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Rosneft Posts Record USD 11.1 bln Net Income, Reduces Net Debt by USD 5.0 bln in 2008

04 March 2009

Rosneft (the “Company”) today reported its consolidated financial results under US GAAP for Q4 and 12M 2008.

 12M 200812M 2007Change, (%)Q4 2008Q4 2007Change, (%)
 
Revenue, USD mln 68,991 49,216 +40.2% 10,799 16,493 -34.5%
 
EBITDA, USD mln 17,108 14,459 +18.3% 32 5,084 -99.4%
Net income, USD mln 11,120 6,483 +71.5% 775 2,179 -64.4%
 
Crude oil production, th. bpd 2,121 2,027 +4.6% 2,127 2,233 -4.7%

EBITDA and net income in Q4 and 12M 2007 are adjusted for accrual of penalties and fines related to Yuganskneftegaz tax liabilities. Net income in Q4 and 12M 2007 is also adjusted for YUKOS bankruptcy proceeds.

In 2008, Rosneft generated record EBITDA of USD 17,108 mln, an increase of 18.3% compared to 2007. In Q4 2008, Rosneft’s EBITDA was USD 32 mln compared to USD 5,084 mln in Q4 2007.

In 2008, net income also reached a record of USD 11,120 mln, up 71.5% compared to USD 6,483 mln in 2007. In Q4 2008, the Company’s net income was USD 775 mln compared to USD 2,179 mln in Q4 2007.

In 2008, Rosneft reduced its net debt by USD 4,992 mln, to USD 21,283 mln, while the ratio of net debt to the last twelve months’ EBITDA decreased from 1.8 to 1.2 and net debt to capital ratio decreased to 35%. Overall in 2008, Rosneft repaid and refinanced over USD 16 bln of debt, including repayment of the final tranche of a USD 22 bln bridge facility borrowed in early 2007. As of today, Rosneft has approximately USD 7 bln to repay during 2009 (at RUB/USD exchange rate of 35, taking into account the new syndicated bank loan of USD 1,350 mln signed in January 2009), or less than half the amount successfully refinanced in 2008.

The increase in key financial indicators in 2008 resulted from continued industry-leading growth in crude oil production, further progress in cost control, improved downstream margins, and record prices in the first half of the year for oil and petroleum products. Performance improvements in 2008 were tempered primarily by higher taxes (Rosneft’s tax expenses reached a record of USD 38.7 bln in 2008 compared to USD 26.7 bln in 2007), transportation tariff growth ranging from 8% to 31%, real ruble appreciation through the first half of 2008, as well as a sharp decrease in crude and oil product prices in the second half of the year.

The decrease of financial indicators in Q4 2008 was driven by the highly negative price environment coupled with a lag in the decline of oil price related taxes. Over the course of the quarter, the price of Urals blend decreased by more than 60%, touching the lowest level since the beginning of 2005 of USD 36 per barrel. Despite three one-off changes in export duty made by the Russian government to compensate oil producers for the effect of lagging export duties, the tax burden (excluding income tax) reached a record 64% of revenues. Key positives in Q4 included the Company’s launch of cost reduction initiatives and lower USD denominated costs nearer the end of the year due to these initiatives and the ruble’s depreciation. Net income in Q4 included USD 956 mln in deferred income tax benefits resulting from changes in Russian income tax rate introduced by the government (a decrease from 24% to 20%) and USD 946 mln of foreign exchange gains resulting from the revaluation of ruble denominated net liabilities, both non-cash items.

Despite considerable inflation in Russia during 2008, Rosneft’s upstream production and operating expenses decreased to USD 3.41 per bbl from USD 3.48 per bbl in 2007.

The Company’s capital expenditures totaled USD 8,732 mln in 2008, up 28.8% as compared to 2007, including the net increase in construction materials of USD 578 mln. The increase in capital expenditures is primarily attributable to further expansion of operating activities at Yuganskneftegaz and development of the Vankor field. In Q4 2008, capital expenditures increased by 2.9% y-o-y to USD 2,307 mln.

In 2008, Rosneft remained the global leader in terms of growth in crude oil production. Rosneft’s daily crude oil output (including production by subsidiaries and share in production by affiliates) increased by 4.6% to 2,121 th. bpd from 2,027 th. bpd in 2007, with organic growth of 3.3%. The decline in crude production in Q4 2008 compared to Q4 2007 was due to the Company’s sale of 50% of Tomskneft at the end of 2007. Excluding production by Tomskneft, in Q4 2008, Rosneft’s production increased by 0.4% y-o-y.

In 2008, Rosneft produced 46.44 mln tonnes of petroleum products, up 21.0% y-o-y. This substantial increase is explained by organic growth in throughput at the Tuapse and Komsomolsk refineries, as well as by acquisition of five large refineries in Q2 2007. Rosneft produced 11.46 mln tonnes of petroleum products in Q4 2008.

In 2008, retail sales of petroleum products increased 1.8 times y-o-y to 4.06 mln tonnes. Rosneft sold 0.97 mln tonnes of petroleum products through its retail network in Q4 2008, an increase of 20% compared to Q4 2007.

“Despite the global economic downturn and the fourth quarter being the most challenging in the Russian oil industry’s history due to the sharp decline in prices coupled with unprecedently high tax rates, Rosneft delivered its best ever operating and financial performance in 2008. We continue to maintain focus on our key priorities, those being increasing efficiency, real cost reductions, strengthening our capital structure, efficient upstream volume growth, development of the downstream assets, and leading transparency, all of which together increase the Company’s flexibility. Following success on all of the points in 2008, Rosneft is well positioned to continue implementing its development strategy and capture opportunities presented by the difficult global environment,” Rosneft President Sergey Bogdanchikov said.

Rosneft’s US GAAP financial statements and Management’s Discussion and Analysis (MD&A) for Q4 and 12M 2008 and a related investor presentation are available here.

Rosneft Information Division
Tel.: +7 (495) 221-31-07
Fax: +7 (495) 411-54-21
n_manvelov@rosneft.ru
March 4, 2009

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.