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9M14 results: new unique field discovered in the Kara Sea, daily HC production increased by 5.0%, free cash flow increased by a factor of 2.7, EBITDA increased by 28.9%, declared dividend payout of 136 bln rubles

On October 29, 2014, Rosneft is publishing its 9M14 IFRS consolidated financial results.

Operating results      
Hydrocarbon production (thboed) 5,073 4,831 5.0%
Oil refining (mmt) 73.59 65.47 12.4%
Crude oil and petroleum product sales (mmt) 156.4 139.8 11.9%
Gas sales (bcm) 40.46 24.52 65.0%
Financial results, bln rubles      
Revenues and equity share in profit of associate s and joint ventures 4,192 3,344 25.4%
EBITDA 869 674 28.9%
Net income 261 2501 4.4%
Free cash flow2 404 152 165.8%
Net debt 1,772 1,926 (8.0)%
Net debt/EBITDA 1.55 1.91  
1 Net of the effect of acquired TNK asset revaluation of 167 bln rubles.
2 Net of prepayments under long-term oil supply contracts

In 9M 2014, the Company produced 5.1 mmboed of hydrocarbons, which is 5.0% higher than in 9M 2013. The Company’s daily hydrocarbon production is in excess of 5 mln for the third quarter in a row. The Company’s daily production of oil and liquids stabilized at 4.2 mmbd.

In September 2014, the Company successfully completed drilling of the world’s northernmost arctic well, Universitetskaya-1, which discovered oil on the Vostochno-Prinovozemelskiy-1 license area in the Kara Sea. Drilling was done in a record time of 1.5 months in absolute compliance with all of the applicable process and environmental requirements. Under preliminary estimates, the resource base of just the first trap on the Pobeda field under C1+C2 classification is 128.7 mmt of oil and 391.9 bcm of gas. The work resulted in accumulation of a significant base of subsurface information to serve as a basis for subsequent building of a field development model. The quality of the field oil exceeds that of Brent and Siberian Light crude.

The Company is currently drilling a second well to be approximately 11 km long on the Northern Tip of Chayvo on Sakhalin island using the Yastreb drilling rig. In total, the field will be operated by a cluster of five wells. In the future, the new field will provide annual production of ca. 1.5 mmt of oil.

OJSC Verkhnechonskneftegaz attained the historical peak of daily production (23.5 mtpd) through infrastructure optimization. LLC RN-Yuganskneftegaz brought the Vstrechnoe field into commercial development with a startup production rate of up to 300 tpd.

The Company took a number of strategic steps for building an in-house service business and increasing the rates of drilling. In 3Q 2014, a transaction was closed for acquiring the assets of Weatherford International plc. The large-scale asset acquisition transaction, accumulated experience of working with advanced technology and in-house professional experience of managing major projects enable the Company to significantly increase the scopes of drilling in the short and medium term both onshore and offshore. As a result of the transaction with Weatherford International plc, the amount of in-house onshore drilling crews has increased from 98 (inclusive of the crews of LLC Orenburgskaya Burovaya Kompaniya) to 157. The work is carried out on additional increase in the amount of drilling rigs by 30 items, which should start drilling on the sites of LLC RN-Yuganskneftegaz by mid-2015. With the additional crews using leased rigs taken into account, the total rig fleet will be in excess of 200 items, which will be sufficient for the Company’s ambitious program of drilling in 2015-16.

The Company continues its cost control policy and ensures the lowest level of unit operating expenditures of USD4.0/boe and unit capital expenditures of up to USD6.0/boe over 9M 2014, which is the industry best figure at the current stage of the investment cycle.

In 9M 2014, the Company produced 40.87 bcm of gas, which is an increase by more than 56% relative to 9M 2013. The Company goes on implementing a program for increasing utilization of associated petroleum gas. In particular, on Vankor, the gas program execution included delivery of up to 2.8 bcm of gas to the UGSS with a planned load of up to 4.9 bcm of gas in 2015.

