TNK-BP cuts staff, sees risks at $50 oil

Nov 28th, 2008
by John Donovan.

Reuters

Thu Nov 27, 2008 12:12pm EST

MOSCOW (Reuters) – Russia’s TNK-BP, half-owned by oil major BP (BP.L: Quote, Profile, Research, Stock Buzz), is cutting downstream business staff at its head office and expects oil production to suffer if oil prices do not recover in 2009, a company executive said on Thursday.

Alexander Kaplan, vice-president of TNK-BP (TNBPI.RTS: Quote, Profile,Research, Stock Buzz), told a news conference the firm would cut its head office’s downstream business staff by 15 percent to 250 people before the end of the year.

He said Russia’s third largest oil producer was working on an assumption oil prices would stick around $60-$70 per barrel next year. Production could suffer if prices fell below $50, he said.

“We have deposits which are under the threat of closure… because every ton of oil produced generates a loss,” he said.

Russian production is heading for a first decline this year after a decade of growth as firms like TNK-BP face deposit depletion and cannot afford launching new fields due to a heavy tax take.

Russian companies have repeatedly called on the government to sharply lower oil export duties as oil prices have been falling in the past months faster than the government-adjusted duties, thus pushing the companies into losses.

Kaplan said: “2008 was the best year in the company’s history…Today we already understand that next year will be very different. It will be tough for us as for any other Russian company.”

“Today we don’t have funds for commercial projects, for (products) output quality improvement. We only have funds to support (operations). It affects refining and to a certain extent – marketing and production,” he added.

Kaplan said the company would have to cut financing of its refineries’ modernization programs if oil prices did not recover.

TNK-BP still plans to go ahead with some big upgrades of its Ryazan, Saratov and Yaroslavl plants, but might not meet deadlines set by the government to switch to tougher European Union products quality standards.

“In fact, we don’t have funds to switch our refineries (to new standards) that have been approved. I think this problem is quite serious. If we don’t meet quality standards, I won’t be able to sell my products,” he said.

He also said TNK-BP had no plans to cut exports in November and December. The Russian government ordered oil firms to resume full shipments after they drastically cut export plans, citing very high export duties.

Kaplan said TNK-BP’s final capital expenditure plan would be approved at a board meeting in December.

(Reporting by Gleb Gorodyankin, writing by Dmitry Zhdannikov)

 

REUTERS ARTICLE

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Posted in: BP, Oil, Oil Prices, Reuters.
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