OREANDA-NEWS. September 03, 2009. Rosneft reported a good set of 2Q financials, with the reported figures a little ahead of the Bloomberg consensus. Rosneft reported 2Q09 net income of US1.62bn, 8% higher than consensus (US 1.49bn). The reported 2Q09 EBITDA (US 3.57bn)was only 3% ahead of consensus US 3.45bn). Revenues were reported at US 10.95bn, just above consensus (US 10.8bn), reported the press-centre of OTKRITIE FC.

View: Importantly, Rosneft improved the structure of its debt portfolio in 2Q09, having repaid a significant proportion of its short-term debt, following the drawdown of the first US 5bn tranche of its China Development Bank loan. Rosneft's total debt decreased from US 24.2bn (YE2008)to US 21.8bn at the end of June 2009. The adjusted net debt decreased from US 21.3bn to US 19.2bn, respectively.

Although the YoY decline in 2Q earnings was more pronounced than that of LUKOIL (-63% versus -44%), the six-month income of Rosneft (US 3.67bn) actually exceeded LUKOIL’s (US 3.23bn), and the YoY decline was smaller (-47% for Rosneft, -56% for LUKOIL). In addition, Rosneft generated stronger operating cash-flow, primarily due to the smaller increase in A/R. Rosneft management stated that crude production in 2H09 should increase by 5-6% (over 1H09) thanks to the development of the Vankor field. Since this field is subject to tax breaks, incremental output should help support Rosneft’s profitability margins.

Action: We see no reason to be disappointed with 2Q09 results of Rosneft. We maintain our Hold rating.