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Igor Sechin: “I hope, we will be able to live out the dream of Enrico Mattei”

15 June 2016

The Chairman of the Management Board of Rosneft Igor Sechin gave an interview to the leading Italian business periodical Il Sole 24 ore. During his conversation with the journalist, the Head of the Company described his vision of the current global oil market agenda; he talked about the significance of the European market for Rosneft and his vision of potential development of the relations with Italian partners.  

- Igor Ivanovich, the moment is approaching when EU will make the decision about prolonging the sanctions against RF …

We are operating in the environment, in which the market exists. I can share my opinion about the sanctions imposed by our West European and American partners.

Expanding sanctions to the corporate level is unreasonable, illegal and, most importantly, it undermines the foundations of the contract law. There are no tensions between our partners and us.

Rosneft fulfills its contractual and financial obligations to its EU partners punctually; it invests into European assets, which perform successfully in Europe, including Refineries in Germany and Italy. It is such practical steps that create the basis for cooperation helping to deepen mutual trust.

- The forthcoming economic forum in Saint Petersburg will be especially important for Italy and its relations with Russia. What do you expect from the forum?

- Our cooperation is based on systemic day-to-day work. Forum is a good occasion for summarizing some results. The participation of the Prime-Minister of Italy Matteo Renzi imparts special significance to the forum.

In the 1960’s, the founder and the Head of Eni, Enrico Mattei, made a long-term contract for oil supplies with the USSR, having thus destroyed the Cold War doctrines, which, among other things, implied economic isolation of Russia. As he made a stand for the agreement signed by him in Moscow back then, Mattei argued that “it does not pose any threat for Italy, however, it provides the country with oil supplies, creates jobs for Italians”, and that he was genuinely glad that “the she-wolf who raised Romulus and Remus has finally become allied with the Russian bear”.

As a result and owing to the Russian oil industry, the energy bridge created through the effort of Mattei and his Soviet partners, the relations between Russia and Italy have leaned on strong foundations for decades. Needless to say that Rosneft follows the existing traditions. Its cooperation with its Italian partners is of integral, comprehensive nature, - from upstream to downstream, to refining, oil services and even logistics support, technological cooperation.  Last year alone we delivered almost 16 tons of oil and petroleum products for the total amount of US$ 5.7 million in the direction of Italian sea ports.

Nevertheless, we would like to expand cooperation with our key Italian partner – Eni corporation – virtually over the entire process chain: in geological exploration, production, oil refining and technology development.  We are implementing joint offshore projects in cooperation with Eni. Possibly, over time we will be able to participate in realizing the dream of Enrico Mattei about participation of the Italian company in broad-scale production projects at the territory of Russia.

- Let us move to your relations with Pirelli. Are you planning to remain a long-term investor and shareholder of the Italian company? How do you evaluate the entry of ChemChina, a Chinese company, into Pirelli’s authorized capital?

- At present Rosneft is satisfied with its position in Pirelli’s authorized capital. As for the ChemChina deal, I would characterize it as a unique example of the new Eurasian business thinking. In the course of its cooperation with us, not only has the Italian company successfully restructured its financial debts, but it has also obtained a strategic investor from China and totally new development prospects.  Pirelli has demonstrated an exemplary approach to risk minimization and use of the synergy potential of Eurasian cooperation.  What happened is, virtually, a massive entry of state-of-the-art tire manufacturing European technologies into the largest Asia Pacific markets using Russia’s resource potential and China’s financial capacities. Deepening of the partnership between Pirelli and ChemChina opens additional opportunities for mutually beneficial development of new business directions, for Rosneft among others.  

- And what about Saras? In April, Gian Marco Moratti said that Rosneft did not intend to reduce its stake in the Italian refining asset. What is your opinion about the cooperation experience with the Moratti family’s company considering that you have left Saras’ Board of Directors?

- Saras is a good project. Participation therein showed to us that it is a profitable enterprise. This is a vivid example of “careful” attitude of the anchor shareholder to family legacy.

