Page 4 - FSUOGM Week 20

FSUOGM COMMENTARY FSUOGM
Rosneft posts first quarterly loss
since 2012 as low prices bite
Russia’s low-cost producers are far from immune to the market collapse
RUSSIA
WHAT:
Rosneft swung to a net loss in Q1 on lower prices and a weaker ruble.
WHY:
Core earnings plummeted, while ruble devaluation inflated Rosneft’s foreign- denominated debts.
WHAT NEXT:
Rosneft faces tougher times ahead, as the market recovery will be slow and the company is obliged to cut production under the new OPEC+ agreement.
RUSSIA’S low-cost oil producers may be bet- ter-placed than many of their international peers to weather the coronavirus (COVID-19) crisis, but they too have seen earnings collapse on the back of weaker prices and a slump in demand.
Rosneft, which accounts for around 40% of Russian oil output, reported a first-quarter net loss of RUB156bn ($2.1bn) on May 15, marking its first quarterly loss since 2012. This compares with a net profit of RUB131bn in the same period last year.
Rosneft blamed the result on the COV- ID-19’s destruction of oil and petroleum prod- uct demand in March which triggered a rout in prices, as well as foreign exchange losses caused by a weaker ruble.
“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.”
Key figures
Rosneft’s revenues were down 15% at RUB1.77 trillion in the three-month period, as the price of Russia’s flagship Urals grade sank 21.8% in US dollar terms, to $48.1 per barrel.
Rosneft’s oil and condensate output was also down 2.2% in the quarter at 4.64mn barrels per day (bpd), as Russia’s commitments under the previous OPEC+ agreement prevented Rosneft from turning on the taps.
Earnings before interest, taxes, depreciation
and amortisation (EBITDA) plummeted 44%, landing at RUB309bn. Rosneft was also hit with a RUB177bn foreign exchange loss, as the ruble shed almost 22% of its value against the US dollar over the three months and almost 20% against the euro. This inflated Rosneft’s foreign-denom- inated debt pile and resulted in the net loss.
Russia’s leading private gas producer Novatek also swung to a net loss in the first quarter for the same reason.
At the same time, the ruble’s average exchange rate was almost unchanged compared with the first quarter of 2019, denying Rosneft cost savings. After the previous oil price crash in late 2014, the margins of Russian oil producers were supported by a comparable ruble collapse. The ruble has lost far less value this time around, thanks to measures put in place by the Central Bank.
Rosneft’s operating costs fell 3.3% year on year to $2.9 per barrel of oil equivalent (boe) in the first quarter, while free cash flow (FCF) was stable at $3.5bn. Capital expenditure grew 14% to RUB185bn and the company’s net debt-to- EBITDA ratio was 1.5 in dollar terms at the end of March.
Facing the crisis
Like its rivals overseas, Rosneft too is taking the axe to capital expenditure in response to the crisis. Speaking to Russian President Vladimir Putin in a meeting on May 12, Sechin said the company intended to scale back its capital budget by around 20% to RUB750bn, given “the dramatic state of the global oil market in general and in connection with the decision on output
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w w w . N E W S B A S E . c o m Week 20 20•May•2020