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Financial results for 4Q and 12М 2019

19 February 2020
  • 2019 Net income jumped by 29% YoY to RUB 708 bln, including RUB 158 bln in 4Q 2019
  • 2019 dynamics of unit upstream operating costs was lower than industrial producer price inflation
  • 12M 2019 EBITDA increased to RUB 2,105 bln
  • Financial debt and trading liabilities decreased by RUB 907 bln in 2019

Consolidated IFRS financial results for 4Q 2019 and 12M 2019:

 4Q 20193Q 2019Change, %12M 201912M 2018Change, %
  RUB bln (except %)
Revenues and equity share in profits of associates and joint ventures 2,224 2,240 (0.7)% 8,676 8,238 5.3%
EBITDA 488 554 (11.9)% 2,105 2,081 1.2%
EBITDA margin 21.7% 24.4% (2.7) p.p. 24.0% 24.8% (0.8) p.p.
Net income attributable to Rosneft shareholders 158 225 (29.8)% 708 549 29.0%
Net income margin 7.1% 10.0% (2.9) p.p. 8.2% 6.7% 1.5 p.p.
Capital expenditures 220 198 11.1% 854 936 (8.8)%
Free cash flow (RUB equivalent)1 271 281 (3.6)% 884 1,133 (22.0)%
Upstream operating expenses RUB/boe 196 201 (2.5)% 199 194 2.6%
  USD bln2 (except %)
Revenues and equity share in profits of associates and joint ventures 35.2 35.1 0.3% 135.8 133.7 1.6%
EBITDA 7.7 8.5 (9.4)% 32.5 33.1 (1.8)%
Net income attributable to Rosneft shareholders 2.4 3.6 (33.3)% 10.9 8.9 22.5%
Capital expenditures 3.5 3.0 16.7% 13.2 15.0 (12.0)%
Free cash flow 4.3 4.4 (2.3)% 13.7 17.9 (23.5)%
Upstream operating expenses USD/boe 3.1 3.1 - 3.1 3.1 -
For reference
Average Urals price.USD per bbl 61.5 61.3 0.4% 63.4 69.8 (9.1)%
Average Urals price. th. RUB per bbl 3.92 3.96 (1.0)% 4.11 4.38 (6.2)%

1The calculation includes interest expense on the prepayments on the long-term oil and petroleum products supply agreements.
2Calculated using average monthly Central Bank of Russia exchange rates for the reporting period.

Commenting on 2019 financial results Rosneft’s Chairman of the Management Board and Chief Executive Officer Igor Sechin said:

“2019 was a transformational year for the Company in terms of the environmental agenda. We have strengthened our positions as one of the industry leaders with low unit carbon emissions. Rosneft continued to implement its strategy of commitment to the UN Sustainable Development Goals approved by the Board of Directors. The Company’s leading position in the field of sustainable development has received international recognition. Rosneft became the highest-rated Russian company in the leading international ratings of CDP in the “climate” and “water resources” categories. In December 2019 the Company entered the FTSE4Good Emerging Markets index with high ratings in the segments of environmental protection, social responsibility and management. In 2019 Rosneft is already ahead of most oil and gas companies globally in terms of transparency of disclosure in accordance with Bloomberg and Refinitiv ratings. Joint work within the framework of international initiatives will allow us to achieve our strategic goal of joining the top quartile of international oil and gas companies in terms of key indicators in ecology, industrial safety and environmental protection. In 2019 Rosneft joined the “guidelines for reducing methane emissions in the natural gas supply chain”. We will strive for a reduction of the anthropogenic impact on the environment; this is a key priority of the Company.

In 2019, Rosneft continued consistent implementation of Strategy “Rosneft-2022” approved by the Company’s Board of Directors. At the same time, the Company operated under a series of negative factors and market uncertainties. The restriction of oil intake to the Transneft main pipeline system did not allow the Company to fully realize the potential of its production capacity. Price regulation of oil products at the beginning of the year put additional pressure on the financial results. The volatility of market prices for crude oil and expectation of introduction of new quality standards for petroleum products by the International Maritime Organization (IMO) in the fourth quarter of 2019 became additional factors of uncertainty. The OPEC+ Agreement had an additional impact in terms of production volumes and the timing of new projects.

Nevertheless, 2019 year was successful in terms of the Company’s financial performance. Net income attributable to the shareholders increased by 29% YoY. Interim dividend for the first half of 2019 amounted to 15.34 RUB/share, which is 5.2% higher than in the first half of 2018. Strong results for the second half of 2019 will allow us to increase the final dividend at a much faster pace, as the Net profit for the period increased by more than 50%. Subject to a relevant decision of the Annual General Meeting of shareholders, the dividend yield based on the average share price for 2019 will be about 8%.

