Having left the public service in 2011, the former Minister of Energy and Special Envoy of the President, Igor Yusufov decided to build up a medium-size oil and gas holding, bought the rights for several oilfields and gathered his assets under the aegis of Corporation Energy. Oil price fall hasn’t changed his plans. Yusufov believes the price will rise up to $60 per barrel and is sure that his projects will be commercially viable. In 2014 he got the licenses for the three more oil and gas fields in Yamal region and continues to cooperate with the American Halliburton. The only surprise that came late last year was the litigation with “Novatek” which aspires to exclude Yusufov from “YARGEO” project in Western Siberia (“Novatek” owns 51%, Corporation Energy – 49%). “Novatek” alleges as his reason that the partner stopped financing its share in the project. Yusufov claims that this is not true and says that “Novatek” wanted to buy out his share at a price half as high as the market.
— A little less than a year ago you told “Vedomosti” about your assets and aspiration to build up a medium-size energy holding. Since then the Russian and global economic climate significantly changed. Will you keep on working on your project or back down on something, suspend something?
— There are no critical changes in my aspiration. We continue to work on the assets in our portfolio and also consider the possibilities of participation in the new ones. Fairly some projects such as “YAMAL” are paid more attention. This is in particular due to the advanced level of its maturity. Within the projects in Khanty-Mansiysk District and Eastern Siberia we continue to study and analyze the geological information aiming to unveil the most promising fields for the further work.
The sanctions imposed in the energy sphere do not affect our projects. The introduced restrictions apply to the Russian export of the equipment for deepwater, arctic or shale projects – nothing of the above mentioned is included in the sphere of our interests for now. Corporation Energy is a private venture open to cooperation and our partners understand that.
— You look up to the tight oil fields and due to the current problems it is uncertain what will happen to the traditional ones.
— Future belongs to the tight oil. Traditional fields run low. In Western Siberia the significant fall takes place. Russia has a great solution – to refocus – to develop the infrastructure and explore the fields of Eastern Siberia. Tight oil reserves are huge. Future belongs to them. The oil price fall today triggers to mobilize forces, to carefully study and develop the projects in this area. I believe the oil price should stabilize shortly. And talking about this aspect that influences tight oil significantly – in 2015 and in mid-term perspective the oil price should stabilize at $60-80 per barrel as it suits the interests of the budgets of OPEC countries, Russia, Norway and the interests of shale oil producers in USA. It is also suitable for the budgets of the countries – the oil consumers as the taxes from oil products sale play a significant role.
— You drew down the bank loans for the investments into your own and joint projects – what is the situation about such loans now? Do the banks demand to review the rates or are there any other problems with them?
— No, the rates are fixed. Currency risks on loans were hedged during the transaction processing. Loans which we drew for the development of our projects form an insignificant sum from the total investments, they were received on pretty favorable terms of cost and timeframe and there are no problem with them as the creditors have their own profit on this. They see how we develop these projects, the sources of servicing these loans – I think we won’t have any questions on that within the next 3-5 years.
— Will you draw loans at high rates in Russian banks?
— At high rates –no.
— Do you plan to sell any assets?
— We tend more to the partnership. But if we receive a good offer corresponding to the market price we a ready to consider as it is a usual business practice and we are ready to invest the funds received into new projects.
— How has the assets price changed lately?
— Each of our assets was evaluated by the international appraisers included in the global Top-5 and introduced in Russia. The assets price grows in general
The oil price fall for the entire sector is compensated by the dollar-ruble rate growth.
And this lets the company to feel confident, we are able to develop and have the access to financial resources. There was no drastic change as our projects while developing gain added value and this compensate the economic conjuncture.
— With $60 per barrel will your projects be commercially viable?
— Yes, quite. And they would be commercially viable with even a lower price.
— What price did you allow for?
— I would like to talk about $60. If ruble rate maintains at 40-60 per dollar – this fairly correspond with our investment interests.
— What is the reason for your disagreements with “Novatek”?
— “YARGEO” project – Yarudeiskoye field exploitation in Nadym region of Yamalo-Nenets Autonomous Disctrict, Fund’s partner is “Novatek”. Corporation Energy owns 49% through Nefte Petroleum Limited, “Novatek” — 51%, it provides the operational management.
