Rosneft Prepares Plan to Fight Sanctions as Oil Output Declines

Jul 25, 2014 8:35 am ET

July 25 (Bloomberg) -- OAO Rosneft, Russia’s largest oil producer, is preparing a plan to limit the impact of U.S.-led sanctions as output drops for second straight quarter.

“Together with our partners -- the world’s leading oil companies -- we are working on a plan to minimize the consequences of including Rosneft on the sanction lists,” Chief Executive Officer Igor Sechin said in a statement announcing second-quarter earnings.

Rosneft is among those companies targeted by sanctions following Russia’s annexation of Crimea. Even as borrowing options remain limited, the state-controlled company is seeking to cut debt and restore production.

Decreasing net debt, which fell 5.7 percent to 1.495 trillion rubles in the quarter, shows progress, said Alexander Kornilov, a Moscow-based oil and gas analyst at Alfa Bank.

“This is positive, especially in the context of the most recent debt-related U.S. sanctions rendering Rosneft’s deleveraging pace quite a sensitive issue,” Kornilov said in an e-mail.

Rosneft became the world’s biggest traded oil company by output after closing a $55 billion deal for TNK-BP in March last year. Today’s earnings results are the first time company performance, including TNK-BP, can be compared year-on-year.

Earnings Surge

Second-quarter profit surged almost eightfold, beating estimates, to 171 billion rubles ($4.87 billion) in the three months to June 30. That beat the 156.7 billion-ruble mean estimate of 10 analysts surveyed by Bloomberg. Oil and gas sales rose 24 percent to 757 billion rubles, driving total revenue up 22 percent to 1.44 trillion rubles.

Free cash rose to 112 billion rubles in the period, according to the statement.

“Our operational efficiency allowed increasing free cash flow almost threefold relative to the second quarter last year,” Sechin said in the statement.

Oil output declined 1.4 percent from the previous quarter to 4.13 million barrels a day, after the company failed to reach an agreement with oilfield-services provider Eurasia Drilling, leading it to remove rigs. Oil and gas output combined fell 0.9 percent to 5 million barrels of oil equivalent a day from the first quarter.

Rosneft also said it received a $1.9 billion prepayment from BP in July for a long-term supply agreement of oil and products. The company had received 689 billion rubles or $19.63 billion in prepayments for oil supplies from traders and Chinese buyers previous to the payment.