The oil company reported results for the third quarter and nine months of 2023. The growth of the company’s productive and financial indicators in the context of growing sanctioning pressure and constant changes in the industry’s tax system indicates the effectiveness of the company’s business model. the company. The report was posted on the company’s website.
“WILL LEAD TO MARKET IMBALANCE”
Rosneft’s work this year is greatly influenced by the constant change in the industry’s tax system. It is obvious that the fiscal decisions of financial authorities significantly complicate long-term investment planning and the subsequent implementation of already started projects. The head of Rosneft, Igor Sechin, in particular, noted that the uninvestigated decision of the Ministry of Finance to reduce the buffer (a mechanism for containing fuel prices in the domestic market during sharp fluctuations in oil prices – “KP “) caused a crisis. in the domestic fuel market in August-September of this year.
“Already in October, the Ministry of Finance of Russia initiated new changes in one of the basic parameters of taxation in the oil industry – the procedure for determining the price of oil for tax purposes,” the head of the oil company noted.
Furthermore, an economically unjustified reduction in the forecast difference between the price of Russian oil and Brent oil is expected. At the same time, to tax the industry, the Ministry still uses a price indicator that is completely irrelevant in modern conditions – the Brent quotation.
“The financial department ignores fundamental changes in the operating conditions of the country’s oil industry: the formation of new directions for the supply of Russian oil and approaches to its pricing,” Igor Sechin is convinced.
In addition, for tax purposes, it is proposed to use virtual transportation costs for defunct Russian oil supply routes to Europe, without taking into account the cost of transportation and other logistics costs, insurance costs, conversion costs and interest payments on loans . loans.
“Another initiative implemented without a thorough analysis of its impact and without discussion with the industry is the differentiation of gas prices for different categories of industrial consumers in the context of an increase in the tax burden on the industry. The adopted changes will lead to an imbalance in the market and the creation of a gas shortage for socially important industries,” said the company director.
In addition, an increase in the mineral extraction tax on gas (the volume of payments in the next three years will increase by 25%) will lead to the withdrawal of investments and labor resources from the industry and reduce the ability to maintain production levels. in the future.
“All this significantly complicates long-term investment planning and the implementation of already started projects,” Igor Sechin summarized.
PRICES AND DEVELOPMENT TIMES OF INVESTMENT PROJECTS WILL INCREASE
In addition, the director of the company did not ignore the decision of the Central Bank to increase the key interest rate, which negatively affects the cost of financing, both for the company and for its contractors and suppliers. This, in turn, leads to an increase in the cost and timing of projects, and also affects profits, which are the basis for determining the amount of dividends.
This has already had an impact on the financial indicators of the reporting period: in January-September, interest expenses increased by 15%, and the delayed effect of the decisions of the Central Bank of the Russian Federation on the key rate will increase by in the coming periods, highlighted the head of the oil company.
Igor Sechin emphasized that the sanctioning pressure against the company is constantly increasing: in almost every round of sanctions, restrictions are introduced that negatively affect the company’s activities.
“Since the beginning of the tightening of sanctions, the Bank of Russia has not created reliable routes for the execution of cross-border payments in different currencies, which makes it difficult to timely credit export earnings,” said the head of Rosneft.
Investment analysts are already taking the increased tax burden into account in their assessment of the Company’s financial performance. Thus, according to experts, undeveloped tax decisions have already had a negative impact.
“The EBITDA margin (the company’s profit before deduction of interest on loans, income tax and depreciation of intangible fixed assets – “KP”) could decrease against the background of an increase in the burden tax on AIT and MET (tax on additional income Tax on hydrocarbon production and mineral production – “KP”), as well as due to the reduction of the differential between the ESPO premium grade and the Ural grade used for calculate taxes,” says Finam analyst Sergei Kaufman, quoted by the Interfax agency.
It should be noted that the decree of the President of the Russian Federation, signed in early November, provides a number of Russian companies subject to illegal Western sanctions with the opportunity to independently determine the volume and composition of published information about their activities. Rosneft also has this right. However, contrary to the assumptions of some non-professional authors published on social networks, the company did not hide the indicators from the investment community and the current report does not differ from the previous one in terms of the volume of information.
It is obvious that looking after the interests of shareholders is one of the company’s key priorities. The company, under conditions of unprecedented external pressure, not only maintains economic stability, but also strictly fulfills its obligations to shareholders.
The board of directors of the oil company, at its November meeting, recommended paying interim dividends in the amount of 30.77 rubles per share. In total, it is proposed to allocate 326 billion rubles, or 50% of the net profit for the first half of 2023, to the payment of dividends, in full compliance with the dividend policy.
The market positively values the company’s work. Over the past two years, the number of Rosneft shareholders has increased almost 4.5 times; At the end of the first half of the year, their total number reached almost 900 thousand people. The company’s securities have become one of the fastest growing on the Russian stock market and its capitalization in October exceeded 6.4 trillion rubles.
ONE OF THE LARGEST IN THE WORLD
Let us now turn to the company’s operational performance in 2023. In January-September, oil and gas production increased by almost 11% and reached 5.5 million barrels of oil equivalent (boe) per day thanks to the development of existing projects and the launch of new ones. The Russian oil company remains one of the largest companies in the world in terms of production volume. At the end of the reporting period, the hydrocarbon production rate was higher than that of ExxonMobil, bp, Chevron, Equinor, Eni, Sinopec and many others.
