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Rosneft declares about strong results for 2014:

04 March 2015
  • daily HC production up by 4.8% to 5.1 mboed
  • operating cost down to $3.9/boe
  • FCF up to approx. $16 bln 
  • Net debt down by 23.7% 
  • Largest Russian Taxpayer – RUB 3 trillion

Rosneft's IFRS consolidated financial statements for 12 months of 2014 will be published on 04 March 2015.

 12M 201412M 2013Change, %
Operating results      
Hydrocarbon production (thboed) 5,106 4,873 4.8%
Refinery throughput (mmt) 99.83 90.12 10.8%
Crude oil and product sales (mmt) 207.4 192.9 7.5%
Gas sales (bcm) 56.53 39.07 44.7%
АВС1+С2 reserves (bboe) 129 122 5.7%
Associated gas utilization, (%) 80.9 69.8 15.9%
3D seismic , square km. 22,030 12,091 82.2%
Exploration drilling, wells 100 90 11.1%
Own drilling rig fleet, units 213 81 163.0%
Completion of refinery units construction 5 3 66.7%
Financial results RUB bln (except %)
Sales revenue and equity share in profits of associates and joint ventures 5,503 4,694 17.2%
EBITDA 1,057 947 11.6%
Net profit 350 3881 (9.8)%
Free cash flow2 596 204 192.2%
  $ bln3 (except %)
Sales revenue and equity share in profits of associates and joint ventures 146.7 146.9 (0.1)%
EBITDA 29.0 29.5 (1.7)%
Net profit 9.3 13.01 (28.5)%
Free cash flow2 15.8 6.5 143.1%

1 Net of RUB167 billion revaluation effect of acquired TNK-BP assets ($4.6 bln at the date of acquisition).
2 Net of prepayment under long-term oil supply contracts.
3 Calculated using the average monthly US dollar exchange rates.

In commenting the 2014 results, I.I. Sechin, Chairman of Rosneft Management Board, said:

“In spite of an ongoing crisis on the oil markets, the Company has maintained its dollar-denominated revenue at over $146 billion. The Company has been fully discharging its obligations under long-term crude oil supply contracts and aims at cooperating with its global trading partners. An event took place in 2014 that became an historic achievement – exploration drilling was successfully completed in the new Pobeda field in the Kara Sea.

The Company maintains strong liquidity position and provides for a scheduled repayment of all its short and long-term obligations and has all required resources to deliver its planned production program in 2015. Despite negative changes in macroeconomic environment dividend payout ratio remains 25% of net income under IFRS.

Our key objectives for 2015 include to maintain brownfield production, complete the work to build a full-fledged in-house drilling service capability, continue our drilling and development projects on the shelf, fully in line with selected business model and contributing to improved Company performance. ”

Operational performance

The Company produced 251.6 mtое of hydrocarbons in 2014, 14.5% up from 2013. In 2014, the Company's average daily hydrocarbon production increased up to 5.1 mboed, 4.8% up from 2013. The Company's average daily production of crude oil and liquid hydrocarbons remained at 4.2 mbpd. In 4Q 2014 average daily hydrocarbon production increased up to 5.2 mboed, 2.5% up 3Q 2014.

In accordance with independent audit report by Degolyer&MacNaughton proved reserves under the SEC classification stand at 34 bboe (4.6 btoe), reserve replacement ratio – 154%. Increase of 1 bboe was due to growth of effective involvement of reserves (including hard to recover reserves) in production process by means of exploration drilling. Development system optimization and successful employment of new oil recovery technologies on oil fields led to extra 1.8 bboe.

Under the PRMS classification proved reserves stand at 43 bboe (5.8 btoe), reserve replacement ratio – 174%. The Company's proved, probable and possible reserves (3P) under the international PRMS classification exceeded 106 bboe (14.4 btoe), demonstrating a 5% growth compared to 2013.

In 2014, the Company's total ABC1+C2 hydrocarbon reserves (Russian classification) amounted to 129 bboe (17 btoe), a 5.7% growth compared to 2013. Exploration program contributed to additional 6 bbоe. The Company made 2D seismic works for 33.3 thousand line km, 3D for 22 thousand square km, made drilling of 100 exploration wells with 80% success. Following exploration in 2014, Rosneft discovered 5 new fields (including 2 on the shelf) and 64 new deposits on existing fields.

In 2014, the Company successfully completed its exploration drilling within the Universitetskaya structure in the Kara Sea petroleum and gas province, unique in the scale of its resources. Drilling the Universitetskaya-1 well helped discover Pobeda, the world's northernmost field, with 130 mmt of recoverable light oil reserves and 396 bcm of gas. In 2015, the Company will continue building its coastal support bases and surveying the soils in some areas of the Barents and Okhotsk Seas to prepare for drilling in 2016. The Company will also continue to develop the Sakhalin-1 and Northern Chayvo projects with planned production totaling 10.3 mmt of crude oil (3.3 mmt of Rosneft's share) in 2015.

