Financial results for Q1 2019

• EBITDA growth of more than 1.4 times YoY to RUB 548 bln with the margin improvement to 26%
• Strong control over the costs: operating expenses fell by 10% QoQ
• Free cash flow growth of more than 1.4 times to RUB 197 bln compared to the same period of 2018
• Strategic focus on the debt reduction:
• Net debt fell by more than RUB 110 bln^*
• Trading liabilities reduced by USD 1.9 bln
• Company’s target: drop of net debt and trade payables of USD 2 bln by the end of 2Q 2019
• Net income growth of 61.7% YoY to RUB 131 bln

Consolidated IFRS financial results for 1Q 2019:

¹The calculation includes interest expense on the prepayments on the long-term oil and petroleum products supply agreements.
²Calculated using average monthly Central Bank of Russia exchange rates for the reporting period.
^*Excluding the one-time increase in non-current assets and financial liabilities as a result of recognition on the balance sheet of operating leases in the amount of RUB 103 billion in accordance with IAS 16 "Leases».

Commenting on Q1 2019 results Rosneft’s Chairman of the Management Board and Chief Executive Officer Igor Sechin said:

“Despite the volatility and quarterly decrease in oil prices, the decline in oil production under the OPEC+ Agreement and the Agreement on stabilization of prices for petroleum products on the domestic market, in Q1 2019 the Company demonstrated healthy financial performance in terms of both earnings growth and strong free cash flow generation. This was driven by management efforts in terms of efficient control over the costs and effective investment projects selection.

The Company is committed to generating high rates of organic production growth through the launch of greenfields and maintaining production level at brownfields. Eventually this will lead to a generation of strong free cash flow and higher returns to shareholders through the payment of dividends and the reduction of debt burden – targets that the Company has consistently and successfully achieved over the past several years.

A year ago the Board of Directors supported proposals to increase returns for shareholders and improve the investment attractiveness of the Company. Among those proposals was setting a minimum target level for reducing the total debt burden. In 2018 the Company reduced its trade payables and net financial debt by more than USD 14 bln. In the current second quarter we set a goal of reducing these metrics by USD 2 bln.

At its recent meeting the Company’s Board of Directors recommended a dividend payment of 11.33 RUB per share based on the results of 2018. Taking into account the dividend payment for the first half of 2018, total dividend per share for 2018 will amount to 25.91 RUB. If approved by the shareholders, the dividend per share will grow by a factor of nearly 2.5x compared to the previous year and by a factor of more than 4x compared to the dividend payment for 2016. This dynamic clearly demonstrates that the Company works for the shareholders and will strive to achieve the highest results in terms of production growth, investment efficiency and financial stability.”

Financial performance

Revenues and equity share in profits of associates and joint ventures

Q1 2019 revenue amounted to RUB 2,077 bln (USD 31.9 bln). The reduction of sales by 4.1% QoQ was driven by a decrease in crude oil prices (-6.6% in RUB terms and -6.1% in USD terms) and petroleum product prices both on the external market (-5.1% in RUB terms) and the domestic market (-7.5% in RUB terms) with crude oil sales volumes growing by 3.5%.

Q1 2019 revenues increased by 20.6% YoY in RUB terms mainly due to higher volumes of crude oil and petroleum products sales (+7.6%) and crude oil price growth in RUB terms (+12.7%) on the back of the Russian currency depreciation. An additional factor of revenue growth was the increase in equity share in profits of associates and joint ventures.

EBITDA

Q1 2019 EBITDA amounted to RUB 548 bln (USD 8.3 bln), an increase of 12.3% vs Q4 2018. This was mainly driven by a relatively high level of prices against the backdrop of ongoing geopolitical instability and by a positive lag effect of export duty as well as a reduction of operating costs.

Q1 2019 lifting costs amounted to 195 RUB/boe (3.0 USD/boe), decreasing by 4.9% vs Q4 2018. The reduction of operating costs in RUB terms was mainly driven by a seasonal reduction of volumes of technological works as well as reduced maintenance and repairs of pipeline and oilfield services equipment.

Q1 2019 EBITDA growth of more than 40% vs Q1 2018 was mainly driven by an increase in the production volumes against the backdrop of a positive crude oil price dynamics in RUB terms and by effective control over the costs.

Net income attributable to Rosneft shareholders

In Q1 2019 net income attributable to Rosneft shareholders amounted to RUB 131 bln (USD 1.9 bln). The positive dynamics of this indicator is mainly attributable to higher operating profit and an FX gain. However, implementation of non-market methods of regulation of the domestic market for petroleum products as part of the tax maneuver resulted in an impairment loss in the Downstream segment of RUB 80 bln in Q1 2019 with a negative impact on the Company’ net income for the reporting period.

Increase in the net income in Q1 2019 vs Q1 2018 by 61.7% was driven by positive dynamics of the Company’s operating income as well as an FX gain and taking into account the recognition of the asset impairment provision.

Capital expenditures

Q1 2019 capital expenditures amounted to RUB 214 bln (USD 3.0 bln). The reduction of 16.7% vs Q4 2018 was driven by seasonal factors. Capex remained almost at the level of Q1 2018.

Free cash flow

Q1 2019 free cash flow amounted to RUB 197 bln (USD 3.0 bln). The reduction compared to Q4 2018 was due to higher working capital requirements on the back of increase in price levels at the end of the reporting period compared to December 2018.

Financial stability

In Q1 2019 the Company reduced its gross debt by 12%, while the share of short-term liabilities decreased from 22% to 20% providing further support to the Company’s financial stability. Net debt/EBITDA level was 1.3x in USD terms at the end of the quarter.

Rosneft Information Division
Tel.: +7 (495) 411 54 20
Fax: +7 (495) 411 54 21
13 May, 2019

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.