Financial results Rosneft for 1Q 2020
- Positive free cash flow of USD 3.5 bln in spite of lower crude oil prices
- EBITDA decreased by more than a third on the back of sharp decline in oil prices
- Negative Net income due to RUB depreciation and revaluation of foreign currency denominated liabilities
- Effective control over the costs: upstream opex decreased to 2.9 USD/boe
- Interest expenses dropped by 25% YoY
- Decrease in financial debt and trade liabilities by USD 9 bln
- Launch of share buyback program on the open market
Consolidated IFRS financial results for 1Q 2020:
|1Q 2020||4Q 2019||Change, %||1Q 2020||1Q 2019||Change, %|
|RUB bln (except %)|
|Revenues and equity share in profits of associates and joint ventures||1,765||2,224||(20.6)%||1,765||2,077||(15.0)%|
|EBITDA margin||17.2%||21.7%||(4.5) p.p.||17.2%||26.0%||(8.8) p.p.|
|Net income/(loss) attributable to Rosneft shareholders||(156)||158||-||(156)||131||-|
|Net income margin||(8.8)%||7.1%||(15.9) p.p.||(8.8)%||6.3%||(15.1) p.p.|
|Free cash flow (RUB equivalent)1||219||282||(22.3)%||219||229||(4.4)%|
|Upstream operating expenses RUB/boe||191||196||(2.6)%||191||195||(2.1)%|
|USD bln2 (except %)|
|Revenues and equity share in profits of associates and joint ventures||27.6||35.2||(21.6)%||27.6||31.9||(13.5)%|
|Net income attributable to Rosneft shareholders||(2.0)||2.4||-||(2.0)||1.9||-|
|Free cash flow||3.5||4.5||(22.2)%||3.5||3.5||-|
|Upstream operating expenses USD/boe||2.9||3.1||(6.5)%||2.9||3.0||(3.3)%|
|Average Urals price.USD per bbl||48.1||61.5||(21.8)%||48.1||63.2||(23.9)%|
|Average Urals price. th. RUB per bbl||3.19||3.92||(18.5)%||3.19||4.18||(23.6)%|
1The calculation includes interest expense on the prepayments on the long-term oil and petroleum products supply agreements. Previous periods have been adjusted for comparability for net change of subsidiary banks operations in operating activity.
2Calculated using average monthly Central Bank of Russia exchange rates for the reporting period.
Commenting on 1Q 2020 financial results Rosneft’s Chairman of the Management Board and Chief Executive Officer Igor Sechin said:
“2020 may become a turning point for the global oil and gas industry. 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 of energy prices. In this situation, quality of resource base, diversification of sales markets, long-term nature of relations with consumers and high level of operational and financial efficiency come to the fore. Our Company is a recognized world leader on all these metrics. For many years, the Company has successfully worked on import substitution of goods and services in segments of crude oil production and refining, expanded the internal block of oilfield services on its fields, and applied the most modern domestic technologies and developments. Constant attention was paid to control over the costs. As a result, today the Company is better than ever prepared for external challenges that seriously affect operations of energy companies around the world.
A significant deterioration of the macroeconomic environment in which the Company operates had a significant negative impact on our financial results. Nevertheless, the negative non-cash items had not affected our ability to generate free cash flow, which amounted to RUB 219 billion in the first quarter of 2020.
Thanks to this, and despite the deterioration of the macroeconomic environment, we continue to reduce our debt burden and distribute cash to our shareholders.
In March, we launched a program to acquire our own shares, under which more than 33 million shares/GDRs of the Company were bought back on the open market to date. We continue to implement this program in accordance with the previously announced parameters. Last month, the Company's Board of Directors recommended a final dividend for 2019 of 18 RUB 07 kopecks per common share. Taking into account the payment of interim dividends for the first half of 2019, the payment of dividends may amount to a record RUB 354.1 billion.