In recent years the project has been in the active stage of the development. During the participation in the project Nefte Petroleum Limited and Novatek paid the charter capital on parity basis of over 5 bln rubles, a significant loan was provided of over $100 mln. Formed and paid charter capital is far more significant than the charter capital of “Novatek”, its subsidiaries and the largest companies in the sector.
In correspondence with market practice needed funds for the further financing of such projects a raised from different sources, but not from the shareholders. Moreover, in IV quarter of 2014 by the Resolution of the General Meeting of Shareholders of “YARGEO” the full project’s financing was approved up to its launch planned for August-September 2015. This project became highly attractive after we uncovered the unique rates as a result of drilling the exploitation wells.
Legally the project has a preference, it is free of mineral extraction tax as it is situated beyond the Arctic cirle, it will also gain a significant financial benefit from the tax manoeuvre in the oil sector. Some time ago we received a written offer from our partner on the acquisition of our share in the project at a price half as high as its market value.
(The source close to YNAO court told “Vedomosti” that in court records the value of “YARGEO” is $3,1 bln as for mid-2014. The share of Corporation Energy at that time was estimated at $1,5 bln. As for late October 2014 “YARGEO” needed the financing of 35,9 bln till the end of 2015.).
We expressed the readiness to withdraw the project, but with for the market value, in accordance with the international appraiser’s valuation. Lawyers recently engaged by our partner let us know that according to Novatek’s claim the commercial court of Yamalo-Nenetskiy Autonomous District in Salekhard restricted our right to manage our share in the project. I must say that all the arguments stated in court are absurd and do not reflect the actual situation.
— What arguments?
— The arguments – that we do not finance the project by commitments and block the fund raising. This absolutely does not correspond to the facts. The investments made together with “Novatek” is the half of the total CAPEX for the project. The decision approved by “Novatek” was made by the resolution of the board of directors in 2012 that we finance the project on a parity basis by the end of 2014 on condition that we sign the shareholder agreement at English law, in 2015 – provide debt (banking) financing. Which is still not implemented and doesn’t give banks the opportunity to finance our share.
We approved the financing of this project three times in a row last year from Novatek’s side on different terms that our partner suggested. We proceeded with the expert analysis of the leading legists and they concluded that there was no way that we could be excluded from the shareholders list in “YARGEO” and such decision would be illegal. We intend to take all measures to protect our rights.
— did you insist on signing the shareholders agreement?
— It was our joint decision – the resolution of the boards of directors of “YARGEO” in 2012. And within the period of 2012-2014 this agreement is not signed. We sent the documents many times, the lawyers worked, nevertheless it wasn’t signed.
— What was Novatek’s offer to acquire your share on “YARGEO” and how much to you want?
— I cannot reveal the numbers. The valuation was made by the international appraiser and we have an NDA to get his approval before doing so. Novatek’s offer also has an NDA mark. Novatek’s lawyers revealed all the numbers in court without our approval, you can find them in court records. It wasd surprising for me from the commercial point of view.
We continue to take part in the development of the project, take part in board members’ meetings and shareholders’ meetings. As we were offered to withdraw from the project we also consider the offers of other market players to buy our share and also the partnership.
Moreover, within the framework of deoffshorization trend we brought all of our assets into compliance except for the share on “YARGEO” as the court restrictions were made that cause us significant economic harm.
— Considering the sanctions against Gennadiy Timchenko, does “Novatek” have difficulties to work on this project and do you – to participate in it?
— We made attempts to raise financing for this project and three leading western banks considered our applications. They were ready to move forwards, but banks need money-back guarantees, which is provided by dividends payment to shareholder. As the shareholder agreement wasn’t signed tha banks have paused the dialogue.
“Novatek” made an offer to finance the project on its own. Currently the project is financed by “Novatek” at above 25% rate – good use of funds. We were not against it. The project continues to develop.
— You have known Novatek’s head - Leonid Michelson – for a long while. Did you discuss this problem with him?
— There are strictly partnership relations. We haven’t discussed this issue. The entire dialogue is held through representatives and lawyers. The Fund is not ready to withdraw from the project for the half-price. The dialogue remains.
— Did the project’s timeframes moved considering the situation.
