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Q1 2015 IFRS financial results
26 June 2015Financial and operating results for Q1 2015:
- Increase in daily HC production up to 5.2 mboed
- Crude oil and petroleum products sales volume up by 3.5% vs Q4 2014
- Increased operating efficiency (EBITDA margin up to 22.2% vs 21.0% in Q1 2014)
- Net income in RUB terms up by 30.2%
- Continuing increase in free cash flow (by 7.4%)
- Gross debt down by 7.4% starting the year of 2015
On June 26, 2015 Rosneft publishes consolidated IFRS financial results for Q1 2015.
Macroeconomic environment
The Q1 2015 was characterized by drastically adverse influence of macroeconomic factors on activities of the Company: a record decrease in oil prices in USD terms by 30% was not sufficiently compensated by depreciation of rouble, demonstrating high volatility. As a result the market rouble cost of crude oil barrel fell below 3,300 roubles per barrel or by 8.1% compared to Q4 2014.
Additional costs of the Company due to the increase in tariffs of natural monopolies 1 amounted to RUB 11 bln in Q1 2015 in comparison with Q4 2014. Considerable increase in the key bank rate in Q4 2014 has led to increased funding costs in the economy which resulted in increased finance in rubles.
The changes in oil industry tax rates as of January 1, 2015 also had negative impact on the Company’s results. Negative effect from increase in mineral extraction tax, changes in customs duties and excises amounted to RUB 20 bln in Q1 2015. This impact includes negative effect of mineral extraction tax expenses (RUB 88 bln), which was not compensated in full by positive effects from decrease in customs duties (RUB 46 bln) and increased domestic market prices due to change in netbacks including decrease in excise duties (RUB 22 bln).
_________________________
1 Tariffs for pipeline transportation of crude oil were indexed by 6.5%-7.5% (FTS decree No. 275-э/1 of 27/11/14), for transportation of oil products by pipeline transport – by 10% (FTS decree No. 223-э/1 of 07/10/14); RZD tariffs grew by 10% as at January 1, 2015 (FTS decree No. 281-т/2 of 05/12/14).
Consolidated IFRS financial results for Q1 2015:
| Q1 2015 |
Q1 2014 |
Change, % | Q1 2015 |
Q4 2014 |
Change, % | |
| Operating results | ||||||
| Hydrocarbon production (thboed) | 5,200 | 5,092 | 2.1% | 5,200 | 5,200 | - |
| Refinery throughput (mmt) | 24.34 | 24.87 | (2.1)% | 24.34 | 26.25 | (7.3)% |
| Crude oil and product sales (mmt) | 52.80 | 51.70 | 2.1% | 52.80 | 51.00 | 3.5% |
| Gas sales (bcm) | 15.93 | 14.44 | 10.3% | 15.93 | 16.07 | (0.9)% |
| Utilization of associated gas | 87.4% | 73.6% | 13.8 p.p. | 87.4% | 86.9% | 0.5 p.p. |
| 3D seismic, square km | 2,779 | 2,751 | 1.0% | 2,779 | 1,646 | 68.8% |
| Financial results | RUB bln (except %) | |||||
| Sales revenue and equity share in profits of associates and joint ventures | 1,288 | 1,375 | (6.3)% | 1,288 | 1,311 | (1.8)% |
| EBITDA | 265 | 289 | (8.3)% | 265 | 188 | 41.0% |
| Adjusted EBITDA | 2862 | 289 | (1.0)% | 2862 | 188 | 52.1% |
| Adjusted EBITDA margin | 22.2% | 21.0% | 22.2% | 14.3% | ||
| Net income | 56 | 431 | 30.2% | 56 | 89 | (37.1)% |
| Free cash flow | 1302 | 121 | 7.4% | 1302 | 192 | (32.3)% |
| USD bln3 (except %) | ||||||
| Sales revenue and equity share in profits of associates and joint ventures | 21.0 | 39.3 | (46.6)% | 21.0 | 28.2 | (25.5)% |
| EBITDA | 4.5 | 8.3 | (45.8)% | 4.5 | 4.3 | 4.7% |
| Net income | 1.0 | 1.11 | (9.1)% | 1.0 | 2.0 | (50.0)% |
| Gross debt | 56.0 | 65.64 | (14.6)% | 56.0 | 60.5 | (7.4)% |
| Net debt | 43.3 | 45.54 | (4.8)% | 43.3 | 43.8 | (1.1)% |
1 Excluding gain from the sale of LLC "Yugragazpererabotka" of RUB 45 bln (net result) (USD 1.3 bln at average March 2014 exchange rate).
