MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 2020 AND JUNE 30, 2020 AND
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019
Management's discussion and analysis of financial condition and results of operations of Rosneft in the third quarter of 2020 and in the nine months of 2020.
The following discussion of Rosneft's financial condition and results of operations is based on, and should be read in conjunction with, the Company's financial statements and the notes thereto for the periods ended September 30, 2020 and 2019, and June 30, 2020 (the "Interim Consolidated Financial Statements"). Such terms as "Rosneft", "Company" and "Group" in their different forms in this report mean PJSC Rosneft Oil Company and its consolidated subsidiaries, and its equity share in associates and joint ventures. This report contains forward-looking statements that involve risks and uncertainties. Rosneft's actual results may materially differ from those discussed in such forward-looking statements as a result of various factors.
Except as otherwise indicated, oil and gas reserves are presented pro-rata for associates and joint ventures and 100% for fully consolidated subsidiaries.
Except as otherwise indicated, all amounts are provided in billions of RUB. All figures are rounded, however, figures per unit of production are provided based on the actual data.
To convert tonnes of liquid hydrocarbon (except gas condensate of JSC "Rospan International") to barrels a 7.404 ratio is used. To convert Rospan gas condensate to barrels a 8.3 ratio is used. To convert a thousand of cubic meters of gas to barrels of oil equivalent a 6.09 ratio is used.
2
Management's discussion and analysis of financial condition and results of operations of Rosneft in the third quarter of 2020 and in the nine months of 2020.
Consolidated statement of profit or loss for the three months ended September 30, 2020 and June
Management's discussion and analysis of financial condition and results of operations of Rosneft in the third quarter of 2020 and in the nine months of 2020.
Attachment 4: Average monthly RUB/USD exchange rates, calculated using the Bank of Russia | |
4
Management's discussion and analysis of financial condition and results of operations of Rosneft in the third quarter of 2020 and in the nine months of 2020.
Overview
Rosneft is a vertically integrated oil and gas company with core activities and assets located principally in Russia. The Company is primarily engaged in exploration and production of hydrocarbons, oil refining and product marketing mainly in the Russian Federation.
According to oil, condensate, NGL and marketable gas reserve information prepared by DeGolyer and MacNaughton, independent reservoir engineers, proved hydrocarbon reserves reached 42 billion boe per SEC classification and 47 billion boe per PRMS classification as of December 31, 2019 and amounted to 41 billion boe per SEC classification and 47 billion boe per PRMS classification as of December 31, 2018.
For the nine months of 2020 the liquid hydrocarbons production of the Company amounted to 155.0 mln tоnnes. The production of natural and associated gas for the nine months of 2020 was 46.75 bcm.
For the nine months of 2020, the Company's total crude oil processing amounted to 78.18 mln tonnes at the refineries in Russia and abroad. The remaining volumes of crude oil are exported to Europe, Asia and the CIS.
Financial and operating highlights
For 3 months ended | For 9 months | |||||
% | ended September 30, | % | ||||
September 30, | June 30, | change | 2020 | 2019 | change | |
2020 | 2020 | |||||
Financial results, RUB billion | ||||||
Revenues and equity share in profits of associates and | ||||||
joint ventures | 1,439 | 1,039 | 38.5% | 4,243 | 6,452 | (34.2)% |
EBITDA1 | 366 | 170 | >100% | 845 | 1,617 | (47.7)% |
Net income/loss attributable to Rosneft shareholders | (64) | 43 | - | (177) | 550 | - |
Capital expenditures | 202 | 182 | 11.0% | 569 | 634 | (10.3)% |
Free cash flow2,3 | 146 | (13) | - | 352 | 659 | (46.6)% |
Operational results | ||||||
Hydrocarbon production (th. boe per day) | 4,898 | 5,051 | (3.0)% | 5,232 | 5,783 | (9.5)% |
Liquids production (th. barrels per day) | 3,908 | 4,036 | (3.2)% | 4,193 | 4,674 | (10.3)% |
Gas production (th. boe per day) | 990 | 1,015 | (2.5)% | 1,039 | 1,109 | (6.3)% |
Crude oil processing at refineries in Russia (th. tonnes | ||||||
per day) | 245 | 236 | 3.8% | 255 | 273 | (6.6)% |
Production of petroleum products and petrochemical | ||||||
products in Russia (mln tonnes) | 21.76 | 20.93 | 4.0% | 67.76 | 72.06 | (6.0)% |
Production of petroleum products and petrochemical | ||||||
products outside Russia (mln tonnes) | 3.06 | 2.54 | 20.5% | 8.53 | 7.69 | 10.9% |
1EBITDA adjusted for costs associated with COVID 19 in 2020 (RUB 5 billion in the nine month of 2020).
2Free cash flow estimation includes interest expenses on the prepayment on long-term oil and petroleum products supply agreements. Interest expenses on the prepayment on long-term oil and petroleum products supply agreements are composed of interests accrued for the reporting period and offset against crude oil supply under the contracts in the amount of RUB 7 billion and interests paid of RUB 1 billion in the third quarter of 2020; offsetting of RUB 1 billion and interests paid of RUB 8 billion in the second quarter of 2020; offsetting of RUB 17 billion and interests paid of RUB 12 billion in the nine months of 2020 and offsetting of RUB 50 billion and interests paid of RUB 6 billion in the nine months of 2019.
3Previous periods have been adjusted for comparability for net change of subsidiary bank operations in operating activity.
For reference only: Financial highlights in USD terms
For 3 months ended | % | For 9 months | % | |||
ended September 30, | ||||||
change | change | |||||
September 30, | June 30, | 2020 | 2019 | |||
2020 | 2020 | |||||
Financial results, USD billion* | ||||||
Revenues and equity share in profits of associates | ||||||
and joint ventures | 20.1 | 14.9 | 34.9% | 62.6 | 100.6 | (37.8)% |
EBITDA | 5.0 | 2.5 | 100.0% | 12.4 | 24.8 | (50.0)% |
Net income/(loss) attributable to Rosneft | ||||||
shareholders | (0.8) | 0.7 | - | (2.1) | 8.5 | - |
Capital expenditures | 2.7 | 2.5 | 8.0% | 8.0 | 9.7 | (17.5)% |
Free cash flow | 2.0 | (0.1) | - | 5.4 | 10.0 | (46.0)% |
*Calculated using average monthly USD exchange rates based on the Bank of Russia data for the reporting periods (Attachment 4).
5
Management's discussion and analysis of financial condition and results of operations of Rosneft in the third quarter of 2020 and in the nine months of 2020.
Events after reporting date
In October 2020 Amendments to the Tax Code Chapter 25.4 "Tax on additional income from production of hydrocarbons" and Chapter 26 "Tax on the extraction of commercial minerals" (with respect to oil production taxation) and the Federal Law on the Customs Tariff were enacted. As a result, the fiscal regime for a substantial number of oilfields is changed significantly effective January 1, 2021. In particular certain fiscal preferences in MET formula are eliminated in relation to depleted fields and extra-heavy oil. Furthermore, special formulas as they are listed in the Federal Law on the Customs Tariff are eliminated with the right to apply AIT regime introduced to most of the oilfield impacted. The Company is in the process of evaluating effects of these Amendments on its future results of operations.
6
Management's discussion and analysis of financial condition and results of operations of Rosneft in the third quarter of 2020 and in the nine months of 2020.
Macroeconomic factors affecting results of operations
Main factors affecting Rosneft's results of operations are:
- COVID-19economic impact;
- Changes in crude oil and petroleum products prices;
- USD/RUB and EUR/RUB exchange rates and inflation;
- Compliance with new restrictions of crude oil production reached by OPEC+ Agreement;
- Changes in taxation of mineral extraction tax, excess profit tax, export customs duty and excises;
- Changes in tariffs of natural monopolies (for pipeline and railway transport);
- Changes in electricity prices.
Changes in Crude Oil, Petroleum Product and Gas Prices
The table below sets forth the average crude oil and petroleum products prices worldwide and in Russia in USD and RUB.
For 3 months ended | For 9 months | |||||
% | ended September 30, | % | ||||
September 30, | June 30, | Change | 2020 | 2019 | Change | |
2020 | 2020 | |||||
World market | (USD per barrel) | (USD per barrel) | ||||
Brent | 43.0 | 29.2 | 47.3% | 40.8 | 64.6 | (36.9)% |
Urals (average Med and NWE) | 43.0 | 31.2 | 37.8% | 40.8 | 64.1 | (36.4)% |
Urals (FOB Primorsk) | 42.4 | 27.8 | 52.6% | 38.8 | 62.9 | (38.3)% |
Urals (FOB Novorossiysk) | 42.7 | 28.1 | 52.1% | 39.0 | 63.3 | (38.4)% |
Dubai | 42.9 | 30.5 | 40.6% | 41.4 | 64.0 | (35.3)% |
(USD per tonne) | (USD per tonne) | |||||
Naphtha (av. FOB/CIF Med) | 364 | 212 | 72.2% | 322 | 485 | (33.6)% |
Naphtha (av. FOB Rotterdam/CIF NWE) | 374 | 234 | 59.7% | 340 | 498 | (31.8)% |
Naphtha (CFR Japan) | 397 | 274 | 45.0% | 370 | 518 | (28.5)% |
Fuel oil (av. FOB/CIF Med) | 239 | 151 | 58.7% | 207 | 363 | (42.8)% |
Fuel oil (av. FOB Rotterdam/CIF NWE) | 239 | 158 | 51.8% | 207 | 362 | (42.8)% |
High sulphur fuel oil 180 cst (FOB Singapore) | 257 | 184 | 39.7% | 238 | 405 | (41.1)% |
Gasoil (av. FOB/CIF Med) | 351 | 258 | 36.1% | 356 | 583 | (39.0)% |
Gasoil (av. FOB Rotterdam/CIF NWE) | 348 | 274 | 27.3% | 361 | 585 | (38.2)% |
Gasoil (FOB Singapore) | 345 | 265 | 30.4% | 353 | 567 | (37.6)% |
(th. RUB per barrel) | (th. RUB per barrel) | |||||
Brent | 3.16 | 2.11 | 49.8% | 2.89 | 4.21 | (31.4)% |
Urals (average Med and NWE) | 3.17 | 2.26 | 40.1% | 2.89 | 4.17 | (30.8)% |
Urals (FOB Primorsk) | 3.12 | 2.01 | 55.1% | 2.75 | 4.09 | (32.9)% |
Urals (FOB Novorossiysk) | 3.14 | 2.03 | 54.6% | 2.76 | 4.12 | (33.0)% |
Dubai | 3.16 | 2.21 | 42.9% | 2.93 | 4.17 | (29.7)% |
(th. RUB per tonne) | (th. RUB per tonne) | |||||
Naphtha (av. FOB/CIF Med) | 26.8 | 15.3 | 75.0% | 22.8 | 31.5 | (27.8)% |
Naphtha (av. FOB Rotterdam/CIF NWE) | 27.5 | 17.0 | 62.3% | 24.0 | 32.4 | (25.8)% |
Naphtha (CFR Japan) | 29.2 | 19.8 | 47.4% | 26.2 | 33.7 | (22.3)% |
Fuel oil (av. FOB/CIF Med) | 17.6 | 10.9 | 61.3% | 14.7 | 23.6 | (37.8)% |
Fuel oil (av. FOB Rotterdam/CIF NWE) | 17.6 | 11.4 | 54.4% | 14.7 | 23.6 | (37.7)% |
High sulphur fuel oil 180 cst (FOB Singapore) | 18.9 | 13.3 | 42.0% | 16.9 | 26.3 | (35.9)% |
Gasoil (av. FOB/CIF Med) | 25.8 | 18.7 | 38.3% | 25.2 | 37.9 | (33.7)% |
Gasoil (av. FOB Rotterdam/CIF NWE) | 25.6 | 19.8 | 29.4% | 25.6 | 38.1 | (32.8)% |
Gasoil (FOB Singapore) | 25.4 | 19.2 | 32.6% | 25.0 | 36.9 | (32.2)% |
Russian market (net of VAT, including excise tax) | (th. RUB per tonne) | (th. RUB per tonne) | ||||
Crude oil | 16.7 | 10.4 | 60.9% | 13.8 | 20.8 | (33.8)% |
Fuel oil | 10.0 | 5.7 | 75.3% | 8.1 | 14.5 | (43.8)% |
Summer diesel | 38.3 | 39.1 | (1.9)% | 38.3 | 39.8 | (3.6)% |
Winter diesel | 40.0 | 38.2 | 4.7% | 39.6 | 41.8 | (5.4)% |
Jet fuel | 29.1 | 24.7 | 18.0% | 29.4 | 37.8 | (22.2)% |
High octane gasoline | 43.5 | 39.0 | 11.5% | 40.6 | 37.8 | 7.2% |
Sources: average prices and changes are calculated based on the unrounded data of analytical agencies.
