market today is low-margin, wholesale prices for fuel are high. And for the first time in history - in our recent history of Russia - the government has taken unprecedented steps to reduce excise. The tax burden has always increased. And we are grateful to the government for such prompt intervention, which will enable us to stabilize the price. Because the difference [in the growth rates of wholesale and retail prices] is still quite large. Still, tax legislation has changed 30 times since 2011 in our industry. And it changed only in the direction of increase - and the MET rose, excise policy grew. The excises increased almost threefold. Therefore, what has developed in the market is unprecedented.
We are not interested in such prices, because we are losing sales. Therefore, the companies, for their part, will do everything to stabilize the market of both gasoline and diesel fuel.
- But in order for the prices for gasoline to go down - is this real or is there no such tool now?
- No. In order to stabilize prices and make at least zero profitability [retail], it is necessary to raise prices up to 6 rubles. Of course, this will not happen. Because we understand our responsibility, including our customers. Therefore, prices will stabilize during the peak period.
- The price of oil is approaching $ 80 per barrel, you pawned $ 50 in the business plan. How do you plan to dispose of additional funds, where to invest - in Russian, in foreign assets? How do you see the average annual oil price for 2018?
- Our company does not change its scenario conditions. We have saved $ 50 in the budget price for 2018. And we on "Investor Day" stated that everything that is above this price, all this yield will be divided in half - half will go to our shareholders, half will go for investments. Of course, for us the priority is the Russian market, where we are currently building offshore fields in the Caspian, we are preparing for the development of deposits in the Baltic.
That is, the company today announced that it will organically grow - in the year of 1-2%, due to the fact that there will be investments in innovative technologies, in the work with difficult-to-built deposits, where today there are colossal reserves, but where it is necessary to select technologies and implement these projects.
- And what price do you see in the medium term?
- Today, what is developing in the market is $ 80 - this, of course, is a speculative price. It is linked, inter alia, to the actions of the United States administration, which withdrew from the [nuclear] deal [with Iran]. Today there is a critical situation with the volume of production in Venezuela, the largest oil-producing country. Therefore, we think that after all, average annual prices will be somewhere between $ 70 and $ 75.
- And in 2019 in the business plan, what price do you charge? Will you adjust your $ 50?
- Until we correct $ 50. Because our three-year plan is formed and approved. While the agreement [OPEC +] is still in force, we would not want to risk it, because the agreement is temporary, although it can last indefinitely. Therefore while the price of $ 50 is saved by us in the budget of 2019.
"We assess all risks"
"If you and I try to assess the factors that will affect the oil price in the near future, now it's probably Iran - the imposition of US sanctions against this country. Experts, how much oil can leave the market. Do you have any forecasts?
- It's hard to say, because all our forecasts are based on what was before lifting the restrictions from Iran. But today Venezuela, as I have said, demonstrates a sharp decrease [of production], and many other countries are reducing. Therefore, we are very conservative. We hope that in July there will be a meeting at the ministerial level, [will] discuss the issues of production volumes. We believe that the OPEC + agreement needs to be retained for a medium term, but flexibly react to the price environment and the [oil] reserves that are formed on the global market. That is, the price should increase, but volumes should decrease. Such a flexible system will exclude speculators and enable our customers to feel comfortable and confidently for the medium term.
- Do you agree with such estimates that 0.5 million barrels. [production per day] can leave the market if the scenario for Iran is negative, and about 1 million if everything is not very good with Venezuela? It looks like the truth?
- It's somewhere positive / negative. But today, all the same, the volume of production is about 2 million barrels. stopped [within the framework of the OPEC + deal]. This still affects the market, too. And so these reserves [of production expansion] today exist de facto. We took on a huge investment program. We did not reduce it. We continue to drill, we continue to develop new deposits, but we limit oil production. These reserves are accumulating. They can be involved in industrial production, in order to stabilize at a level acceptable to our consumers.