2 Including settlement of prepayment in the amount of RUB 21 bln for crude oil supply in Q1 2015.
3 Calculated using average monthly Bank of Russia exchange rates for the reporting period.
4 Revised data.
In commenting the results of Q1 2015, I.I. Sechin, Chairman of Rosneft Management Board, said:
«Despite unfavorable sector dynamics effective from the beginning of the year such as drop in oil prices, volatile exchange rates, increase in tariffs of natural monopolies, high level of key bank rate and increase in tax rates, the Company demonstrated stability in terms of key production, processing and commercial indicators. The company continued to actively perform geological exploration, maintaining the volume of the program key elements at the level of Q1 2014. The Company continued to supply petroleum products to domestic market at stable price, meeting the needs of Russian consumers.
During Q1 2015, the Company repaid financial debt at its expense or refinancing for the total amount of approx. USD 16 bln. The bridge loans raised to acquire TNK-BP are fully repaid.
The Company continues to manage effectively operating costs and generate positive free cash flow. Operating costs decreased by 3.1% to RUB 157 per boe in Q1 2015 compared with Q4 2014 at times of increased production price by 11.8% in the same period. This confirms the viability of selected business model and high resilience of the Company’s business».
Operational performance
Upstream
In Q1 2015 production of hydrocarbons reached 63.2 mmtoe, the average daily production of hydrocarbons reached 5.2 mboed, that exceeds similar figures of Q1 2014 by 2.1%. In Q1 2014, hydrocarbons production was 61.9 mmtoe.
Based on performance in Q1 2015 the Company completed testing of 4 exploration and appraisal wells, successfully executed 9 seismic exploration projects. In comparison with Q1 2014 the Company increased the rates of performing 2D seismic operations over than five times and 3D – by 1%. In Q1 2015, the Company discovered 11 new deposits with ABC1+C2 reserves for over than 5 mmtoe.
In order to perform volumes of works on license areas on the shelf in Western Arctic in the period from 2015 to 2021 the Company has obtained all necessary state ecological expertise reports. The Company first applied the new technology for detection of oil-and-gas content active zones and exploration targets by helium surveying method on Vostochno-Pribrezhny license area in the water area of the Sea of Okhotsk.
In Q1 2015, within the frames of Eastern Siberia resources development the Company put in the production test Severo-Danilovskoe field with well flow rates on a flush mode exceeding 200 tday.
The Company continues methodical work on raising effectiveness of drilling focusing on selection of optimal technologies and methods of well construction. As a result of pilot works on Prirazlomnoe field only through optimization of technological operations in drilling and running the liner the Company has managed to reduce the time for drilling horizontal wells with multi-stage hydraulic fracturing by 30%. Till the end of the year in Nefteyugansk region it is planned to implement the pilot project for construction of lightweight design horizontal wells, which will make it possible to reduce the time for drilling by 20% more.
Introduction of new and optimization of existing technologies, simultaneous separate production from several strata, commercial drilling rate, formation pressure control and other measures enabled the Company to enhance efficiency of Brownfields and will ensure maintenance of production levels in future. Gaining experience in application of the multi-stage hydraulic fracturing in horizontal wells of LLC RN-Yuganskneftegaz fields made it possible to reach in Q1 2015 the flow of new wells of 58.5 t/day (+24% if compared to Q1 2014), optimization in the real-time mode of hole making of horizontal wells of LLC RN-Uvatneftegaz ensured the increase in flow rate of new wells in Q1 2015 up to 115.9 t/day (+11% in comparison with Q1 2014). Besides, in comparison with Q1 2014 in Q1 2015 the rate of decline in the base production has significantly decreased (by 5.4 percentage points) due to the growth of formation pressure ensured by organization of the effective FPM system in LLC RN-Uvatneftegaz.
In January 2015, the Company signed the contract for supply of 13 drilling rigs with
LLC Uralmash NGO Holding, which shall be put into operation within the year at facilities of
LLC RN-Yuganskneftegaz. By the end of 2015, the Company plans to complete the program for updating and expansion of its own drilling service. Thereby the Company continues systematic implementation of the strategy for improving provision with its own drilling service, as of the end of
Q1 2015 the total number of drilling crews was 201 which is in line with the stated plans. Consequently drilling meterage increased by 36% compared with Q1 2014.
For the purpose to enhance operating efficiency and to meet the needs the Company is implementing the program for development of its own service in the area of hydraulic fracturing.
