Neither sanctions nor volatility in commodity prices shook the position of Russian oilmen

One of the most notable achievements was that the company came out on top among independent gas producers. According to the results of January-June, production amounted to 43.7 billion cubic meters (1.5 million boe per day). Its increase by almost a third is due to the increase in production at new projects, as well as the launch of new facilities in the YaNAO in 2022. In the first half of the year, the company produced 97 million tons of liquid hydrocarbons (4 million barrels per day), hydrocarbons in general – 5.5 million boe per day.

At the same time, the situation with oil was complicated by the obligation of the Russian Federation to limit the production of “black gold” within the framework of OPEC+. As the head of Rosneft, Igor Sechin, recalled, the company has been restricting production in one form or another since 2017, “which does not allow it to fully realize its own potential.” In the second quarter, liquid hydrocarbon production was reduced by 2.2% to 3.9 million bpd.

With regard to such a parameter as production efficiency, there are still no problems with it – thanks to active exploration activities. Onshore in the Russian Federation in the first half of the year, the oil company completed 2.7 thousand linear meters. km of 2D seismic works and 5.8 thousand sq. km. Seismic works 3D. Completed testing of 19 exploration wells with a success rate of 90%. Production drilling meterage in January-June amounted to 5.9 million m with an increase in annual terms by 6.3%. More than 1.5 thousand new wells have been put into operation, and 69% of them are horizontal. The share of new horizontal wells with multi-stage hydraulic fracturing was 46%. Specific production per horizontal well is more than twice as high as for directional wells.

“Vostok Oil”

Despite the difficult external environment, the implementation of major investment projects continues. The flagship of Vostok Oil in the north of the Krasnoyarsk Territory, launched in 2020, stands out against the general background: after 2023, it is planned to produce about 100 million tons of oil here. According to the international rating agency Moody’s, such strategically important projects will provide a competitive advantage in the future: today the company has no significant risks for long-term production volumes and profit levels.

During January-June, more than 2.2 thousand linear meters were completed at the Vostok Oil project. km of 2D seismic surveys and 1.6 thousand sq. km of works 3D. Drilling of two exploration wells has been completed, drilling of three wells has begun, eight more are at the testing stage. As part of the pilot development of the Payakhsky cluster, 27,000 meters of penetration were drilled and eight production wells were completed. In July 2023, the company began pilot development of another field, Baikalovskoye, with initial recoverable reserves of 81 billion cubic meters. m of gas and 43 million tons of oil. Today, a drilling rig for drilling six wells is being installed here.

The Company continues the construction of the Vankor-Payakha-Sever Bay oil trunk pipeline and the Port Bay Sever oil terminal, and work is underway to build hydraulic structures. Warehouse transshipment facilities of the Yenisei basin, hydraulic structures are also being built, and coastal and mooring infrastructure is being expanded. During the summer navigation along the Yenisei River and the Northern Sea Route, over 800,000 tons of building materials and equipment are planned to be delivered to Vostok Oil facilities. This is a record volume for this logistics route, which is 35% higher than the same indicator last year.

Recycling

The volume of oil refining by the company in the Russian Federation in the first half of the year amounted to 44.1 million tons. The same indicator for January-June 2022 was exceeded by 9.2%. In the second quarter, it decreased by 5.1%, to 21.5 million tons, due to seasonal repairs. It is worth noting that Rosneft is systematically working to develop domestic technologies and import substitution. In particular, its plants use in-house developed catalysts, which make it possible to produce high-quality motor fuel. In January-June, 780 tons of diesel fuel hydrotreatment catalysts and protective layer catalysts were produced, and 75% of them were supplied to our own refineries, another 25% – to the foreign market. The enterprises also produced 175 tons of reforming catalysts and 55 tons of hydrogen production catalysts, reactivated (restored activity) 340 tons of regenerated diesel fuel hydrotreating catalysts.

Level of financial stability

As Igor Sechin noted, the company’s financial performance demonstrates stability, despite the volatility of market prices. The effect is achieved through tight control over costs. For example, in the second quarter of 2023, the cost of hydrocarbon production decreased to $2.8/boe, which is one of the lowest values ​​in the world. Let’s say the same indicator for British BP is $5.94/boe, Brazilian Petrobras is $7.6/boe.

In the first half of the year, the oil company’s revenue decreased by 25%, to 3.86 trillion rubles. The dynamics is explained by a significant decline in oil prices over this period.

