Dear Chairman, ladies and gentlemen, colleagues, and guests of World Petroleum Congress!

Before we go any further, I’d like to thank the organizers of the Congress for the invitation and opportunity to speak at such a presentable forum.

The topic of our session is at the interface of economy and energy. The question before us is: what set of requirements the global economy imposes to oil industry, what challenges and limitations we face now and will probably come across in future, and what our answer, our opportunities, and offers are.

The main result of the analysis is represented by global economy keeping generating growing demand for fuel and energy. However the dynamic of the growth significantly varies in different countries and regions of the world. There are even more differences in the level of economic development, living standards, and energy consumption per head.

Suffice it to say that if energy consumption per head in each country around the world would have been identical to current consumption in the US, the world would require energy 4 times higher than now. If the provision of cars in each country around the world would have been identical to current provision of cars in the US, there would be 5 times more of passenger cars around the globe.

Potential demand for oil exceeds current manufacturability. This means that oil remains the main source of motor fuel, and its consumption will be increasing in the wake of human wellbeing rising in the world.

The structure of world oil resources has undergone substantial transformation over the last 15–20 years. The share of exploited oil reserves which fall on reserves with low rates, reserves of small deposits, and fields with decreasing recovery has significantly increased.

Against this background, we are forced to proceed to hard to recover reserves, hydrocarbon reserves in the shelf area, including the Arctic.

As a result, even maintenance of achieved production volumes of oil require increasing Investorsments in exploration and production. Investment assurance into extraction under these circumstances reasonably assigns sufficiently high level of free market price for oil.

Therefore, growing demand against lack of availability of hydrocarbon resources in the world is the main challenge for the development of oil industry. Changes in the demand structure, competition on resource access, and significant escalation of production costs in addition to the increasing level of technological effectiveness of production, require from oil industry constant efficiency increase.

At that, existing sufficient rent component and transparency of the industry for regulators make it an object of special attention from fiscal agencies of any countries, which is not observed in other sectors. Tax burden in major producing countries is still 1.5–2 times higher than the tax level in other sectors of economy despite the fact that oil industry is one of the main customers of equipment and services, and that it generates multiplicative effect, which is most important for economic growth.

In order to increase the efficiency of not only oil industry, but global economy at large, it’s critically important to adjust and stabilize oil and gas business environment in different countries. In perspective, one could speak about adjustment of terms for oil industry functioning with other sectors of economy, which would attract additional Investorsments in the industry, and would encourage the creation of multiplicative effect.

Formation of pricing at the oil market is affected by a number of external factors, including budgetary requirements of producing countries, and a phenomenon of system manipulation over energy market. In this regard, this poses the question, what the reference price is, and how reasonable the prices considered as market ones are. The discussion around these issues is constant.

Here also come sanctions issues, which can be treated as a competition tool. The situation makes political risks to increase business risks through the sanctions, and this is also the demonstration of system manipulation.

We believe that energy, as well as food production, in view of their strategic importance for any economy, for quality of living, shall not be exposed to sanctions generally.

We believe that new mechanisms are required in order to lighten these issues, to a greater extent based on cooperation between companies and expert community.

In the situation, when political risks create volatility at the markets, it’s necessary to intensify information sharing on condition of national oil and oil products reserves, having in mind the later creation of damping mechanisms based on the use of respective regional reserves. We consider it possible to create an independent in-house conflict group, consisted of internationally recognized experts, whose opinion would be counted when considering cases of market manipulation and distortion of competitive conditions, including the pricing.

The expansion of nonmarket subsidy (also in mature economies), and creation of preferences hereon distorts the operation of the markets (e.g. renewable energy sources in EU, shale gas in the US).

In the current situation, in the sharp increase of technology role, it’s important to reconsider international regulation in order to avoid monopolization in this area, as well as unwarranted restrictions of possibilities to use critically needed modern technologies for implementation of important social projects in energy sector. It’s overwhelmingly important to also provide financing transparently.

In this regard, it’s acknowledged that existing and continuously created international regulating and coordinating institutions in the energy sector are not enough.

For many years, Energy Charter Treaty of 1994 claimed to the role of a cross functional document for regulation of the most important energy issues internationally.