Maximum production levels since the start of development were achieved in the continental projects of the Vankorneft (22.0 mmt) and Verchnechonskneftegas (8.2 mmt) fields, as well as in Uvat Group of Fields in West Siberia (10.0 mmt).

Introducing multistage frac horizontal drilling, commingling, in-situ baro control and other measures enable brownfield efficiency enhancement and will ensure oil production sustaining in the future.

Company's overall innovation costs grew up by 15%, including a 45% increase in R&D costs, as compared to 2013. The Company enhances brownfield efficiency technologies and continues to develop advanced technologies of low permeability gas fields production and hard to recover reserves at the fields of Western Siberia.

The Company keeps its leadership in the area of Arctic shelf surveys. The scope of expeditions “Kara-Winter 2014” and “Kara-Summer 2014” has become the largest in the history of the polar sea studies. Implementation of innovative projects ensured a steady increase in the amount of intellectual property patents of the Company. In 2014, the total number of patents increased by more than 20%, from 380 to 465. Additional 65 patent applications were submitted in 2014.

The Company is the leader in gas production among Russian oil companies. Gas production was 56.7 bcm in 2014, over 49% more than in 2013. This significant growth was achieved thanks to efficient new asset acquisitions, including JSC “Sibneftegaz” consolidation, and effective gas program to improve associated gas utilization rate. The Company transferred over 80% of associated gas through commercial channels, the balance is injected or used as fuel replacing more expensive sources of energy. In the long term perspective gas production volume is contracted which enables the Company to extend its activity on Russian gas market. The extension of the Company’s supply resulted in gas sales volume increase of 44.7% to 56.53 bcm. From the launch of the gas exchange trading in October of 2014 at the St.Petersburg international commodity exchange the Company actively participates in each trading session.

In 2014, the Company maintained low operating costs at $3.9/boe, down by 9.3% from 2013, and unit capital expenses at $5.3/boe.

In 2014, the Company delivered a large-scale program for developing and expanding its oilfield service capacities. Company’s own drilling rig fleet expanded from 81 to 213 rigs. The share of in-house workover service grew up from 30% to 40% in 2014, thus making it possible to satisfy Company’s increasing service demand using in-house resources. The number of in-house workover crews was up 67%, having increased from 320 to 533 y-o-y.

Internal efforts to optimize costs and enhance efficiency made it possible to keep the in-house oilfield service rates at the level of 2013, while Company social programs were executed in full (in particular, the cost per meter remained unchanged vs. 2013). The above enables the Company to deliver most of the drilling scopes using in-house resources and to be independent from the market condition. The Company’s 2015 agenda includes delivering further efficiency enhancement. A strong focus will be given to deploying advanced service technologies and enhancing wellworkover and drilling efficiency through rolling out the modern multistage frac technologies, deploying rotary steering systems, optimizing well design to reduce a well construction cycle.

In 2015, the Company will continue developing its in-house oilfield services by proceeding with the drilling and wellworkover capacity expansion program. In order to ensure operating efficiency enhancement and service demand coverage, the Company is now considering a program to develop the in-house frac services. The Company continues to aim its efforts at building an in-house drilling service capability and in 2015 plans to continue the program of generating drilling capacities and wellworkover In order to ensure operating efficiency enhancement and service demand coverage, the Company is now considering a program to develop the in-house frac services

In 2014, the Company's Russian and foreign refineries processed 99.83 mmt of crude oil, 10.8% more than in 2013. This growth in the Company's refinery throughput in Russia is largely a result of a program to upgrade its plants and develop its productive facilities, including new complex production units built at its Russian refineries and due to effective integration of new refineries.

In 2014 within the refinery modernization program the Company completed the construction of isomerization unit at Kuibyshev, Novokuibyshev and Ryazan refineries, reforming at Novokuibyshev refinery and vacuum fuel oil distillation at Ryazan refinery.

A positive effect of RUB 12 billion was achieved thanks to efforts to increase efficiency of production and optimization of product structure by increasing the production of Euro-4 and Euro-5 by 18% compared to 2013.

OJSC “AK “Transneft” and the Company signed an Agreement within project of pipeline branch construction from Eastern Siberia – Pacific Ocean (“ESPO”) to Komsomolsk refinery. The funding of the project and construction of the pipeline will be done solely at the expense of long-term tariff.

The Company increased its crude oil and product supplies under long-term contracts to European and Eastern destinations by 22% against 2013, including 22.6 mmt of contractual deliveries to China (15.8 mmt in 2013). Crude oil and oil product sales grew by 7.5% to 207.4 mmt in 2014.

