Page 112 - RusRPTJun20

the paper, the development of these deposits is unprofitable under the current conditions, but a tax relief would allow the company to start production. Rosneft has proposed lowering the MET rate for such deposits by setting the coefficient at 0.21 (which already applies to gas produced from the Touron formations, but not to the Berezovskaya formations). The potential volumes of gas resources to, which the tax relief might apply are estimated at 1,300bcm, according to the company. The largest beneficiary of the proposed tax relief would be the Kharampurskoye field, which is developed by Rosneft in partnership with BP (49%) and had 157bcm of such resources as of the end of 2019 (the field’s total 3P resources were 735bcm). Rosneft has already come up with the production technology for the Berezovskaya formations and produced gas at three of the fields. Under Rosneft’s planned peak gas production of 15.7bcm, the company might save RUB8.2bn ($111mn) were the tax break to be provided. That would support the economics of Kharampur in the medium and longer term, if it materialised. However, we deem Rosneft’s field development plans as quite ambitious, given the quite limited prospects of demand for Russian gas growing and the enormous gas reserves in the country. Back in 2013, Rosneft approved the plan to launch Kharampur in 2017, with gas output of 9bcm that year. Then, the field commissioning was postponed to 2020, with gas production supposed to reach 11bcm. Now, the field launch has been moved to next year, with peak production of 15.7bcm.
Rosneft makes a net loss in 1Q20. The weak 1Q20 P&L driven by 18% q/q drop in Brent price​, export duty lag and a FX loss that was expected, while 11% q/q drop in net debt along with c$5bn adj. free cash flow (FCF) appear to be a positive surprise.
According to Rosneft’s release liquid hydrocarbons output in 1Q20 was down 2% q/q, whereas gas and associates production volumes decreased by 3% q/q. Refining products production in total increased 4% vs 4Q 19 low base;
However, crude/products sales volume dropped 10%/4% q/q as trading volumes collapsed after Rosneft Trading was sanctioned by US, which coupled with 18% lower q/q Brent price translated into c24% q/q drop in 1Q 20 revenue to c$26.6bn (in line with expectations), partly supported by improved fuel oil crack spreads;
15% drop q/q in RUB-based oil price along with negative export duty lag (export duty was c$2.5/bbl above the level implied by Urals price) translated into c41% q/q decline in 1Q 20 EBITDA to c$4.65bn, which is 7%/2% above conservative BCS/consensus forecast;
Apart from the EBITDA drivers bottom line was also affected by c$2.6bn FX loss on the back of 25% ruble devaluation during the period , which translated into even a higher net loss of c$2.3bn than BCS and consensus estimated to see ($1.2-$1.3bn);
1Q 20 FCF adjusted for prepayment offsetting amounted to c$5.2bn, while non adjusted figure was c$2.3bn, out of, which c$1.8bn were attributable to working capital release;
As a result of positive FCF and ruble devaluation net debt went down 11% during 1Q 20 to c$40.9bn;
112​ RUSSIA Country Report​ June 2020 ​ ​www.intellinews.com