Financial results for 12M 2018 and 4Q 2018

Consolidated IFRS financial results for 12M 2018 and 4Q 2018:

1In 12M 2017 revenues and EBITDA are adjusted due to recognition of the final purchase price allocation of assets acquired in 2017.

2The calculation includes interest expense on the prepayments on the long-term oil and petroleum products supply agreements.

 3Calculated using average monthly Central Bank of Russia exchange rates for the reporting period.

Commenting the results for 2018, Rosneft Chairman of the Management Board and Chief Executive Officer Igor Sechin said:

“In 2018 on the background of high volatility of oil prices, changes in tax legislation, regulation of prices for oil products in the domestic market and impact from restriction under OPEC+ Agreement, the Company demonstrated successful production and financial results.

Rosneft continued implementation of investment projects and integration of previously acquired assets.

Its effectiveness is confirmed by the organic growth strategy approved a year ago, aimed at increasing the profitability of the business and maximizing the return on existing assets. At the year-end, the Company generated high cash flow, which led to drop over USD 14 bln of total debt burden. 

Approved dividend policy allowed us to increase significantly payments to shareholders that had a positive impact on the Company’s value – since the approval of the Company's strategy in December 2017, the market capitalization growth of the Company amounted to 40% with an average dynamics of about 32% for Russian oil and gas companies.

I would like to note the importance of the upcoming 2019 for the Company. Capital investments are expected at RUB 1.2-1.3 trillion that is driven by the active implementation phase of strategic upstream oil and gas projects and also by projects of construction of modern facilities at the Company’s refineries. At the same time, the Company will continue to improve the efficiency of its financial and operational activities, technological transformation of the business and other tasks that ensure the Company's leadership in the long-term perspective.”

Financial performance

Revenues and equity share in profits of associates and joint ventures

12М 2018 revenue boosted by more than 1.4 times YoY up to RUB 8,238 bln (USD 133.7 bln) mainly due to favorable world price dynamics (+41.2% in RUB terms and 31.4% in USD terms) and growth of equity share in profits of the Russian and international projects (+44% YoY).

4Q 2018 revenue amounted to RUB 2,165 bln (USD 33.1 bln) reduced by 5.3% QoQ in RUB terms due to significant Urals price drop (-8.0% in RUB terms and -9.3% in USD terms) which was partially compensated by higher volumes of crude oil production and sales.

EBITDA

12M 2018 EBITDA grew up to RUB 2,081 bln (USD 33.1 bln) that is in 1.5 times higher compared to 12M 2017. Growth was driven by improvement of the Company’s efficiency, by favorable external market environment and by easing of restriction under OPEC+ Agreement.

12M 2018 YoY increase of 4.9% in lifting costs (from 185 to 194 RUB/boe) was much lower of industrial inflation in Russia (11.9%). The growth was mainly caused by higher repairs and maintenance costs of the growing well stock, oilfield works and higher tariffs of natural monopolies.

EBITDA margin was up to 25% in 12M 2018 on the back of the above factors and the Company’s efforts.

4Q 2018 EBITDA was RUB 488 bln (USD 7.4 bln). EBITDA reduction is mainly caused by the negative impact of export duty lag effect on the back of substantial drop of crude oil price and higher seasonal costs.

4Q 2018 lifting costs were at 205 RUB/boe (3.1 USD/boe) if compared to 193 RUB/boe

(2.9 USD/boe) in 3Q 2018. Higher lifting costs in RUB term were mainly caused by higher tariffs of natural monopolies, increased costs in technological transport and production growth after removing of restriction under OPEC+ Agreement.

Net income attributable to Rosneft shareholders

In 12M 2018 net income attributable to Rosneft shareholders increased by 2.5 times YoY and amounted to RUB 549 bln (USD 8.9 bln) despite the recognition of impairment. On the back of higher operating income net income growth was driven by positive FX impact and one-off gain from the share acquisition in upstream JV with a foreign partner and fair value recognition of previously held interest in JV.

4Q 2018 net income attributable to Rosneft shareholders amounted to RUB 109 bln (USD 1.6 bln) compared to RUB 142 bln (USD 2.3 bln) in 3Q 2018. The decrease is mainly due to negative dynamics of operating income (-31.5% to 3Q 2018) and lower positive effect of forex and other income.

Capital expenditures

Capital expenditures amounted to RUB 257 bln (USD 3.9 bln) in 4Q 2018 and RUB 936 bln

(USD 15.0 bln) in 12M 2018. Capital expenditures grew by 1.5% YoY in RUB terms. Capital investments are aimed at the implementation of high-efficiency exploration and production oil and gas projects, the continuation of projects for the construction of modern facilities at the refineries, development of in-house services and maintenance of current assets within the approved plan and the Company’s Strategy.

Free cash flow

Thanks to high operating results, implementation of measures to reduce working capital level and favorable price environment the Company has boosted its free cash flow up to RUB 1,133 bln (USD 17.9 bln) in 2018, which is 4 times higher YoY.

Reduction of free cash flow in 4Q 2018 to RUB 261 bln (USD 4.0 bln) was due to decrease in EBITDA.

Financial stability

In 12M 2018 the Company considerably reduced its debt burden: more than 2 times drop in the level of short-term liabilities and net debt/EBITDA of 1.2x in USD terns (cut by 40%) by year end.

RUB 225 bln was paid to the shareholders of the Company in terms of dividend in 2018 including RUB 155 bln in 1H 2018 that is 50% of net income under IFRS and complies with the level approved by the dividend policy. Strong yearly results will also ensure a high level of final dividends, with the higher returns for shareholders.