In 3Q 2014, the Company received 19 licenses for geological study, exploration and production of hydrocarbons on the license areas in the Khanty-Manssiyskiy Autonomous Area and the Yamalo-Nenetskiy Autonomous Area.

Over 9M 2014, the Company’s Russian and international refineries processed 73.59 mmt of crude oil. On September 1, 2014, the Achinsk Refinery started producing the base types of petroleum products: straight-run gasoline and diesel fuel, marine and jet fuel and NGL. By the end of 2014, it is planned to increase the volumes of processing and resume production of the motor fuels conforming to the Technical Regulation. In September 2014, an isomerization unit was commissioned at the Kuibyshev Refinery to support growing production of high-octane Euro-5 gasolines. The expected effect of unit commissioning is estimated at 2 bln rubles per year.

The Company is working energetically to provide geographic diversification of its crude export channels. The eastward crude supplies reached a record of 25 mmt in 9M 2014, which is 45% higher than in 9M 2013.

In 3Q 2014, the Company kept on working to expand its premium sales channels by expanding cooperation with the biggest eastern airlines – agreements were made for fuel supply with major east airlines in the airports of Moscow, Krasnoyarsk and Sochi.

The volume of bunkering in 9M 2014 amounted to 3.03 mmt, which is 28.4% higher than in 9M 2013.

As a result of the aforesaid activities, the volumes of crude and petroleum product sales over 9M 2014 increased by 11.9% to 156.4 mmt.

The revenues (inclusive equity share in profits of associates and joint ventures) amounted to 4,192 bln rubles, which is 25.4% higher than in 9M 2013. The growth in the proceeds is mostly due to the increased sales volumes. The earnings before interest, tax, depreciation and amortization (EBITDA) increased by 28.9% to 869 bln rubles as a result of successful implementation of an operating performance improvement program and ongoing control of operating and administrative expenditures despite a negative effect of growing export duties and MET and increased transportation tariffs.

Exclusive of a forex loss, the Rosneft’s net income for 9M 2014 amounted to 411 bln rubles, which is a 34% increase relative to 9M 2013. The net income inclusive of a negative forex effect for 9M 2014 was 261 bln rubles.

The Company’s free cash flow was 404 bln rubles, which is 2.7 times higher than in 2013. The Company keeps on generating a positive free cash flow through effective liquidity management, which ensures stable repayment of short-term and long-term liabilities and payout of dividends. In the current period, the Company paid out 136 bln rubles of the dividends declared for 2013.

In 9M 2014, the net debt/EBITDA ratio was 1.55. The Company keeps on paying on all of its liabilities using its own liquidity despite the adverse macroeconomic conditions in 2H 2014.

Commenting on the results for 9M 2014, the Chairman of the Management Board of Rosneft Igor Sechin said:

“In the first nine months of 2014, Rosneft has managed to achieve high operating performance on the back of improved operating efficiency in terms of availability of equipment and technology and cost control. The Company’s daily production steadily exceeded 5 million barrels of oil equivalent, mostly due to stabilized production in West Siberia, high rates of growth at the Verkhnechonskoe field and the Uvat cluster and increasing volumes of gas production. We achieved an outstanding result in the Kara Sea through successful completion of the first exploration well with the preliminary results that confirmed the hypothesis of West Siberian oil and gas province extension to the Arctic shelf. Despite the market price volatility, the Company demonstrates strong financial performance. Our free cash flow in January to September 2014 amounted to 404 bln rubles, which is 2.7 times higher than in the previous year. Our cash and financial investments as of the end of period amounted to 810 bln rubles. The Company increased tax payments up to 2,258 bln rubles compared to 1,980 bln rubles in the nine months of 2013. The Company’s business is stable both operationally and financially.”

Rosneft Information Division
tel.: +7 (495) 411 54 20
fax: +7 (495) 411-54-21
October 29, 2014

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.