At the same time, in the second quarter, the revenue figure has already grown – by 12.1%, amounting to 2 trillion rubles. The company emphasized that in settlements with counterparties for export deliveries, priority is given to payments in rubles and national currencies of friendly countries. As for the EBITDA indicator, in January-June it decreased by 5%, to 1.401 trillion rubles, the EBITDA margin was 36.0%. EBITDA for the second quarter increased by 8.5% to RUB 729 billion. Net profit attributable to shareholders in the first half of the year amounted to 652 billion rubles, in the second quarter – 329 billion rubles. Based on the profit for the first half of the year, Interfax estimates that the estimated interim dividend could amount to 30.8 rubles per share. That is, shareholders can receive about 326 billion rubles of dividends.

Capital expenditures in the first half of the year amounted to almost RUB 600 billion, up 13.7% year-on-year, driven by planned work in the Exploration and Production segment. Free cash flow in January-June reached 434 billion rubles (up 21.9% year-on-year), this indicator has remained positive for twelve consecutive quarters. The net debt/EBITDA ratio at the end of June was 1.2x in dollar terms. A high level of financial stability also continues to be supported by a significant amount of liquid financial assets on the balance sheet and the available volume of credit lines, the company noted.

Quotes rose

The stable dynamics of key indicators was reflected in the growth of quotations: since the beginning of 2023, Rosneft shares on the Moscow Exchange have risen in price by almost one and a half times. And the market capitalization reached almost 6 trillion rubles in August. Another evidence of confidence in the company was the multiple growth in the number of Russian shareholders-individuals: from 2021 to 2023, their number increased by 4.5 times, to almost 900,000.

Last week, Sber CIB (Sber’s corporate investment block) in its regular report on the country’s oil and gas market raised its target price forecast for the company’s shares by almost 20% – to 655 rubles from 550 rubles, with a “buy” recommendation. The bank is still positive about the outlook for the oil company’s shares. According to his estimates, dividends for 2023 may exceed 70 rubles per share, and the dividend yield will be 13%. Sber also notes: Rosneft is the only company in the Russian commodity sector that will be able to avoid a decline in EBITDA and increase net profit in 2023.

Forecasts of analysts from other organizations on the papers of the oil giant are also above the psychological mark of 600 rubles. Thus, Renaissance Capital Bank predicts the price of shares at the level of 640 rubles per share, BCS Global Markets – 610 rubles. Earlier in August, the company announced the completion of the payment of final dividends for the results of 2022. Their amount is 17.97 rubles per security. Taking into account the payment of interim dividends from profit for the first half of 2022, the total dividend per share for 2022 amounted to 38.36 rubles, and the total amount of funds for payment was 406.5 billion rubles. The company pays dividends twice a year, allocating 50% of the company’s net profit under IFRS for these purposes. Meanwhile, since the Russian Federation is the largest shareholder of Rosneft, the lion’s share of dividends goes to the country’s budget.

fiscal problem

The company’s activity is complicated by the instability of the tax environment, including already adopted changes in legislation and new initiatives, Igor Sechin noted. These words fit in with the assessment of Sber analysts: their report refers to a “high” risk of an increase in the tax burden on the oil sector of the Russian Federation. In the public space, this topic has been listed for more than a year. According to Valery Andrianov, an expert at the InfoTEK analytical center, today the level of fiscal pressure on the oil sector is one of the highest in the Russian economy, amounting to 78%. Over the past 3.5 years alone, 26 changes in key parameters have been made to the country’s tax legislation, and frankly not in favor of the industry.

“As a result of the measures taken in July 2023 alone to reduce the size of the fuel damper by 50% and increase the load on oil production, the total amount of withdrawals from the industry in 2023-2026 will amount to 1 trillion rubles,” Andriyanov notes.

Meanwhile, over the past five years, Rosneft has remained the largest taxpayer in the country in terms of total payments to the budgets of all levels. In general, the situation is such that oil companies are deprived of the opportunity to plan their investments and develop projects. After all, at any moment the fiscal burden on the industry can be increased. Although it is significantly higher than that of the enterprises of the electric power industry (42%), the mining and metallurgical industry (46%), the pipeline monopoly (46%), the communications and Internet services industry (48%), the diamond and precious metals mining sector (49%) and gas industry (69%). Not to mention the producers of mineral fertilizers (26%), companies in the coal industry (29%) and the financial sector (29%). At the end of 2022, representatives of these industries, taking into account the level of tax burden that is gentle for themselves, generated a significant amount of excess profits. These funds can be a source of generating additional budget revenues in the amount of about 4 trillion rubles a year – when brought to a level comparable to the oil industry (78%).