The difference between price movements denominated in USD and those denominated in RUB is due to nominal RUB depreciation against USD of 1.6% in the third quarter of 2020 compared to the second quarter of 2020. Against the background of the general volatility of energy prices on world markets, gas prices on the domestic market demonstrate positive dynamics.
The Russian Government regulates the price of the gas sold in Russia by Gazprom and its affiliates, which is considered as the benchmark for the domestic gas market. The indexation of gas price of 3% intended for subsequent implementation to all consumer groups is effected from August 2020. Starting from July 1, 2019, indexation of gas price was 1.4%.
7
Management's discussion and analysis of financial condition and results of operations of Rosneft in the third quarter of 2020 and in the nine months of 2020.
Prices for gas supplies from the Company's production projects outside Russia are also stable, as they are mainly determined by contractual terms that do not depend on short-term fluctuations in spot gas prices.
USD/RUB and EUR/RUB Exchange Rates and Inflation
The USD/RUB and EUR/RUB exchange rates and inflation in Russia affect Rosneft's results as most of the Company's revenues from sales of crude oil and petroleum products are denominated in USD and EUR, while most of the Company's expenses are denominated in RUB.
The table below provides information on the exchange rates movements and inflation during the periods analysed:
For 3 months | For 9 months | ||||
ended | ended September 30, | ||||
September 30, | June 30, | 2020 | 2019 | ||
2020 | 2020 | ||||
Producer price index (PPI) y-o-y | (1.4)% | (11.6)% | (4.6)% | 5.8% | |
Average RUB/USD exchange rate for the period* | 73.56 | 72.36 | 70.78 | 65.08 | |
RUB/USD exchange rate at the end of the period | 79.68 | 69.95 | 79.68 | 64.42 | |
Average RUB/EUR exchange rate for the period | 85.97 | 79.65 | 79.64 | 73.16 | |
RUB/EUR exchange rate at the end of the period | 93.02 | 78.68 | 93.02 | 70.32 |
Source: the Central Bank of the Russian Federation.
*See Average monthly RUB/USD exchange rates in the Attachment 4.
Mineral Extraction Tax, Excess Profit Tax, Export Duties and Excise Taxes
The table below provides information on actual tax rates of mineral extraction tax and export customs duty of crude oil and petroleum products:
For 3 months | For 9 months | |||||
ended | % | ended September 30, | % | |||
September 30, | June 30, | change* | 2020 | 2019 | change* | |
2020 | 2020 | |||||
Mineral extraction tax | ||||||
Crude oil (RUB per tonne) | 9,406 | 4,874 | 93.0% | 8,287 | 13,173 | (37.1)% |
Export customs duty for crude oil | ||||||
Crude oil (USD per tonne) | 44.0 | 22.2 | 98.4% | 46.8 | 95.5 | (51.0)% |
Crude oil (RUB per tonne) | 3,246 | 1,647 | 97.1% | 3,262 | 6,209 | (47.5)% |
Crude oil (RUB per barrel) | 438 | 222 | 97.1% | 441 | 839 | (47.5)% |
Export customs duty for petroleum products | ||||||
Gasoline (RUB per tonne) | 970 | 491 | 97.5% | 975 | 1,860 | (47.6)% |
Naphtha (RUB per tonne) | 1,780 | 904 | 97.0% | 1,790 | 3,411 | (47.5)% |
Light and middle distillates (RUB per tonne) | 970 | 491 | 97.5% | 975 | 1,860 | (47.6)% |
Liquid fuels (fuel oil) (RUB per tonne) | 3,246 | 1,647 | 97.1% | 3,262 | 6,209 | (47.5)% |
*Calculated based on unrounded data.
8
Management's discussion and analysis of financial condition and results of operations of Rosneft in the third quarter of 2020 and in the nine months of 2020.
The excise tax rates on the petroleum products are as follows:
Since January 1 | Since January 1 | |
Excise duties (RUB per tonne) | through | through |
December 31, 2019 | December 31, 2020 | |
High octane gasoline | ||
High octane gasoline non-compliant with euro-5 | 13,100 | 13,100 |
High octane gasoline euro-5 | 12,314 | 12,752 |
Naphtha | 13,912 | 14,720 |
Diesel | 8,541 | 8,835 |
Jet fuel | 2,800 | 2,800 |
Lubricants | 5,400 | 5,616 |
Benzol, paraxylene, ortoxylene | 2,929 | 3,058 |
Middle distillates | 9,241 | 9,535* |
- For the period from 01.01.2020 to 31.03.2020; from 01.04.2020 to 31.12.2020, the excise tax rate for middle distillates will be: 9,585 RUB/t - (Cdtexp - 48,300) x 0.65, if Cdtexp ≤ 48, RUB/t, and 9,585 RUB/t, if Cdtexp > 48,300 RUB/t (Cdtexp - the average price of an export alternative for class 5 diesel fuel, determined for the tax period in accordance with clause 27 of article 200 of the Tax Code).
The Company's tax burden on revenues was 48.6% in the nine months of 2020, most part relates to mineral extraction tax, excess profit tax and the export customs duty accounted (for approximately 69.6%). The share of fiscal withdrawals in the Company's financial result (operating income before fiscal payments) amounted to 89.0% for the nine months of 2020.
Changes in Transport Tariffs of Pipeline and Railway Monopolies
Rosneft transports most of its crude oil and petroleum products via pipeline network owned and operated by PJSC "AK "Transneft" ("Transneft"), which is a natural state-owned pipeline monopoly. Rosneft also transports crude oil and petroleum products via railway network mainly owned and operated by JSC Russian Railways ("RZD"), another natural state-owned monopoly.
Recent changes of Transneft transportation tariffs
Crude oil
Starting from January 1, 2020 Transneft tariffs for oil pipeline transportation increased by 3.4%. Starting from February 1, 2020 transit tariffs through the territory of the Republic of Belarus increased by 6.6%.
Recent changes in railroad transportation tariffs
Starting from January 1, 2020 railroad transportation tariffs increased by 3.5%.
9
Management's discussion and analysis of financial condition and results of operations of Rosneft in the third quarter of 2020 and in the nine months of 2020.
Consolidated statement of profit or loss for the three months ended September 30, 2020 and June 30, 2020 and for the nine months ended September 30, 2020 and 2019, respectively.
in RUB billions | ||||||
For 3 months | For 9 months | |||||
ended | % | ended September 30, | % | |||
September 30, | June 30, | change | 2020 | 2019 | change | |
2020 | 2020 | |||||
Revenues and equity share in profits of | ||||||
associates and joint ventures | ||||||
Oil, gas, petroleum products and | ||||||
petrochemicals sales | 1,401 | 1,016 | 37.9% | 4,149 | 6,313 | (34.3)% |
Support services and other revenues | 19 | 18 | 5.6% | 59 | 64 | (7.8)% |
Equity share in profits of associates and joint | ||||||
ventures | 19 | 5 | >100% | 35 | 75 | (53.3)% |
Total revenues and equity share in profits of | ||||||
associates and joint ventures | 1,439 | 1,039 | 38.5% | 4,243 | 6,452 | (34.2)% |
Costs and expenses | ||||||
Production and operating expenses | 166 | 201 | (17.4)% | 569 | 522 | 9.0% |
Cost of purchased oil, gas, petroleum products, | ||||||
goods for retail and refining costs | 155 | 90 | 72.2% | 525 | 1,122 | (53.2)% |
General and administrative expenses | 33 | 17 | 94.1% | 79 | 143 | (44.8)% |
Transportation costs and other commercial | ||||||
expenses | 139 | 157 | (11.5)% | 511 | 531 | (3.8)% |
Exploration expenses | 5 | 4 | 25.0% | 11 | 7 | 57.1% |
Depreciation, depletion and amortization | 160 | 165 | (3.0)% | 501 | 510 | (1.8)% |
Taxes other than income tax | 549 | 384 | 43.0% | 1,566 | 2,000 | (21.7)% |
Export customs duty | 73 | 53 | 37.7% | 253 | 599 | (57.8)% |
Total costs and expenses | 1,280 | 1,071 | 19.5% | 4,015 | 5,434 | (26.1)% |
Operating income/(loss) | 159 | (32) | >100% | 228 | 1,018 | (77.6)% |
Finance income | 24 | 23 | 4.3% | 71 | 113 | (37.2)% |
Finance expenses | (55) | (25) | >100% | (160) | (176) | 9.1% |
Other income | 1 | 1 | - | 4 | 7 | (42.9)% |
Other expenses | (26) | (21) | 23.8% | (93) | (135) | (31.1)% |
Foreign exchange differences | (161) | 111 | - | (227) | 41 | - |
Realized foreign exchange differences on hedge | ||||||
instruments | - | 1 | - | 1 | (109) | - |
(Loss)/income before income tax | (58) | 58 | - | (176) | 759 | - |
Income tax benefit/(expense) | 8 | (13) | - | 28 | (133) | - |
Net (loss)/income | (50) | 45 | - | (148) | 626 | - |
Net (loss)/income attributable to | ||||||
- Rosneft shareholders | (64) | 43 | - | (177) | 550 | - |
- non-controlling interests | 14 | 2 | - | 29 | 76 | (61.8)% |
10
Management's discussion and analysis of financial condition and results of operations of Rosneft in the third quarter of 2020 and in the nine months of 2020.
Business Segments and Intersegment Sales
Most of all Rosneft's operations and assets are located in the Russian Federation. As geographical regions of the Russian Federation have similar economic and legal characteristics, Rosneft does not present geographical segments separately. Rosneft also carries out projects outside Russia, including exploration and production projects in Norway, Vietnam, Iraqi Kurdistan, Egypt and stakes in refineries in Germany, Belarus and India.
Operating Segments
As at the reporting date, the activities of Rosneft are divided into two main operating segments based on the nature of their operations:
- Exploration and production (Upstream). Geological exploration and development of fields and crude oil and gas production both onshore and offshore in Russia and abroad, and internal oilfield service entities;
- Refining and distribution (Downstream). Refining of crude oil, as well as the purchase, transportation, sale of crude oil and petroleum products and petrochemicals to the third parties in Russia and abroad;
- Other activities form the "Corporate" segment and include banking, financial services and other corporate services.
Intersegment Sales
Intercompany sales present operational activity of segments as if the segments operate separately from each other within the vertically integrated company using transfer prices for settlements between segments.
For the estimation of upstream revenues within vertically integrated company the sale price of Upstream (and the purchase price of Downstream) is recalculated using the export market price minus transportation cost, minus export duty, dispatches and other expenses relating to current sales. The price is established at oil gathering facility (point of sales) or connection point to Gasprom transportation system where Upstream dispatches the oil and gas to Downstream. All intercompany operations, including transactions from internal oilfield service entities and corporate service entities, are eliminated at the consolidated level.
11
Management's discussion and analysis of financial condition and results of operations of Rosneft in the third quarter of 2020 and in the nine months of 2020.
