OREANDA-NEWS. December 17, 2009. Rosneft CEO Sergey Bogdanchikov told journalists that the company expects to achieve oil production growth of 4-5% in 2010, reported the press-centre of OTKRITIE FC.

He stated that Rosneft could deliver even stronger volume growth, but that its capex would be more heavily skewed to the downstream next year. The 4-5% volume growth target implies that Rosneft (excluding Vankor) is likely to see a 3-4% decline in crude output next year, which is generally consistent with what Rosneft management affirmed at a recent conference call on its 3Q09 US GAAP results.

The Vankor field, which will be exempt from both the mineral extraction tax (MET) and crude export duties next year, should be Rosneft's key driver of volume growth: output at the field should increase from 3.5MMt in 2009 to 11.5-13.5MMt in 2010. Profitable growth should contribute visibly to the company's P&L and cash-flow statements.  

View: Although the implied 3-4% volume drop (excluding Vankor)looks somewhat disappointing and suggests that Rosneft’s largest oil field, Priobskoye, has run out of steam. That said, the 2010 production growth guidance supports our view that Rosneft should remain the Russian oil sector’s leader in terms of volume growth next year primarily thanks to the Vankor field. 

Valuation and Action: Rosneft trades on a 2010 P/E of 10.9x, on our estimates. We reiterate our BUY rating on the stock and our TP of US10.77/share.