The functionality within Rosneft has been redefined. As the Head of the Company, I should focus on strategic projects; Pirelli is among those, while Saras does not require such attention. In this case, the most important thing is to control operating costs that exceed the performance. The development strategy is defined by the main shareholder. We hold a 12-percent interest in the company, being highly interested in its successful development, and we take initiatives aimed at improving Saras’ profitability. I had to leave Saras’ Board of Directors due to my tight working schedule.  

- As for Rosneft, what do you think about the decision to privatize some of the shareholding? Do you believe that it is a good timing, or that it would be better to wait for a less complicated moment in economy, both in Russia and globally?

- All privatization matters, including the size of the holding to be privatized, the form and time of implementation thereof, as well as qualification requirements to potential investors, are the responsibility of the Government. The main task of the Company management is to increase its value for its shareholders, with the state being the major one. Solution of this task will contribute, among other things, to maximization of the state’s revenues from potential sale of its shareholding. At the same time, considering the situation in the world oil market, and given the sanctions, the company’s current quotes are hardly in line with its underlying value.  However, it is also necessary to take into the account the budget problems. We believe that in the existing complicated conditions it would be expedient to consider different alternatives, retaining strategic investors among others.  Certain market situation recovery will contribute to efficient privatization process, as well as a lift of restrictions and implementation of some state support measures aimed, for example, at improvement of the infrastructure and investment climate.  The Government will have the final say.

- You said that it’s the time of OPEC. How, in your opinion, will oil prices change in the future? Is there still a possibility to reach agreement in the event of a new crash of oil prices?

- According to analysts, the average oil price expected in 2016 is US$ 40-45 per barrel of Brent. The global oil demand is continuing to grow, while production, primarily, in the USA is declining. The current insignificant surplus oil supply in the world will be covered by the growing demand and, therefore, a period of stable prices is coming our way, with the need to ensure the required return on investments into new production projects.   In terms of costs, oil production in Russia is one of the most efficient ones worldwide (e. g., Rosneft’s operating expenses make up US$ 2.1 per barrel of oil equivalent) and production projects, thanks to high-quality resource base, are of long term nature. Therefore, a short-term price decline is not as critical for us as, for instance, for shale projects.  This factor, in combination with the good debt ratio, allows to maintain stability with confidence over the entire cycle. The main international challenge for Russian economy is a much fiercer competition in the international energy markets. In the future, we will face tough competition for holding on to shares in the key traditional markets and for expanding shares in new energy market.  

Production freeze was discussed as a temporary solution in order to mitigate the excessive price fluctuations that occurred in the market.  It should be noted that since the moment of the maximum oil prices decline in January, 2016, when talk about production freeze was especially active, oil price has grown almost twofold, having reached some balance at the level of $50/bbl. This happened without any arrangements, which testifies to the underlying stability of the oil market. Moreover, the market is rebalancing more quickly than expected by oil analysts.  Who knows, maybe in 3-5 years’ time the world market will already require a different type of arrangement – about an urgent increase of oil production and getting supplies from strategic stocks in order to cover the deficit caused by a low investment period.

- We in Europe complain about the dependency on Russian energy supplies, but as soon as Russia turns its face to China or Asia in general, we get upset. Can the Chinese market become more important to Russia than Europe?

- For objective reasons, the European energy market has been the main market for Russian hydrocarbons for decades. Over these years, a huge infrastructure has been built, both in terms of ports and pipelines. Suffice it to say that the Company occupies the leading position in the German oil and petroleum products market. However, now the growth rates of the European market are slowing down, unlike those of the Asian market, where, on the contrary, an intensive consumption growth is observed.   However, new oil and gas resources are primarily being developed in the east of Russia. Therefore, it is quite logical for these resources to be directed to the emerging Asian market, which is more conveniently located.  There is no need to get anxious in this respect: supplies to China account for 13 % within the structure of Rosneft’s export. This is normal market diversification.

Interview by Antonella Scott
Il Sole 24 ore