Upstream Operating Results
The segment includes Rosneft Group entities that provide operating services, the independent enterprises that produce oil, gas and gas condensate in Russia and abroad, the joint ventures and exploration units in Russia and abroad, oil service entities. The segment includes revenues generated by the transfer of oil, gas and NGL to the Downstream segment for subsequent processing and sales to third parties and all operating costs associated with production and exploration, and also revenues and costs of oil service entities that provide services to the Group entities. The results are set in the table below:
For 3 months | For 9 months | ||||||
ended | % | ended September 30, | % | ||||
September 30, | June 30, | change | 2020 | 2019 | change | ||
2020 | 2020 | ||||||
Operational results | |||||||
Hydrocarbon production (th. boe per day) | 4,898 | 5,051 | (3.0)% | 5,232 | 5,783 | (9.5)% | |
Liquids production (th. barrels per day) | 3,908 | 4,036 | (3.2)% | 4,193 | 4,674 | (10.3)% | |
Gas production (th. boe per day) | 990 | 1,015 | (2.5)% | 1,039 | 1,109 | (6.3)% | |
Hydrocarbon production (mln boe)1 | 426.9 | 431.1 | (1.0)% | 1,346.6 | 1,471.3 | (8.5)% | |
Hydrocarbon production (mln toe) | 60.8 | 62.0 | (1.9)% | 193.5 | 213.1 | (9.2)% | |
Financial results, RUB billions | |||||||
EBITDA | 341 | 193 | 76.7% | 803 | 1,522 | (47.2)% | |
Capital expenditures2 | 185 | 166 | 11.4% | 521 | 578 | (9.9)% | |
Upstream operating expenses | 87.4 | 89.6 | (2.5)% | 270.2 | 293.8 | (8.0)% | |
Indicators per boe | |||||||
EBITDA, RUB/boe1 | 773 | 445 | 73.7% | 586 | 996 | (41.2)% | |
Capital expenditures, RUB/boe | 433 | 385 | 12.5% | 387 | 393 | (1.5)% | |
Upstream operating expenses, RUB/boe | 205 | 208 | (1.4)% | 201 | 200 | 0.5% | |
Upstream operating expenses, USD/boe3 | 2.8 | 2.9 | (3.4)% | 2.8 | 3.1 | (9.7)% | |
1Excluding effect of associates and joint ventures. | |||||||
2Ref. to "Capital expenditures". | |||||||
3Calculated using average monthly exchange rates of Bank of Russia for the reporting periods (Attachment 4). |
Upstream EBITDA
For 3 months | For 9 months ended | |||||
ended | % | September 30, | % | |||
September 30, | June 30, | change | 2020 | 2019 | change | |
2020 | 2020 | |||||
Revenues and equity share in profits of | ||||||
associates and joint ventures | 805 | 493 | 63.3% | 2,161 | 3,625 | (40.4)% |
Including equity share in profits of associates | ||||||
and joint ventures | 11 | 1 | >100% | 14 | 57 | (75.4)% |
Expenses net of depreciation | 510 | 337 | 51.3% | 1,473 | 2,192 | (32.8)% |
including | ||||||
Upstream operating expenses* | 87 | 90 | (2.5)% | 270 | 294 | (8.0)% |
Expenses associated with COVID-19 | 2 | 2 | - | 4 | - | - |
General and administrative expenses | 14 | 16 | (12.5)% | 45 | 49 | (8.2)% |
Hydrocarbon procurement costs | - | 2 | (100.0)% | 6 | 17 | (64.7)% |
Pipeline tariffs and transportation costs and | ||||||
other costs** | 20 | 23 | (13.0)% | 63 | 32 | 96.9% |
Exploration expenses | 7 | 6 | 16.7% | 16 | 11 | 45.5% |
Taxes other than income tax | 383 | 204 | 87.7% | 1,065 | 1,793 | (40.6)% |
Effect of increase in stock of crude oil | (3) | (6) | 50.0% | 4 | (4) | - |
Effect of prepayments offsetting | 44 | 35 | 25.7% | 111 | 89 | 24.7% |
EBITDA | 339 | 191 | 77.5% | 799 | 1,522 | (47.5)% |
Expenses associated with COVID-19 | 2 | 2 | - | 4 | - | - |
Adjusted EBITDA | 341 | 193 | 76.7% | 803 | 1,522 | (47.2)% |
*Percentage is calculated based on the unrounded data.
**Other costs include revision of ecological reserves of RUB 0.2 billion in the third quarter of 2020 and RUB 0.2 billion in the second quarter of 2020, RUB 0.5 billion and RUB 0.9 billion in the nine month of 2020 and 2019, respectively.
12
Management's discussion and analysis of financial condition and results of operations of Rosneft in the third quarter of 2020 and in the nine months of 2020.
Operating indicators
Production of liquid hydrocarbons
Rosneft has main fully consolidated production and development enterprises, which produce liquid hydrocarbons in Western Siberia, Eastern Siberia, Timan-Pechora,Ural-Volga, Southern part of European Russia and the Russian Far East. The Company also has a 20% stake in the Sakhalin-1 project and a 50% stake in JSC "Tomskneft" VNK, both accounted for using proportionate consolidation method. In addition, Rosneft participates in major production joint ventures accounted for using the equity method: Slavneft - 49.96%, Udmurtneft - 49.57% and Messoyakhaneftegaz - 50.0%. The Company also participates in international projects in Vietnam, Egypt and Iraqi Kurdistan.
The following table sets forth Rosneft's liquid hydrocarbons production:
For 3 months | % | For 9 months | % | |||
ended | ended September 30, | |||||
change | change | |||||
September, | June 30, | 2020 | 2019 | |||
2020 | 2020 | |||||
(million of barrels) | (million of barrels) | |||||
RN-Yuganskneftegaz (Western Siberia) | 121.8 | 107.7 | 13.1% | 357.0 | 383.7 | (7.0)% |
Samotlorneftegaz (Western Siberia) | 33.6 | 33.7 | (0.3)% | 102.8 | 107.8 | (4.6)% |
Projects of the Vankor group (Eastern Siberia) | 27.9 | 27.9 | - | 87.0 | 102.5 | (15.1)% |
Orenburgneft (Ural-Volga) | 22.3 | 22.8 | (2.2)% | 71.5 | 80.7 | (11.4)% |
Bashneft-Dobycha(Ural-Volga) | 13.8 | 24.7 | (44.1)% | 69.0 | 90.4 | (23.7)% |
Samaraneftegaz (Ural-Volga) | 22.8 | 21.7 | 5.1% | 68.3 | 69.4 | (1.6)% |
RN-Uvatneftegaz (Western Siberia) | 16.5 | 16.0 | 3.1% | 51.0 | 57.3 | (11.0)% |
Verkhnechonskneftegaz (Eastern Siberia) | 14.1 | 14.0 | 0.7% | 42.7 | 43.3 | (1.4)% |
RN-Nyaganneftegaz (Western Siberia) | 10.0 | 9.8 | 2.0% | 32.8 | 38.0 | (13.7)% |
Varyeganneftegaz (Western Siberia) | 10.8 | 11.0 | (1.8)% | 32.8 | 35.0 | (6.3)% |
Taas-Yuryakh (Far East) | 9.1 | 8.7 | 4.6% | 26.2 | 21.5 | 21.9% |
RN-Purneftegaz (Western Siberia) | 5.8 | 6.4 | (9.4)% | 18.6 | 19.8 | (6.1)% |
Vostsibneftegaz (Eastern Siberia) | 5.5 | 5.6 | (1.8)% | 17.2 | 23.2 | (25.9)% |
Tomskneft (Western Siberia) | 2.6 | 6.1 | (57.4)% | 16.3 | 22.8 | (28.5)% |
Kondaneft (Western Siberia) | 4.6 | 4.5 | 2.2% | 14.7 | 15.1 | (2.6)% |
Offshore projects (Far East)* | 4.5 | 4.8 | (6.3)% | 14.3 | 14.3 | - |
RN-Severnaya Neft (Timan-Pechora) | 2.4 | 3.0 | (20.0)% | 9.9 | 15.1 | (34.4)% |
Rospan International (Western Siberia) | 2.7 | 3.0 | (10.0)% | 8.9 | 8.5 | 4.7% |
Kharampurneftegaz (Western Siberia) | 1.8 | 1.9 | (5.3)% | 5.6 | 6.8 | (17.6)% |
Bashneft-Polyus(Timan-Pechora)** | 1.7 | 1.7 | - | 5.5 | 6.1 | (9.8)% |
Sorovskneft (Western Siberia) | 1.0 | 1.4 | (28.6)% | 4.7 | 7.2 | (34.7)% |
Other | 7.6 | 8.8 | (13.6)% | 25.6 | 23.0 | 11.3% |
Liquids production by fully | ||||||
and proportionately consolidated enterprises | 342.9 | 345.2 | (0.7)% | 1,082.4 | 1,191.5 | (9.2)% |
Slavneft (Western and Eastern Siberia) | 6.6 | 10.3 | (35.9)% | 29.6 | 38.8 | (23.7)% |
Udmurtneft (Ural-Volga) | 4.4 | 4.7 | (6.4)% | 14.6 | 16.3 | (10.4)% |
Messoyakhaneftegaz (Western Siberia) | 5.1 | 5.1 | - | 15.4 | 14.7 | 4.8% |
Other | 0.5 | 2.0 | (75.0)% | 7.0 | 14.7 | (52.4)% |
Total share in production of associates and JV | 16.6 | 22.1 | (24.9)% | 66.6 | 84.5 | (21.2)% |
Total liquids production | 359.5 | 367.3 | (2.1)% | 1,149.0 | 1,276.0 | (10.0)% |
Daily liquids production (th. barrels per day) | 3,908 | 4,036 | (3.2)% | 4,193 | 4,674 | (10.3)% |
*Net of royalty and government share.
**Refers to 100% consolidated share in production.
For the third quarter of 2020, the average daily liquid hydrocarbons production amounted to 3.91 million barrels per day, having decreased by 3.2% compared with the second quarter of 2020 on the background of higher production in April 2020 before the entry into force of the new OPEC+ Agreement.
For the nine months of 2020 average daily liquid hydrocarbons daily production amounted to 4.19 million barrels, having decreased by 10.3% compared with the same period of 2019 driven by the higher production cuts in current year under the new OPEC+ Agreement.
For the nine months of 2020 development drilling footage amounted to 7.9 mln meters and the number of new wells commissioned amounted to 1.8 thousand units. The number of newly commissioned horizontal wells amounted to 1.2 thousand units and increased by 1% compared with the same period of the last year.
13
Management's discussion and analysis of financial condition and results of operations of Rosneft in the third quarter of 2020 and in the nine months of 2020.
Meanwhile, the share of such wells has increased by 14 p.p. year-on-year up to 70% of the total number of new wells commissioned. The share of newly commissioned horizontal wells with multistage hydro fracturing has reached 43% of the total number of new wells commissioned.
