BP boosts profit from Rosneft to record high

By bne IntelliNews April 13, 2016

British Petroleum, the largest shareholder in oil producer Rosneft after the Russian state, boosted its earnings before tax and interest from the company to a record-high RUB80bn in 2015 from RUB70bn in 2014, according to Bloomberg estimates published on April 13.

Despite the international sanctions and slump in oil prices, Rosneft posted solid results in 2015, shielded by ruble devaluation, flexible taxation, and the lowest operating costs among global peers, rewarding BP for holding 19.75% state in the company.

BP earns its share of profit from Rosneft in rubles, but converts that to US dollars to report the results. Thus, in dollar terms, BP’s adjusted pretax income in Russia fell 30% to $1.3bn in 2015.

"We remain committed to our strategic investment in Rosneft," company spokesman Scott Dean said in an e-mail to Bloomberg, stressing that BP complies with all relevant European and US sanctions.

"In the low oil-price environment, Rosneft continues to deliver solid operational and financial performance, demonstrating the resilience of its business model," Dean added.

The sanctions have previously forced some other foreign hydrocarbon majors like ExxonMobil to quit joint projects with Rosneft, or to quit Russia altogether like ConocoPhillips.

But Rosneft continues to be a pivotal asset for BP, boosting its global reserve replacement ratio last year from 34% to 61%, and accounting for almost a third of its total oil and gas production of 1mn barrels of oil equivalent daily (3.3mn barrels total daily output).

At the same time, according to Bloomberg Intelligence, Rosneft's operating expense was $2.60 a barrel in 2015, the lowest among its global peers: Shell's was $6.80 a barrel, Total's $7.80 and BP's $10.30.

Rosneft has for the first time become Russia's most valuable company in terms of market capitalisation, narrowly beating natural gas giant Gazpom on both the London and Moscow exchanges, Vedomosti daily reported on April 11.

Capitalisation of Rosneft, which accounts for 40% of Russia's crude oil output, gained $51.5bn on LSE and RUB3.465 trillion on the Moscow exchange as of 1p.m. Moscow time versus $50.8bn and RUB3.447 trillion for Gazprom.

Rosneft quickly caught up with Gazprom, and as of March 28, the companies' value on the Micex Moscow exchange reached RUB3.4 trillion and RUB3.2 trillion, respectively, making them and Sberbank the three most valuable Russian companies.

Capitalisation of Russia's largest crude producer grew 1.4-fold since January on positive company news despite the slump in world oil prices.

In March, the stock price of Rosneft reached an all-time-high on the Moscow Exchange, when the company said it will boost investment by 30%, despite oil prices dropping by more than this in 2015.

  2014 2015E 2016E 2017E
Financials, $ mln      
Revenues 145,887 83,665 53,357 70,691
EBITDA 28,699 17,305 13,147 17,912
EBITDA margin 20% 21% 25% 25%
Net income 9,238 8,299 8,619 6,688 3,291 6,265
EPS (adj), $ 0.87 0.63 0.31 0.59
Div/share, $ 0.13 0.12 0.08 0.15
Valuation, Gearing and Yield        
EV/EBITDA 3.5 6.2 8.2 5.8
P/E 4.3 6.9 14 7.4
P/CF 0.9 3.9 4.3 3.3
Net debt/EBITDA 2.1 3.5 4.7 3.2
Dividend yield 3.50% 2.70% 1.80% 3.40%
Revenues 0% -43% -36% 32%
EBITDA -3% -40% -24% 36%
EPS (adj) -28% -28% -51% 90%
Sector Valuation      
EV/EBITDA 2.3 3.4 5.6 4.8
P/E 4 5.2 11.2 8.6
P/CF 1.6 2.9 4.5 4.2
Sector Growth      
Revenues -7% -35% -42% 25%
EBITDA -17% -29% -40% 20%
EPS -28% -28% -56%  
Main Shareholders      
Russian government (Rosneftegaz) 69.50%      
BP 19.80%      
Strategic investors (Petronas, CNPC) 2.00%      
Other (free float) 8.70%      

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