Page 99 - RusRPTDec18

Russia's largest oil company Rosneft reportedly did not supply petrol and winter diesel fuel for daily trading on the St Petersburg International Commodity Exchange (SPIMEX) on November 15, Interfax and Vedomosti daily reported citing unnamed sources on the exchange and the government. Rosneft is the largest supplier on SPIMEX accounting for over 40% of all motor fuel sales, and withdrawal caused "demand [for fuel] to exceed supply many- fold." Industry players surveyed by Vedomosti linked the withdrawal to the recent government price intervention on the retail fuel market. "We have grounds to believe that Rosneft is pressuring the government, and tried to push the exchange prices up to match the retail market reality," the head of the Independent Fuel Union (NTS) told the daily. "The prices are fixed now, so there is no need to trade anymore," another source said. Rosneft is obliged to supply at least 10% of its fuel output to the exchange, but the company is reportedly trading much more than its obligations, which gives it leverage over the government in pushing other market players to support the market. The heads of Russia's largest oil producers such as Rosneft, Lukoil, Gazprom, Gazprom Neft, Surgutneftegas, Tatneft, Russneft, and others were summoned on October 31 to meet with the Deputy PM Dmitri Kozak, who threatened to introduce additional excise duties for exports of oil products should the companies not cooperate in bringing the gasoline prices down, which has become a sensitive political issue.
Russia's second-largest bank state-controlled VTB Bank financed a "considerable part" of recently concluded 18.93% privatisation of country's largest oil company Rosneft by the Qatar Investment Authority (QIA), Reuters said in an investigative article on November 9 citing unnamed sources in the government, the central bank, and sources close to the deal. In September the Russian government approved the change in the shareholder structure of Rosneft, which made the Qatar Investment Authority (QIA) holder of 18.93% of Rosneft's shares and ended the company's murky two-year privatisation saga.
Rosneft published its 3Q18 IFRS results on November 6 boosted by tax breaks. Revenues (not accounting for purchases) and EBITDA were broadly in line with our forecast, while EBITDA and net income came below the consensus. The company reported strong free cash flows, driven by a combination of strong oil prices, weak local currency and tax reliefs. Higher oil and products purchases. Revenues increased 4% Q/q to $33,884mn, or 1% above the consensus. Meanwhile, Rosneft increased crude oil purchases 11% Q/q to 8.2mmt (we had expected 7.4mmt). Not accounting for the difference in oil purchased, revenues were in line with our estimates. Opex was also in line with our forecast in almost all lines, with the difference from the reported numbers being not more than 2%. Strong oil price, weak local currency and growing tax reliefs drove debt down. Rosneft's growing tax reliefs, including those at HTR reserves, contribute significantly to the company's profitability and constitute a significant portion of Rosneft's value (see our Russian oils: Portfolio Management Basics, of 18 January, for details). The combined upstream tax relief of $2.5bn (+67% y/y) was in line with our forecast. As a result, EBITDA grew 4% Q/q and 64% y/y to $8,927mn in 3Q18. The most visible improvement was reflected in FCF, which rose to $4.3bn, according to the official financial statements. However, adjusted for all accounting issues, we estimate the company posted $5.8bn of FCF in 3Q18, which allowed Rosneft to decrease its net debt $6.7bn (including prepayments) according to our estimates and simultaneously to pay $1.5bn of dividends in 3Q18. Post these impressive cash flow dynamics, the shares have risen 5% domestically and 3% in London. Expected goodwill write-off. Below EBITDA, the $2bn goodwill write off was indicated earlier by BP. This, together with the lower Q/q FX gain (from $1.2bn in 2Q18 to $0.4bn in 3Q18) resulted in net income dropping 41% Q/q to $2,167mn, or 3% below consensus and 6% below our forecast. The write-off is of concern as it reduces our expected dividend yield for 2018 by 1.3%. During the conference call, the company revised its production guidance up to more than 230mmt of crude oil in 2018 (2% y/y) and guided for more than 241mmt of liquids production next year. Rosneft also increased capex guidance for 2018 to RUB 900bn ($14.4bn). In 2019, the
99 RUSSIA Country Report December 2018 www.intellinews.com