— The timeframes were not moved on either of the projects. I am glad that the “YARGEO” project’s situation is stable and it will be launched on time. Novatek’s head Leonid Michelson told the journalists in Davos: ”In autumn Yarudeiskoye field will be launched and it is financed by 50%. There is no point in moving the launch time <…> considering the inflation factor and total investments level volume downgrade in the sector we will get more interesting cost offers from the suppliers and contractors and we can handle this CAPEX volume on our own”.
Yes, there is an aspiration of one side to buy a share of another, but this is a matter of discussion, the price and the terms. Due to this the interest from other players appeared. We consider those offers.
— Can you name those who express interest?
— This is commercially confidential, I cannot name the companies, but we received several offers.
— Are they Russian or Western – or maybe Chinese?
— It is the matter of the deal structuring. “Novatek” has the first purchase option according to the Russian law. In order to sell this share to somebody we have to make an offer to “Novatek” with a price that we receive from our potential partners.
— Did “Novatek” hold this position and apply to the court because this might be Gennadiy Timchenko’s initiative? How will you fight such a grand if you have to?
— This is a business argument between two shareholders on the asset development strategy. We will fight for the right on our property by all means available in the Russian law.
— As far as I understand, Novatek’s arguments might sound like: yes, there are sanctions, but they’ve appeared recently and this is not our problem, you were supposed to invest money, but you didn’t.
— According to the Russian law the form of our joint venture does not presume the obligations of the shareholders to finance the project. Nevertheless, with the cumulative investment the company can easily enter the market and get loans. We worked on getting loans from the western banks. But in the current situation the banks without declining the interest yet pause on the further steps. Russian banks offered their conditions. Moreover, as for today we have approved the total financing volume up to its launch.
I see no risks concerning the financing of the project, it will be launched on time, which is confirmed by “Novatek”.
— Are the western banks concerned by the sanctions or persons in “Novatek” which are under sanctions?
— Banks are still interested in the project, but abstain from further steps. At the same time we continue to work with these banks comfortably on the financing of our “YAMAL” project. We get regular loan tranches, continue to cooperate. We are a private venture, far from politics.
— You said you got other offers to buy your share. The experience of Russian businessmen that dealt with claims from grands for their assets, shows: they had to partner with grands of the same level. With whom to partner to protect oneself from Gennadiy Timchenko? Kovalchuks, Rotenbergs, Sechin?
— I don’t think that persons you named have any relation or interest in the project. Our relationa were formed solely with “Novatek”. And all the agreements that we’ve reached are executed. It’s unclear for me, by what the situation around the project is led. We are ready to develop the project and if there are attempts to put pressure on us, we will have enough power and resources to protect ourselves in the Russian law.
— One cannot always count on Russian courts. Will you protect your position abroad? And when dealing with people close to the authorities there’s always a risk to be made an emigre.
— We claimed our arguments in the court of the first instance. All court’s efforts are directed at the parties reaching a compromise. Now the court acts strictly within the law, I believe this should be enough to reach a compromise.
— You know Michelson very well, is it his personal position or the position of Timchenko?
— I think the situation is more simple, this is a position of lawyers engaged by “Novatek”. Lawyers are famous for their aspiration to gain reputation and more money. There is a good saying within the law experts’ circles – when one holds a cow on its horns, another holds it on its tail, meanwhile lawyers milk it fast. Possibly, they provoked this uncertain situation. I believe that the major shareholder’s employees and my employees will come to a suitable consensus.
— What will happen to your “YAMAL” project? How is it going with Halliburton and American state bank, was these plans affected by the oil price change and sanctions?
— “YAMAL” project is one of the Fund’s key projects. It combines the exploitation of two fields – Karasevskiy and Uzhno-Tanlovskiy which border each other. Last year through state auctions we received the licenses for three more fields. These are Vostochno-Khettinskiy, Aikhettinskiy and Uzhno-Palnikovskiy blocks. All of them are close to those being exploited by us already, we will include them in our “YAMAL” project shortly.
There is no cooperation closure, no fears from our partner’s side. We extend our cooperation actively and engage Halliburton for the entire exploitation cycle of this project until the exploration wells drilling, fields infrastructure development up to their launch which is planned for end 2017 – early 2018 (leading in time on the license commitment fulfillment).
