Page 5 - FSUOGM Week 20

FSUOGM COMMENTARY FSUOGM
reductions.”
However, Rosneft declared on May 15 that
it would push ahead with a $2bn buyback pro- gramme launched in March, taking advantage of the sharp decline in its share price. Many inter- national oil firms have suspended all buybacks to preserve cash.
Rosneft also says it will make no changes to its dividends policy, which is set to see it pay out a record RUB354.1bn from last year’s earnings, or RUB33.41 per share. As its dividends are paid as a proportion of net income, however, the total amount for 2020 will still decline.
“At a time when many oil and gas companies around the world are taking decisions to reduce their dividends and terminate the share buy- back programmes, the company’s decisions to continue cash distribution to the shareholders speak of 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 com- pany’s share price.”
Rosneft shares plunged to under $2.9 apiece in early March after talks between Russia and Saudi Arabia on deeper output cuts broke down, compared with their peak of $7.85 in late Jan- uary. They recovered somewhat and closed on May 15 at $4.71.
Rosneft’s main shareholder is the Russian state, although it also counts BP and Qatar Investment Authority (QIA) among its key investors.
What next?
Rosneft has had to put a number of upstream projects on hold during the last three years as a result of Russia’s previous OPEC+ commit- ments. Russia entered into the OPEC+ pact in April, imposing deeper cuts than ever before in an effort to reduce an unprecedented global sup- ply glut and prop up prices.
The new OPEC+ deal requires Russia is keep its oil output at under 8.5mn bpd in May and June. Restrictions will be eased in phases until being lifted completely in early 2022.
The restrictions do not apply to condensate supply, which will make it difficult to assess Rus- sia’s compliance. Its energy ministry does not publish a breakdown on how much oil and how much condensate the country produces each
month, merely giving a figure for overall liquids output.
Further complicating things, Russia’s OPEC+ quota is set in barrels per day, whereas the minis- try publishes output statistics in tonnes and does not disclose the ratio it uses.
In any case, Rosneft expects to cut its pro- duction by 10% in 2020, its first vice-president Pavel Fedorov told investors in a conference call on May 25. This would imply a cut of 467,000 bpd from Rosneft’s total hydrocarbon output last year.
The reduction will put further pressure on the company’s earnings, especially if OPEC+ deal and cuts by other producers fail to trigger a meaningful recovery in prices. Brent appears to have stabilised at $30-33 per barrel – around half its value at the start of the year.
Meanwhile, Rosneft is hoping to see US sanctions lifted at two of its Swiss-based trading subsidiaries, after divesting its entire Venezuelan business in April to a 100% Russian state-owned company. Washington had accused the pair of trading sanctioned Venezuelan oil.
As part of the transaction, a 9.6% stake in Rosneft was acquired by one of its wholly owned subsidiaries.
Rosneft has a long history of lobbying for and successfully securing lucrative tax breaks from the Russian government at key projects. Sechin asked Putin last week if the president could see to it that taxes on geological exploration could be postponed, and oil transport tariffs lowered to reflect the decline in crude prices. He also requested that the Russian government ease access to credit to help steer Rosneft through the crisis.
Sechin, a long-time Putin ally, is reportedly set to have his contract as CEO renewed for another five years until 2025. He has been at the company’s helm since 2012.
Exerting his political influence, Sechin suc- ceeded last year in securing $9bn in tax breaks at Vostok Oil, an Arctic megaproject which he has said could one day produce up to 2mn bpd of oil. Rosneft is reportedly vying for similar incentives at hard-to-recover gas fields in Western Siberia’s Berezovskaya formation, to deliver on its ambi- tious goals for gas production.
Access to this kind of support gives Rosneft an edge over its domestic rivals, and should help the company capitalise on the market’s eventual r e c o v e r y. ™
Rosneft CEO Igor Sechin meets with Russian President Vladimir Putin on May 12. Source: Kremlin.ru.
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