This document hasn’t demonstrated its efficiency though.

First of all, such large hydrocarbon producing countries as Norway, Canada, and the US were not included into member countries of the Treaty. There were excluded whole regions of the world (e.g. Asian-Pacific Region).

Secondly, the subject matter of the Treaty appeared to be constrained. The first of three main areas of its coverage (energy resources trading, Investorsment protection, and transit) was covered by the rules of the World Trade Organization, which almost all members of Energy Charter Treaty joined. Other two areas have not been fundamentally solved.

In the third place, under the Agreement, there has been made an unilateral focus on Investorsments of consuming countries in oil and gas business of producing countries. In actual fact, favorable conditions were provided only for consuming countries. Our european colleagues are trying to upgrade this Treaty. We assume this is a long-pending issue, and wish them to succeed.

The efficiency of oil industry largely depends on transport, oil and oil products transit internationally.

Market economy teaches us that natural monopoly varies from a common market subject in such a way that it shall be aimed at maintenance, reliability and performance support of all other sectors of economy, but not at profit maximization. In this context, pretensions to the return level of such business activities shall be minimum.

Transiter countries shall not consider transit as a factor of strengthening their market position, and payment for transit as Investorsment in their budget. Unfortunately, we see examples, when transit is not only used as a source of unfounded revenues, but also turns into a bargaining tool with competitors, and is used for political expediency.

It’s important to when applicable eliminate monopolism in transport and transit sectors, improving access to infrastructure facilities.

Taking into account these and similar approaches, requirements for countries/institutions responsible for transit of energy sources shall be toughened, and the measures for the implementation of respective provisions shall be enhanced.

In this regard, international coordination, to which we traditionally pay great attention, shall be aimed first of all at adjustment of adjustment of terms for business and improvement of access to infrastructure facilities.

The basis for stability and predictability of commercial relations in energy sector are represented by contractual relationship. Long-term contract become more important, and create background for the implementation of large-scale Investorsment projects, attraction of Investorsments, creation of respective producing units. We need special efforts and mechanisms to guarantee the parties execution of contracts, which in view of their importance shall not become an issue of political pressure and intimidation. This will require the creation of arbitrazh precedences and corporate culture, making it impossible to suspense projects on a unilateral basis under any political decisions.

The contract shall be always executed to the full extent under all circumstances. In view of long Investorsment cycles in our industry (e.g. in comparison with electoral) and its strategic importance, we, market players, assume responsibility for assurance of energy security to future generations.

In conclusion, I’d like to say that Russian companies see the importance of mutual coordinated work on the corporate level between all key players as one of the main answers to the market challenges. For our part, we are open for cooperation.

Russia, as you know, significantly contributes to international energy security. Russian share in global export of oil and gas amounts to 15% and 19% correspondingly. Russia is also one of the world’s largest customers of power-generating equipment.

On this occasion, I’d like to invite your attention to Rosneft operations.

I believe that the projects that have been started by the Company this year, will become major in the global oil sector.

First of all, it’s drilling in the Kara and Black seas.

In the Black Sea, at a depth beyond 2000 meters, complicated by occurrence of hydrogen sulfide.

There is scheduled the drilling at the University–1 well in the Kara Sea.

Suffice it to say that the area of one drip at the University structure amounts to 1200 square meters at the drip height by Lower Jurassic interval of about 550 meters. This speaks volumes to the experts. There are 30 drips discovered at the license blocks of the Company in the Kara Sea, and expert appraisal of the resource base of 3 blocks amount to 87 billion barrels of oil equivalent.

Secondly, this year at the Arkutun-Dagi field of Sakhalin–1 project, there will be started the production drilling with the use of unique offshore drilling platform Berkut with the world’s largest crown. The weight of the platform (top and bottom) exceed 200 tons, and the number of wells is 45.

Ocean motion of the Berkut platform deck to the destination point is in Development. We are planning its installation on the concrete foundation for some of these days, 18–25 June in accordance with weather condition.

I invite anyone who feels like it, has opportunity and time, to participate in this event, which is of utmost importance for us. We will be happy to see you.

Thank you for listening!