In general the work with our partner Halliburton is led in three directions: management, research and service. Moreover, implementing our set intentions on strengthening and extending our cooperation we signed an Agreement on the strategic partnership which outlines the sharing of management experience with Russian staff, studying of our employees in the company’s engineer centers, joint implementation of other projects both in Russia and abroad – Russian market remains top-priority.
We still proceed with the preparatory work with the US ExImbank (coordination of contracts with Halliburton, definition of work and services volumes) to define the loan tranche sum.
— How does Fund’s gas project develop? Is this sphere more stable than the oil one?
— Fund’s gas projects in Eastern Siberia and Yakutia develop strictly in accordance with the set commitments on the license agreements. There is one significant risk: how much gas will be needed for the internal market and for export – these programs are corrected right now, depending on that we will be able to get access to the transport infrastructure and will correct our investment plans.
— In spring-summer 2014 “Novochim” applied for two blocks of Verknekamskoye potassium-magnesium salts field in Perm region – did you go back on this project?
— After carefully studying the perspectives of this project it turned out that each of the blocks fully depends on the infrastructural opportunities of companies which already work there, and their effectiveness for the new investor wasn’t obvious. The auctions were held without us, we didn’t even apply, just expressed the preliminary interest. The investors that got these blocks are aware of our expressed interest, so I think if on some stage they invite us on some terms, than we are ready to consider such offers. I still believe that this area is interesting for Fund’s investments.
— Considering the general crisis situation in the economy and unpredictable actions of the authorities in Russia and abroad, do you have any plans on gathering the family assets? Would it allow to find the crisis more effectively?
— In the crisis times the consolidation of all forces and opportunities is always needed to fight the challenges and successfully develop further, so the issue of combining our efforts (Igor Yusufov’s son owns shipyards in Germany – “Vedomosti”) in the development of our assets now becomes more up-to-date. Firstly such consolidation will allow to use the financial resource more effectively, especially in the conditions of the abrupt restrictions in the access to loan capital on the market. So we seriously consider this option.
— Your brother Lev Yusufov heads the State oil and gas company of Dagestan which intends to work at the Caspian Shield – do you somehow relate to this?
— I learned about it for the first time through the media. And these initiatives have nothing to do with me.
— You were the Minister during the critical oil prices fall when it threatened the economy. What are the differences nowadays?
— The main difference now is the direct role of the politics in the current crisis. The economic factors are easier to predict. The main thing in such situation – not to make unconsidered statements and steps.
We performed an active work with all players of the oil and gas market, both with the OPEC countries, IEA organizations, OECD and the large global companies: Exxon, Total, Shell, BP, Statoil and others to coordinate the efforts aimed at supporting the balanced fair oil price (and as a consequence, by the formula – gas prices) in the interests of the producers and consumers of energy on the market mechanisms basis.
We urgently need to come back to the dialogue on the international level from the authorities’ side by introducing the post of oil sector authorized representative of Russia given extensive powers for a day-to-day work on the personal level with the organizations mentioned above and also with key persons and companies which are interested in stabilizing the price and balance of interests of the energy producers and consumers.
The oil price needs to be worked with constantly.
Moreover by the initiative of Russian President Putin and US President Bush the first Energy Summit of the two countries took place in 2002 in Houston and in 2003 the second – in Saint-Petersburg with the participation of the Ministers of Economics and Energy (from the Russian side this work was led by German Gref and myself representing the Ministry of Energy).
Large oil and gas companies of the two countries participated in these summits.
Now the need escalated to resume this format of the dialogue between our countries expanding it up to the level Russia – West engaging the representatives of EU countries and Asian-Pacific region consumer countries.
Order of business can be formed that would be up-to-date considering the interests of western countries to exploit the fields in Russia, and for us – the attraction of the advanced western technologies. This might be the first step towards the mutual sanctions cancellation, demonstrating the interest of the countries on this sector of the economy.
It might be useful to take into account that in 2015 USA are the chairman of the Artic Council and the interest of the western companies in Russian arctic shelf is huge and very useful for us: as an example – the successful start of the partnership between Rosneft and Exxon in Kara sea with billion investments stopped due to sanctions.
The tight coordination of efforts both of OPEC members and other exporters is needed now.
