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    Rosneft Swings to Loss on Market Collapse


The Russian oil producer says it will cut capex, but its dividend policy remains unchanged and it is continuing with a share buyback programme.

by: Joseph Murphy

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Rosneft Swings to Loss on Market Collapse

Russia's biggest oil producer Rosneft has swung to a net loss in the first quarter, it said on May 15, as a result of weaker demand and a collapse in prices in March.

The company, which supplies around 40% of Russia's oil, booked a net loss of rubles 156bn ($2.1bn) for the three months ending March 31, versus a rubles 131bn profit a year earlier. Revenues were down 15% at rubles 1.77 trillion, while core earnings (Ebitda) slumped 44% to rubles 309bn.

"2020 may become a turning point for the global oil and gas industry," Rosneft CEO Igor Sechin said in a statement. "As a result of the global Covid-19 virus pandemic, demand for crude oil has experienced an unprecedented decline, which resulted in a significant drop in energy prices."

The average price of Russia's main Urals oil grade dropped 21.8% in US dollar terms to $48.1/b. Rosneft also blamed its weaker numbers on ruble depreciation, which inflated the value of its foreign-denominated debt.

Rosneft's capital expenditure amounted to rubles 185bn in the first three months of the year, marking a 13.6% decline yr/yr. The company plans to cut investments this year by 21%, from rubles 950bn in 2019, Sechin told Russian president Vladimir Putin in a meeting on May 12. In that meeting he also asked the Russian leader for easing lending and tax breaks.

Rosneft expects to pay out rubles 354.1bn in dividends for last year. While it has not adjusted its dividends policy, the total amount paid to shareholders is likely to decline this year as payments are in proportion to net income. The company also noted it would continue a share buyback programme launched in March.

"At a time when many oil and gas companies around the world are taking decisions to reduce their dividends and terminate the share buyback programmes, the company's decisions to continue cash distribution to the shareholders speak to our confidence in the ability not only to successfully cope with the new challenges, but also to emerge from this difficult situation as an industry leader," Sechin said. "We hope that this approach will be appreciated by the financial community and reflected positively in the company's share price."

Rosneft's share price rose after its results were published, peaking at $4.81. At the time of press, the price is $4.77, up 2% on the level at the close of trading on May 14.

Rosneft's main shareholder is the Russian state, although it also counts BP and the Qatar Investment Authority among its investors. In the second quarter it sold its Venezuelan assets to a company 100%-owned by the Russian government in the hope that the US will lift sanctions imposed earlier this year on two of its subsidiaries for trading Venezuelan oil. In return, a 9.6% stake in Rosneft was transferred to one of its wholly-owned subsidiaries.


Rosneft cut oil and gas condensate production by 2.2% yr/yr to 4.64mn b/d in the first quarter, during which period its output was still restricted under the previous Opec+ agreement. That deal expired at the end of March, after talks between Saudi Arabia and Russia on deepening cuts broke down.

Opec+ agreed a new pact that came into force at the start of May, however, imposing bigger cuts than ever before in an attempt to prevent a catastrophic supply glut. Russia was free to produce as much as it wanted in April, but took little advantage of this opportunity given the market circumstances. Its oil and gas condensate supply came to 46.45mn metric tons (11.35mn b/d) during the month, up only 0.5% month on month and 1% yr/yr. 

Under the new Opec+ deal, Russia is obliged to cap its oil output at 8.5mn b/d during May and June, although the restrictions do not apply to condensate flows. The exclusion of condensate will make it difficult to assess Russia's compliance, as its energy ministry does not publish a breakdown of how much oil and how much condensate the country produces each month, but only an overall figure for both.

Further complicating matters, Russia's Opec+ quota is set in barrels but the ministry reports statistics in metric tons and does not specify the ratio it uses. NGW uses a standard ratio of 7.33 barrels/mt. The ministry says it wants the cuts implemented on a pro-rata basis, by all producers including international consortia working off the Far Eastern island of Sakhalin. 

Rosneft did not offer any guidance on its oil production during the rest of the year. The company's gas output fell by a further 2.9% yr/yr in the first quarter to 16.63bn m3.  The company is looking to expand its gas business with a series of new projects, including the Kharampurskoye field it is developing with BP, due to see first gas in next year and flow more than 10bn m3/yr under its first phase of development.