- The main beneficiary of the OPEC + deal is considered by many to be the USA, which did not reduce production. You said that the market is already a little disappointed in shale oil, but for now we see that they are getting their pluses. Can we somehow change the situation here to still get more bonuses? Are they serious competitors?
- You see, the global market is one today. There is no market for the US alone, and there is no market for Russia or the OPEC countries separately. Of course, what we see in the US market puzzles us for one reason - that today there is an active hedging of this price level. And that if there is a sharp decline in prices, US companies will be able to withstand in the medium term those parameters that are hedged today. And this is today $ 70-75.
- Will you remain in Iran anyway, despite US sanctions?
- We assess all the risks today. How will the situation develop, how tough will sanctions be. We have not signed an agreement with Iran on the development of the field, for which we are conducting a technical assessment. Because LUKOIL is a transnational company today, whose ADR is listed on the US market. Therefore, the company has risks if it violates any sanctions that might adversely affect our shareholders, our partners and, in general, our company.
- By the way, do you assess the risks of introducing personal sanctions?
- Of course. We're all on the lists. Therefore, our lawyers, of course, made us scenario conditions for all cases of life, including personal sanctions.
- But nevertheless, do you still think that the probability is to go to Iran? Or is the pause long? Or no more than yes?
- So far our contract is not ready for signing. We conduct technical consultations. I think that everything will clear up before the end of the year.
"The attitude towards my person is quite loyal"
- You attach serious importance to the value of shares, the capitalization of the company. There is an opinion in the market that many of these steps are connected with increasing capitalization as a factor of protection against possible hostile takeover ...
-. Today there is no threat of unfriendly absorption. LUKOIL is too expensive, too stocked shares, in order to do the takeover. Because we do not have a shareholder who would own a controlling stake. The rise in capitalization was mainly due to the fact that the investment community highly valued both the management of the company and the strategy of our company, and therefore this rapid growth of capitalization started from here.
Nevertheless, a number of actions that the company is committing, including actions related to budget planning, share redistribution of a part of their earnings by shareholders, all this inspires confidence to our shareholders that the company does not take risky transactions, the company does not go into large acquisitions and absorption, which could undermine its financial stability and financial reserves, which are created in the company in the event of any situations. This gives confidence to our shareholders that they will steadily receive dividends on their shares. Therefore, from here is such a rapid acquisition of our shares.
- This spring you said that "the time is right", when the main shareholders will depart from the management of the company. How will the training of your successor take place? How much time will it take - three years, five years? What qualities should this person have? Maybe you already have priority figures?
"Well, it's a bad leader who does not prepare an assistant for himself, who will become his successor in the future." Of course, I'm looking at different candidates. But this takes time. I think that the five-year period is probably more suitable today, in order to prepare a person who could lead such a complex company as LUKOIL.
- Leonid Fedun - my companion, he goes on life [side by side]. Still, we are looking more specialists from our industry with special education, technology specialists.
- What does the term of successor preparation depend on?
"We are going through a difficult period of time, today - and the sanctions period, which is only intensifying today, we do not feel stabilization today, a new government is being formed. You know that the attitude towards my person is quite loyal among the [members] of the government of the Russian Federation. I am much easier to coordinate many questions than to a new person, especially in such a transitional period of time.
Therefore, I believe that these five years we will analyze the whole situation in the market, connected with external events. We will feel confident and stable in the work of the new government, [see] what reforms will be carried out. We still hope that the tax on the added income after the experiment will enter into the so-called project stage, will already spread to all deposits. This period will allow us to complete very many projects related to the development of complex fields, especially offshore fields. All this influences these terms. Maybe this time is longer? Of course, there may be a period longer. Maybe less? Too can be less.
- Let's start with one of the most discussed news - fuel excises. The authorities agreed to reduce them. There are statements that this will help stabilize gasoline prices. This is true?
