OREANDA-NEWS. August 15, 2011. Surgutneftegas reported its 2Q11 RAS financial results today (15 Aug). In the period, revenue rose by 34.8% YoY but declined by 2.5% QoQ due to rouble appreciation. Operating revenue declined by 5.7% QoQ while net income gained 31% YoY and expanded more than three times QoQ. While the company does not disclose any details on other income/expenses, we believe that net income growth was attributable mainly to forex gains.

Financial assets (long- and short-term financial investments plus cash and equivalents) reached USD 28.5bn, demonstrating 8% QoQ growth. We note that Surgut’s market capitalisation now equals USD 31bn, so its current value is mostly derived from financial assets.

Bottom line

The results are weak in our view as the major part of net income came from non-operating activities, while revenue and operating profit demonstrated declines despite QoQ oil price growth. At the same time we believe that investors may look positively on growth in the company’s financial assets: holding excess funds may be considered a strong point given the current turbulence on global markets.