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President of Russia Vladimir Putin: Mr Alekperov, during the last meeting of the Commission on the Fuel and Energy Complex and at other similar events, we often return to the same key issue: geological exploration. As an oil industry expert whose experience spans back to Soviet times, you understand how important it is to increase resources and volume of production. I know that your company has given this matter a lot of attention.

How do you assess the overall situation in this area in your sector?

President of Lukoil Vagit Alekperov: Overall, our nation has enormous resource potential. In other words, as of today, almost two thirds of our territories have not been geologically explored. Of course, this is a problem that currently lays the foundation for future output volumes.

This issue is particularly acute in the oil industry, because the gas industry currently has reserves that will last a fairly long time, and the prospective regions currently existing in the Arctic shelf allow us to be quite optimistic about the future. But the oil industry is facing a serious challenge. There is your instruction, as well as the Commission’s decision. So we want to launch new geological exploration projects.

You know, the company has accumulated some unique experience. We were successful in the Caspian Sea: we discovered deposits in places where nobody had ever expected to find them, because that region is considered very unpromising. We compensate every year with new discoveries.

Vladimir Putin: And what about your production volumes and resource growth?

Vagit Alekperov: Today, we have a 105–110 percent increase in hydrocarbons.

Vladimir Putin: I suppose that Surgutneftegas is the most effective in this area?

Vagit Alekperov: Yes, they are. Today, we all go for hydrocarbons, but of course, as far as oil is concerned, today we are unable to compensate for all our production volumes. Just now, after the Commission meeting, after your instruction, we turned our attention to the territories where all the oil companies are working today: these include Irkutsk Region, Krasnoyarsk Territory, southern Yakutia, the Vankor Field – I am not even talking about western Siberia, which is sufficiently explored. We also wanted to look at a region that would have a sort of a blind spot. We looked everywhere. Having experience in developing the Nenets Autonomous Area (with the construction of an Arctic terminal), we started looking into going to some backwater district 900 kilometres away from all service and supply lines and all cities. With your approval, we could start a detailed study together with the Natural Resources Ministry, to begin at least creating the infrastructure there.

Vladimir Putin: Did you get the Trebs and Titov deposits?

Vagit Alekperov: Trebs and Titov will be returned in 2013, they are already coming on-stream. But the license issue is not resolved; I will report on this in more detail later.

Vladimir Putin: Naturally, everything must function within the law. Are you working together with Bashneft?

Vagit Alekperov: Yes. We only have 25 percent there.

Vladimir Putin: Doesn’t matter. Still, if you are starting your work, then overall, I suppose, it’s not our biggest deposit, but it is quite tested, well-studied.

Vagit Alekperov: The budget will get 143 billion rubles as a result of our moving up the date for putting this deposit into operation. We have put so much effort into it that already in 2013, we will start pumping oil, and the money will go to the budget.

Vladimir Putin: And what about here?

Vagit Alekperov: There is nothing here, no deposits, nothing.

Vladimir Putin: How much will we need to invest in East Taimyr?

Vagit Alekperov: It is hard to make any calculations today. According to our estimates, we will need to spend at least $200 million to begin drilling the first well because we need to buy equipment, create infrastructure, and mobilise drilling machines.

Vladimir Putin: And what about product transportation?

Vagit Alekperov: We will engage in construction, get a regular license, if we discover anything (we are currently talking about geological exploration); later, we will build a terminal here, as we did in Varandey: 30 kilometres into the sea, and it is doing very well. The terminal works all year; it is the world’s northernmost terminal that currently offloads oil year-round. So we have good technology. And we built it at a plant in Kaliningrad. All the technology used on the terminal is Russian. The Krylov Shipbuilding Research Institute in St Petersburg did a project and they conducted all their tests at the institute. The terminal has been steadily working for five years now.

Vladimir Putin: Yes, I know. I am grateful to you for placing most of the Caspian orders through Russian companies. You are doing exactly what you promised earlier.

Vagit Alekperov: Mr President, if you visit Astrakhan, I would like to show you the initial work that will already be done this year to develop the new deposit.

Currently, about 10,000 people in Astrakhan are carrying out our work orders. People are being brought in from Rostov and other regions of Russia. The United Shipbuilding Corporation is especially active; it is bringing over some of its people from Severodvinsk in order to fulfil the order on time.

Vladimir Putin: I know that you have even begun carrying out social projects there.

Vagit Alekperov: Yes. I wanted to tell you about the programme that we are implementing: it is a preschool facility programme in three Russian cities. We are building preschools for 1,500 children, which will already be completed by the end of this year – early next year. These are the best preschools in existence today. We are building them in Perm and Astrakhan.

Vladimir Putin: Are you handing them over to the municipalities?

Vagit Alekperov: Yes, we are building them and giving them to the municipalities for free. Of course, there are some problems there, as there are not enough budget resources for them, but I hope that we will initially support these facilities so that they can start working. They will all be given over to the municipalities for free.

Vladimir Putin: Thank you.

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