Production of Gas
The table below sets forth Rosneft's used gas* production:
For 3 months | For 9 months | |||||
ended | % | ended September 30, | % | |||
September 30, | June 30, | change | 2020 | 2019 | change | |
2020 | 2020 | |||||
Sibneftegas (Western Siberia)
Rospan International (Western Siberia) Samotlorneftegaz (Western Siberia)
Projects of the Vankor group (Eastern Siberia)** RN-Yuganskneftegaz (Western Siberia) Varyeganneftegaz (Western Siberia) RN-Purneftegaz (Western Siberia)
Zohr project (Egypt)***
Offshore projects (Far East)**, ***
RN-Nyaganneftegaz (Western Siberia) RN-Krasnodarneftegaz (Southern Russia) Verkhnechonskneftegaz (Eastern Siberia) Orenburgneft (Ural-Volga) Kharampurneftegaz (Western Siberia) Tomskneft (Western Siberia)
Rosneft Vietnam B.V. (Vietnam) Samaraneftegaz (Ural-Volga)Bashneft-Dobycha(Ural-Volga)**RN-Sakhalinmorneftegaz (Far East) RN-Uvatneftegaz (Western Siberia) RN-Severnaya Neft (Timan-Pechora) Other
Total gas production by fully and proportionately consolidated enterprises
Purgaz (Western Siberia)
Slavneft (Western and Eastern Siberia)
Other
Total share in production of associates and JV Total gas production
Natural gas
Associated gas
Daily gas production (mcm per day)
bcm | bcm | ||||
2.33 | 2.61 | (10.7)% | 7.58 | 8.53 | (11.1)% |
1.46 | 1.55 | (5.8)% | 4.65 | 4.93 | (5.7)% |
1.49 | 1.43 | 4.2% | 4.51 | 4.45 | 1.3% |
1.41 | 1.38 | 2.2% | 4.21 | 4.69 | (10.2)% |
1.23 | 1.08 | 13.9% | 3.59 | 3.55 | 1.1% |
0.98 | 1.03 | (4.9)% | 3.05 | 3.00 | 1.7% |
0.97 | 1.01 | (4.0)% | 3.00 | 3.22 | (6.8)% |
1.02 | 0.76 | 34.2% | 2.69 | 3.08 | (12.7)% |
0.45 | 0.57 | (21.1)% | 1.88 | 1.52 | 23.7% |
0.36 | 0.41 | (12.2)% | 1.33 | 1.59 | (16.4)% |
0.37 | 0.38 | (2.6)% | 1.18 | 1.36 | (13.2)% |
0.32 | 0.32 | - | 0.99 | 0.94 | 5.3% |
0.27 | 0.31 | (12.9)% | 0.89 | 0.89 | - |
0.23 | 0.24 | (4.2)% | 0.71 | 0.69 | 2.9% |
0.20 | 0.19 | 5.3% | 0.63 | 0.69 | (8.7)% |
0.14 | 0.16 | (12.5)% | 0.49 | 0.61 | (19.7)% |
0.11 | 0.10 | 10.0% | 0.34 | 0.38 | (10.5)% |
0.08 | 0.10 | (20.0)% | 0.31 | 0.37 | (16.2)% |
0.03 | 0.10 | (70.0)% | 0.23 | 0.29 | (20.7)% |
0.07 | 0.07 | - | 0.22 | 0.21 | 4.8% |
0.01 | 0.03 | (66.7)% | 0.08 | 0.12 | (33.3)% |
0.27 | 0.27 | - | 0.83 | 0.84 | (1.2)% |
13.80 | 14.10 | (2.1)% | 43.39 | 45.95 | (5.6)% |
0.98 | 0.93 | 5.4% | 2.87 | 3.23 | (11.1)% |
0.04 | 0.08 | (50.0)% | 0.24 | 0.36 | (33.3)% |
0.14 | 0.05 | >100% | 0.25 | 0.19 | 31.6% |
1.16 | 1.06 | 9.4% | 3.36 | 3.78 | (11.1)% |
14.96 | 15.16 | (1.3)% | 46.75 | 49.73 | (6.0)% |
7.36 | 7.41 | (0.7)% | 22.52 | 24.55 | (8.3)% |
7.60 | 7.75 | (1.9)% | 24.23 | 25.18 | (3.8)% |
162.6 | 166.6 | (2.4)% | 170.6 | 182.2 | (6.4)% |
*Production volume equals extracted volume minus flared volume and gas used for NGL production. Gross gas production amounted to 17.9 bcm for the third quarter of 2020 and 18.0 bcm for the second quarter of 2020; 55.5 bcm and 57.2 bcm for the nine months of 2020 and 2019, respectively. **Including gas injection to maintain reservoir pressure.
- Net of royalty and government share.
Gas production in the third quarter of 2020 was 14.96 bcm, which is 1.3% lower than the production in the second quarter of 2020, as a result of scheduled preventive maintenance of equipment.
Gas production for the nine months of 2020 amounted to 46.75 bcm, which is 6.0% lower if compared with the same period of previous year. The decrease was mainly due to the reduced associated gas production as a result of crude oil production cuts under the new OPEC+ Agreement and a decrease in gas demand caused by COVID-19.
14
Management's discussion and analysis of financial condition and results of operations of Rosneft in the third quarter of 2020 and in the nine months of 2020.
Financial indicators
Equity share in financial results of upstream associates and joint ventures
The equity share in financial results of upstream associates and joint ventures was RUB 14 billion and RUB 57 billion, in the nine months of 2020 and 2019, respectively. The decrease is mainly due to lower oil prices and reduced demand because of the impact of COVID-19.
Upstream production and operating expenses
Upstream production and operating expenses include materials and supplies, equipment maintenance and repairs, wages and salaries, activities to enhance oil and gas recovery, procurement of fuel and lubricants, electricity and other costs of Rosneft consolidated exploration and production units.
In the third quarter of 2020 compared with the second quarter of 2020 upstream operating expenses decreased by 2.5% to RUB 87.4 billion. Upstream operating expenses per boe decreased by 1.4% in RUB terms to 205 RUB/boe (2.8 USD/boe, decrease by 3.4% in USD terms) mainly due to reduction of electricity costs, decrease in maintenance and repair of pipelines and oilfield equipment, along with lower oil production in accordance with new OPEC+ Agreement.
Upstream production and operating expenses decreased in nine months of 2020 by 8.0% (201 RUB/boe increased by 0.5%) compared to the same period of 2019 in terms of lower oil production in accordance with new OPEC+ Agreement.
Exploration Expenses1
Exploration expenses mainly relate to exploratory drilling, seismic and other geological and geophysical works. Exploratory drilling costs are generally capitalized, if commercial reserves of crude oil and gas are discovered or expensed in the current period in the event of unsuccessful exploration results.
Exploration expenses in the third quarter of 2020 and second quarter of 2020 were RUB 5 billion and RUB 4 billion, respectively. In the nine months of 2020 and 2019 exploration expenses amounted to RUB 11 billion and RUB 7 billion, respectively.
Expenses associated with COVID -19
The Company incurred additional expenses associated with COVID-19 of RUB 5 billion in the nine months of 2020 (incl: RUB 4 billion in Upstream). These expenses are mainly associated with costs of implementing quarantine measures, including payments for staff observation, support of additional medical facilities, disinfection of premises, purchase of additional materials and protective equipment for operating personnel.
1 Net of intercompany turnover of RUB 2 billion and RUB 2 billion in the third and second quarters of 2020, respectively. In the nine month of 2020 and 2019 intercompany turnover was RUB 5 billion and RUB 4 billion, respectively.
15
Management's discussion and analysis of financial condition and results of operations of Rosneft in the third quarter of 2020 and in the nine months of 2020.
Mineral extraction tax (MET) and Excess profit tax
MET
The following table sets actual mineral extraction tax rates for the periods analysed:
For 3 months | For 9 months | ||||||
ended | % | ended September 30, | % | ||||
September 30, | June 30, | change | 2020 | 2019 | change | ||
2020 | 2020 | ||||||
(thousand RUB, except %) | |||||||
Average enacted mineral extraction tax rate | |||||||
(per tonne)* | 9.41 | 4.87 | 93.0% | 8.29 | 13.17 | (37.1)% | |
Actual mineral extraction tax expense per tonne | |||||||
of oil produced | 7.20 | 3.71 | 94.1% | 6.38 | 10.36 | (38.4)% | |
Actual mineral extraction tax expense per tonne | |||||||
of oil equivalent produced** | 5.86 | 3.04 | 92.8% | 5.20 | 8.47 | (38.6)% | |
(RUB, except %) | |||||||
Actual gas extraction tax rate per thousand | |||||||
cubic meters | 546 | 526 | 3.8% | 533 | 573 | (7.0)% | |
Actual extraction tax rate on gas condensate per | |||||||
tonne*** | 5,394 | 4,166 | 29.5% | 4,971 | 5,519 | (9.9)% |
*Percentage is calculated based on the unrounded data. **Including consolidated oil and gas volumes.
***The main volumes of condensate assessed at the MET rate for gas condensate are extracted at the fields of Rospan, rates, for which are set in the table.
The actual MET rate is lower than the average enacted tax rate for the periods analysed because of tax incentives and application of excess profit tax starting from the first quarter of 2019, according to which a lower MET rate is applied compared to generally enacted rates. Tax incentives are established in accordance with the tax law in the form of reduced rates and tax deductions (See Attachment 2).
Excess profit tax
Excess profit tax is enacted since January 1, 2019 and is used at certain Company's fields. The amount of excess profit tax is determined as the difference between estimated revenue and production, preparation and transportation costs by applying a rate of 50%. In the nine month of 2020 and 2019 excess profit tax expense amounted to RUB 64 billion and RUB 65 billion respectively.
16
Management's discussion and analysis of financial condition and results of operations of Rosneft in the third quarter of 2020 and in the nine months of 2020.
Downstream Operating Results
The segment includes Group entities that provide services for oil and gas processing, petrochemical production in Russia and abroad, joint ventures, sales units of oil, gas and petroleum products to counterparties in Russia and abroad. The segment includes revenue generated from the sale of oil, gas, petrochemical products and petroleum products to third parties, and all operating costs associated with processing, trading and logistics.
The results are set in the table below:
For 3 months | For 9 months | |||||
ended | % | ended September 30, | % | |||
September 30, | June 30, | |||||
change | 2020 | 2019 | change | |||
2020 | 2020 | |||||
Operational results, mln tonne | ||||||
Crude oil processing at refineries | 25.46 | 24.00 | 6.1% | 78.18 | 81.90 | (4.5)% |
Processing at Company's own refineries in Russia | 20.58 | 20.05 | 2.6% | 64.67 | 69.07 | (6.4)% |
Processing at Company's own refineries outside Russia | 2.94 | 2.51 | 17.1% | 8.22 | 7.20 | 14.2% |
Processing at Associates' refineries1 | 1.94 | 1.44 | 34.7% | 5.29 | 5.63 | (6.0)% |
Financial results, RUB billion | ||||||
EBITDA | 36 | (18) | - | 74 | 128 | (42.2)% |
Capital expenditures of refineries2 | 9 | 9 | - | 27 | 36 | (25.0)% |
Operating expenses of processing in Russia | 34.4 | 30.7 | 12.1% | 97.3 | 96.83 | 0.5% |
Operating expenses of processing outside Russia | 8.8 | 7.5 | 17.3% | 22.6 | 16.9 | 33.7% |
Indicators per tonne of the output, RUB per tonne 4 | ||||||
Capital expenditure of refineries | 383 | 399 | (4.0)% | 370 | 472 | (21.6)% |
Operating expenses for processing in Russia | 1,672 | 1,531 | 9.2% | 1,504 | 1,401 | 7.4% |
Operating expenses for processing outside Russia5 | 2,993 | 2,988 | 0.2% | 2,749 | 2,625 | 4.7% |
1Excluding processing at Nayara.
2Refer to "Capital expenditures".
3Adjusted for intra-group purchases of raw materials.
4Calculated from unrounded data.
5For 9 months ended June30, 2019, one-off effect of cost adjustment relating to year 2018 of RUB 2 billion (USD 28.6 million) is excluded.
Downstream EBITDA
For 3 months | For 9 months | |||||
ended | % | ended September 30, | % | |||
September 30, | June 30, | сhange | 2020 | 2019 | сhange | |
2020 | 2020 | |||||
RUB billion | RUB billion | |||||
Revenues and equity share in profits | ||||||
of associates and joint ventures | 1,455 | 1,057 | 37.7% | 4,290 | 6,421 | (33.2)% |
Including equity share in profits of associates | ||||||
and joint ventures | 8 | 4 | 100.0% | 20 | 16 | 25.0% |
Expenses net of depreciation including | 1,443 | 1,047 | 37.8% | 4,190 | 6,284 | (33.3)% |
Operating expenses of processing in Russia | 34 | 31 | 12.1% | 97 | 97 | 0.5% |
Operating expenses of processing outside Russia, | ||||||
cost of additives | 19 | 15 | 26.7% | 52 | 35 | 48.6% |
Operating expenses of retail entities | 11.0 | 9.8 | 12.2% | 30.6 | 28.3 | 8.1% |
Expenses associated with COVID-19 | 0.30 | 0.15 | 100.0% | 0.45 | - | - |
Cost of purchased oil, gas, petroleum products | ||||||
and refining costs including intersegment | ||||||
turnover | 994 | 612 | 62.4% | 2,768 | 4,724 | (41.4)% |
Administrative expenses, including loss | ||||||
allowance for expected credit losses | 10 | 1 | >100% | 16 | 60 | (73.3)% |
Pipeline tariffs and transportation costs | 137 | 156 | (12.2)% | 507 | 528 | (4.0)% |
Taxes other than income tax | 165 | 169 | (2.4)% | 466 | 213 | >100% |
Export customs duty | 73 | 53 | 37.7% | 253 | 599 | (57.8)% |
EBITDA Downstream | 12 | 10 | 20.0% | 100 | 137 | (27.0)% |
Effect of intragroup inventory and others | 24 | (28) | - | (26) | (9) | - |
Expenses associated with COVID-19 | 0.30 | 0.15 | 100.0% | 0.45 | - | - |
Adjusted EBITDA | 36 | (18) | - | 74 | 128 | (42.2)% |
.
17
Management's discussion and analysis of financial condition and results of operations of Rosneft in the third quarter of 2020 and in the nine months of 2020.
