Rosneft: Financial results for 3Q 2020 and 9M 2020
• 3Q 2020 EBITDA increased more than two-fold compared to 2Q 2020 and reached RUB 366 bln
• 3Q 2020 FCF amounted to RUB 146 bln
• Reduction of unit operating costs to 2.8 USD/boe
• Reduction of interest costs by 24% in USD terms YoY
• Reduction of financial debt and trading liabilities by USD 5.7 bln in 9M 2020
• Short-term component of financial debt decreased to 17%
Consolidated IFRS financial results for 3Q 2020 and 9M 2020:
1The calculation includes interest expense on the prepayments on the long-term oil and petroleum products supply agreements. Previous periods have been adjusted for comparability for net change of subsidiary banks operations in operating activity.
2Calculated using average monthly Central Bank of Russia exchange rates for the reporting period.
Commenting on 3Q 2020 financial results Rosneft’s Chairman of the Management Board and Chief Executive Officer Igor Sechin said:
“In the reporting period the Company demonstrated an ability to work successfully in difficult conditions of crude oil output restrictions and relatively low hydrocarbon prices. EBITDA in the third quarter not only exceeded the second quarter level by more than 2 times, but was better than in the first quarter when the macroeconomic environment had not yet been under the influence of coronavirus limitations. Significant achievements of the third quarter include a reduction of upstream operating costs to 2.8 USD/boe and a decrease in interest costs by 24% in USD terms y-o-y. The management will continue to work on further efficiency improvements in all areas of the Company’s operations.
In nine months of the current year the Company generated free cash flow of RUB 352 billion or 5.4.billion in USD terms, that allowed us not only to fully meet our 2019 dividend payment obligations to the shareholders, but also to continue debt reduction. From the beginning of this year the amount of financial debt and trading liabilities decreased by USD 5.7 billion. At the same time, the debt structure continued to improve with an increase in the long-term component from 76% to 83%.
We expect the market to take positively the Company’s ability to reduce the absolute amount of debt and trading liabilities as well as to maintain a high level of financial stability in the challenging macroeconomic environment”.
Revenues and equity share in profits of associates and joint ventures
3Q 2020 revenues and equity share in profits of associates and joint ventures amounted to RUB 1,439 bln (USD 20.1bln). The increase in revenues in RUB terms compared to 2Q 2020 (+38.5%) was driven by a recovery of crude oil prices (+37.8%) while the hydrocarbons output fell in accordance with a new OPEC+ Agreement, as well as by higher domestic sales of crude oil products (+28.8)%.
Revenues fell by 34.2% in 9M 2020 compared to 9M 2019 mainly due to a reduction in international crude oil prices (-36.4%) and a decrease in crude oil sales volumes (-17.8%) driven by falling demand in the global market due to the COVID-19 pandemic.
3Q 2020 EBITDA amounted to RUB 366 bln (USD 5.0 bln), a two-fold increase in RUB terms compared to 2Q 2020. The increase was driven by a recovery of crude oil prices (+37.8%) and by a lower negative impact of reverse excise duty.
The decrease in EBITDA compared to 9M 2019 was due to a significant drop of international crude oil prices (-36.4%) as a result of falling global market demand for crude oil and a negative impact of reverse excise duty (RUB -223 bln), which was partially offset by a decrease in administrative expenses of 5.3%.
3Q 2020 unit upstream operating costs were 205 RUB/boe. The reduction compared to 2Q 2020 was mainly due to lower energy costs and lower volumes of maintenance and repairs of wells in the situation of the production decline in accordance with the new OPEC+ Agreement. Unit upstream operating costs were 2.8 USD/boe, a decrease of 3.4% compared to 2Q 2020.
9M 2020 unit upstream operating costs were 201 RUB/boe (2.8 USD/boe), nearly unchanged compared to 9M 2019, as the production fell in accordance with the new OPEC+ Agreement.
Net income/(loss) attributable to Rosneft shareholders
In 3Q 2020 negative Net income amounted to RUB -64 bln (USD -0.8 bln), including a negative effect of non-monetary factors.
In 9M 2020 negative Net income was RUB -177 bln (USD -2.1 bln). The reduction compared to 9M 2019 was a result of the negative effect of price fluctuations due to COVID-19 pandemic as well as the negative effect of non-monetary factors.
9M 2020 capital expenditures amounted to RUB 569 bln (USD 8.0 bln), a reduction of 10.3% compared to the same period of 2019. Unit capital expenditures in the segment of “Exploration and production” were 5.4 USD/boe, a decrease of 10% y-o-y. Reduction was mainly driven by optimization of the investment program in light of the negative market conditions and new agreement on limiting crude oil output reached in April 2020.
Free cash flow
3Q 2020 free cash flow amounted to RUB 146 bln (USD 2.0 bln), which was mainly driven by a positive EBITDA dynamic due to the crude oil price growth.
9M 2020 free cash flow was RUB 352 bln (USD 5.4 bln). The reduction of free cash flow compared to 9M 2019 was mainly a result of the EBITDA decline, which was partially offset by the reduced capital expenditures.
In 9M 2020 financial debt and trading liabilities decreased by USD 5.7 bln. Interest costs reduced by 24% in USD terms compared to 9M 2019. Net debt/EBITDA was 2.5x in USD terms at the end of the reporting period. In 3Q 2020 short-term component of the financial debt reduced from 24% to 17%. Available credit lines and liquid financial assets exceeded the short-term debt by 1.8 times as of the reporting date.