OREANDA-NEWS. June 10, 2010. Deputy Finance Minister Shatalov told that the government planned to introduce an export duty formula for Eastern Siberia as early as July 2010 with a ‘coefficient’ of 0.45 and a threshold price of USD50. This would represent a reduced level of export duties compared to the current formula, which has a slope of 0.65 and a threshold price of USD 25 (USD 4+0.65x(U-25), where U is the average Urals price). According to Shatalov, this proposal has been agreed upon by the Ministries of Finance and Energy. He also reiterated that Rosneft’s Vankor field would return to regular export duties from January 2011, reported the press-centre of OTKRITIE Financial Corporation.

View: The lower slope/sensitivity coefficient (0.45) indicated by Shatalov was new. We believe the market was assuming the same slope of the reduced export duty formula for Eastern Siberia as in the regular formula (i.e. 0.65). We believe Shatalov’s remarks are positive for Rosneft to the extent that the impact on the company’s earnings and cash flows in 2H10 would be less pronounced with lower sensitivity to oil prices. We estimate the negative risk to our DCF-based valuation of Rosneft is only 1-2%, assuming the slope of 0.45 instead of 0.65. In our 26 May Rosneft note, which assumed an export duty formula for Vankor in 2H10 of USD 4+0.65x(U-50), we estimated the downside risk to our valuation at about 3%.

Valuation and Action: Rosneft trades at 6.3x P/E and 4.2x EV/EBITDA for 2010E. We reaffirm our positive view on the stock and our BUY rating.