In second quarter of 2020, the Company closed a previously announced transaction to transfer to a company that is 100 % owned by the Government of the Russian Federation all assets in Venezuela, including participation shares in projects of Petromonagas, Petroperija, Boqueron, Petromiranda and Petrovictoria, as well as oil-field service companies and trading operations. Company’s operations in Venezuela have been completely discontinued.
As a result of the transaction, 100% subsidiary of Rosneft Group became the owner of 9.6% of the Company’s registered ordinary shares.
At a time when many oil and gas companies around the world are taking decisions to reduce their dividends and terminate the share buyback programs, the Company's decisions to continue cash distribution to the shareholders speak to 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. We hope that this approach will be appreciated by the financial community and reflected positively in the Company's share price.”
Revenues and equity share in profits of associates and joint ventures
1Q 2020 revenues amounted to RUB 1,765 bln (USD 27.6 bln). The reduction in sales in RUB terms compared with 4Q 2019 (-20.6%) was driven by a crude oil price drop (-18.5%) as a result of lower demand due to COVID-19 virus pandemic, negative market expectations ahead of termination of the OPEC+ Agreement as well as a reduction in sales volumes of crude oil and oil products.
Sales decrease of 15.0% compared to 1Q 2019 was mainly due to a decline in world crude oil prices (-23.6%) and was partially offset by higher sales volumes.
1Q 2020 EBITDA amounted to RUB 309 bln (USD 4.9 bln), a decrease of 36.7% in RUB terms compared with 4Q 2019. The decrease was driven by a drop of crude oil prices, a negative lag effect of export duties (RUB 98 bln), a reduction in the damper effect (RUB 53 bln) as a result of the fall in export netback price and the establishment of a premium on the domestic market of motor fuel, which was partially offset by an increase in refining margins and an increase in retail sales margins, as well as a reduction in administrative expenses.
The decrease in EBITDA compared to 1Q 2019 was caused by a significant drop of world oil prices (-23.6%) and was partially offset by a decrease in administrative expenses.
1Q 2020 unit upstream operating expenses were 191 RUB/boe (2.9 USD/boe). The decrease of 2.6% compared to 4Q 2019 was driven by a seasonal reduction in geological and technical works, maintenance and repair of pipelines and oilfield equipment.
1Q 2020 unit upstream operating expenses decreased by 2.1% compared to 1Q 2019 which is generally in line with the rate of deflation of producer prices (-1.7%).
Net income/(loss) attributable to Rosneft shareholders
In 1Q 2020 negative Net income attributable to Rosneft shareholders amounted to RUB 156 bln (USD 2 bln) which was mainly a result of the forex exchange loss (RUB 177 bln) due to RUB depreciation and revaluation of foreign currency financial liabilities as well as a reduction of the operating income (-64.8% QoQ).
Capital expenditures were RUB 185 bln (USD 2.8 bln) in 1Q 2020, a decrease of 15.9% compared to 4Q 2019 due to seasonal factors. The decrease of 13.6% compared to 1Q 2019 was mainly driven by a deterioration of the macroeconomic environment, continued optimization of the production drilling program in order to increase its efficiency as well as restrictions on the movement of foreign and Russian contractors.
Free cash flow
1Q 2020 free cash flow amounted to RUB 219 bln (USD 3.5 bln). A reduction compared to 4Q 2019 was driven by the lower operating income and partially offset by the lower capital expenditures.
In 1Q 2020 financial debt and trading obligations decreased by USD 9 bln or 11%. Liquid financial assets and unused credit lines exceeded the short-term portion of the financial debt by nearly 50%. Net debt/EBITDA was 1.5x in USD terms. Interest expenses dropped by 25% YoY driven by a reduction of interest rates and effective management of the debt portfolio.
On April 21, the Company's Board of Directors recommended that the Annual General Meeting of Shareholders passed the resolution to pay dividends for 2019 of 18 rubles 07 kopecks per one ordinary share. Taking into account the payment of interim dividends for the first half of 2019, the total DPS for 2019 may amount to 33 rubles 41 kopecks while the total dividend may reach a record RUB 354.1 bln.