Operating indicators
Petroleum Product Output
Rosneft processes produced and procured crude oil at its refineries: the Tuapse refinery on the Black Sea coast in the South of Russia, the Komsomolsk refinery in the Russian Far East, the Achinsk and Angarsk refineries in Eastern Siberia, the Kuibyshevsk, Novokuibyshevsk and Syzran refineries in the Samara region, the Saratov and Ryazan refineries in the European part of Russia, Bashneft refineries and others. Rosneft also processes crude oil in Belarus and in Germany.
The following table sets forth Rosneft's crude oil processing and petroleum product output:
For 3 months | For 9 months | ||||||
ended | % | ended September 30, | % | ||||
September 30, | June 30, | change | 2020 | 2019 | change | ||
2020 | 2020 | ||||||
mln of tonnes | mln of tonnes | ||||||
Crude oil processing at refineries in Russia* | 22.52 | 21.49 | 4.8% | 69.96 | 74.59 | (6.2)% | |
Crude oil processing at refineries outside Russia | 2.94 | 2.51 | 17.1% | 8.22 | 7.31 | 12.4% | |
including crude oil processing in Germany** | 2.94 | 2.51 | 17.1% | 8.22 | 7.20 | 14.2% | |
including crude oil processing in Belarus | - | - | - | - | 0.11 | (100.0)% | |
Total Group crude oil processing | 25.46 | 24.00 | 6.1% | 78.18 | 81.90 | (4.5)% | |
Petroleum product output: | |||||||
High octane gasoline | 3.68 | 2.65 | 38.9% | 9.90 | 11.49 | (13.8)% | |
Low octane gasoline | 0.02 | 0.01 | 100.0% | 0.04 | 0.03 | 33.3% | |
Naphtha | 1.25 | 1.44 | (13.2)% | 4.30 | 4.04 | 6.4% | |
Diesel | 7.33 | 7.19 | 1.9% | 23.02 | 24.40 | (5.7)% | |
Fuel oil | 5.10 | 5.00 | 2.0% | 16.46 | 17.47 | (5.8)% | |
Jet fuel | 0.71 | 0.62 | 14.5% | 2.10 | 2.63 | (20.2)% | |
Petrochemicals | 0.29 | 0.39 | (25.6)% | 1.11 | 1.12 | (0.9)% | |
Other | 3.38 | 3.63 | (6.9)% | 10.83 | 10.88 | (0.5)% | |
Product output at Rosneft's refineries in Russia | 21.76 | 20.93 | 4.0% | 67.76 | 72.06 | (6.0)% | |
Product output at refineries outside Russia | 3.06 | 2.54 | 20.5% | 8.53 | 7.69 | 10.9% | |
including crude oil output in Germany | 3.06 | 2.54 | 20.5% | 8.53 | 7.59 | 12.4% | |
including product output in Belarus | - | - | - | - | 0.10 | (100.0)% | |
Total Group product output | 24.82 | 23.47 | 5.8% | 76.29 | 79.75 | (4.3)% |
*Including processing at YANOS refinery.
**Excluding additives received and other raw materials for processing.
The increase of 4.8% to 22.52 mln tonnes, in production at the Company's own refineries in Russia in the third quarter 2020 as compared to the second quarter of'2020 is driven by increased in production capacities in the context of growing demand for petroleum products.
Rosneft's total refinery throughput in Russia in the nine months of 2020 amounted to 69.96 mln tonnes, decreasing by 6.2% if compared to the same period of 2019 (74.59 mln tonnes).
Increase in processing by 14.2% at German refineries in the nine months of 2020 in comparison with the same period of 2019 is mainly due to a decrease in processing at the PCK Raffinerie GmbH refinery in 2019 due to the presence of organochlorine compounds in the oil supplied via the Druzhba pipeline, as well as stop turnarounds at the PCK Raffinerie GmbH refinery in the same period of 2019.
The increase in refining volume in the third quarter compared to the second quarter of 2020 is due to the recovery in demand for petroleum products after the removal of some restrictions related to the spread of COVID-19.
18
Management's discussion and analysis of financial condition and results of operations of Rosneft in the third quarter of 2020 and in the nine months of 2020.
Financial indicators
Revenues and equity share in profits of associates and joint ventures
Increase in revenues in the third quarter of 2020 compared with the second quarter of 2020 is mainly due to positive crude oil price impact (crude oil price up by 37.8%) and higher volumes of sales of petroleum products on the domestic market in the context of a recovery in demand after partial removal of restrictions caused by COVID-
19. Decrease in revenues by 34.2% in the nine months of 2020 compared with the same period of 2019 is mainly due to the downturn of crude oil price.
The table below presents revenues from sales of crude oil, gas, petroleum, petrochemical products, and other revenues in billions of RUB1, 2:
For 3 months ended | For 9 months ended September 30, | ||||||
September 30, | June 30, | % | 2020 | 2019 | % | ||
2020 | 2020 | change | change | ||||
% of | % of | % of | % of | ||||
revenue | revenue | revenue | revenue | ||||
RUB billion, except % |
Crude oil
International Sales to non-CIS Europe and other directions Asia
International sales to CIS Domestic sales
Total crude oil
Gas
Petroleum products
International Sales to non-CIS Europe and other directions Asia
International Sales to CIS Domestic sales
Sales of bunker fuel to end-users
Total petroleum products
Petrochemical products
International sales
Domestic sales
Sales of petroleum products and petrochemicals
Support services and other revenues
Equity share in profits of associates and joint ventures
Total revenues and equity share in profits of associates and joint ventures
487 | 34.0% | 324 | 31.3% | 50.3% | 1,537 | 36.2% | 2,903 | 44.9% | (47.1)% |
233 | 16.3% | 133 | 12.9% | 75.2% | 662 | 15.6% | 1,349 | 20.8% | (50.9)% |
254 | 17.7% | 191 | 18.4% | 33.0% | 875 | 20.6% | 1,554 | 24.1% | (43.7)% |
38 | 2.6% | 21 | 2.0% | 81.0% | 59 | 1.4% | 154 | 2.4% | (61.7)% |
25 | 1.7% | 14 | 1.3% | 78.6% | 62 | 1.5% | 96 | 1.5% | (35.4)% |
550 | 38.3% | 359 | 34.6% | 53.2% | 1,658 | 39.1% | 3,153 | 48.8% | (47.4)% |
55 | 3.8% | 53 | 5.1% | 3.8% | 171 | 4.0% | 191 | 3.0% | (10.5)% |
359 | 25.0% | 278 | 26.8% | 29.1% | 1,146 | 27.1% | 1,564 | 24.3% | (26.7)% |
290 | 20.2% | 218 | 21.0% | 33.0% | 900 | 21.3% | 1,207 | 18.8% | (25.4)% |
69 | 4.8% | 60 | 5.8% | 15.0% | 246 | 5.8% | 357 | 5.5% | (31.1)% |
19 | 1.3% | 17 | 1.6% | 11.8% | 58 | 1.4% | 97 | 1.5% | (40.2)% |
390 | 27.1% | 285 | 27.4% | 36.8% | 1,028 | 24.2% | 1,170 | 18.1% | (12.1)% |
13 | 0.9% | 10 | 1.0% | 30.0% | 36 | 0.8% | 64 | 1.0% | (43.8)% |
781 | 54.3% | 590 | 56.8% | 32.4% | 2,268 | 53.5% | 2,895 | 44.9% | (21.7)% |
15 | 1.0% | 14 | 1.3% | 7.1% | 52 | 1.2% | 74 | 1.1% | (29.7)% |
6 | 0.4% | 5 | 0.4% | 20.0% | 21 | 0.5% | 35 | 0.5% | (40.0)% |
9 | 0.6% | 9 | 0.9% | - | 31 | 0.7% | 39 | 0.6% | (20.5)% |
796 | 55.3% | 604 | 58.1% | 31.8% | 2,320 | 54.7% | 2,969 | 46.0% | (21.9)% |
19 | 1.3% | 18 | 1.7% | 5.6% | 59 | 1.4% | 64 | 1.0% | (7.8)% |
19 | 1.3% | 5 | 0.5% | >100% | 35 | 0.8% | 75 | 1.2% | (53.3)% |
1,439 | 100.0% | 1,039 | 100.0% | 38.5% | 4,243 | 100.0% | 6,452 | 100.0% | (34.2)% |
1Under IFRS consolidated financial statements.
2The difference between percentages presented in the above table and other sections is caused by rounding.
19
Management's discussion and analysis of financial condition and results of operations of Rosneft in the third quarter of 2020 and in the nine months of 2020.
Sales Volumes
The table below analyses crude oil, gas, petroleum and petrochemical product sales volumes:
For 3 months ended | For 9 months ended September 30, | |||||||||
September 30, | June 30, | % | 2020 | 2019 | % | |||||
2020 | 2020 | |||||||||
change | change | |||||||||
mln | % of | mln | % of | mln | % of | mln | % of | |||
total | total | total | total | |||||||
bbl | bbl | bbl | bbl | |||||||
volume | volume | volume | volume | |||||||
Crude oil | ||||||||||
International Sales to non-CIS | 174.1 | 45.7% | 191.0 | 47.9% | (8.8)% | 631.6 | 49.7% | 761.1 | 51.9% | (17.0)% |
Europe and other directions | 77.8 | 20.4% | 80.7 | 20.3% | (3.6)% | 272.5 | 21.5% | 343.5 | 23.4% | (20.7)% |
Asia | 96.3 | 25.3% | 110.3 | 27.6% | (12.7)% | 359.1 | 28.2% | 417.6 | 28.5% | (14.0)% |
International Sales to CIS | 14.1 | 3.7% | 14.8 | 3.7% | (4.7)% | 28.9 | 2.3% | 48.1 | 3.3% | (39.9)% |
Domestic | 9.6 | 2.5% | 9.6 | 2.4% | - | 29.6 | 2.3% | 30.4 | 2.1% | (2.6)% |
Total crude oil | 197.8 | 51.9% | 215.4 | 54.0% | (8.2)% | 690.1 | 54.3% | 839.6 | 57.3% | (17.8)% |
mln | mln | mln | mln | |||||||
Crude oil | tonnes | tonnes | tonnes | tonnes | ||||||
International Sales to non-CIS | 23.5 | 45.7% | 25.8 | 47.9% | (8.8)% | 85.3 | 49.7% | 102.8 | 51.9% | (17.0)% |
Europe and other directions | 10.5 | 20.4% | 10.9 | 20.3% | (3.6)% | 36.8 | 21.5% | 46.4 | 23.4% | (20.7)% |
Asia | 13.0 | 25.3% | 14.9 | 27.6% | (12.7)% | 48.5 | 28.2% | 56.4 | 28.5% | (14.0)% |
International Sales to CIS | 1.9 | 3.7% | 2.0 | 3.7% | (4.7)% | 3.9 | 2.3% | 6.5 | 3.3% | (39.9)% |
Domestic sales | 1.3 | 2.5% | 1.3 | 2.4% | - | 4.0 | 2.3% | 4.1 | 2.1% | (2.6)% |
Total crude oil | 26.7 | 51.9% | 29.1 | 54.0% | (8.2)% | 93.2 | 54.3% | 113.4 | 57.3% | (17.8)% |
Petroleum products | ||||||||||
International Sales to non-CIS | 12.5 | 24.3% | 14.8 | 27.5% | (15.5)% | 44.7 | 26.0% | 46.1 | 23.3% | (3.0)% |
Europe and other directions | 9.6 | 18.7% | 10.8 | 20.1% | (11.1)% | 33.1 | 19.2% | 34.4 | 17.4% | (3.8)% |
Asia | 2.9 | 5.6% | 4.0 | 7.4% | (27.5)% | 11.6 | 6.8% | 11.7 | 5.9% | (0.9)% |
International Sales to CIS | 0.8 | 1.6% | 1.0 | 1.9% | (20.0)% | 2.7 | 1.6% | 2.9 | 1.5% | (6.9)% |
Domestic sales | 10.3 | 20.0% | 8.0 | 14.8% | 28.8% | 28.0 | 16.3% | 31.1 | 15.7% | (10.0)% |
Sales of bunker fuel to end-users | 0.5 | 1.0% | 0.5 | 0.9% | 6.8%* | 1.4 | 0.8% | 2.4 | 1.2% | (41.7)% |
Total petroleum products | 24.1 | 46.9% | 24.3 | 45.1% | (0.8)% | 76.8 | 44.7% | 82.5 | 41.7% | (6.9)% |
Petrochemical products | 0.6 | 1.2% | 0.5 | 0.9% | -* | 1.8 | 1.0% | 1.9 | 1.0% | (5.3)% |
International sales | 0.2 | 0.4% | 0.2 | 0.3% | (9.9)%* | 0.6 | 0.3% | 0.7 | 0.4% | (14.3)% |
Domestic sales | 0.4 | 0.8% | 0.3 | 0.6% | -* | 1.2 | 0.7% | 1.2 | 0.6% | - |
Total crude oil and products, | ||||||||||
LNG | 51.4 | 100.0% | 53.9 | 100.0% | (4.6)% | 171.8 | 100.0% | 197.8 | 100.0% | (13.1)% |
bcm | bcm | bcm | bcm | |||||||
Gas sales volumes | 13.18 | 13.06 | 0.9% | 41.15 | 45.72 | (10.0)% |
* Calculated from unrounded figures.