The production of liquid hydrocarbons for nine months amounted to 4.0 million barrels. per day, up 3.9% year-on-year and is mainly due to the resumption of production at the Sakhalin-1 project. Against the background of restrictions on oil production in Russia starting in March 2023, the volume of liquid hydrocarbon production in the third quarter amounted to 3.9 million barrels. per day, changing slightly from quarter to quarter.
The company’s gas production in January-September increased by 33% compared to the same period last year and amounted to 1.5 million boe. per day. The growth of the indicator is associated with an increase in production volumes at existing projects, as well as with the launch of new gas projects in the Yamalo-Nenets Autonomous Okrug in 2022.
The progress of production drilling in the nine months of 2023 amounted to 9.1 million m, 7% more year-on-year. 2.4 thousand new wells were put into operation, 71% of them horizontal. The proportion of new horizontal wells with multistage hydraulic fracturing was 48%. The specific production per horizontal well is more than double that of directional wells.
The active development of Vostok Oil’s flagship project, which currently has no analogues in the world, continues. In January-September, more than 3.8 thousand linear meters were completed within the framework of the project. km of seismic exploration, interpretation of the data obtained is carried out. Five wells are being drilled, three exploration wells have been completed and eight wells are in the testing stage.
During the Payakh group’s pilot development during the nine months of 2023, 34 thousand meters of penetration were drilled and 11 production wells were completed. As part of the pilot development of the Ichemminskoye and Baikalovskoye fields, preparations for drilling continue: work is underway on the installation of drilling platforms. It is planned to start drilling the first wells at the end of 2023.
The company continues the construction of the main oil pipeline “Vankor – Payakha – Bay Sever” and the oil terminal “Port Bay Sever”. The construction of warehouse transshipment facilities in the Yenisei basin is underway, work is underway on the construction of hydraulic structures and the expansion of coastal and berth infrastructure.
During the summer navigation period, more than 850 thousand tons of cargo were delivered to the project sites along the Northern Sea Route, the basins of the Yenisei and Ob-Irtysh rivers. In total between January and September, 1.1 million tons of cargo were delivered by sea transport.
INCOME INCREASES BY A THIRD
The oil company is the largest oil refining company in Russia. In January-September, the volume of oil refining in the Russian Federation increased by 3.3% to 65.8 million tons. In the third quarter, the company processed 21.7 million tons of oil at factories in the Russian Federation, up 0.9%. quarter by quarter.
Sales of petroleum products in the domestic market in the January-September period amounted to 31.2 million tons. Overall, in the third quarter of this year the volume of sales of petroleum products in the Russian Federation increased by 13% to 11.4 million tons.
One of Rosneft’s priorities is a stable supply of high-quality motor fuel to Russian consumers. The company is actively involved in trading operations on the St. Petersburg International Commodities and Raw Materials Exchange (SPbMTSE). In the third quarter, the company’s gasoline and diesel sales on the Stock Exchange more than doubled standard values and amounted to 2.25 million tons. The company’s share of total sales of gasoline and diesel in the St. Petersburg International Trade exchange was about 40%.
The company’s financial performance, despite macroeconomic factors and external pressure, remains stable. The company actively invests in new projects. Capital expenditures for the nine months of 2023 amounted to 909 billion rubles, up 10.6% year-on-year. The figure for the third quarter amounted to 310 billion rubles. The growth is associated, among other things, with the active implementation of the Vostok Oil project. As already mentioned, despite all the problems in the sector, the company continues to invest in new promising projects.
The company’s revenue in the third quarter of 2023 increased by 33.3% quarter-on-quarter, reaching 2,732 billion rubles. This is 2.4% more than the consensus forecast prepared by the Interfax agency.
After nine months, revenues amounted to 6.612 billion rubles. The indicator is influenced by the macroeconomic environment, including lower oil prices.
Greater efficiency and cost control, including the reduction of general and administrative costs and maintaining a leading position in specific production costs, allowed EBITDA to increase by 19.3% in nine months to 2,403 billion of rubles. The better dynamics of EBITDA compared to revenue is associated with cost control, higher sales volumes in the eastern direction and greater efficiency of export supplies. EBITDA for the third quarter reached 1 trillion rubles. This is almost 15% more than the analyst consensus forecast.
The specific costs of hydrocarbon production in the reporting quarter amounted to $2.5/boe. This is one of the lowest rates in the world.
Net profit attributable to the company’s shareholders for the nine months amounted to 1,071 billion rubles, 1.8 times more than the level of the same period last year and is mainly due to the growth of EBITDA. Net profit for the third quarter increased to 467 billion rubles.
Free cash flow for nine months. amounted to 1,157 billion rubles, 50.1% more than the previous year. Including the figure for the third quarter of 2023 it reached 723 billion rubles.
Analysts of investment companies expect an increase in the prices of the oil and gas company’s securities. In September, BKS and Sinara experts raised their forecasts for the target price of Rosneft shares by 25% and 11%, respectively.
BCS World of Investments expects the price of the company’s securities to rise to 760 rubles per share. At the same time, analysts recommend buying shares of the company. Sinara analysts also see potential for the stock to grow to the level of 640 rubles.
Both BCS and Sinary analysts cite the implementation of the company’s flagship project, Vostok Oil, as one of the main attractiveness factors for investment. BKS believes that the start of production at the project’s new fields will lead to a significant increase in the company’s production volumes and diversification of export flows.
Another factor influencing the investor attractiveness of Rosneft shares is the expectation of high dividends, both based on the results of 2023 and 2024.
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