Rosneft: Financial results for 2Q 2019 and 1H 2019
Commenting on 2Q 2019 results Rosneft’s Chairman of the Management Board and Chief Executive Officer Igor Sechin said:
“In 2Q 2019 the Company continued to execute strategic objectives of growing the efficiency of existing assets and reducing debt. Despite efforts of the management to achieve those goals, the influence of external one-offs should be noted, which limited the capacity to grow production in 2Q 2019. First of all, these factors include limiting crude oil intake by the Transneft pipeline system due to the pollution caused by circumstances beyond the Company’s control as well as a decrease in crude oil production within the OPEC+ Agreement.
Net income attributable to Rosneft shareholders grew by more than 9% in 1H 2019, compared to the same period of last year.
Despite the unstable macroeconomic environment and external limitations, the Company reduced its financial debt and trade prepayments by more than RUB 800 bln since the beginning of 2019. The optimization of the debt portfolio structure continued with a share of long-term debt growing to 80% and the short-term debt decreasing by 25% since the beginning of the year.
With the ultimate goal of increasing returns for the shareholders Rosneft will continue to invest in realization of its resource base potential and delivery of new oil and gas production projects.”
Consolidated IFRS financial results for 2Q 2019 and 1H 2019:
|RUB bln (except %)|
|Revenues and equity share in profits of associates and joint ventures||2,135||2,077||2.8%||4,212||3,787||11.2%|
|EBITDA margin||23.8%||26.0%||(2.2) pp||24.9%||24.6%||0.3 pp|
|Net income attributable to Rosneft shareholders||194||131||48.1%||325||2983||9.1%|
|Net income margin||9.1%||6.3%||2.8 pp||7.7%||7.9%||(0.2) pp|
|Free cash flow (RUB equivalent)1||135||197||(31.5)%||332||363||(8.5)%|
|Upstream operating expenses RUB/boe||203||195||4.1%||199||189||5.3%|
|USD bln2 (except %)|
|Revenues and equity share in profits of associates and joint ventures||33.6||31.9||5.3%||65.5||64.8||1.1%|
|Net income attributable to Rosneft shareholders||3.0||1.9||57.9%||4.9||5.0||(2.0)%|
|Free cash flow||2.0||3.0||(33.3)%||5.0||6.1||(18.0)%|
|Upstream operating expenses USD/boe||3.2||3.0||6.7%||3.1||3.2||(3.1)%|
|Average Urals price. USD per bbl||67.9||63.2||7.4%||65.5||68.9||(4.8)%|
|Average Urals price. th. RUB per bbl||4.38||4.18||4.8%||4.28||4.09||4.8%|
1 The calculation includes interest expense on the prepayments on the long-term oil and petroleum products supply agreements.
2 Calculated using average monthly Central Bank of Russia exchange rates for the reporting period.
3 Net income in 1H 2018 is adjusted due to revision of estimation of the assets purchased in 2018.
Revenues and equity share in profits of associates and joint ventures
2Q 2019 revenues amounted to RUB 2,135 bln (USD 33.6 bln). The increase in sales by 2.8% QoQ was driven by higher crude oil prices (+4.8% in RUB terms and +7.4% in USD terms). Limitation of crude oil intake by the Transneft pipeline system restricted the revenues growth in 2Q 2019 due to pollution in Druzhba pipeline caused by circumstances beyond the Company’s control (hereinafter, limitation of crude oil intake).
1H 2019 revenues increased by 11.2% YoY in RUB terms mainly due to higher volumes of crude oil and petroleum product deliveries (+6.5%) as well as crude oil price growth in RUB terms (+4.8%). An additional factor of revenue growth was the increase in equity share in profits of associates and joint ventures.
2Q 2019 EBITDA amounted to RUB 515 bln (USD 8.0 bln), reduction of 6.0% in RUB terms vs 1Q 2019. The decline was mainly driven by the change in sales volumes of hydrocarbons caused by limitation of crude oil delivery and higher export duties.
2Q 2019 lifting costs amounted to 203 RUB/boe (3.2 USD/boe), increasing by 4.1% vs 1Q 2019. Growth of operating expenses was mainly driven by additional costs of geotechnical works due to limitation of crude oil intake and maintenance of the necessary capacity to increase production as well as a seasonal increase in maintenance and repairs of ground infrastructure.
1H 2019 EBITDA growth of 11.9% to RUB 1,063 bln was mainly driven by a positive crude oil price dynamics in RUB terms.
1H 2019 lifting costs amounted to 199 RUB/boe (3.1 USD/boe), increasing by 5.3% vs 1H 2018, which is below PPI (producer price index) of 8.9% compared to the same period of 2018.
Net income attributable to Rosneft shareholders
In 2Q 2019 net income attributable to Rosneft shareholders amounted to RUB 194 bln (USD 3.0 bln). A48.1% growth vs 1Q 2019 is mainly driven by the recognition of assets impairment in 1Q 2019.
Increase in the net income in 1H 2019 of 9.1% YoY was driven by the positive dynamics of the Company’s operating income and a reduction of financial expenses.
2Q 2019 capital expenditures amounted to RUB 222 bln (USD 3.5 bln). The growth of 3.7% vs 1Q 2019 was driven by the active development of Russian and international projects. 1H 2019 capital expenditures amounted to RUB 436 bln, a reduction of 3.5% YoY, due to optimization of the development drilling program in the context of the strategic initiative to increase the share of horizontal wells of higher efficiency at the Company’s brownfields not less than 40%. The Company is reviewing options for aligning the capital investment profile of its large projects with the extension of quotas under the OPEC+ production cut agreement.
Free cash flow
2Q 2019 free cash flow amounted to RUB 135 bln (USD 2.0 bln). The reduction compared to 1Q 2019 was due to the EBITDA decrease and the growth of working capital as a result of the inventory build-up because of the limitation of crude oil intake. 1H 2019 free cash flow amounted to RUB 332 bln (USD 5.0 bln). Free cash flow for the last 12 months amounted to USD 16.8 bln.
Keeping the focus on the debt reduction, the Company decreased its financial debt and trading liabilities by 14% or by more than RUB 800 bln since the beginning of 2019. Net debt and trading liabilities reduced by RUB 157 bln in 1H 2019. Net debt/EBITDA level was at 1.3x in RUB terms at the end of 2Q 2019.
At their last meeting Rosneft’s shareholders approved record dividends in the Company’s history. Last month Rosneft completed payment of the final dividends of RUB 120 bln and fulfilled all obligations to the shareholders for 2018.