20
Management's discussion and analysis of financial condition and results of operations of Rosneft in the third quarter of 2020 and in the nine months of 2020.
Average Sales Prices
The following table sets forth Rosneft's average export and domestic prices of crude oil, gas, petroleum products and petrochemical products (the average sales prices may differ from official market prices provided by specialized agencies due to different quality of products and sales terms)*:
For 3 months ended | For 9 months ended September 30, | |||||||||
September 30, | June 30, | % | 2020 | 2019 | % | |||||
2020 | 2020 | |||||||||
change | change | |||||||||
th.RUB/ | th.RUB/ | th.RUB/ | th.RUB/ | th.RUB/ | th.RUB/ | th.RUB/ | th.RUB/ | |||
barrel | tonne | barrel | tonne | barrel | tonne | barrel | tonne | |||
Average prices on foreign | ||||||||||
markets | ||||||||||
Crude oil, non-CIS | 3.07 | 22.7 | 1.85 | 13.7 | 65.7% | 2.60 | 19.3 | 3.94 | 29.2 | (33.9)% |
Europe and other directions** | 2.99 | 22.1 | 1.65 | 12.2 | 81.1% | 2.43 | 18.0 | 3.93 | 29.1 | (38.1)% |
Asia** | 3.14 | 23.2 | 2.02 | 14.9 | 55.7% | 2.75 | 20.4 | 3.95 | 29.3 | (30.4)% |
Crude oil, CIS | 2.57 | 19.0 | 1.47 | 10.9 | 74.3% | 2.02 | 14.9 | 3.22 | 23.8 | (37.4)% |
Petroleum products, non-CIS | 28.9 | 18.8 | 53.7% | 25.7 | 34.2 | (24.9)% | ||||
Europe and other directions | 30.4 | 20.3 | 49.8% | 27.3 | 35.2 | (22.4)% | ||||
Asia | 23.9 | 14.9 | 60.4% | 21.1 | 31.0 | (31.9)% | ||||
Petroleum products, CIS | 24.4 | 16.8 | 45.2% | 21.5 | 34.0 | (36.8)% | ||||
Petrochemical products | 36.8 | 27.2 | 35.3% | 35.1 | 45.3 | (22.5)% | ||||
Average domestic prices | ||||||||||
Crude oil | 2.62 | 19.4 | 1.53 | 11.3 | 71.7% | 2.12 | 15.7 | 3.14 | 23.3 | (32.6)% |
Petroleum products | 37.8 | 35.5 | 6.5% | 36.7 | 37.6 | (2.4)% | ||||
Gas (th. RUB/th. cubic meter) *** | 3.46 | 3.35 | 3.3% | 3.48 | 3.49 | (0.3)% | ||||
Petrochemical products | 26.0 | 24.2 | 7.4% | 26.2 | 33.9 | (22.7)% | ||||
Sales of bunker fuel to end-users | 25.6 | 21.6 | 18.5% | 26.6 | 26.6 | - |
*Average price is calculated from unrounded figures.
**Price excludes the effect of prepayments offsetting under prepaid long-term crude oil supply contracts and revenues from crude oil sales to Transneft (RUB 32 in the third quarter and RUB 22 billion in the second quarter of 2020, RUB 87 billion in the nine months of 2020 and RUB 112 billion in the nine months of 2019).
***Including gas sales outside the Russian Federation average gas prices were 4.23 th. RUB/th. cubic meter in the third quarter of 2020 and 4.02 th. RUB/th.cubic meter in the second quarter of 2020, 4.16 th. RUB/th. cubic meter in the nine months of 2020 and 4.18 th. RUB/th. cubic meter in the nine months of 2019.
International Crude Oil Sales to non-CIS
Revenue increase in international crude oil sales to non-CIS countries in the third quarter of 2020 compared to the second quarter of 2020 was due to the upturn in average sales price (positive impact on revenues of RUB 206 billion) which was partially offset by the decrease in sales volume of 8.8% (negative impact of RUB 33 billion).
Revenue decrease in international crude oil sales to non-CIS countries in the nine months of 2020 compared with the same period of 2019 was due to the average sales price downturn by 33.9% (negative impact of RUB 827 billion) and the decrease in sales volume by 17.0% (negative impact of RUB 507 billion).
International Crude Oil Sales to CIS
Revenue increase in international crude oil sales to CIS countries in the third quarter of 2020 compared to the second quarter of 2020 was due to the upturn in average sales price (positive impact of RUB 17 billion).
Revenue decrease in international crude oil sales to CIS countries in the nine months of 2020 compared with the same period of 2019 was due to the decrease in sales volume by 39.9% (negative impact of RUB 60 billion) and the average sales price downturn by 37.4% (negative impact of RUB 35 billion).
Domestic Sales of Crude Oil
Revenue increase in domestic sales of crude oil in the third quarter of 2020 compared with the second quarter of 2020 was due to the upturn in average sales price (positive impact of RUB 11 billion).
Revenue decrease in domestic sales of crude oil in the nine months of 2020 compared with the same period of 2019 was due to the downturn in average sales price by 32.6% (negative impact of RUB 30 billion) and the sales volume decrease of 2.6% (negative impact of RUB 4 billion).
21
Management's discussion and analysis of financial condition and results of operations of Rosneft in the third quarter of 2020 and in the nine months of 2020.
International Petroleum Product Sales to Non-CIS
The table below sets forth Rosneft's revenue, volume and average price per tonne of petroleum products sold to non-CIS countries in the third and second quarters of 2020*:
For 3 months ended | % change | ||||||||
September 30, 2020 | June 30, 2020 | ||||||||
Average | Average | Average | |||||||
RUB | mln of | price | RUB | mln of | price | RUB | mln of | price | |
billion | tonnes | th.RUB/ | billion | tonnes | th.RUB/ | billion | tonnes | th.RUB/ | |
tonne | tonne | tonne | |||||||
High octane gasoline | |||||||||
3 | 0.2 | 32.5 | 3 | 0.1 | 19.2 | - | 100.0% | 69.3% | |
Naphtha | 32 | 1.2 | 27.8 | 23 | 1.4 | 15.8 | 39.1% | (14.3)% | 75.9% |
Diesel (Gasoil) | 66 | 2.7 | 24.3 | 58 | 3.5 | 17.0 | 13.8% | (22.9)% | 42.9% |
Fuel oil | 100 | 5.2 | 18.7 | 78 | 6.9 | 11.5 | 28.2% | (24.6)% | 62.6% |
Other | 3 | 0.2 | - | 5 | 0.3 | - | - | - | - |
Petroleum products exported | |||||||||
to non-CIS | 204 | 9.5 | 21.5 | 167 | 12.2 | 13.8 | 22.2% | (22.1)% | 55.8% |
Petroleum products sold from | |||||||||
German refineries | 155 | 3.0 | 52.4 | 111 | 2.6 | 42.3 | 39.6% | 15.4% | 23.9% |
Trading of petroleum | |||||||||
products outside Russia | 155 | 3.0 | 52.4 | 111 | 2.6 | 42.3 | 39.6% | 15.4% | 23.9% |
Total | 359 | 12.5 | 28.9 | 278 | 14.8 | 18.8 | 29.1% | (15.5)% | 53.7% |
*Average price is calculated from unrounded figures.
Revenue increase in international sales of petroleum products to non-CIS countries in the third quarter of 2020 compared to the second quarter of 2020 was due to the upturn in average sales price of 53.7% (positive impact of RUB 120 billion) which was partially offset by the sales volume decrease of 15.5% (negative impact of RUB 40 billion).
The table below sets forth Rosneft's revenues, volume and average price per tonne of petroleum products sold to non-CIS countries in the nine months of 2020 and 2019*:
For 9 months ended September 30, | ||
% change | ||
2020 | 2019 | |
High octane gasoline
Naphtha
Diesel (Gasoil)
Fuel oil
Other
Petroleum products exported to non-CIS
Petroleum products sold from German refineries Petroleum product purchased and sold outside Russia
Average | Average | Average | ||||||
RUB | million of | price | RUB | million of | price | RUB | million of | price |
billion | tonnes | th.RUB/ | billion | tonnes | th.RUB/ | billion | tonnes | th.RUB/ |
tonne | tonne | tonne | ||||||
10 | 0.4 | 29.4 | 29 | 0.7 | 39.1 | (65.5)% | (42.9)% | (24.8)% |
93 | 4.1 | 22.9 | 118 | 3.7 | 31.5 | (21.2)% | 10.8% | (27.3)% |
234 | 10.1 | 23.2 | 369 | 10.4 | 36.1 | (36.6)% | (2.9)% | (35.7)% |
305 | 19.1 | 15.9 | 451 | 18.6 | 24.6 | (32.4)% | 2.7% | (35.4)% |
18 | 0.9 | - | 15 | 0.5 | - | - | - | - |
660 | 34.6 | 19.1 | 982 | 33.9 | 29.2 | (32.8)% | 2.1% | (34.6)% |
401 | 8.2 | 49.0 | 363 | 6.8 | 53.5 | 10.5% | 20.6% | (8.4)% |
85 | 1.9 | 45.7 | 219 | 5.4 | 41.3 | (61.2)% | (64.8)% | 10.7% |
Trading of petroleum
products outside Russia | 486 | 10.1 | 48.3 | 582 | 12.2 | 48.1 | (16.5)% | (17.2)% | 0.4% |
Total | 1,146 | 44.7 | 25.7 | 1,564 | 46.1 | 34.2 | (26.7)% | (3.0)% | (24.9)% |
*Average price is calculated based on the unrounded figures.
Revenue decrease in international sales of petroleum products to non-CIS countries in the nine months of 2020 compared with the same period of 2019 was due to the average price downturn of 24.9% (negative impact of RUB 379 billion) and the sales volume decrease of 3.0% (negative impact of RUB 49 billion).
International Petroleum Product Sales to CIS
Revenue increase in international sales of petroleum products to CIS countries in the third quarter of 2020 compared with the second quarter of 2020 was due to the average price upturn of 45.2% (positive impact of RUB 6 billion) which was partially offset by the sales volume decrease of 20.0% (negative impact of RUB 4 billion).
22
Management's discussion and analysis of financial condition and results of operations of Rosneft in the third quarter of 2020 and in the nine months of 2020.
Revenue decrease in international sales of petroleum products to CIS countries in the nine months of 2020 compared with the same period of 2019 was due to the average price downturn of 36.8% (negative impact of RUB 34 billion) and the sales volume decrease of 6.9% (negative impact of RUB 5 billion).
Domestic Sales of Petroleum Products
The table below sets forth Rosneft's revenue, volume and average price per tonne of petroleum products sold in Russian regions in the third and second quarters of 2020*:
For 3 months ended | % change | ||||||||
September 30, 2020 | June 30, 2020 | ||||||||
Average | Average | Average | |||||||
RUB | mln of | price th. | RUB | mln of | price th. | RUB | mln of | price th. | |
billion | tonnes | RUB/ | billion | tonnes | RUB/ | billion | tonnes | RUB/ | |
tonne | tonne | tonne | |||||||
High octane gasoline | 167 | 3.5 | 47.5 | 116 | 2.6 | 44.9 | 44.0% | 34.6% | 5.8% |
Diesel (Gasoil) | 167 | 3.9 | 42.1 | 132 | 3.1 | 42.3 | 26.5% | 25.8% | (0.5)% |
Fuel oil | 7 | 0.5 | 11.1 | 3 | 0.5 | 7.5 | >100% | - | 48.0% |
Jet fuel | 23 | 0.8 | 31.0 | 17 | 0.6 | 28.5 | 35.3% | 33.3% | 8.8% |
Other | 26 | 1.6 | - | 17 | 1.2 | - | - | - | - |
Total | 390 | 10.3 | 37.8 | 285 | 8.0 | 35.5 | 36.8% | 28.8% | 6.5% |
*Average price is calculated from unrounded figures.
