Russian oil major Rosneft has cash for deals despite profit fall

MOSCOW Russia’s top oil producer Rosneft reported strong cashflow on Friday, strengthening its position for a continuing acquisition drive despite a worse than expected 77 percent decline in third-quarter net profit.

Rosneft, which bought a controlling stake in mid-sized oil company Bashneft for 323 billion rubles ($4.9 billion) last month, has been looking for ways to increase its global exposure and become a leading international oil major.

The Kremlin-controlled company also intends to buy back 19.5 percent of its shares from state holding company Rosneftegaz [ROSNG.UL] as Russia looks to step up privatization plans.

Rosneft said on Friday that it had generated free cashflow of $4.1 billion in the first nine months of the year in contrast to negative cashflow at several rival oil majors.

Third-quarter net profit, however, tumbled by nearly 80 percent year on year to 26 billion rubles ($401 million), with the company citing weak oil prices.

Analysts polled by Reuters had forecast net income of 45 billion rubles.

“The environment on the commodity markets remained difficult,” Chief Executive Igor Sechin said in a statement, adding that profitability was also pressured by the lag effect on export duty.

Rosneft could also receive funding for its buyback from Rosneftegaz, sources have told Reuters, and the government has said the deal would be of a transitory nature with the stake eventually being sold to investors.

BUYBACK FUNDING

Egor Fedorov, a senior credit analyst at ING Wholesale Banking in Moscow, said: “According to analyst’s calculations, by the end of nine months, Rosneftegaz had accumulated around 543.4 billion rubles in cash and short-term financial assets, from which nearly 387 billion rubles could be provided to Rosneft,” he said.

Rosneft also said it would have to redeem debt of $3.8 billion in the fourth quarter and $12.9 billion in 2017. In the third quarter net debt rose by 11.5 percent from the previous three months to $26.1 billion.

Sales, meanwhile, declined by 4 percent year on year to 1.22 trillion rubles and analysts are eager to for further guidance on the company’s production outlook.

Earlier this week, Rosneft said oil production rose in the third quarter by 1.3 percent year on year to 4.15 million barrels per day.

That is more oil than the amount produced by Iraq, OPEC’s second-largest crude producer, and could complicate global talks to curb output to support prices. Sechin, a close ally of Russian President Vladimir Putin, has told Reuters that Rosneft would not cap its production.

According to a document seen by Reuters, Sechin is due to present a speech at a meeting on the energy sector chaired by Putin on Nov. 23, a week before the Organization of the Petroleum Exporting Countries (OPEC) meets in Vienna to discuss production cuts.

Shares in Rosneft Rosneft’s shares were down 0.7 percent at 0620 ET.

($1 = 65.8600 rubles)

(Editing by David Goodman)