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President of Russia Vladimir Putin: Mr Alekperov, LUKOIL is one of the biggest vertically integrated oil and gas companies not only in Russia but also in the world. It accounts for 2 percent of world oil production, in Russia it has 12 percent of the reserves, I believe, and accounts for 18 percent of production.

How companies like yours feel, work, operate, and build relations with the state authorities has great importance for the fuel and energy sector and for the economy in general. Let us discuss this.

President of LUKOIL Vagit Alekperov: Mr President, thank you for the opportunity you give me to brief you regularly on LUKOIL’s activities. Today I would like to report on our results for 2016.

2016 was a tense year for the company, but we have some unique results as well. You attended the launch of operation at the major field in the Caspian. This field is operating well now and we have already reached quite a good oil production level. As I promised, we are building new platforms in the Caspian every year and we have put the Caspian docks to full use. All installations are being built on Russian soil by Russian subcontractors. This year, we will be commissioning new offshore platforms in the Caspian.

We are one of Russia’s biggest taxpayers. Rosneft is first, then Gazprom, and we are in third place.

Here is the facility as it looks today. (View presentation)

Vladimir Putin: The Filanovsky field?

Vagit Alekperov: Yes, the flares are there and the wells are in operation.

The second field we have commissioned in Russia is Pyakyakhinka in the Yamal-Nenets Autonomous District. What makes this field unique is that the oil- and gas-bearing beds went into production at the same time, and we are recycling 100 percent of the associated gas. This is a very complicated complex project that we have built, without roads, 400 kilometres from Salekhard.

Rosneft and LUKOIL have begun drilling on the Taimyr section and we hope to discover oil there. This would open up a new oil region in Russia.

We have carried out full modernisation of our oil refineries. Our refineries in Nizhny Novgorod, Perm and Volgograd are the best not only in Russia but in Europe as well. The Perm refinery has a refinery yield of 99 percent. We even bring fuel oil there for further processing.

We are very active on the international arena. The company is a major operator of one of Iraq’s biggest fields, and the project, West Qurna-2, is developing quite well. Compensation is going ahead on time, despite the difficult situation in Iraq. The government is meeting its obligations.

We are preparing for Iran. I hope that the latest talks will give new impetus to the process, after the elections, of course. The Iranians have offered two new fields and we are working on them now. Our specialists are present in Tehran, and I hope that we will have success here.

During the President of Uzbekistan’s visit, our investments were discussed, and we are currently preparing to start production at a new field. I am very pleased that Gazprom reached agreement on gas purchases with Uzbekneftegaz, because among the gas that Gazprom will buy will be gas produced by LUKOIL.

We are involved in all sectors, including the social sector.

Vladimir Putin: You also actively support sport.

Vagit Alekperov: Yes, we do. On the next slide, you can see kindergartens, which I talked about. All kindergartens (you will see photos) have been built and transferred to the local authorities in all the regions where we operate. So now over 2,000 children in all the regions where we operate now have new kindergartens.

Vladimir Putin: Very nice.

Vagit Alekperov: My private fund, Our Future, invested in Kogalym. A centre built together with LUKOIL includes everything: an aquarium, a water park, four cinemas, restaurants, shopping galleries, bowling alleys, climbing gyms, a skating rink for children and so on. This practically resolves social development in this region. We plan to build a stadium and tennis courts there. The northern cities are developing. And one of my requests to you will be to visit Kogalym this year and hold events related, among other things, to import substitution in the oil and gas sector.

Vladimir Putin: We will think about it. Why not?

Vagit Alekperov: We were the first to support the Aleksandrov Choir after the tragic events in Sochi. We immediately allocated funds, allowing them to quite quickly attract new singers and restore the great choir.

The day before yesterday, there was a lot of hard work at the Sirius educational centre, involving Olga Golodets and our experts. We exhibited our unique models there, and presented them to the centre. These are all our platforms that we have built over the years.

Today, 35 children from the towns of Western Siberia study there. We closely cooperate with this centre, and I hope that this educational system will provide for applying best practices, including in such monotowns as western Siberian towns.

Vladimir Putin: Yes, this is a good idea. If your children come there to study, the best technologies and practices should be applied at their local schools.

Vagit Alekperov: We also want teachers to be somehow involved in the educational process at this centre.

Vladimir Putin: There is a special teacher training programme.

Vagit Alekperov: The goals for 2017 are considerable as well.

Vladimir Putin: ”Additional exploration in the Baltic“ What does that mean?

Vagit Alekperov: We have discovered several fields and have been using Gazprom’s drilling rig for almost six years now. We made a discovery there. The Defence Ministry is assisting us, making sure we can conduct geological prospecting on these sites, and synchronises its actions with us.

We asked the Government to announce a tender for the new sections. Since we have already started geological exploration, we would, of course, like to explore the entire territory and the possibilities that it offers. Already now, with the discovery that we made, we can almost double the Kaliningrad Region reserves.

Vladimir Putin: Very good.

What are your plans to develop a network of petrol stations and associated services in urban areas and on the roads?

Vagit Alekperov: Our network is large. There have been reports that we are selling our petrol stations. Unfortunately, Mr President, today the retail business is experiencing a rather tough situation. After a major tax maneuver, oil refining and retail businesses are under pressure from the so-called new tax realities, because the profit centre has shifted to oil production. We are taking steps to make it effective enough, but while developing our strategy for 10 years, our so-called strategists suggested selling our retail network. However, the board did not agree, and we are now upgrading our stations and streamlining the network.

We have pulled out from a number of countries and sold our assets in countries such as Ukraine, Lithuania, Estonia, Latvia, and Poland. We have concentrated on other countries, where there is synergy, and increased our presence in Turkey, the Mediterranean, the Netherlands and Belgium, because there is synergy with the product that we are producing in Russia. That is, this gives us additional opportunities to reach the end consumer, meaning that the networks are fairly effective.

In Russia, our coverage today is rather significant, going from Kaliningrad almost to East Siberia, with about 3,000 petrol stations. They enjoy well-deserved respect among motorists. We started production of EKTO 100 petrol, with an octane rating of 100. For the first time ever, such petrol is produced not for aircraft engines, but for automobile engines. It will become available for sale at our petrol stations on June 1, and car owners will have access to the entire octane range. It is also a more economical fuel, and is better for the engine overall. We conducted all kinds of tests at a state institute, and it performed beautifully.

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