In 12M 2019 free cash flow of Rosneft amounted to RUB 884 billion (USD 13.7 billion), including RUB 271 billion (USD 4.3 billion) in 4Q 2019. This allowed the Company not only to fulfill all of its obligations to the shareholders to pay annual dividends for 2018 and interim dividends for 2019 in the amount of RUB 283 billion, but also to consistently reduce its financial debt and trading obligations. Their amount decreased by 15.6%, or by nearly RUB 907 billion.

The Company continues to be the Country’s largest taxpayer. In 2019 the amount of tax payments from activities in the Russian Federation amounted to about RUB 3.6 trillion, which corresponds to a fifth of Federal budget revenues. The Company is engaged in an active dialogue with the Government to establish a set of fiscal incentives necessary to ensure investment activity and economic growth.

As Strategy “Rosneft-2022” is implemented, management will continue to improve the efficiency of the Company’s financial and operational activities, with the ultimate goal of increasing the returns of the existing assets for the benefit of the shareholders and ensuring the Company’s long-term leadership position.”

Financial performance

Revenues and equity share in profits of associates and joint ventures

4Q 2019 revenues amounted to RUB 2,224 bln (USD 35.2 bln). The decrease in RUB equivalent sales (-0.7% QoQ) was driven by a negative impact of the price factor on the sale of petroleum products as a result of anticipation of introduction of the new IMO requirements as well as a decrease in the price of crude oil (-1.0% in RUB terms) compared to 3Q 2019.

12M 2019 sales growth of 5.3% YoY was mainly driven by a higher volume of crude oil sales (+20.1%) accompanied by a reduction of the price of crude oil (-6.2%).

EBITDA

4Q 2019 EBITDA amounted to RUB 488 bln (USD 7.7 bln), a decrease of 11.9% in RUB terms vs 3Q 2019, which was mainly driven by a negative dynamics of crude oil and high-sulfur fuel oil prices in anticipation of the introduction of the IMO restrictive requirements, as well as a decrease in production and sales volumes of petroleum products due to scheduled turnarounds.

12M 2019 EBITDA amounted to RUB 2,105 bln (USD 32.5 bln). Growth of 1.2% YoY was due to higher crude oil sales volumes principally in the Eastern direction (+34.6%) as well as efficient control over the costs.

4Q 2019 unit upstream operating expenses were 196 RUB/boe (3.1 USD/boe), a reduction of 2.5% vs 3Q 2019, against the background of the industrial producer price deflation (-5.6% to Q3 2019), partially offset by a seasonal growth in costs in the winter period.

12M 2019 unit upstream operating expenses amounted to 199 RUB/boe (3.1 USD/boe), an increase of 2.6% vs 12M 2018, which is lower than the industrial producer price inflation (2.9%). The increase was due to higher electricity expenses, transport and labor costs.

Net income attributable to Rosneft shareholders

In 4Q 2019 Net income attributable to Rosneft shareholders amounted to RUB 158 bln (USD 2.4 bln), including the effect of partial reversal of impairment of assets in the amount of RUB 19 bln.

Increase in Net income attributable to Rosneft shareholders in 12M 2019 by 29% YoY in RUB terms was driven by the positive dynamics of the Company’s operating income and the reduction of financial and other expenses.

Capital expenditures

In 4Q 2019 capital expenditures amounted to RUB 220 bln (USD 3.5 bln), an increase of 11.1% QoQ.

12M 2019 capital expenditures amounted to RUB 854 bln (USD 13.2 bln), a reduction of 8.8% YoY, mainly due to optimization of the development drilling program in the context of implementation of the strategic initiative to increase the share of horizontal wells with a greater efficiency in the Company’s brownfields, as well as the alignment of the capital investment profile of new projects, taking into account the extension of quotas under the OPEC+ production cut agreement.

Free cash flow

4Q 2019 free cash flow amounted to RUB 271 bln (USD 4.3 bln). A small reduction QoQ was driven by higher capital expenditures (+11.1%). In 2019 free cash flow amounted to USD 884 bln (USD 13.7 bln).

Financial stability

The Company reduced its financial debt and trading obligations by 15.6%, or by nearly RUB 907 bln.

Net debt and trading liabilities decreased by RUB 174 bln during 12M 2019. Net debt/EBITDA was at 1.4x in RUB terms at the end of 4Q 2019.

Dividends

In the first half of 2019, the Company’s dividend payments amounted to RUB 163 bln. In total, during 2019, the Company made payments to shareholders in the amount of RUB 283 bln, including RUB 141 bln of dividends attributable to the State.

Rosneft Information Division
Tel.: +7 (495) 411 54 20
Fax: +7 (495) 411 54 21
February 19, 2020

These materials contain statements about future events and expectations that are forward-looking in nature. Any statement in these materials that is not a statement of historical fact is a forward-looking statement that involves known and unknown risks, uncertainties and other factors which may cause actual results, performance or achievements expressed or implied by such forward-looking statements to differ. We assume no obligations to update the forward-looking statements contained herein to reflect actual results, changes in assumptions or changes in factors affecting these statements.