Financial results for 2Q 2016

Net income growth by x6.4 times to RUB 89 bln in 2Q 2016
Increase in EBITDA by 27.5%, to RUB 348 bln; EBITDA margin above 27%
Effective control of operating and SG&A costs
Industry leadership in free cash flow generation
Decrease in net debt by 41.4%, to USD 23.4 bln from 1H 2015

Consolidated IFRS financial results for 2Q 2016:

	Q2 2016	Q1 2016	Change, %	H1 2016	H1 2015	Change, %
Financial results	RUB bln (except %)
Total revenue and equity share in profits of associates and joint ventures	1,232	1,048	17.6%	2,280	2,658	(14,2)%
EBITDA	348	273	27.5%	621	670	(7.3)%
EBITDA margin	27.6%	25.2%	2.4 pp.	26.5%	24.9%	1.6 pp.
Net income attributable to Rosneft shareholders	89	14	x6.4 times	103	190	(45.8)%
Net income margin	7.1%	1.3%	5.8 pp	4.4%	7.1%	(2.7) pp
Free cash flow¹	61	80	(23.8)%	141	340	(58.5)%
Upstream operating expenses/boe	164	155	5.8%	160	157	1.9%
	USD bln² (except %)
Total revenue and income of associates and joint ventures	19.2	14.5	32.4%	33.7	47.2	(28.6)%
EBITDA	5.3	3.7	43.2%	9.0	11.8	(23.7)%
Net income attributable to Rosneft shareholders	1.4	0.2	x7 times	1.6	3.5	(54.3)%
Gross debt	45.7	47.5	(3.8)%	45.7	54.3	(15.8)%
Net debt	23.4	23.9	(2.1)%	23.4	39.9	(41.4)%
Free cash flow	1.3	1.5	(13.3)%	2.8	6.7	(58.2)%
For reference
Average Urals price, USD per bbl	43.8	32.2	36.2%	38.0	57.3	(33.7)%
Average Urals price, th. RUB per bbl	2.89	2.40	20.2%	2.67	3.29	(18.9)%

¹Excluding the effect of interest expense and effect from prepayments
²Calculated using average monthly Central Bank of Russia exchange rates for the reporting period. Gross debt and net debt are estimated using the closing exchange rate of Central Bank of Russia as of June, 30, 2016, March, 31, 2016 and June, 30, 2015, respectively.

Commenting the results for 2Q 2016, Rosneft CEO Igor Sechin said:

“With remaining volatility, the commodity markets showed some improvements in 2Q 2016, and average ruble crude oil price went up by 20% against 1Q 2016. The main strategic priorities in such difficult conditions remain control over operating and SG&A costs and raising investment program quality. I am glad to note that the dynamic of operating costs turned to be significantly lower than that of the consumer price index. Higher efficiency and some improvement in the market environment allowed substantially increasing net income in 2Q 2016, to RUB 89 bln (x6.4 times vs. 1Q 2016) and generating a consistently high cash flow for the shareholders. Rosneft keeps improving its leading position among global and Russian peers even in difficult market conditions – this highlights once again the quality of business and the Company’s high efficiency.

Financial performance

Total revenue and equity share in profits of associates and joint ventures

In 2Q 2016 revenue increased by 17.6% vs. 1Q 2016 to RUB 1,232 bln (USD 19.2 bln) driven by the improvements in the oil market and recovery in ruble oil price, and also, by ongoing efforts aimed at improving the marketing channels efficiency. Thus, in 2Q 2016, oil sales revenue grew by 28.8% against 1Q 2016.

EBITDA

The Company maintained strict OPEX discipline. Upstream operating expenses per boe (RUB 164/boe - USD 2.5/boe) were lower than the dynamics of the consumer price index and administrative expenses have not changed significantly.

In 2Q 2016, the earnings before interest, taxes, depreciation, and amortization (EBITDA) reached RUB 348 bln (USD 5.3 bln), rising by 28% vs. 1Q 2016. EBITDA dynamics exceeded the oil price growth, due to cost control, improving marketing efficiency and a positive lag on export duties. EBITDA margin increased up to 27.6% that is the highest performance in the last 6 years.

In 1H 2016, EBITDA amounted to RUB 621 bln (USD 9 bln), a reduction of only 7.3%, despite a significant impact of negative external factors (ruble price reduction - RUB 51 bln, additional fiscal load - RUB 69 bln), vs.1H 2015. EBITDA margin upturn was 1.6 p.p. or 26.5% in comparison with H1 2015.

Net income attributable to Rosneft shareholders

In 2Q 2016, the Company net profit was RUB 89 bln, or 6.4x times higher than in 1Q 2016. Net profit increase resulted, primarily, from a material growth in operating profit.

CAPEX

CAPEX in 2Q 2016 remained at the 1Q 2016 levels at RUB 154 bln (USD 2.3 bln).

CAPEX increase in 1H 2016 against 1H 2015 made 14,5%. Upstream CAPEX grew by 33%, mainly driven by higher volumes of development drilling and intensification of greenfields development. Investments are expected to increase in 2H 2016 due to seasonal factors. The growth in spending is expected at above 30% this year.

Free cash flow

In 1H 2016 free cash flow amounted RUB 141 bln (USD 2.8 bln). The Company keeps generating a significant positive free cash flow, ensuring creation of value for the shareholders in quite volatile market conditions. Working capital temporarily increased in 2Q 2016 due to ruble oil prices rise (receivables from the customers) and higher advance payments to the customs on the back of growing export duty rates and crude oil export volumes.

Debt burden

Since 1H 2015, net debt of the Company went down by 41.4% in dollar terms and made USD 23.4 bln. Net debt/EBITDA ratio in dollar terms was 1.3 in 1H 2016. The Company keeps reducing its debt burden through cash flow generation.

Information Policy Division
Rosneft Oil Company
Tel.: +7 (495) 411 54 20
Fax: +7 (495) 411 54 21
Monday, August 15, 2016

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.