LUKOIL's new overseas production project management system comes online.

Gati Al-Jebouri, PAO LUKOIL Vice President, Region 1 Director

L UKOIL has been developing its international business for over 15 years. Now, after the first stage of active expansion has been completed, the time has come to increase the efficiency of our acquired assets. That's why LUKOIL President Vagit Alekperov made the decision in early 2016 to divide the company's international upstream business into three regions with centers in Dubai, Houston and Tashkent. The Houston center will specialize in offshore projects.

What are the benefits of this system? When expanding rapidly around the globe, you have to be able to make decisions quickly, including on entering a project or changing its parameters. Today we're talking mostly about improving the economics of our projects, hence the role of LUKOIL's head office in analyzing and controlling our work becomes more prominent.

The Operational Committee gives us the opportunity to combine the efforts of the center and regions in improving efficiency and the long-term development of LUKOIL Group's international activities.

Another benefit has to do with the opportunity colleagues in different regions get to exchange experience at the Operational Committee. Finally, the third benefit is the chance to rotate managers of different regions who have a detailed understanding of all the company's projects.

I believe that this approach to managing our international business will give us the best results. A great example of this at work is Block 10 in Iraq. The project showed modest results at the beginning of 2016. A year later we've achieved the minimum level of profitability – 15%. We've completed successful geological exploration, drilled the first well and, in the near future, will be able to show its first results. We're also doing a lot of work to improve the efficiency of our largest project in Iraq, West Qurna-2.

There are difficulties, to be sure. For example, we have a large accounts receivable debt for our project in Egypt. We were able to get the company's treasury and LUKOIL subsidiary LITASCO to help with this problem through the Operational Committee, thereby achieving a non-standard path to solving it.

Unfortunately there are also cases like Saudi Arabia, where we found oil and gas reserves, but were unable to make the project economically viable to us. We took the decision o sign a contract with Saudi Aramco, thereby transferring the historical oilwells' ownership and leaving the project.

Today LUKOIL is making big efforts to find and evaluate new projects in Iran. The people leading these efforts have unique experience with large, capital-intensive projects such as West Qurna-2.

We understand that 2017 will not be easy. We won't have the low oil prices of early 2016, but that doesn't mean we can stop increasing the efficiency of our projects. At the same time we have to search for new opportunities to develop our business.

The Middle East is the world's richest region in terms of oil reserves. Our priority is to expand our work here and find new, efficient projects that will increase our production of hydrocarbons while strictly maintaining the budgetary and efficiency parameters approved by our head office.

Most importantly – these projects must be attractive for LUKOIL and the countries in which we operate."

"We have no other fate but to expand - both in Russia and beyond. It's important to talk about our successful projects in developing oilfields while also achieving great results in terms of technological and economic efficiency.

For example, we were very successful in developing the West Qurna-2 oilfield and today we're ready to transfer this experience to Iran. It's similar in climate, mentality and geology, and this is critically important to specialists. I hope the ongoing negotiations will conclude successfully and we'll be able to create a new project in which specialists from West Qurna-2 will participate. I'm sure their experience will be invaluable in our future work throughout the Middle East."

AZAT SHAMSUAROV LUKOIL Senior VP, Chairman of Operation Committee

Operational Committee: facts

Part of the restructuring of LUKOIL's international production management system was a formation of a new management body - the Operational Committee, responsible for overseas exploration and production at LUKOIL Group. The Operational Committee became the body tasked with unifying strategic goals with production plans on the ground.

Out of its six members, three (including the chairman) are top managers at PAO LUKOIL, while the other three are LUKOIL VPs in charge of the international upstream portfolios. Two additional representatives of PAO LUKOIL are temporarily members of the Operational Committee, as well as the heads of the company's international assets.

The Operational Committee makes decisions on some of the most important aspects of the company's work overseas, including hydrocarbon production levels, the development of priority projects, exploration, construction and new investments.

The Operational Committee must meet no less than once every three months. The last meeting in 2016 was held in Dubai on December 20-21. It covered nearly every overseas project and was the platform for a number of critical decisions.