Rosneft Profit Falls 77% as Taxes Lag Decline in Oil Price

  • CEO Sechin says ‘considerable’ negative export duty lag effect
  • Oil output rose to 4.15 million barrels a day in quarter

Rosneft PJSC, Russia’s biggest oil producer, said third-quarter profit dropped 77 percent as a decline in export duties lagged behind slumping crude prices.

Net income fell to 26 billion rubles ($400 million) from 112 billion rubles a year earlier, the Moscow-based company said Friday in a statement. That missed the 44.4 billion-ruble average estimate of five analysts surveyed by Bloomberg. 

Rosneft, which took control of smaller rival Bashneft PJSC last month, has taken advantage of a weak ruble that curbs costs and a Russian tax system that cushions producers from lower prices to increase drilling and boost output. However, the monthly fixing of export duties falls a step behind the oil price, putting pressure on earnings, according to Rosneft Chief Executive Officer Igor Sechin.

“The environment on the commodity markets remained difficult,” Sechin said in the statement. “Additional pressure on the company’s profitability was from considerable negative export duty lag effect.”

Rosneft shares fell 1.4 percent to 346.05 rubles by 4:08 p.m. in Moscow. That pared this year’s gains to 37 percent as Russia prepares to sell a 19.5 percent stake in the company.

Profit Measure

The company’s sales slipped 5.6 percent to 1.22 trillion rubles, while earnings before interest, taxes, depreciation and amortization climbed by a fifth to 292 billion rubles in the quarter, topping the 274 billion rubles estimated by analysts.

Oil output rose 1 percent to 4.15 million barrels a day in the quarter from a year earlier as Rosneft increased development drilling by 42 percent to 6,987 kilometers (4,342 miles) in the first nine months of the year.

Net debt rose to $26.1 billion as of Sept. 30 from $23.4 billion three months earlier, while free cash flow remained at $1.3 billion for a nine-month total of $4.1 billion, according to the statement. The company said it had more than $20 billion in cash and equivalents on its balance sheet at the end of the period.

“Free cash flow of $4.1 billion looks fine and healthy,” Alexander Kornilov, an oil analyst at Aton, said Friday by e-mail.

The oil producer must repay $3.8 billion of debt maturing in the fourth quarter, $12.9 billion in 2017 and $12.4 billion in 2018, according to a company presentation.

Rosneft said it had 627 billion rubles of liabilities under repurchase agreements due in 2017 and the first quarter of 2018 as it renews borrowing, according to the statement. The company used its corporate bonds as an instrument in the transactions.

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