Revenue increase in sales of petroleum products on the domestic market in the third quarter of 2020 compared with the second quarter of 2020 was due to the increase in sales volume of 28.8% (positive impact of RUB 81 billion) and the upturn in average sales price of 6.5% (positive impact of RUB 24 billion).
The table below sets forth Rosneft's revenue, volume and average price per tonne of petroleum products sold in Russian regions in the nine months of 2020 and 2019*:
For 9 months ended September 30, | % change | ||||||||
2020 | 2019 | ||||||||
Average | Average | Average | |||||||
RUB | million of | price | RUB | million of | price | RUB | million of | price | |
billion | tonnes | th.RUB/ | billion | tonnes | th.RUB/ | billion | tonnes | th.RUB/ | |
tonne | tonne | tonne | |||||||
High octane gasoline | 429 | 9.4 | 45.6 | 474 | 11.0 | 43.1 | (9.5)% | (14.5)% | 5.8% |
Diesel (Gasoil) | 451 | 10.5 | 42.8 | 489 | 11.4 | 43.0 | (7.8)% | (7.9)% | (0.5)% |
Fuel oil | 21 | 2.0 | 10.2 | 35 | 2.3 | 15.4 | (40.0)% | (13.0)% | (33.8)% |
Jet fuel | 69 | 2.1 | 33.3 | 107 | 2.6 | 41.1 | (35.5)% | (19.2)% | (19.0)% |
Other | 58 | 4.0 | - | 65 | 3.8 | - | - | - | - |
Total | 1,028 | 28.0 | 36.7 | 1,170 | 31.1 | 37.6 | (12.1)% | (10.0)% | (2.4)% |
*Average price is calculated from unrounded figures.
Revenue decrease in sales of petroleum products on the domestic market in the nine months of 2020 compared with the same period of 2019 was due to the decrease in sales volume of 10.0% (negative impact of RUB 117 billion) and the downturn in average sales price of 2.4% (negative impact of RUB 25 billion).
Sales of bunker fuel
The Company sells bunker fuel (fuel oil, low-viscosity marine fuel, diesel fuel and others) in the seaports (the Far East, the North, the North West and the South of the European part of Russia) and river ports (the Volga- Don basin and in the rivers of Siberia) of the Russian Federation and in the ports outside the Russian Federation.
Revenues from sales of bunker fuel increased in the third quarter of 2020 compared with the second quarter of 2020 due to the average sales price upturn of 18.5% (positive impact of RUB 2 billion) and the increase in sales volume of 6.8% (positive impact of RUB 1 billion). Revenues from sales of bunker fuel decreased in the nine months of 2020 compared with the same period of 2019 due to the downturn in sales volume of 41.7% (negative impact of RUB 28 billion).
Petrochemical Products Sales
Revenues from international sales of petrochemical products increased in the third quarter of 2020 compared with the second quarter of 2020 due to the average sales price upturn of 35.3% (positive impact of RUB 2 billion) which was partially offset by the decrease in sales volume of 9.9% (negative impact of RUB 1 billion). Revenues from international sales of petrochemical products decreased in the nine months of 2020 compared with the same period of 2019 due to the average sales price downturn of 22.5% (negative impact of RUB 7 billion) and the decrease in sales volume by 14.3% (negative impact of RUB 7 billion).
23
Management's discussion and analysis of financial condition and results of operations of Rosneft in the third quarter of 2020 and in the nine months of 2020.
Revenues from domestic sales of petrochemical products decreased in the nine months of 2020 compared with the same period of 2019 due to the average sales price downturn of 22.7% (negative impact of RUB 8 billion).
Gas Sales
The table below sets forth revenues, volumes and average price of gas sales by Rosneft*:
For 3 months ended | For 9 months ended | |||||
% | September 30, | % | ||||
September 30, | June 30, | change | 2020 | 2019 | change | |
2020 | 2020 | |||||
Revenue | RUB billion | RUB billion | ||||
In the Russian Federation | 41.3 | 40.8 | 1.2% | 132.0 | 147.0 | (10.2)% |
Outside the Russian Federation | 14.1 | 11.7 | 20.5% | 39.0 | 44.3 | (12.0)% |
Total | 55.4 | 52.5 | 5.5% | 171.0 | 191.3 | (10.6)% |
Sales volumes | bcm | bcm | ||||
In the Russian Federation | 12.03 | 12.14 | (0.9)% | 38.00 | 42.07 | (9.7)% |
Outside the Russian Federation | 1.15 | 0.92 | 25.0% | 3.15 | 3.65 | (13.7)% |
Total | 13.18 | 13.06 | 0.9% | 41.15 | 45.72 | (10.0)% |
th. RUB/th. | th. RUB/th. | |||||
Average price | of cubic meters | of cubic meters | ||||
In the Russian Federation | 3.46 | 3.35 | 3.3% | 3.48 | 3.49 | (0.3)% |
Outside the Russian Federation | 12.23 | 12.85 | (4.8)% | 12.38 | 12.12 | 2.1% |
Average price of the Company | 4.23 | 4.02 | 5.2% | 4.16 | 4.18 | (0.5)% |
*Average price is calculated from unrounded figures.
The increase in gas sales revenue for the third quarter of 2020 compared to the second quarter of 2020 is driven by an increase in production and sales volumes of gas from Zohr project, as well as by the indexation of regulated gas price of 3% since August 1, 2020 in the Russian Federation.
Support Services and Other Revenues
Rosneft owns service entities that render drilling, construction, repairs and other services mainly to the entities within the Group. Revenues from services rendered to third parties are included in the consolidated statement of profit or loss.
The following table sets forth Rosneft's other revenues for the periods analysed:
For 3 months ended | For 9 months ended September 30, | ||||||||||
% | |||||||||||
September 30, | June 30, | 2020 | 2019 | % | |||||||
2020 | 2020 | change | |||||||||
change | |||||||||||
% of total | % of total | % of total | % of total | ||||||||
revenue | revenue | revenue | revenue | ||||||||
billion RUB, except % | |||||||||||
Drilling services | 0.4 | 2.2% | 0.6 | 3.3% | (33.3)% | 1.4 | 2.4% | 2.3 | 3.6% | (39.1)% | |
Sales of materials | 7.8 | 42.2% | 5.4 | 29.5% | 44.4% | 19.7 | 33.5% | 21.3 | 33.2% | (7.5)% | |
Repairs and maintenance | |||||||||||
services | 0.7 | 3.8% | 0.8 | 4.4% | (12.5)% | 2.3 | 3.9% | 2.6 | 4.0% | (11.5)% | |
Rent services | 1.3 | 7.0% | 1.3 | 7.1% | - | 3.8 | 6.5% | 3.7 | 5.8% | 2.7% | |
Transport services | 3.2 | 17.3% | 4.5 | 24.6% | (28.9)% | 13.3 | 22.6% | 16.0 | 24.9% | (16.9)% | |
Electric power sales | and | ||||||||||
transmission | 2.0 | 10.8% | 2.3 | 12.6% | (13.0)% | 7.9 | 13.4% | 8.2 | 12.8% | (3.7)% | |
Other revenues | 3.1 | 16.7% | 3.4 | 18.5% | (8.8)% | 10.4 | 17.7% | 10.1 | 15.7% | 3.0% | |
Total | 18.5 | 100.0% | 18.3 | 100.0% | 1.1% | 58.8 | 100.0% | 64.2 | 100.0% | (8.4)% |
24
Management's discussion and analysis of financial condition and results of operations of Rosneft in the third quarter of 2020 and in the nine months of 2020.
Financial result of associates and joint ventures
Net financial result (profits) of downstream associates and joint ventures amounts to RUB 8 billion and RUB 4 billion in the third and second quarters of 2020, respectively. Net financial result (profits) of downstream associates and joint ventures was RUB 20 billion and RUB 16 billion in the nine months of 2020 and 2019, respectively.
Downstream production and operating costs
Downstream operating expenses include1:
For 3 months ended | For 9 months ended | |||||
% | September 30, | |||||
% change | ||||||
September 30, | June 30, | change | 2020 | 2019 | ||
2020 | 2020 | |||||
billion RUB, except % | ||||||
Operating expenses at refineries in Russia | 34.4 | 30.7 | 12.1% | 97.3 | 96.82 | 0.5% |
Operating expenses at refineries outside Russia | 8.8 | 7.53 | 17.3% | 22.6 | 16.9 | 33.7% |
Additives and materials for processing at refineries | 7.73 | |||||
outside Russia | 9.6 | 24.7% | 29.4 | 18.0 | 63.3% | |
Operating expenses of retail entities | 11.0 | 9.8 | 12.2% | 30.6 | 28.3 | 8.1% |
Downstream operating expenses | 63.8 | 55.7 | 14.5% | 179.9 | 160.0 | 12.4% |
1The difference between percentages presented in the above table and other sections is a result of rounding. 2Adjusted for intra-group purchases of raw materials.
3Reclass of materials
Operating expenses of refineries and retail entities in the third quarter of 2020 compared with the second quarter of 2020 increased by 14.5% to RUB 63.8 billion.
The increase of 12.4% in the operating expenses of refineries and retail entities in the nine months of 2020 compared with the same period of 2019 was mainly caused by the growth of tariffs of natural monopolies and indexation of wages. Additives and materials expenses for processing at refineries outside Russia increased due to changes in fuel requirements of European Union (the reduction of greenhouse gas emissions of 6% since 2020 compared to 4%) and RUB depreciation against EUR of 8.9% in addition to the increased production in 2020.
25
Management's discussion and analysis of financial condition and results of operations of Rosneft in the third quarter of 2020 and in the nine months of 2020.
Operating expenses of Company's refineries
The table below shows operating expenses at Rosneft's refineries:
For 3 months ended | For 9 months ended | |||||
% | September 30, | % | ||||
September 30, | June 30, | change | 2020 | 2019 | change | |
2020 | 2020 | |||||
Operating expenses at refineries in Russia (RUB | ||||||
billion) | 34.4 | 30.7 | 12.1% | 97.3 | 96.8 | 0.5% |
Operating expenses per tonne of petroleum product and | ||||||
petrochemical output (RUB per tonne) | 1,726 | 1,573 | 9.7% | 1,553 | 1,448 | 7.3% |
Operating expenses per tonne of crude oil throughput | ||||||
(RUB per tonne) | 1,672 | 1,531 | 9.2% | 1,504 | 1,401 | 7.4% |
Operating expenses at refineries outside Russia (RUB | ||||||
billion)* | 8.8 | 7.5 | 17.3% | 22.6 | 16.9 | 33.7% |
Operating expenses per tonne of petroleum product and | ||||||
petrochemical output (RUB per tonne) | 2,876 | 2,953 | (2.6)% | 2,649 | 2,490 | 6.4% |
Operating expenses per tonne of crude oil throughput | ||||||
(RUB per tonne) | 2,993 | 2,988 | 0.2% | 2,749 | 2,625 | 4.7% |
Total operating expenses at Rosneft's refineries | ||||||
(RUB billion) | 43.2 | 38.2 | 13.1% | 119.9 | 113.7 | 5.5% |
*Refineries outside Russia also procured the additives and materials for processing: in the third quarter of 2020 - RUB 9.6 billion, in the second quarter of 2020 - RUB 7.7 billion, in the nine months of 2020 - RUB 29.4 billion; in the nine months of 2019 -RUB 18.0 billion.
Operating expenses of Rosneft's refineries in Russia in the third quarter of 2020 compared with the second quarter of 2020 increased by 12.1% to RUB 34.4 billion mainly due to higher scheduled turnarounds and due to the growing costs of gasoline additives to ensure the production of high-octane gasoline in accordance with the current demand.
