Rosneft Reports Third-Quarter Profit After Currency Gains

  • Company keeps 2015 capital spending plan at 650 billion rubles
  • Profit suggests upside potential for dividends, analyst says

Rosneft OJSC rebounded to a profit in the third quarter after foreign-currency gains following a change in the accounting practices of Russia’s largest oil producer.

Net income rose to 112 billion rubles ($1.71 billion) from close to zero in the year-earlier period, the Moscow-based company said Wednesday in a statement on its website. Rosneft reported a foreign-currency gain of 83 billion rubles compared with a loss of 95 billion rubles in the third quarter of 2014. Revenue fell 8.4 percent to 1.27 trillion rubles.

The rebound in profit suggests upside potential for shareholder payouts as Rosneft’s dividend represents 25 percent of net income, according to Alexander Kornilov, an oil and gas analyst at Alfa Bank in Moscow. Kornilov sees a 2016 dividend of 9.3 rubles a share for Rosneft, which is about 70 percent owned by the Russian government. BP Plc holds a stake of almost 20 percent.

Russian oil and gas producers, Novatek OJSC, Gazprom Neft PJSC and Bashneft PJSC, have reported losses or a slump in profit this quarter after crude prices fell to about half of the previous year’s level. Sanctions limiting borrowing have also put pressure on Rosneft as it attempts to reduce debt raised for the $55 billion acquisition of TNK-BP in 2013.

Challenging Environment

“Despite a challenging economic environment, the company keeps improving its efficiency,” Rosneft Chief Executive Officer Igor Sechin said in the statement. “This is demonstrated by keeping operating costs in ruble terms at sustainable level in conditions of 12 percent increase in industry prices.”

The company also achieved a “structural improvement” in its credit profile, Sechin said.

Rosneft said net debt fell 46 percent to $24.5 billion after it gained about 1 trillion rubles of prepayments for future supplies of oil. The company has $2.5 billion debt coming due in the fourth quarter, with another $13.7 billion in 2016 and $11.3 billion in 2017, a company presentation shows.

The lower net debt number is “solely because of prepayment money which has not been spent yet,” said Kornilov.

Oil and gas output fell 1.3 percent to 5.08 million barrels of oil equivalent a day in the quarter from the preceding three months, Rosneft said. Oil production dropped 0.7 percent to 4.1 million barrels a day while natural gas fell 4 percent to the equivalent of 982,000 barrels a day.

Capital Spending

Rosneft plans to keep a 650 billion-ruble capital expenditures plan for this year after spending 409 billion rubles through the first nine months, according to the presentation. The producer spent 533 billion rubles in 2014.

The company plans to increase capital spending “significantly” next year in ruble terms, Chief Financial Officer Svyatoslav Slavinskiy said on a conference call, without giving an exact figure.

The company will increase drilling volumes in 2016 and maintain that level in coming years, Vice President Eric Liron said on the same call. The company plans to start the northerly Suzun field in the fourth quarter of next year, with output of 4.5 million tons in 2017. The Russkoye field, in the same development region, may start in 2018 and reach peak production two years later, he said.

Rosneft plans to increase natural gas production by 5 billion cubic meters next year, according to Vice President Vlada Rusakova.

The company reported free cash flow of 517 billion rubles through the first nine months of the year versus 404 billion rubles a year earlier, excluding the effect of prepayments and interest expenses, Rosneft said.

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