Now I still maintain the contact with colleagues-ministers discussing only the commercial projects as they are as a rule direct supervisors of the oil and gas companies in their countries.
— Is all of this up to date now due to the political situation, sanctions? We are going further to China – how might this end for us?
— I would not comment on the political situation, I am far from this. I believe that the diplomats do whatever is possible. From the economic point of view Russia having such natural resources always has a room for maneuver. And the maneuver towards East gives Russia an opportunity to position itself successfully, to find the market for its energy resources in Asian countries whose economy grows fast.
— What are the minuses in this maneuver?
— And don’t see big minuses. But the owner of the energy resource should have the opportunity for the multi-channel sales, not focusing on the one monopoly consumer.
We remember that in 2001 President Putin decided on the oil-pipe which was initially planned exclusively for China – one monopoly addressee, then the route was changed and the oil-pipe was directed to the one neutral point – Nakhodka. And many addressees appeared – Asian-Pacific countries. Russia got a new region for sales and the quotes of Urals, and when there is only one addressee it may always dictate its conditions.
— Now it seems like China can dictate the conditions.
— I don’t feel it now, there are no indicators of this. I think, it won’t lead to this as China needs to service its economy growth (7-10%). It should act wisely. And form its relations for a long-term mutually-beneficial perspective.
— You were a member of the boards of directors in Gazprom. What is your opinion on its Turkish projects? And on the statements that Europeans now have to build their infrastructure to get the gas from the side of Turkey?
— I believe that these statements are directed mainly at seeking the more effective ways of selling its energy resources in accordance with the current situation. If there are restrictions or boundaries any manager of the company seeks for more optimized ways of selling. There is nothing strange about these maneuvers.
— You say that the post of the special envoy of the President for the energy cooperation should be brought back. If they offered you to come back on this post, would you agree?
— I am very pleased with what I’m doing now. I’ve been in the business for almost four years. I believe I managed to use the experience and skills. I would like to continue to develop my private business. But I am ready to provide advice and useful contacts as an expert.
— So you give a moderately optimistic forecast according to the facts that you mentioned. Is it beneficial for the Arabian world or they are ready to downgrade the price further in order to keep the market share they consider to be fair for themselves?
— All of these processes around the oil price started at the point when a weak demand was noticed in the economy, the slowdown in the economic development in EU, some slowdown in Asian countries which started to develop not so fast comparing to the recent years, all of this led to the energy resources demand weakening.
Together with this the shale oil production grows in USA. Their companies improve everyday, develop the technologies. The production cost of one ton decreases at a sight.
At the same time the market players felt they needed to keep the definite market share. Nobody directed the efforts towards the oil price fall, nobody did it on purpose. Everybody saw the oil price falling. And everybody tries to keep their market share. But I must say that the Arabian countries, OPEC countries are ready to downgrade the price in order to keep their market share. One should not forget that they are used to form their budgets according to a pretty high oil price. And they are used to some expenses. So the sharp decrease of the production is really unfavorable for them.
In such situation Russia is acting responsible. On an unilateral basis Russia lowered the export volumes and redirected these volumes towards the internal processing. I can name the exact numbers. Last year Russia produced 525 mln tons of oil, last year there was 523 mln tons. It produced two million tons more, decreasing the export by 13,5 mln tons (we had 235 mln tons, became 221,5 mln tons, so the oil export decreased by 5,8% to the global markets – this is a significant contribution). Common behavior was demonstrated by the Saudi Arabia being a key OPEC player. Saudi Arabia’s production last year increased by 5 mln tons (there was 480 mln tons, and in 2014 – 485 mln tons). And the export decreased by 22 mln tons (376 mln tons in 2013, 354 mln tons in 2014). By coincidence Saudi Arabia as Russia decreased the export by 5,8%.
There are certain countries that are also interested in the stable oil price. For example, Norway, which like Russia is an observer at OPEC. Maintaining the production level of the previous year (76 mln tons) it easily increased export from 58 mln tons in 2013 to 59 mln tons in 2014 – strictly by 1 mln tons it occupied somebody’s market share.