The Company continues consistently expanding its activity on emerging and high-yield markets of the Asia-Pacific region. Rosneft and Essar signed key terms of oil and oil products supplies to Essar refineries in India. The agreement involves 100 million tonnes over a 10-year period.

The Company expands high marginal channels of petroleum products sales. In 2014 the Company made a record transshipment of oil products through the terminal in Nakhodka ~ 7.2 mmt aimed to increase the supply on the market in Asia-Pacific region. In addition, in 2014 the Company has done extensive work to enter and expand market presence in the Caucasus and Central Asia.

The Company’s retail network in Russia has approximately 2,400 petroleum stations with the market share over 20%. The Company pursues overheads control policy to keep price level in retail network within the inflation rate.

Financial performance1

Sales revenue amounted to RUB 5,503 billion, 17.2% more than in 2013. This revenue growth is mostly due to sales volumes upturn as a result of effective management of sales structure and increase in sales under long-term contracts and rouble devaluation partially compensated negative effect from oil price decrease. In spite of a significant reduction of world oil prices by 46.5% (starting from June 2014), revenue in dollar terms equaled $146.7 billion, comparable with that of 2013.

EBITDA grew by 11.6% and reached RUB 1,057 billion. As a result of a constant control over the operating and administrative costs and positive operational synergy of RUB 31.8 billion ($0.84 billion) the Company maintained EBITDA on a high level of 2013 – $29 billion despite of tax burden (including a negative effect of export duties lag and a mineral extraction tax rate increase) effect and higher tariffs imposed by natural monopolies.

The Company took measures aimed at decreasing the influence of foreign exchange rates volatility on the Company's financial results2 and secured the level of net profit for payment of dividend in accordance with dividend policy. In 2014 Rosneft's net profit amounted to RUB 350 billion ($9.3 billion) including RUB 348 billion attributable to Rosneft shareholders.

In a sharp deterioration of macroeconomic situation and fall of some industry indicators in 4Q 2014 Rosneft achieved high financial results: net income of RUB 89 billion. Despite the difficult macroeconomic environment the Company increased its free cash flow up to RUB 192 billion and reduced the level of dollar-denominated debt to $43.8,billion in 4Q 2014, when industry comparatives deteriorated.

In deteriorating macroeconomic environment the Company has optimized its capital expenses to RUB 533 billion in 2014 ($13.9 billion), 4.8% less than in 2013.

The Company's free cash flow was RUB 596 billion ($15.8 billion), 2.4 times greater than dollar-denominated ($6.5 billion) in 2013 thanks to effective management of liquid funds, control and acceleration of working capital movements.

The Company maintains high liquidity levels of RUB 939 billion ($16.7 billion) as of December 31, 2014 that ensures a steady scheduled repayment of all short and long-term obligations and fulfillment of investment program.

Dollar-denominated net debt decreased by $13.6 billion in the reporting period. The ruble-denominated debt burden was heavily impacted by the negative effect of a ruble depreciation against the foreign currency, which does not influence dollar-denominated debt due to strong revenue and scheduled repayment of all liabilities. Net debt/EBITDA ratio in dollar term decreased to 1.513 from 1.77.

The Company has paid more than RUB 3 trillion to government budgets of all levels, 12% more than last year (RUB 2.7 trillion). The Company remains the country’s largest taxpayer accounting for one fifth of all tax income of the Russian Federation’s consolidated budget.

1For calculation of financial results average monthly US dollar exchange rates were used
2For a more accurate recognition of the effect of exchange rate risks that adequately shows the Company's operating results, strategy and existing protection against exchange rate risks in a volatile environment, a decision was made on October 1, 2014, to recognize the exchange rate differences in accordance with IAS 39, Financial Instruments: Recognition and Valuation. As of that date, the Company prepared the necessary documentation required by IAS 39 enabling it to show the Company's actual system of protection against foreign currency risks in its IFRS statements without having to change its accounting policy or principles. The accounting of risk management (hedging) is used to recognize the effect of financial hedging of a part of export revenue by dollar-denominated liabilities. Part of foreign exchange differences in foreign currency loans considered as hedging instruments was showed as part of capital without non-recurring impact on the P&L statement. The effect of accrued losses being carried over by a revaluation of hedging instruments will be determined on a monthly basis starting from 2015 as the relevant part of foreign currency-denominated revenue is recognized. 
3Net debt/EBITDA ratio included EBITDA of NGK “Itera” LLC and acquired TNK-BP assets from January 1, 2013. For EBITDA calculation average monthly US dollar exchange rates were used, USD exchange rate at the closing date of each reporting periods was used for the Net Debt estimation.

Rosneft Information Division
tel.: +7 (495) 411 54 20
fax: +7 (495) 411-54-21
March 4, 2015



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.