RussNeft Announced Financial Results for 2010

OREANDA-NEWS. May 05, 2011. NK “RussNeft”, one of the leading vertically-integrated oil companies in the Russian Federation, announces the consolidated financial and production results for the year 2010.

KEY FINANCIAL RESULTS FOR THE YEAR 2010

OIBDA index in 2010 amounted to USD  1 469 million as compared with USD  1 436 million in 2009;

 Revenue in 2010 amounted to USD  6 867 million as compared with USD  5 328 million in 2009;

Net profit in 2010 amounted to USD  453 million as compared with USD  799 million in 2009;

The main factor in the net profit reduction was the accrual of foreign exchange loss due to rise in the dollar, an increase in accrued interest on current loans.

KEY OPERATING RESULTS FOR THE YEAR 2010

In 2010 an increase in oil production was observed against 2009, this index increased by 2.2 % and amounted to 12 962 thousand tons. (12 687 thousand tons in 2009). The main reason for growth – the successful implementation of large-scale drilling programs.

Refining output in 2010 increased by 2 % as compared with 2009 and amounted to 5 134 thousand tons.

KEY FINANCIAL AND OPERATING DATA 

	2009	2010	changes
Sales Revenues (USD  mln.)	5 328	6 867	28.9%
OIBDA (USD  mln.)	1 436	1 469	2.3%
Operation profit (USD  mln.)	1 236	1 225	-0.9%
Net profit (USD  mln.)	799	453	-43.3%
Oil production (thousand tons)	12 687	12 962	2.2%
Oil refining (thousand tons)	5 040	5 134	2%

OPERATING RESULTS

Production

JSC  NK “RussNeft” conducts exploration and production of oil in Russia at the territory of Khanty-Mansiysk Autonomous Okrug, Yamalo-Nenets AO, the republics of Udmurtiya, Bashkortostan, Ulyanovsk, Saratov, Volgograd, Penza, Kirov Regions.

	2009	2010	changes
Oil production (thousand tons)	12 687	12 962	2.2%
Average daily oil production (thousand tons/per day)	35	36	2.5%

    *7.12 barrels per ton of oil

In order to avoid the trend of production decline observed during 2009, JSC  NK “RussNeft” in 2010 increased its investment program, specifically the main emphasis was made placed on drilling. The increase of oil production on the basis of the reporting year was achieved at the expense of traditional regions of production of the enterprises of the holding. Thus, in KhMAO at Zapadno-Varioganskoye Company’s oilfield 11 new wells were drilled, at one of which record for the region flow rate output was achieved – more than 600 tons of hydrocarbons per day. At strategic Shapshinskoye group of oilfields 45 new wells were put into operation, which made it possible to increase production throughout all group by 29%. In Udmurtiya the result of implementation of intensive drilling program was the achievement of the record in the region’s history of oil production flow rate daily output in amount of 350 tons at one of the wells at Yuskinskoye Company’s oilfield.

            Altogether in 2010 due to successful implementation of intensive drilling program 121 new wells were completed, which is 65.7% more than in similar period of 2009 (73 wells).

            The expected level of oil production in 2011 – 13 600 thousand tons. The volume of capital investments into production will amount to USD  481 million which exceeds the last year’s analogues figures by USD 147 million. For this purpose the main directions of investments will appear to be the continuation of implementation of intensive drilling program, and also accompanying arrangement of engineering oilfield infrastructure.

Resources

According to figures audited by Miller and Lents Company (USA), oil and gas reserves for all companies, integrated into JSC  NK “RussNeft” corporate structure, equal to: 

Oil, mln. barrels	dated 01.01.2011	dated 01.01.2010
recoverable	1 606.753	1 548.992
prospective	643.596	691.039
possible	902.697	902.447

 

Gas, mln. cubic feet	dated 01.01.2011	dated 01.01.2010
recoverable	880 275	884 405
prospective	337 231	327 269
possible	356 354	322 954

In 2010 the Company completely filled annual production of the holding and added 58 mln. barrels of recoverable reserves. This has been achieved through rational planning of drilling and getting new geological and geophysical data clarifying the geological structure of oilfields within the boundaries of the existing licensed areas.  

Refining

The structure of “RussNeft” Group of Companies includes 2 oil refineries – JSC  “Orsknefteorgsintez” (ONOS), and JSC  “Neftemaslozavod” (NMZ). Total capacity of the enterprises is 6 630 thousand tons/per year (ONOS), 90 thousand tons/per year (NMZ).

The main refining enterprise of the Group – JSC  “Orsknefteorgsintez” in the reporting period showed stable growth in key production figures.

