RNG, a private player in the sparsely populated oil market of Eastern Siberia, surfing on the wave of difficulties that hit the industry in 2020: the company, whose shareholders are under investigation, is increasing production and discovering fields, building a difficult relationship with the state giant Rosneft.
RNG, which prefers not to decipher its name, upon reaching its design capacity, became the second largest independent exporter of the Russian grade of ESPO Blend after the Irkutsk Oil Company (INK), due to which six to seven shipments of small producers began to appear monthly in terms of shipments from the Pacific port of Kozmino instead of the previous five.
Presently RNG remains independent, relying on rigorous exploration of the subsoil, that can turn an unpromising area into a resource-rich field, Vladimir Rakitin CEO of the company, told Reuters.
"We are primarily a geological exploration company, since it is exploration that creates our main value. Our production component is secondary. If we find something, we can build an infrastructure and produce both oil and gas," he said, adding, that RNG constantly participates in tenders for new sites.
According to Rakitin, RNG plans to produce just over 1 million tons of oil in 2020, increasing production by 200,000 tons compared to last year, but further growth will be postponed for several years due to the Russian Federation's commitments to limit crude oil production under the OPEC + pact.
The company is currently developing the eastern blocks of the Srednebotuobinskoye field, which are conveniently located between the two largest oil and gas projects in the Russian Federation - the Eastern Siberia - Pacific Ocean (ESPO) oil pipeline and the Power of Siberia gas pipeline. This is the second project of the company's shareholders in this area after Taas-Yuryakh.
RNG is the main asset of the EastSib holding, whose shareholders have created the "pearl" of Eastern Siberia - Taas-Yuryakh Neftegazodobycha, the operator of the neighboring blocks of the Srednebotuobinskoye field. The company was subsequently bought by Rosneft, whose reserves are now estimated at 169 million tons of oil. Now these raw materials account for a third of the state company's sea exports through Kozmino.
Russian executives Alexander Bondarenko and Vladimir Stolyarenko, indirectly own EastSib Holding. Both businesspersons are currently under investigation for accusation in fraud in the Russian Federation. The executives pleaded not guilty and appealed against accusations.
RNG exports the entire volume of oil produced via the ESPO pipeline through the port of Kozmino. RNG has an export schedule of 234,000 tons of oil in the first quarter of 2021, according to a schedule seen by Reuters.
The increase in production will not lead to a proportional increase in profits this year, Rakitin said, as the fall in oil prices hit the company's economy.
"The main result of 2020 is that (we) managed to maintain profitability," he said.
Rakitin said that this year RNG plans to earn a little less than 1 billion rubles, compared with 3.7 billion in 2019.
Production of one ton of RNG oil costs 2.326 rubles compared to the average cost of 3.626 rubles per ton in Russia, the company says, noting that the cost reduction is ensured by the use of new drilling technologies and control over operating costs.
For example, the company provides the transportation of equipment and building materials at the field with its own fleet. In order to save money, the company transfers the vehicle fleet from diesel fuel to gas.
Since the beginning of the project, investments in RNG amounted to almost $ 1 billion, of which about $ 700 million were invested in the exploration and development of the eastern blocks of the Srednebotuobinskoye field, and the rest of the funds went to obtain new licenses in the neighboring areas and their geological exploration.
RNG reached its projected production capacity in 2020 amid falling world oil prices. The Russian oil sector has lost more than half of its capitalization compared to the peak in January - over 5 trillion rubles, or about $ 70 billion.
According to Rakitin, to ease the financial burden, the company did not cut staff, but reduced the number of projects.
“When prices dropped to $ 20 per barrel, we had a hard time,” says Rakitin.
Thus, there were not enough resources for the development of two subsoil plots, which are far from the main production bases, and the company had to ask the state to postpone their development for several years.
Now RNG fully finances its activities from current proceeds, shareholders have abandoned dividends and postponed the repayment of previously made loans to ensure the stable operation of the company amid low prices and a pandemic.
"It is difficult for the company to attract new debt capital, so we are developing our activities only on the basis of reinvesting our own profits and financial support of the EastSib holding, but we are trying to follow our plans," Rakitin said.
RNG is preparing new fields for production.
"RNG will continue intensive drilling in the eastern blocks of the Srednebotuobinskoye field and will be engaged in development of the technology for injecting associated gas into the reservoir up to 2023, that in the future will increase production (here) to 1.5 million tons per year," Rakitin said.
In case of confirmation of reserves and commissioning of border sections, RNG may further increase production and has already agreed with the pipeline monopoly Transneft to supply up to 3 million tons of oil per year to the system.
At the first stage of the development of new production areas in the eastern blocks of the Srednebotuobinskoye field, RNG plans to transport raw materials by road to the point of delivery to the main oil pipeline, but from the moment when production exceeds 200,000 tons per year, the company is considering the possibility of building oil pipelines from each site.
"This is a question for the next three years," Rakitin said.
RNG is not engaged in the marketing of exported oil on the international market, but sells it to resellers.
"Our production volume is not enough to enter the market. It is a wholesale one, large players and large volumes. If you go out with one tanker a month, nobody is interested in you there," says Rakitin.
RNG is ready to evolve in the field of gas production.
“One of our strategic objectives is to become not only an oil producer, but also a gas company,” says Rakitin, noting that RNG is allotting five years for this.
The company has several license areas in close proximity to the Power of Siberia gas pipeline - Betinchinsky, Murbaysky, Monulakhsky and Eastern Blocks of the Srednebotuobinskoye field. This allows us to consider them as a resource base for an ambitious project by Gazprom, with which RNG is negotiating possible forms of cooperation.
"Not everyone will be able to build an infrastructure (for deliveries to the Power of Siberia) and agree to low prices, which Gazprom will consider under potential contracts. But we will most likely be able to," Rakitin said.
In 2020, the company put on the balance sheet 27 billion cubic meters of gas through exploration of the Murbayskoye field.
"All the fields where we do geological exploration have gas. Some are already on the balance sheet; some are being prepared. We find some oil everywhere, but we find gas in any case."
RNG's total recoverable gas reserves today amount to 82 billion cubic meters.
A FOCUS TO EXPLORATION
RNG will continue to search for promising projects, says Rakitin.
“Our own seismic crew was launched in 2019 and it works with the latest technology. It includes 135 people. The crew itself performs 3D and 2D seismic surveys,” says Rakitin.
Taking into account the new licenses acquired by the company, the crew is provided with work for another 15 years, according to his estimates.
In total, in addition to the Eastern blocks of the Srednebotuobinskoye field, which currently is under development of the company, RNG has six license areas in Yakutia. The company also recently acquired the right to develop a site on Taimyr near the Payakhinskoye field, again next to Rosneft, which is implementing the Vostok Oil Arctic cluster project in the region.
RNG discovered two new deposits in 2020, named after Menshikov, on the Murbayskoye field and Syuldyukarskoye gas condensate field within the Yuzhno-Syuldyukarsky area.
"The Syuldyukarskoye field has more reserves than all of the RNG ... Already 30 million tons of recoverable reserves have been put on the balance sheet, and we expect even more in the future," Rakitin says.