Rosneft’s nine-month net income jumped by 25 percent year-on-year to RUB550 billion, including a quarter-on-quarter increase to RUB225 billion in the third quarter of 2019.

In the third quarter of 2019, the EBITDA (earnings before interest, taxes, depreciation, and amortization) increased by 7.6 percent quarter-on-quarter to RUB554 billion with a margin improvement to 24.4 percent. In the third quarter, FCF (free cash flow) more than doubled quarter-on-quarter to RUB281 billion. Financial debt and trading liabilities decreased by RUB820 billion since the year’s beginning.

Q3 & 9M 2019 IFRS results

Commenting on the results for the third quarter of 2019 Rosneft’s chairman of the management board and chief executive officer Igor Sechin said on November 6, 2019, “In the third quarter of the current year, the company was able to increase liquids production quarter-on-quarter and partially compensate for a production decline in the second quarter of 2019, which was a result of the restriction of oil intake into the Transneft system of trunk pipelines. Rosneft restored crude oil refining throughput and strengthened its positions in the traditional markets. In the reporting period, the sales growth in the falling crude oil price environment, combined with effective control over the costs, led to the restoration of the EBITDA margin. Taking into account the efforts of the management to optimize working capital, the free cash flow more than doubled compared to the previous quarter. On September 30, the company’s shareholders approved the payment of a record interim dividend of RUB162.6 billion. Taking into account the strong financial results for the third quarter and relatively stable current market conditions, the shareholders can expect an increase of dividends for the entire year 2019.”

Equity share in JVs & associates’ profits

In the third quarter of 2019, revenues amounted to RUB2,240 billion (USD 35.1 billion). The increase in quarter-on-quarter sales was driven by higher sales volumes of petroleum products and crude oil (plus 10.4 percent) versus the second quarter of 2019 in the falling crude oil price environment (minus 9.7 percent).

Nine-month revenues increased by 6.2 percent year-on-year, mainly due to higher sales volumes of crude oil (plus 19.6 percent) in the falling crude oil price environment (minus 9.3 percent).

EBITDA

In the third quarter of 2019, the EBITDA amounted to RUB554 billion (USD 8.5 billion), an increase of 7.6 percent in ruble terms versus the second quarter of 2019. The growth is mainly driven by an increase in sales volumes of petroleum products (plus 26.9 percent) and crude oil in the markets of the company’s presence and also by lower general and administrative expenses.

Nine-month EBITDA increased to RUB1,617 billion (USD 24.8 billion) due to the growth of crude oil sales volumes, mainly in the eastern direction (30.9 percent) and the strengthened control over costs.

Third quarter lifting costs amounted to 206 RUB/boe (3.2 USD/boe), increasing by 1.5 percent versus the second quarter of 2019, which is mainly driven by a seasonal increase in maintenance and repairs of ground infrastructure and oil equipment.

Nine-month 2019 lifting costs amounted to 202 RUB/boe (3.1 USD/boe), growing by 6.3 percent versus the corresponding figure for the first nine months of 2018. The increase was due to higher electricity expenses (plus 11 percent), the rise of maintenance and repair costs for the increasing number of wells and ground infrastructure, associated transportation costs, and labor costs.

Shareholder attributable income

In the third quarter of 2019, the net income attributable to Rosneft’s shareholders amounted to RUB225 billion (USD 3.6 billion), an increase of 16.0 percent versus the second quarter of 2019, which was mainly driven by higher operating income (plus 10.9 percent). The increase in the net income attributable to Rosneft’s shareholders in the nine-month period of 25 percent year-on-year was driven by the positive dynamics of the company’s operating income and the reduction of financial expenses.

Capital expenditures

Third quarter capital expenditures amounted to RUB198 billion (USD 3.0 billion). In the first nine months of 2019, capital expenditures amounted to RUB634 billion (USD 9.7 billion), a reduction of 6.6 percent year-on-year, which was due to the optimization of the development drilling program in the context of a strategic initiative to increase the share of more efficient horizontal wells at the company’s brownfields. The company is reviewing options for aligning the capital investment profile of its large projects with the extension of quotas under the OPEC+ production cut agreement.

Free cash flow

Third quarter free cash flow amounted to RUB281 billion (USD 4.4 billion). The significant increase in free cash flow compared to the second quarter of 2019 was driven by the EBITDA increase, lower capex, and the corresponding changes in working capital. In the nine months of 2019, free cash flow amounted to USD 613 billion (USD 9.4 billion).

Financial stability

Keeping its focus on debt reduction, the company decreased financial debt and trading liabilities by 14.1 percent, or RUB820 billion, since the beginning of 2019. Net debt and trading liabilities dropped by RUB113 billion during 2019. The net-debt-to-EBITDA ratio was 1.4x in ruble terms at the end of the third quarter of 2019.