I think there are some countries that are members of OPEC and that acted unapproved, without following the agreements inside OPEC where the quotes are set, violate them. But this is an internal issue of the cartel. They should deal with this on their own and agree with each other. Out of 90 mln barrels per day that the world produces and consumes, over 1\3 fall on OPEC. The production cost is attractive and they can influence the markets.
This was always the center of discussions between me and Arabian ministers on the coordination of actions. Russia is a country where the main production is performed at the north with -30° - 50°. And we are not able to limit our production in a second as the wells should be suspended and later some time would be needed to resume the production.
Yes, there’s an competing argument from the Persian gulf countries – these are the hot countries which spend a lot on conditioning and cooling. There is a discussion between us. But we need to keep on talking. We cannot just observe because such discussion corresponds with both their and our interests.
— You were the special envoy of the President on the energy cooperation, worked with the representatives and leaders of these countries – what level of oil price are they ready to reach?
— We all witnessed how Saudi Arabia stated in late December that it forms its budget for 2015 taking into account $80 per barrel. This means that the budget will be debt-neutral with the oil price at $80 per barrel, if the price is lower, there are only two options: to cut the expenses and use the reserves. We always talk not about the one-time price, but an average year price. The question always lays in three aspects: CAPEX of the oilfields, lifting cost and taxes – this is a production price of one ton. In Saudi Arabia and other countries of the Persian gulf with the wells rates they have and the conditions they can bare a very low oil price unlike Russia, Norway, Canada and especially the shale oil producers in the USA, where the conditions are tough. But who will go there if there’s an opportunity to get a sensible price, when the countries’ budgets are formed for a definite price?
I think that this is an optimistic scenario. I repeat that $60 would be a suitable number. We rely upon how much the barrel should cost in rubles. Ulukaev stated in IV quarter of 2014 the number of 3600 rubles. This means that the barrel costs $60 and dollar costs 60 rubles. If the price is 3600 rubles per barrel the Russian budget may be formed as debt-neutral and will pass the year 2015 without problems.
At Gaidar Forum another number was stated – probably the Russian government corrected its numbers of income and expenses, a more spare number – between 3000 and 3600 rubles. The price per barrel of about $50 with dollar at 70 rubles. Then the budget goes debt-neutral. A normal price. If the price keeps falling, then the dollar-ruble rate will grow.
I don’t think that the countries that have a potential area of lowering the prime cost will go there. They shouldn’t come to terms with it. The consumers are also interested in collecting taxes from the oil products sale. There should be a sensible balance.
When will Yusufov’s projects pay off:
bln is the approximate cost of all of the Fund’s assets
mln approximately how much is needed this year to develop Corporation Energy’s projects apart from “YARGEO” and the expenses on possible new acquisitions. August 2015 “YARGEO” project is planned to be launched, it is expected to pay off in 2016, in 2017 – to start bringing profit. “YAMAL” project launch is planned for 2016-2017, it is expected to start bringing profit in late 2019 (according to Corporation Energy)
Igor Yusufov’s assets:
Yarudeiskoye filed (“YARGEO”), Corporation Energy’s share – 49%. The production start – 2015. Since 2016 the production should be 3,5 mln tons of oil per year. The investments in 2014-2016 - $1,5 bln, extractable reserves C1+C2 – 46 mln tons (data by Novatek).
15 blocks in Western and Eastern Siberia.
The reserves of these blocks C3 in KHMAO are estimated at 19 mln tons of oil, in Tomsk region – at 21 mln tons of oil. The reserves of the blocks in Krasnoyarsk region D1 + D2 – at 180 mln tons of oil and 540 cub. meters of gas, in Yakutia – at 2 mln tons of oil and 114 bln cub meters of gas (Corporation Energy’s data)
Karasevskoye and Uzhno-Tanlovskoye fields (“Project YAMAL”)
Reserves (С1 + С2) — 21,8 mln tons of oil and 21,5 bln cub. meters of gas. Production start – late 2016, expected volumes — 3 mln tons of oil and 1 bln cub. meters of gas per year. The investments — $900 mln.
Khotogo-Murbaiskiy field (Yakutia)
Reserves (С1 + С2) -10 bln cub. meters of gas and 58 mln cub. meters of helium.http://www.vedomosti.ru/newspaper/article/835071/my-budem-borotsya-za-svoyu-sobstvennost-igor-yusufov