          Key indicators of JSC  “Orsknefteorgsintez” in 2010

	2009	2010	changes
Refining output (thousand tons)	5040.00	5 134.00	2%
Production of petrochemicals (thousand tons)	4 898.00	4 927.00	1%
Refining depth (%)	58.08%	58.12%	0.3%
Capital investments (thousand rubles)	160 000.00	330 339.00	48.4%

The main emphasis in capital investments in 2010 was made on the replacement of worn out and outdated equipment and design of process flow schemes for the production of Euro-3 quality standard motor oil. From 2011 the Company’s motor oil conform to ecological class Euro-3 quality. The current year the main directions in the refining complex of the holding will be the increase of economic efficiency of the enterprises, compliance with the existing state requirements to quality of production, replacement of worn-out and outdated equipment, improvement of industrial safety. In 2010 JSC  “Orsknefteorgsintez” has reached the highest level in terms of volume of oil processing over the past 10 years. 

FINANCIAL OPERATING RESULTS

USD  mln.	2009	2010	changes
Sales revenue
Oil sales	2 615	4 010	53.4%
Oil products and petrochemicals sales	2 650	2 781	4.9%
Other operating income	64	77	20.4%
Total revenue	5 328	6 867	28.9%
Operating costs
Oil and gas production costs	674	832	23.3%
Other costs on oil and gas	15	23	49.8%
Oil processing costs (including purchase of third-party oil)	486	737	51.8%
Marketing structures costs	17	21	21.3%
Other costs	135	161	19.2%
Commercial costs	619	756	22.0%
Export tax	1 268	1 946	53.5%
Taxes on production (MET and other taxes)	877	1 167	33.0%
Total costs and expences	4 092	5 642	37.9%
Revenue from operating activities	1 236	1 225	-0.9%
Interest (net)	-452	-546	20.7%
Other income and expenses, including:	234	-94	-140.3%
Dividends	0	59	0.0%
Foreign exchange difference	389	-20	-105.2%
Profit before tax	1 018	585	-42.6%
Income tax charge	219	132	-40.0%
Net profit	799	453	-43.3%

REVENUE STRUCTURE

Revenue of “RussNeft” Group of Companies for 2010 amounted to USD  6 867 mln., which 28.9% exceeds 2009 index. Revenue growth is increasingly driven by increased sale prices for export crude. 

(USD  mln.)	2009	2010	changes
Oil
Oil export sales	2 120	3 041	43.4%
Domestic oil sales	495	969	95.9%
Total oil sales	2 615	4 010	53.4%
Oil products
Oil products export sales	2 003	1 931	-3.6%
Domestic oil products sales	647	849	31.2%
Total oil products sales	2 650	2 781	4.9%
Other sales	64	77	20.4%
Total sales revenue	5 328	6 867	28.9%

*consolidated data of the Group is submitted including wholesale and retail sales of oil products.

FACTORIAL REVENUE ANALYSIS

SALES PATTERN

(thous. tons.)	2009	2010	changes
Crude oil
crude oil export sales	4 995	5 740	14.9%
crude oil domestic sales	2 580	3 785	46.7%
Sum-total of oil sales	7 576	9 525	25.7%
Oil products
oil products export sales	5 103	3 828	-25.0%
oil products domestic sales	1 658	1 813	9.3%
Sum-total of oil products sales *	6 761	5 641	-16.6%
Sum-total of crude oil and oil products sales	14 337	15 166	5.8%

*taking into account supplementary refining of commercial oil

Crude oil export sales

Revenues from crude oil export sales in 2010 made USD  3 041 million that is by 43,4% more, than in 2009. Increase of income occurs due to the increase of crude oil export sales by 14,9%, and also due to the increased selling prices which in 2010 amounted to 5 740 thousand tons.

Crude oil domestic sales

In the accounting period the revenue from oil sales in the domestic market made USD  969 million as compared to USD  495 million in 2009. Increase of income occurs both due to the increase of crude oil domestic sales, and price rises.

In the domestic market there were sold 3 785 thousand tons of oil in 2010 as compared to 2 580 thousand tons in 2009.

Oil products export sales

Revenues from oil products export sales in 2010 made USD  1 931 million that is by 3,6% less, than in 2009.

Export volume of oil products in the accounting period made 3 828 thousand tons. Basically, the Company exported fuel oil (46%), diesel oil (29%), vacuum gasoil (9%) and gasoline (9%).

Oil products domestic sales

Revenues from oil products domestic sales in 2010 made USD  849 million that is by 31, 2% more, than in 2009. Increase in revenues occurs due to the price rise and effective marketing policy, being flexible to the volatile market changes.

Other sales

Revenues from other products sales include revenues from gas sales, and also revenues from sales of goods and services not related to the core activities (agent’s fee, commercial concession and other goods and services).

In 2010 other sales, as compared to 2009, increased by 20, 4% up to USD  77 million.

COSTS AND EXPENDITURES

In the accounting period as compared to 2009, the operating expenses of the Group of companies “RussNeft” grew by 37, 9% and made USD  5 642 million. The key growth factors of operating expenses are the increase in production and operating costs (by 35, 4%), taxes (Mineral Extraction Tax – 33,0%),  and also export duties (by 53,5%). 

