Rosneft Cost-Cut Helps Profit Beat Estimates as Oil Sputters

Updated on
  • Quarterly net falls to 89 billion rubles as oil languishes
  • Ebitda of 348 billion rubles beat 307 billion-ruble estimate

Rosneft PJSC’s second-quarter profit slumped 34 percent, coming in better than analysts estimated on a one-time drop in costs even as a recovery in oil prices sputtered out.

Net income fell to 89 billion rubles ($1.4 billion) from 134 billion rubles a year earlier, according to the Moscow-based company. That was higher than the 83 billion-ruble average from an analyst survey by Bloomberg News. Revenue dropped 7.9 percent to 1.23 trillion rubles, in line with the estimate.

The rout in commodities has pushed Russia into its longest recession in two decades. The government is considering a sale of almost 20 percent of Rosneft, the nation’s biggest company, to help narrow a budget deficit. State finances have borne the brunt of oil’s crash while a progressive tax system shelters the producers themselves.

“Rosneft could still bring us good news this year,” said Alexander Kornilov, an oil analyst at Aton LLC in Moscow. “Still, however wonderful an oil company it may be, a lot depends on oil prices.”

‘Modestly Positive’

Rosneft plans to boost output at aging fields in West Siberia, start a new field in East Siberia, and, if it gets government approval, could bid for regional producer Bashneft PJSC, Kornilov said. Still, the benefits are down the line and second-quarter results beat expectations mainly because of a “one-off cut in operating costs,” he said, citing an “inventory effect” at Rosneft refineries that helped bring the expense line down 10 percent from the previous three months.

Rosneft shares rose 2.5 percent in Moscow on Monday, the biggest gain since July 12. Brent crude gained 2.4 percent to $48.11 a barrel in London, the highest in about a month, according to data compiled by Bloomberg. In the second quarter, the benchmark oil averaged $45.60, down from $61.90 a year earlier, Rosneft said.

The results were only “modestly positive” as a lag in the tax system, benefiting companies when prices rise month-to-month, helped protect Rosneft’s earnings before interest, taxes, depreciation and amortization in the second quarter, Veles Capital said in a research note. Ebitda reached 348 billion rubles in the quarter, compared with the average analyst estimate of 307 billion rubles. 

Cash Flow

Free cash flow will probably come under pressure as the company boosts investments in the second half of the year, according to Veles. The measure dropped to $1.3 billion from $1.5 billion in the first quarter, according to Rosneft.

Net debt fell to $23.4 billion from $23.9 billion at the end of the first quarter, Rosneft said.

Rosneft benefited from a payment of 72 billion rubles from India’s Oil and Natural Gas Corp. in May for a 15 percent stake in its Vankor unit in East Siberia, according to the report. The amount of a final payment is still “under consideration.” At the time, the companies said the base value for the deal was $1.27 billion.