Based on performance in Q1 2015 production of gas reached 15.8 bcm, having increased by 19.7% compared to Q1 2014. The increase in volumes of gas production was mainly reached through the positive dynamics of production at fields of Vankorneft, Purneftegaz, Sibneftegaz. The growth in production at Vankor field is connected with commissioning of the external gas transportation system in Q2 2014. The increase in Purneftegaz production was mainly provided through implementing the well intervention program at Komsomolskoe, Gubkinskoe and Kharampurskoe fields. The production growth in Sibneftegaz was provided by start of gas production on Khadyriakinskiy license area in December 2014.
The Company is consistently raising the level of utilization of accompanying petroleum gas, which reached 87.4% in Q1 2015. The Company’s strategic objective is reaching APG burning level less than 5%.
Based on performance in Q1 2015, the Company keeps its leadership in maintaining low operating and capital expenses per unit in oil sector.
Downstream
In Q1 2015, Russian and foreign refineries of the Company have refined 24.3 mmt of crude oil. Due to high volatility and instability of price and financial indicators and change in the tax assessment in the oil sector refining capacities were loaded to the economically effective maximum, and in this connection a part of raw stuff was allocated to a more marginal export channel.
With the decrease in Urals price (-50% if compared to Q1 2014) and change in the tax assessment the Company continued effective allocation of resources and provided uninterrupted shipment of oil and oil products having fulfilled all its contractual obligations, and in Q1 2015, the share of high marginal sales channels increased up to 54%.
In Q1 2015, the volume of supplies of oil and oil products under long-term contracts to far abroad in European and eastern directions increased by 11.1% if compared to Q1 2014, including supplies under contracts providing for long-term prepayments in the amount of 8.4 mmt. The volume of sales of oil and oil products in Q1 2015 grew by 3.5% compared to Q4 2014 and amounted to 52.8 mmt.
In Q1 2015, volumes of gas sales increased by 10.3% in comparison with the similar period of 2014, due to commencement of supplies under new contracts concluded in 2014.
Rosneft actively participated in all previous sessions of exchange trades in natural gas from the time of their commencement at the end of 2014, taking 50% share of the total volume of gas sales at the exchange.
In Q1 2015 Rosneft completed the transaction on purchase of Novokuibyshevsk Petrochemical Company in Samara region. The refining output is up to 1.7 mmt of crude hydrocarbons annually for supply of key polymers and other chemical products, viable commercially in the Russian market regarding their quality and technological characteristics. The acquisition is expected to result in synergies from integration the refinery with nearby oil and gas refineries of the Company by improving logistics and optimization of the assortment of refinery products, including high-octane additives and guaranteed processing of prospective volumes of associated gas processing products from the Company’s fields.
Financial performance 2
Sales proceeds amounted to RUB 1,288 bln (USD 21 bln). In condition of decline in world prices
(-12% in ruble terms compared to Q1 2014) the Company efficiently allocated its resources and used high-margin distribution channels which resulted in compensation of decrease in revenue comprising 6.3% compared to Q1 2014.
Adjusted earnings before interests, tax and depreciation (EBITDA) was RUB 286 bln (USD 4.5 bln). In Q1 2015, the margin of adjusted EBITDА was 22% against 21% in Q1 2014. In this regard the Company continues taking measures for effective regulation and reduction of operating and administrative costs. Based on performance in Q1 2015, administrative costs decreased by 10% if compared to Q4 2014.
Net income of the Company in Q1 2015 was RUB 56 bln (USD 1 bln), which exceeds net income 3 in Q1 2014 by 30.2%.
The level of net debt in dollar terms decreased by 4.8% compared to Q1 2014. In Q1 2015, the Company made an early final repayment of approx. USD 7.2 bln, including accrued interest, under the bridge loan facility raised to finance the acquisition of TNK-BP. Total consolidated debt in dollar terms decreased by 7.4% for Q1 2015.
The positive free cash flow reached RUB 130 bln in Q1 2015 (7.4% more than in Q1 2014) due to effective measures for control over the working capital turnover, that consistently provides the repayment of all the financial obligations when due.
The Board of Directors of JSC “NK “Rosneft” recommended for payment a dividend of 8.21 RUR per share on 2014 results that is 25% of net income under IFRS.
2 For calculation of financial results average monthly US dollar exchange rates were used.
3 Excluding gain from the sale of LLC "Yugragazpererabotka" of RUB 45 bln (net result) (USD 1.3 bln at average March 2014 exchange rate).
Rosneft Information Division
tel.: +7 (495) 411 54 20
fax: +7 (495) 411 54 21
June 26, 2015
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.