Financial results for 3Q 2018 and 9M 2018

• 3Q 2018 EBITDA growth by 13.8% QoQ up to RUB 643 bln, 9M 2018 EBITDA growth by 1.6 times YoY up to RUB 1,593 bln with margins improvement
• 9M 2018 Net Income jumped by 3.4 times YoY up to RUB 451 bln
• Free Cash Flow improvement in 3Q 2018 by more than 2 times QoQ up to
  RUB 509 bln and over 4 times YoY up to RUB 872 bln
• Achieved annual targets on debt burden reduction and working capital improvement:
  - trading liabilities and debt burden decrease by USD equivalent of 12 bln vs. the year beginning level
  - working capital reduction by more than USD 3.2 bln vs. the year beginning level 

Consolidated IFRS financial results for 3Q 2018 and 9M 2018:

 ¹Net income in 9M 2017 is adjusted due to recognition of the final purchase price allocation of assets acquired in 2017.

²The calculation includes interest expense on the prepayments on the long-term oil and petroleum products supply agreements. Revised data for 9M 2017.

³Calculated using average monthly Central Bank of Russia exchange rates for the reporting period. 

Commenting the results for 3Q 2018, Rosneft Chairman of the Management Board and Chief Executive Officer Igor Sechin said:

“Currently the Company faces serious market challenges including extremely volatile crude price environment, uncertain outlook for the world economic growth in 2019, rising interest rates on the global capital markets (incl. Russia) as well as new regulatory approaches for petroleum products pricing on the domestic market. Increasing free cash flow generation and reducing the debt burden become our key strategic goals under these tough conditions. Successively moving towards their achievement the Company executed its plans to reduce debt and working capital announced earlier in May well ahead of schedule. The total amount of trade prepayments outstanding and net financial debt was reduced by USD equivalent of ca. 12 bln year to date.

Organic growth and monetization of synergies from integration of newly acquired assets remain our key near-term priorities. We will continue to focus on cost control, highly selective CAPEX program and free cash flow generation for further deleveraging.”

Financial performance

Revenues and equity share in profits of associates and joint ventures

3Q 2018 revenue amounted to RUB 2,286 bln (USD 35.8 bln) increasing by 10.7% QoQ in RUB terms. The increase was driven by production ramp-up on the back of OPEC+ Agreement restrictions easing with Urals price growth by over 8% in RUB terms.

9М 2018 revenue increased by more than 1.4 times YoY up to RUB 6,073 bln (USD 100.6 bln) mainly due to favorable price dynamics and increased equity share in profits of the Russian and international projects.

EBITDA

3Q 2018 EBITDA reached RUB 643 bln (USD 9.8 bln). Increase in EBITDA was due to QoQ oil price growth (+2.4% in USD terms) on the back of negative export duty lag effect accompanied with administrative expenses reduction.

Lifting costs were at 193 RUB/boe (or 2.9 USD/boe) in 3Q 2018 compared to 192 RUB/boe
(or 3.1 USD/boe) in 2Q 2018. Slight increase in cost dynamics in RUB terms was mainly driven by the recovery of the production capacity after easing of OPEC+ restrictions.

9M 2018 YoY increase in lifting costs (from 181 to 190 RUB/boe) was mainly driven by increased repair and maintenance of a growing well stock, oil field services and higher natural monopolies tariffs.

EBITDA margin exceeded 27% in 3Q 2018 and 25% in 9M 2018 on the back of the favorable external environment and the Company’s efforts to increase efficiency of operating activity.

Net income attributable to Rosneft shareholders

3Q 2018 net income attributable to Rosneft shareholders amounted to RUB 142 bln (USD 2.3 bln). On the back of positive EBITDA dynamics (+13.8% in RUB terms compared to 2Q 2018 level), the decrease in net income is entirely driven by non-cash effects – mainly by downstream goodwill impairment of RUB 133 bln due to continuous growth of oil prices, RUB depreciation and measures to achieve stable oil products prices in the domestic market.

In 9M 2018 net income attributable to Rosneft shareholders increased by 3.4 times YoY and amounted to RUB 451 bln (USD 7.4 bln) despite the goodwill impairment. Net income increase was mainly driven by operating income growth, positive FX impact and one-off gain from the share acquisition in upstream JV with a foreign partner and fair value recognition of previously held interest in JV.

Capital expenditures

Capital expenditures amounted to RUB 227 bln (USD 3.5 bln) in 3Q 2018 and RUB 679 bln
(USD 11.1 bln) in 9M 2018. 9M 2018 capital expenditures increased by 7.8% YoY due to the implementation of highly efficient exploration and production projects within the approved plan and the Strategy of the Company in favorable economic environment. This factor and the easing of production restrictions under the OPEC+ agreement have led to upward reconsideration of the previously announced (taking into account the reduction in accordance with the initiatives focused on shareholder value accretion) target for 2018 investment program in amount of RUB 800 bln. 

Free cash flow

On the back of high operating results and favorable price environment the Company increased free cash flow up to RUB 509 bln (USD 7.8 bln) in 3Q 2018 and RUB 872 bln (USD 13.9 bln) in 9M 2018, that is 2 times higher QoQ and over 4 times higher YoY. This was also due to the working capital reduction (by over RUB 200 bln) driven by the Company’s efforts in trading business aimed at improving the efficiency in cooperation with major partners. 

Financial stability

In 3Q 2018 short-term financial debt was reduced by 11.5% (from 14.5 to 12.9 USD bln) mainly due to scheduled repayments and partial refinancing with long-term instruments.

Net debt/EBITDA was down by 39% since the beginning of 2018 to 1.3x as of the end-3Q 2018.

On 28 September 2018 the Extraordinary General Shareholders approved the record dividends. Approximately RUB 155 bln are to be paid based on the results of 1H 2018 (RUB 14.58 per share) that is 50% of net income under IFRS and complies with the level approved by the dividend policy. 

Rosneft Information Division
Tel.: +7 (495) 411 54 20
Fax: +7 (495) 411 54 21
November 6, 2018 

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.