Production Results

According to the results of the international audit conducted by Miller and Lents Ltd. consulting company, at the end of 2019, Zarubezhneft JSC 1P (proved) category reserves increased by 13.7 MM tons, to 74.8 MM tons, which provided 140% replenishment of oil production volumes. The growth of 2P (proved + probable) category reserves amounted to over 7 MM tons.

The Company achieved these indicators due to the high drilling efficiency of exploration wells (the success rate exceeded 80%) and implementation of a program of measures to stabilize basic oil production.

The stable state of the resource base indicates a balanced portfolio of Zarubezhneft JSC assets consisting of prospecting sites and fields, which allows for stable investment in exploration works (EW) and putting new fields into development while maintaining financial stability.

The audit also confirmed the high projected economic profitability of field development and the availability of hydrocarbon reserves at accepted production levels until 2034.

In terms of the Consolidated Revenue indicator, the actual value amounted to 97.508 MM RUB, which corresponds to 120% achievement of the KPI. The indicator is formed on the basis of consolidated financial statements in accordance with International Financial Reporting Standards (IFRS). In terms of the EBITDA indicator, the actual value amounted to 26.433 MM RUB, which corresponds to 120% achievement of the KPI. Zarubezhneft Group’s operating efficiency is traditionally ensured by positive results in the Upstream segment, which is mainly due to the performance of JC RUSVIETPETRO LLC and JV Vietsovpetro activities during the financial year.

As per the Zarubezhneft JSC Dividend Policy approved by the Board of Directors (Minutes dated February 16, 2017, No. 134), the amount of dividends is at least 25% of the highest of two values: net profit as per the RAS adjusted to reflect income/expenditures from revaluation of the subsidiaries’ publicly traded securities and the associated income tax, and net profit as per the IFRS. In terms of the Dividends Amounts indicator, the actual indicator value was equal to 5.918 MM RUB in 2019. The indicator has been achieved. The dividends due to the Russian Federation on the shares owned by the Russian Federation were paid on August 9, 2019, in accordance with Order dated June 30, 2019, No. 409-r of the Federal Agency for State Property Management “On resolutions of the annual general meeting of shareholders of Zarubezhneft JSC.”

Achievement of Key Performance Indicators (KPI) Target Values in 2019
Achieving revenue target UoM Indicator weight, % 2019
target actual implementation, %
Consolidated revenue mln RUB 5 63,598 97,508 120.0
EBITDA mln RUB 5 21,748 26,433 120.0
Dividends amount mln RUB 20 4,603 5,918.5 100.0
Return on equity ROE % 10 5.0 % 9.2 % 120.0
Workforce productivity thsd RUB/manhour 10 67.7 81.8 120.0
Reduced operating expenses (costs) % 10 2.0 % 3.1 % 120.0
Gross production volume thsd TOE 15 99,071 103,815 119.2
Integral KPI of innovative activity % 10 100 % 100 % 100.0
Compliance with corporate KPIs 113.9
Non-exceedance of NetDebt/EBITDA indicator limit Bonus reduction indicator 2.0 0.0 Bonus reduction indicators were achieved
Achieving revenue target Bonus reduction indicator 70 % 153 % Bonus reduction index equals 1
Final performance: 113.9 %
Consolidated revenue, MM RUB
Consolidated revenue,  MM RUB
Dynamics of reduced operating expenses for 2019, MM RUB
Dynamics of reduced operating expenses for 2019,  MM RUB

The actual value of the Share Capital Profitability indicator amounted to 9.2% with the target level of 5.0%. Zarubezhneft Group’s net profit increased by 16% and amounted to 13.5 billion RUB in 2019.

The Workforce Productivity indicator is estimated as Zarubezhneft JSC’s revenue as per the RAS, calculated in the conditions comparable to 2018 and correlated with the number of man-hours worked by the Company’s employees. In 2019, the indicator value was 81,800. RUB/man-hour with the established target value of 67,700 RUB/man-hour.

Operating costs reduction was approved with the target value of –2% (Directives No. 2303p-P13 dated April 16, 2015). As per the Cost Performance Improvement and Optimization Report for 2019, the actual value of the Operating Expenses Reduction indicator as of the year-end made up 3.1%, which exceeded the value established by the Directive of the Government of the Russian Federation. Normalization in the amount of 16.4 billion rubles was mainly driven by the emergence of the new activity type of trading oil and oil products with Zarnestservice LLC in 2019.

Zarubezhneft Group’s gross hydrocarbon production as actually accrued in 2019 amounted to 4,770 Ktoe with a target value of 4,515 Ktoe. The actual value growth was ensured by JV Vietsovpetro’s increased production.

As a result of efficient geological exploration, the actual amount of reserves by the end of the reporting period amounted to 103,815 Ktoe with a target value of 99,071 Ktoe. In 2019, the hydrocarbon reserves increased mainly due to geological exploration and reassessment of the existing assets in the Socialist Republic of Vietnam and the Kharyaga field, as well as due to entering new projects in Vietnam, Egypt, and Uzbekistan.

For the actual calculation of integral innovation KPIs, a 100% limit was established for each indicator component; the overall indicator achievement was recorded at 100%.

Bonus reduction includes two indicators: Non-Exceedance of NetDebt/EBITDA Limit and Revenue Target Achievement. Both indicators have been achieved and the bonus reduction factor is equal to 1. The NetDebt/EBITDA indicator in the financial year is equal to 0, which is due to decreased debt burden and the efficient management of Zarubezhneft Group’s liquidity.

The overall final degree of KPIs achieved for 2019 is estimated at 113.9%. Each achieved indicator exceeded the established target levels; most of the indicators reached ambitious values (six of nine main indicators). Excluding normalization of the planned indicators, the overall achievement of all KPIs is also estimated at 113.9%.