Rosneft shares rise in price amid strong quarterly reports

Rosneft’s net profit under IFRS increased in January-March 2023 by 45.5% compared to the fourth quarter of 2022 to 323 billion rubles, the company announced on May 31. She did not publish financial results for the first quarter of last year.

The company’s revenue decreased by 1.1% qoq to RUB 1.82 trillion. Rosneft explains the drop in the indicator by the fact that the ruble price for Russian Urals oil decreased by 8.2%, while in settlements with counterparties for export deliveries, the company gives priority to payments in rubles and currencies of friendly countries.

The growth of Rosneft’s financial indicators occurred despite the increase in the tax burden on the industry, while the situation on the world oil market worsened. The chief executive officer of Rosneft, Igor Sechin, quoted by the company, explained that the performance indicators for January-March 2023 were influenced by the amendments to the Tax Code (TC) that came into force in January, the embargo on petroleum products by unfriendly countries, introduced since February in addition to the embargo on oil, as well as an additional restriction of oil production in the country since March of this year.

The tax changes that the top manager is talking about are an increase in a number of taxes for the oil and gas sector from January 1, 2023. In particular, the rate of mineral extraction tax (MET) for oil production in 2023–2025 has been increased. Due to the increase in the mineral extraction tax on oil, the government expected to receive an additional 629 billion rubles to the budget over three years.

The global conjuncture has indeed not been conducive to income growth. According to the Ministry of Finance, the average export price of Urals in January-March 2023 decreased by 55% compared to the level of the first quarter of last year to $48.92/bbl. In 2022, the average Urals oil price was $76.09/bbl. Ekaterina Krylova, managing expert of the PSB Analytics and Expertise Center, notes that Rosneft’s revenue in the first quarter was expected to decline, but only by 1.1% compared to the last quarter of 2022, with a more significant decrease in the ruble price of Urals oil.

At the same time, the total hydrocarbon production of Rosneft in the first quarter of 2023 reached 5.6 million barrels. oil equivalent (boe) per day, up 1.3% qoq. Production of liquid hydrocarbons amounted to 4 million barrels per day, which is 0.8% higher than in Q4 2022. The volume of oil refining in the Russian Federation in Q1 2023 amounted to 22.6 million tons. light oil products – up to 57.1%. “The dynamics of prices at the company’s filling stations in the domestic market remains at a level below the inflation rate,” the company said in a statement.

The key factor in the growth in production was the Sakhalin-1 project, the average daily production of which increased by 1.8 times quarter on quarter, explains Rosneft. At the end of 2022, the company became the operator of the project after the American ExxonMobil left it. Rosneft’s average daily gas production in January-March reached 1.5 million barrels. n. e. per day, exceeding the indicator for the fourth quarter of 2022 by 2.7%. The share of gas in hydrocarbon production increased to 27.6%.

Analysts at Sinara Bank noted that Rosneft has demonstrated “tight control” over operating and capital costs. Thanks to the large volumes of sales of petroleum products and oil exports through premium channels, the company’s revenue level turned out to be quite stable, they say.

According to financial statements, operating expenses of Rosneft for the first quarter decreased by 10% to 1.3 trillion rubles. Operating profit increased by 35.9% to RUB 488 billion. EBITDA increased by 25.1%, reaching RUB 672 billion. EBITDA margin hit a record 36.7%. The net debt/EBITDA ratio at the end of the quarter was 1.3x in dollar terms, remaining at the level of the end of 2022.

Capital expenditures in January-March amounted to 275 billion rubles, having decreased by 11.3% compared to the previous quarter. This is mainly due to seasonal factors, the company explains. Rosneft notes that it continues to work on the implementation of the flagship Vostok Oil project. In particular, pilot development of the Payakhsky cluster and the Ichemminsky field is already underway (started in April 2023), and the construction of the Vankor- Payakha-Sever Bay oil trunk pipeline is also underway.

Rosneft’s production operating costs in the first quarter are less than $3/bbl. oil equivalent, follows from the message of the company. This is less than that of extractive companies in the Persian Gulf, where it is traditionally considered one of the lowest in the world (about $3/bbl). In 2022, the leaders abroad in terms of production costs were, in particular, French TotalEnergies with $5.5/bbl, British BP with $6.1/bbl. Norwegian Equinor with $6.5/bbl, Brazilian Petrobras with $7.5/bbl. In Russia, the low cost showed “Tatneft– $3.9/bbl (“Lukoil” And “Gazprom Neftdid not disclose financial statements for 2022).

Sechin also recalled that in the reporting quarter, Rosneft paid in full interim dividends (for the first nine months of 2022 – Vedomosti) in the amount of more than 216 billion rubles. And on May 30, the Board of Directors of Rosneft recommended paying the final dividend for 2022 in the amount of 17.97 rubles. per share. It is planned to allocate 190.4 billion rubles for their payment.

Analysts at Sber CIB Investment Research (Sber’s corporate investment unit) noted in their review that the profitability of Russian companies in the oil and gas sector in 2023 will decrease due to falling oil and gas prices, as well as due to a decrease in refining margins. According to Sberbank analysts, Rosneft will be the only Russian oil and gas company that, by the end of 2023, will be able to maintain high profits (Vedomosti wrote about this on May 29).

Analysts assessed Rosneft’s results for the first quarter as positive. Krylova notes that the company’s financials significantly exceeded market expectations, noting that “even in the face of sanctions pressure, Rosneft is showing record results.” The analyst expects that if this trend continues, the dividend base in 2023 will be higher than in 2022, and the contribution of the first quarter of 2023 to future dividends has already amounted to 15.2 rubles. per share.

Speaking about the production of Rosneft, Krylova noted that the agreement on the voluntary reduction in oil production, which was accepted by eight OPEC + countries and Russia, may begin to negatively affect the company’s production performance from the second quarter of 2023. This may be partially offset by an increase in gas production, she thinks.

Investors reacted positively to the publication of the company’s financial results. By 22.30 Moscow time, on the Moscow Exchange, Rosneft shares rose by more than 3.5% compared to the previous trading session to almost 450 rubles. for paper. The capitalization of the company increased to almost 4.78 trillion rubles.