Gazprom Neft's NIS Sees Difficult 2016 as Cheap Oil Hurts Profit

  • Company's annual profit fell more than 40% for second year
  • Negative currency effect acounts for 8.1 bilion dinars

Naftna Industrija Srbije, the Serb oil producer and refiner controlled by OAO Gazprom Neft, reported its profit dropped more than 40 percent for a second straight year and expects further financial difficulties on low prices and currency volatility.

Consolidated net income fell to 14.6 billion dinars ($130 million) last year from 27.8b dinars in 2014 amid a global oil slump, while a negative currency effect accounted to 8.1 billion dinars, the company said in a statement. Earnings before interest, taxes, depreciation and amortization fell 27 percent to 46.5 billion dinars, while sales declined 19 percent to 210 billion dinars. Operating cash flow rose 3 percent to 51 billion dinars.

“Conditions for operations in 2016 will be much more complex than in the previous year, primarily because of the low price of crude oil on world markets and the volatility of currencies,” the Novi Sad-based company said in statement, citing Chief Executive Office Kirill Kravchenko. “Hard times are ahead, which is why we must stay focused throughout and make a great effort to maintain profitability.”

The company, 29.9 percent owned by the Serbian government, had its first negative quarter since 2010 in the first quarter of last year as it sought to keep up exploration to expand its resource base. Investments fell 23 percent to 30.3 billion dinars last year.

“NIS retained a dividend payment ratio at 25 percent, so expected gross dividend per share should be 25 to 26 dinars, which gives around a 4.6 percent yield to the current market level,” Nenad Gujanicic, an analyst at Belgrade-based brokerage Wisebroker, said in a note.

The negative currency effects are mostly a consequence of increased debt, which rose to $675 million from $626 million in 2014, Gujanicic said.

“Their fourth quarter actually wasn’t bad, they are gradually adapting to current prices through cost cuts,” Milos Bijanic, a Sinteza Invest Group analyst, said by phone. “Upstream operations are still profitable, downstream is more challenging.”

NIS also expects to collect debt from Serbia’s state-owned gas company Srbijagas, which the government pledged to cover by May 2018. NIS may sell the claims to banks earlier to get cash needed to finance further exploration, Bijanic said.

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