Rosneft Profit Beats Estimates as Oil Rises to Record (Update3)

Dec. 1 (Bloomberg) -- OAO Rosneft, Russia’s largest oil company, posted third-quarter profit that exceeded analysts’ estimates after crude prices rose to a record.

Net income climbed to $3.47 billion from $1.93 billion a year earlier, the Moscow-based company said today in an e-mailed statement. That beat the $2.68 billion median estimate of 10 analysts surveyed by Bloomberg News.

Earnings at Rosneft and Russian competitor OAO Lukoil have soared this year as crude and products gained to all-time highs. Producers are bracing for tougher times as oil trades at a third of its July peak. Rosneft’s third-quarter profit fell 20 percent from the second quarter after Urals crude, the country’s export blend, slid 33 percent from its $142.50-a-barrel record in July.

“Oil companies will have to transition through a difficult period,” said Chirvani Abdoullaev, an oil and gas analyst at Alfa Bank in Moscow. “You can sit and hope for higher oil prices, but they may never come back.”

Analysts cited several reasons why Rosneft’s earnings beat expectations, including a foreign-exchange gain of $368 million, higher oil-product prices and lower-than-estimated export taxes.

“Costs were better than we expected, and the majority of the difference appears to be lower-than-forecast payments on export duties,” said Artyom Konchin, an oil and gas analyst at UniCredit Aton in Moscow.

Export Duties

Rosneft paid about $7.04 billion in export customs duties for oil, gas and petroleum products in the period. That compares with Aton’s estimate of $8.2 billion, Konchin said.

Revenue from oil-product sales advanced 59 percent from a year earlier to $4.62 billion, after average prices rose 56 percent, the company said. The price of crude on Russia’s domestic market increased 40 percent from a year earlier, while fuel oil added 81 percent and diesel 70 percent, Rosneft said.

“They were able to keep petroleum product prices at higher levels than we expected,” Abdoullaev said.

The average third-quarter price of Urals crude was 3.7 percent lower than in the second quarter, according to data compiled by Bloomberg.

Rosneft dropped 7.1 percent to close at 101.13 rubles in Moscow trading. The shares pared losses after the earnings were released, before falling again.

Costs Drop

Production and operating expenses declined to $3.35 a barrel from $3.68 a year earlier, while refining costs slipped to $3.60 a barrel from $4.20 in the second quarter.

“We’ve reduced our net debt substantially and we’ve cut costs substantially,” Peter O’Brien, vice president of finance and investments, said by telephone today. “Both of these things position us well to deal with a more difficult environment.”

The company posted a foreign-exchange gain in the third quarter of $368 million, compared with a currency loss of $163 million in the same period a year earlier.

Total tax payments increased to a record $12.5 billion from $7.1 billion a year earlier. The company’s tax-to-revenue ratio reached 60.6 percent in the third quarter, compared with 55.9 percent in the second.

“The fourth-quarter is clearly going to be more difficult,” O’Brien said. The full year will “still be by a substantial margin a record year for the company.”

State-run Rosneft grew from a second-tier oil company into Russia’s leading producer after buying up assets belonging to OAO Yukos Oil Co., which collapsed under back-tax claims of more than $30 billion. Rosneft borrowed $22 billion last year to bid for Yukos assets sold at auction.

The company began consolidating Yukos’s former production units Tomskneft and Samaraneftegaz in May 2007, and agreed to sell half of Tomskneft in December to Russian oil producer OAO Gazprom Neft.

To contact the reporter on this story: Greg Walters in Moscow at gwalters1@bloomberg.net

To contact the editor responsible for this story: Guy Collins at guycollins@bloomberg.net