Production and operating costs

Hereafter is presented a structure of production and operating costs of the Company by segments of business.

USD  mln.	2009	2010	changes
oil and gas production costs	674	832	23.3%
oil processing costs (including purchase of oil from the third parties)	486	737	51.8%
miscellaneous expenditures for oil and gas	15	23	49.8%
Total	1 175	1 591	35.4%

The costs for oil production and processing as compared to 2009 have increased by 35, 4% and made USD  1 591 million.

Unit costs for oil production have increased by 20, 7% and made USD  64, 2/tons.

 Cost development is explained by the increase in tariff for electrical power, growth of unregulated tariff ratio, the number of repairs due to maximum reduction of repairs in 2009, and the increase of the number of geological and technical measures. 

	2009	2010	changes
oil production costs (USD  mln.)	674	832	23.3%
unit costs for oil production (USD /ton.)*	53.2	64.2	20.7%

As compared to 2009 the oil production costs grew and made USD  737 million. The costs include expenditures for purchasing of oil from the third parties; the cost escalation arose because of price for oil which was purchased from the third party.

Unit costs per ton of the refined oil made USD  134, 0/ton as compared to USD  70, 0/ton in 2009.

	2009	2010	changes
processing costs (USD  mln.)	486	737	51.8%
unit costs for processing (USD /ton)	70.0	134.0	91.4%

Other operating costs grew from USD  15 million in 2009 to USD  23 million in 2010.

Taxes, other than profit tax      

In 2010 expenditures connected with taxes (including Mineral Extraction Tax) grew by 33, 0% as compared to 2009 and made USD  1 167 million. The growth of this cost item is mainly conditioned by the growth of tax amount for mineral production due to the increase of free market prices. In the accounting period the tax amount for mineral production made USD  1 129 million as compared to USD  843 million in 2009.

Export duties

In 2010 the amount of export duties increased by 54, 3% as compared to 2009 and made USD  1 947 million. Below are shown amounts of export duties on oil and oil products in the accounting period.

USD  mln.	2009	2010	changes
export duties on oil	840	1 458	73.7%
export duties on oil products	422	489	15.8%
Total export duties	1 262	1 947	54.3%

OIBDA, OPERATING PROFIT AND NET PROFIT

Operating profit as compared to 2009 lowered by 0, 9% and made USD  1 225 million. OIBDA index grew by 2, 3% and made USD  1 469 million. The net profit lowered by 43, 3% as compared to 2009 and made USD  453 million.

The growth of OIBDA index is explained by the profitable pricing environment and reallocation of sales onto more effective business activities, and also by the increase of production.

FINANCING COSTS AND DEBT

In December 2010 OAO NK "RussNeft" has signed an Agreement with the major creditors of the Holding - OJSC "Sberbank" and Glencore International AG –on modification of terms of Credit Agreements.

The signed agreements provide both prolongation of payout period on debt obligations of the Company by 2020, and the establishment of the reduced interest rate by both creditors. The overall size of debt, the payment of which is restructured in accordance with the signed documents, makes USD  5,970 billion as of 26.04.2011.

CASH FLOW

( USD  mln.)	2009	2010	changes
Opening balance	20	127	529.6%
Cash flow from operating activity	1 300	1 363	4.8%
Cash flow from investment activity	- 487	-562	15.3%
Cash flow from financing activity	-710	-791	11.4%
Ending balance	127	137	8.0%

In 2010 the Company has increased, after accomplishment of the investment program and performance of service on credit portfolio, the cash balance by USD  10 million.

CAPITAL EXPENDITURES

In 2010 capital expenditures made USD  347 million that is by 53, 1% more, than in 2009. Capital expenditures connected with production grew from USD  213 million in 2009 to USD  334 million in 2010. Capital expenditures connected with processing made USD  11 million as compared to USD  12 million in 2009. The growth of capital expenditures is associated with an increase in drilling of new wells.

OIL PRICES

The average price for Urals oil reached 78 USD per barrel.

EXCHANGE RATE

Exchange RUR/USD 30.37

Due to difference in rate of exchange in 2010 the Company has received USD  20 million of expenditures against USD  389 million in revenue as compared to 2009.

BASIC FACTS FOR THE ACCOUNTING PERIOD

The most important factors, which determined the recovery of the Holding position in the oil market of the country, the growth of the key performance indicators and finance indicators, became in 2010:

the return of the former team, headed by the founder of “RussNeft”, to the management of the Company and appearance of the new shareholder represented by JSFC "Sistema".

debt restructuring, which has played a positive role in the strengthening of the financial position of the Holding, the implementation of the ongoing and new investment projects, the establishment of the solid foundation for further development.

development of the Tomsk Group of fields, start-up of the fuel&energy complex in the Shapshinskoye Group of fields, the successful implementation of program on exploitation drilling in some regions of business activity of the Company, in particular, in Udmurtia and the Western Siberia.