- Today, the price of oil demonstrates a record growth. Nobody, in my opinion, expected such an effect from the OPEC + agreement (the agreement on the reduction of oil production, which was concluded by the OPEC countries, Russia and the countries that joined them, operates until the end of 2018. - RBC). Therefore, today the disproportion that has developed in the domestic fuel market with respect to exports, of course, it pushes to the fact that a lot of goods are exported.
Plus, the Russian retail market today is low-margin, wholesale prices for fuel are high. And for the first time in history - in our recent history of Russia - the government has taken unprecedented steps to reduce excise. The tax burden has always increased. And we are grateful to the government for such prompt intervention, which will enable us to stabilize the price. Because the difference [in the growth rates of wholesale and retail prices] is still quite large. Still, tax legislation has changed 30 times since 2011 in our industry. And it changed only in the direction of increase - and the MET rose, excise policy grew. The excises increased almost threefold. Therefore, what has developed in the market is unprecedented.
We are not interested in such prices, because we are losing sales. Therefore, the companies, for their part, will do everything to stabilize the market of both gasoline and diesel fuel.
- But in order for the prices for gasoline to go down - is this real or is there no such tool now?
- No. In order to stabilize prices and make at least zero profitability [retail], it is necessary to raise prices up to 6 rubles. Of course, this will not happen. Because we understand our responsibility, including our customers. Therefore, prices will stabilize during the peak period.
- The price of oil is approaching $ 80 per barrel, you pawned $ 50 in the business plan. How do you plan to dispose of additional funds, where to invest - in Russian, in foreign assets? How do you see the average annual oil price for 2018?
- Our company does not change its scenario conditions. We have saved $ 50 in the budget price for 2018. And we on "Investor Day" stated that everything that is above this price, all this yield will be divided in half - half will go to our shareholders, half will go for investments. Of course, for us the priority is the Russian market, where we are currently building offshore fields in the Caspian, we are preparing for the development of deposits in the Baltic.
That is, the company today announced that it will organically grow - in the year of 1-2%, due to the fact that there will be investments in innovative technologies, in the work with difficult-to-built deposits, where today there are colossal reserves, but where it is necessary to select technologies and implement these projects.
- And what price do you see in the medium term?
- Today, what is developing in the market is $ 80 - this, of course, is a speculative price. It is linked, inter alia, to the actions of the United States administration, which withdrew from the [nuclear] deal [with Iran]. Today there is a critical situation with the volume of production in Venezuela, the largest oil-producing country. Therefore, we think that after all, average annual prices will be somewhere between $ 70 and $ 75.
- And in 2019 in the business plan, what price do you charge? Will you adjust your $ 50?
- Until we correct $ 50. Because our three-year plan is formed and approved. While the agreement [OPEC +] is still in force, we would not want to risk it, because the agreement is temporary, although it can last indefinitely. Therefore while the price of $ 50 is saved by us in the budget of 2019.
"We assess all risks"
"If you and I try to assess the factors that will affect the oil price in the near future, now it's probably Iran - the imposition of US sanctions against this country. Experts, how much oil can leave the market. Do you have any forecasts?
- It's hard to say, because all our forecasts are based on what was before lifting the restrictions from Iran. But today Venezuela, as I have said, demonstrates a sharp decrease [of production], and many other countries are reducing. Therefore, we are very conservative. We hope that in July there will be a meeting at the ministerial level, [will] discuss the issues of production volumes. We believe that the OPEC + agreement needs to be retained for a medium term, but flexibly react to the price environment and the [oil] reserves that are formed on the global market. That is, the price should increase, but volumes should decrease. Such a flexible system will exclude speculators and enable our customers to feel comfortable and confidently for the medium term.
- Do you agree with such estimates that 0.5 million barrels. [production per day] can leave the market if the scenario for Iran is negative, and about 1 million if everything is not very good with Venezuela? It looks like the truth?
