Russian Rosneft Profits Plummet 70% in Q3
Russia’s largest oil company Rosneft reported on Friday that Q3 16 net income declined more than 70% compared to the previous quarter despite oil prices trading in a range of $39-$49 per barrel. In the same quarter, Rosneft reported total revenue and income from associates rose just 1% while Earnings Before Interest, Tax, Depreciation and Amortization (EBITDA) fell 15% when measured in U.S. dollar terms.
Operating Results Surprisingly Slow
Rosneft reported crude oil production grew by 2% in the quarter while natural gas production fell by 2.5%, leaving total hydrocarbon production flat compared to the previous quarter. For the year ended September 2016, oil production was up just 0.3% and total hydrocarbon production grew by 1.4%. These poor production results are surprising when one considers that development drilling rose 42% in the year and the number of new wells commissioned grew by 49%.
Commenting the results for 3Q 2016, Rosneft CEO Igor Sechin said, “In 3Q 2016 the environment on the commodity markets remained difficult. Additional pressure on the company’s profitability was from considerable negative export duty lag effect. I would like to highlight positive results of Rosneft’s management cost control and generation of positive free cash flow over the last years in conditions of high market volatility.”
Refining Segment A Bright Spot
Rosneft’s refining segment, known in the industry as the downstream segment, reported favorable operating results in the third quarter. Refining throughput at domestic refineries rose 11% in the quarter to 21.6 million metric tones. Additionally, refining depth (the amount of lighter, cleaner burning fuels produced expressed as a function of crude capacity) increased by 5% to 71%. The higher refining depth allows the company to sell premium fuel products that command a higher profit margin instead of lower quality residuals.
Capex Continues to Rise
Total capital investment (CapEx) rose 13% in the quarter in dollar terms to $2.6 billion. According to the company, upstream CapEx for the year to September 2016 grew by 33.9% mainly driven by increased volume of drilling and workovers and intensive development of new projects. Such news makes the low production growth rates reported in 2016 all the more mysterious. It seems much of the company’s current investment program is geared toward future production. In late October, Mr. Sechin said that Russia has capacity to increase production by as much as 4 million barrels per day.
Source: Investopedia
If you have a story related to the oil and gas industry that you would like to bring to our attention, please contact our news team at: news@oilandgaspeople.com
Advertisement
