Russian Oil

1
Russian Oil Gas IndustryImpact of Falling
Global Oil Prices

• Vladimir MilovAmCham Energy Committee Meeting
• Moscow, October 30th, 2008

2
Setting the stage disappointing dynamics of the
Russian oil gas industries

• Systemic stagnation in oil gas output
• Greenfield challenge the need to develop
  remote and capital intensive new oil gas fields
  in order to sustain production
• Unfinished renationalization newly created
  national oil gas champions too heavily
  leveraged with debts and too ineffective to act
  as key development agents

3
Russian crude oil output stagnation
Average daily Russian crude oil output, million
barrels per day
Source Oil Capital
4
Gazpromaverage daily gas production not really
increasing despite launch of the South Russkoye
field
Average daily gas production by Gazprom, bcf/day
Source Oil Capital
5
Oil price scenarios for 2009 assumptions

• Weak OECD oil demand
• Severe slowdown in non-OECD Asia oil demand
  growth
• Commodities no longer attractive to speculative
  capital
• High probability of Brent staying withinUSD
  50-70/bbl range
• Model year for analysis 2005 (average Urals
  price USD 50/bbl)

6
What happens to Russian oil gas industries in
that scenario?

• Varying consequences for oil gas sectors due to
  different export taxation systems
• Oil mostly declining tax payments, relatively
  low effect on companies profits
• Gas serious decline in Gazproms profits

7
Oil industrys capital expenditures most likely
hurt by decline, but not dramatically
Capital expenditures of four major oil companies
in 2005-2009, billion USD
Source companies data (2005-2007), estimates
(2008-2009)
8
Gazprom from negative cash flow to losses in
2009?
Gazproms capital expenditures, 2006-2010
(billion USD)
Source Gazprom data (2007), estimates (2008-2010)
9
Cazproms capital expenditures 2009-2010 capex
targets most likely will not be met
Gazproms capital expenditures, 2006-2010
(billion USD)
Source Gazprom data (2006-2007), Gazproms
projections (2008-2010)
10
Gazprom and Rosneft heavily leveraged with debts
Total debt of Gazprom and Rosneft, billion USD
Source Gazprom and Rosneft data
11
Conclusions

• Lowering international oil gas prices,
  multiplied by already negative dynamics of the
  Russian oil gas producing industries, a
  negative stage set for 2009
• Russias brownfield oil gas potential expires,
  while development of the greenfield potential
  requires increased capital investment
• However, debt leveraged Gazprom and Rosneft will
  not be ready to substantially increase capital
  expenditures in 2009-2010
• Private and foreign investments hurt by
  deteriorated business climate, increased barriers
  and political risks
• Will the authorities risk a radical change of oil
  gas policies again?