- It's somewhere positive / negative. But today, all the same, the volume of production is about 2 million barrels. stopped [within the framework of the OPEC + deal]. This still affects the market, too. And so these reserves [of production expansion] today exist de facto. We took on a huge investment program. We did not reduce it. We continue to drill, we continue to develop new deposits, but we limit oil production. These reserves are accumulating. They can be involved in industrial production, in order to stabilize at a level acceptable to our consumers.
- The main beneficiary of the OPEC + deal is considered by many to be the USA, which did not reduce production. You said that the market is already a little disappointed in shale oil, but for now we see that they are getting their pluses. Can we somehow change the situation here to still get more bonuses? Are they serious competitors?
- You see, the global market is one today. There is no market for the US alone, and there is no market for Russia or the OPEC countries separately. Of course, what we see in the US market puzzles us for one reason - that today there is an active hedging of this price level. And that if there is a sharp decline in prices, US companies will be able to withstand in the medium term those parameters that are hedged today. And this is today $ 70-75.
- Will you remain in Iran anyway, despite US sanctions?
- We assess all the risks today. How will the situation develop, how tough will sanctions be. We have not signed an agreement with Iran on the development of the field, for which we are conducting a technical assessment. Because LUKOIL is a transnational company today, whose ADR is listed on the US market. Therefore, the company has risks if it violates any sanctions that might adversely affect our shareholders, our partners and, in general, our company.
- By the way, do you assess the risks of introducing personal sanctions?
- Of course. We're all on the lists. Therefore, our lawyers, of course, made us scenario conditions for all cases of life, including personal sanctions.
- But nevertheless, do you still think that the probability is to go to Iran? Or is the pause long? Or no more than yes?
- So far our contract is not ready for signing. We conduct technical consultations. I think that everything will clear up before the end of the year.
"The attitude towards my person is quite loyal"
- You attach serious importance to the value of shares, the capitalization of the company. There is an opinion in the market that many of these steps are connected with increasing capitalization as a factor of protection against possible hostile takeover ...
-. Today there is no threat of unfriendly absorption. LUKOIL is too expensive, too stocked shares, in order to do the takeover. Because we do not have a shareholder who would own a controlling stake. The rise in capitalization was mainly due to the fact that the investment community highly valued both the management of the company and the strategy of our company, and therefore this rapid growth of capitalization started from here.
Nevertheless, a number of actions that the company is committing, including actions related to budget planning, share redistribution of a part of their earnings by shareholders, all this inspires confidence to our shareholders that the company does not take risky transactions, the company does not go into large acquisitions and absorption, which could undermine its financial stability and financial reserves, which are created in the company in the event of any situations. This gives confidence to our shareholders that they will steadily receive dividends on their shares. Therefore, from here is such a rapid acquisition of our shares.
- This spring you said that "the time is right", when the main shareholders will depart from the management of the company. How will the training of your successor take place? How much time will it take - three years, five years? What qualities should this person have? Maybe you already have priority figures?
"Well, it's a bad leader who does not prepare an assistant for himself, who will become his successor in the future." Of course, I'm looking at different candidates. But this takes time. I think that the five-year period is probably more suitable today, in order to prepare a person who could lead such a complex company as LUKOIL.
- Leonid Fedun - my companion, he goes on life [side by side]. Still, we are looking more specialists from our industry with special education, technology specialists.
- What does the term of successor preparation depend on?
"We are going through a difficult period of time, today - and the sanctions period, which is only intensifying today, we do not feel stabilization today, a new government is being formed. You know that the attitude towards my person is quite loyal among the [members] of the government of the Russian Federation. I am much easier to coordinate many questions than to a new person, especially in such a transitional period of time.
Therefore, I believe that these five years we will analyze the whole situation in the market, connected with external events. We will feel confident and stable in the work of the new government, [see] what reforms will be carried out. We still hope that the tax on the added income after the experiment will enter into the so-called project stage, will already spread to all deposits. This period will allow us to complete very many projects related to the development of complex fields, especially offshore fields. All this influences these terms. Maybe this time is longer? Of course, there may be a period longer. Maybe less? Too can be less.
Business
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