Operating expenses of Rosneft's refineries in Russia in the nine months of 2020 compared with the same period of 2019 increased by 0.5%. With slight growth of absolute operating expenses compared to the nine months of 2019, operating expenses per tonne are up by 7.4% due to optimization of refinery throughput to the current demand for petroleum products.
Operating expenses of Rosneft's refineries outside Russia were RUB 8.8 billion in the third quarter of 2020. The increase of 17.3% in operating expenses of refineries outside Russia compared with RUB 7.5 billion in the second quarter of 2020 was mainly driven by higher refinery throughput and RUB depreciation against EUR of 7.9%.
Operating expenses of Rosneft's refineries outside Russia in the nine months of 2020 compared with the same period of 2019 (excluding one-off effect of cost adjustment relating to year 2018 of RUB 2 billion (USD 28.6 million)) increased by 19.6%. Operating expenses per tonne of crude oil throughput increased by 4.7% due to RUB depreciation against EUR of 8.9% and increased scheduled turnarounds.
26
Management's discussion and analysis of financial condition and results of operations of Rosneft in the third quarter of 2020 and in the nine months of 2020.
Cost of Purchased Oil, Gas, Petroleum Products, Goods for retail and Refining Costs
The following table shows Rosneft's crude oil, gas and petroleum products procurement costs and volumes, and third-party refining costs*:
For 3 months ended | For 9 months ended | |||||
% | September 30, | % | ||||
September 30, | June 30, | change | 2020 | 2019 | change | |
2020 | 2020 | |||||
Crude oil and gas procurement | ||||||
Cost of crude oil and gas procured (RUB billion)** | 128 | 70 | 82.9% | 380 | 878 | (56.7)% |
including Domestic market | 55 | 40 | 37.5% | 177 | 316 | (44.0)% |
International market | 73 | 30 | >100% | 203 | 562 | (63.9)% |
Volume of crude oil procured (millions of barrels) | 47.6 | 49.4 | (3.6)% | 196.2 | 264.6 | (25.9)% |
including Domestic market | 20.2 | 29.1 | (30.6)% | 81.6 | 92.4 | (11.7)% |
International market | 27.4 | 20.3 | 35.0% | 114.6 | 172.2 | (33.4)% |
Volume of gas procured (bcm) | 1.59 | 1.53 | 3.9% | 6,01 | 8.83 | (31.9)% |
Petroleum products procurement | ||||||
Cost of petroleum products procured (RUB billion)*** | 14 | 9 | 55.6% | 110 | 209 | (47.4)% |
Volume of petroleum products procured | ||||||
(millions of tonnes) | 0.41 | 0.36 | 13.9% | 2.89 | 6.03 | (52.1)% |
Crude oil, gas and petroleum products refining services | ||||||
Cost of refining of crude oil, gas and petroleum products | ||||||
under processing agreements (RUB billion) | 8.2 | 7.2 | 13.9% | 22.7 | 23.0 | (1.3)% |
Volumes of crude oil and petroleum products produced | ||||||
under processing agreements (millions of tonnes) | 2.2 | 1.6 | 37.5% | 5.7 | 6.0 | (5.0)% |
Volumes of gas produced under processing agreements | ||||||
(bcm) | 2.5 | 2.6 | (3.8)% | 7.8 | 8.4 | (7.1)% |
Cost of purchase of goods for retail**** | 4.7 | 3.8 | 23.7% | 12.2 | 12.0 | 1.7% |
Cost of products procured for blending on retail | ||||||
entities (RUB billion) | 9.5 | 9.0 | 5.6% | 26.8 | 32.6 | (17.8)% |
Including intercompany purchases (RUB billion) | 9.5 | 9.0 | 5.6% | 26.8 | 32.6 | (17.8)% |
Total cost of procured oil, gas and petroleum | ||||||
products, goods for retail and refining costs (RUB | ||||||
billion) | 155 | 90 | 72.2% | 525 | 1,122 | (53.2)% |
*Cost of purchases under IFRS consolidated financial statements (net of intercompany turnover).
**Including costs of Upstream segment in the amount of RUB 0 billion in the third quarter of 2020, RUB 2 billion in the second quarter of 2020; RUB 6 billion in the nine months of 2020 and RUB 17 billion in the nine months of 2019.
***Average procurement price of petroleum products purchased from third parties may be higher than the average selling price of petroleum products due to differences in the mix of procured and sold petroleum products.
****Reclassification of the cost of goods for retail from "operating expenses" was carried out in the third quarter 2019. Previous periods have been revised considering this effect.
27
Management's discussion and analysis of financial condition and results of operations of Rosneft in the third quarter of 2020 and in the nine months of 2020.
Crude oil procurement
Rosneft purchases crude oil primarily from its associates to process at its own refineries or export.
The structure of crude oil purchases is set in the table below:
For 3 months ended | For 9 months ended | |||||
% | September 30, | % | ||||
September 30, | June 30, | change | 2020 | 2019 | change | |
2020 | 2020 | |||||
mln barrels | mln barrels | |||||
International market | 27.4 | 20.3 | 35.0% | 114.6 | 172.2 | (33.4)% |
Udmurtneft | 4.2 | 4.5 | (6.7)% | 15.0 | 22.6 | (33.6)% |
Slavneft | 6.4 | 12.2 | (47.5)% | 32.1 | 39.8 | (19.3)% |
Messoyahaneftegaz | 5.1 | 5.0 | 2.0% | 15.3 | 14.6 | 4.8% |
Others | 4.5 | 7.4 | (39.2)% | 19.2 | 15.4 | 24.7% |
Total | 47.6 | 49.4 | (3.6)% | 196.2 | 264.6 | (25.9)% |
In the third quarter of 2020 volumes of the crude oil procured outside the Russian Federation amounted to
27.4 mln barrels, which is 35.0% higher compared to 20.3 mln barrels procured in the second quarter of 2020. The increase was due to growing market demand, and as a result an increase in trading activity.
Rosneft performs oil swap operations in order to optimize transportation costs of deliveries to refineries. Revenues and costs related to these operations are presented on a net basis in the "Transportation Costs and Other Commercial Expenses" line of the consolidated statement of profit or loss.
The volume of swaps was 2.3 mln barrels in the third quarter of 2020 and 4.7 mln barrels in the second quarter of 2020, respectively, and 15.3 mln barrels and 29.3 mln barrels in the nine months of 2020 and 2019, respectively.
Petroleum products procurement
Petroleum products from third parties are primarily procured to cover current needs of Rosneft's retail subsidiaries. Procurement of petroleum products is exposed to seasonal fluctuations in volumes and mix. Procurement prices may vary significantly depending on regional markets. Petroleum products outside Russia are procured primarily for sale on the international markets.
The table below sets forth Rosneft's costs, volumes and average prices per tonne of petroleum products procured from third parties in the third and second quarters of 2020:
For 3 months ended | % change | ||||||||
September 30, 2020 | June 30, 2020 | ||||||||
RUB | mln | th. RUB/ | RUB | mln | th. RUB/ | RUB | mln | th. RUB/ | |
billion | tonnes | tonne* | billion | tonnes | tonne* | billion | tonnes | tonne | |
Petroleum products procurement in | |||||||||
Russia | 7 | 0.21 | 5 | 0.14 | 40.0% | 50.0% | |||
High octane gasoline | 3 | 0.06 | 46.5 | 2 | 0.05 | 44.1 | 50.0% | 20.0% | 5.4% |
Diesel | 3 | 0.06 | 46.1 | 2 | 0.05 | 42.1 | 50.0% | 20.0% | 9.5% |
Others | 1 | 0.09 | 1 | 0.04 | - | >100% | |||
Petroleum products and petrochemicals | |||||||||
procured outside Russia | 7 | 0.20 | 22.0 | 4 | 0.22 | 20.1 | 75.0% | (9.1)% | 9.5% |
Total | 14 | 0.41 | 9 | 0.36 | 55.6% | 13.9% |
*Calculated based on unrounded data.
Increase in purchases of petroleum products procured was driven by demand recovery after partial removal of restrictions caused by COVID-19.
28
Management's discussion and analysis of financial condition and results of operations of Rosneft in the third quarter of 2020 and in the nine months of 2020.
The table below sets forth Rosneft's costs, volumes and average prices per tonne of petroleum products procured from third parties in the nine months of 2020 and 2019*, respectively:
For 9 months ended September 30, | % change | ||||||||
2020 | 2019 | ||||||||
RUB | mln | th. RUB/ | RUB | mln | th. RUB/ | RUB | mln | th. RUB/ | |
billion | tonnes | tonne* | billion | tonnes | tonne* | billion | tonnes | tonne | |
Petroleum products procurement in | |||||||||
Russia | 18 | 0.52 | 17 | 0.55 | 5.9% | (5.5)% | |||
High octane gasoline | 7 | 0.15 | 45.5 | 4 | 0.18 | 44.9 | 75.0% | (16.7)% | 2.5% |
Diesel | 9 | 0.19 | 47.0 | 9 | 0.21 | 44.7 | (9.5)% | 5.1% | |
Others | 2 | 0.18 | 4 | 0.16 | (50.0)% | 12.5% | |||
Petroleum products and petrochemicals | |||||||||
procured outside Russia | 92 | 2.37 | 34.0 | 192 | 5.48 | 34.6 | (52.1)% | (56.8)% | (1.7)% |
Total | 110 | 2.89 | 209 | 6.03 | (47.4)% | (52.1)% |
*Calculated based on unrounded data.
Average purchase prices may be different from average sale prices depending on different regional structure of purchases and mix structure of the petroleum products.
Crude oil and gas processing, petroleum products processing
Associated petroleum gas sales to PJSC "Sibur" and purchases of dry stripped gas from PJSC "Sibur" are presented on a net basis in the Company's financial statements in processing costs in the amount of RUB 4.1 billion in the third quarter of 2020, RUB 3.7 RUB in the second quarter of 2020; and RUB 11.0 billion and RUB 10.7 billion in the nine months of 2020 and 2019, respectively.
29
Management's discussion and analysis of financial condition and results of operations of Rosneft in the third quarter of 2020 and in the nine months of 2020.
Transportation Costs and Other Commercial Expenses
Transportation costs are costs incurred by Rosneft to transport crude oil for refining and to end customers and to deliver petroleum products from refineries to end customers (these may include pipeline tariffs and railroad tariffs, handling costs, port fees, sea freight and other costs) and also costs to transport gas via gas pipeline system.
The decrease in transportation costs by 11.5% in the third quarter of 2020 compared with the second quarter of 2020 was mainly due to lower export volumes of crude oil and petroleum products in terms of the pandemic.
The table below sets forth the comparison of costs per tonne of crude oil and petroleum products transported by pipeline, railroad and mixed transportation and gas transportation costs via gas pipeline system in the third and in the second quarters of 2020:
For3monthsended | %change | ||||||||||||
September30,2020 | June30,,2020 | ||||||||||||
Volume, | Sharein Cost, Costper | Volume, | Sharein | Cost, | Costper | Cost | |||||||
mln | export | bln | tonne, | mln | export | bln | tonne, | Volume | Cost | per | |||
tonnes | volumes | RUB | th.RUB/t* | tonnes | volumes | RUB | th.RUB/t* | tonne* | |||||
CRUDE OIL | |||||||||||||
International sales | |||||||||||||
Pipeline | 24.8 | 96.5% | 55.4 | 2.23 | 26.3 | 97.0% | 59.5 | 2.26 | (5.7)% | (6.9)% | (1.3)% | ||
Railroad and mixed | 0.5 | 1.9% | 1.1 | 2.40 | 0.4 | 1.5% | 1.1 | 2.75 | 25.0% | - | (12.7)% | ||
Pipeline and FCA | 0.4 | 1.6% | - | - | 0.4 | 1.5% | - | - | - | - | - | ||
Transportation to refineries | |||||||||||||
Pipeline** | 22.9 | 23.7 | 1.03 | 21.5 | 22.1 | 0.83 | 6.5% | 7.2% | 25.0% | ||||
Railroad and mixed | 0.7 | 0.9 | 1.29 | 0.7 | 1.1 | 1.57 | - | (18.2)% | (18.2)% | ||||
PETROLEUM PRODUCTS | |||||||||||||
International sales | |||||||||||||
Pipeline | 1.1 | 8.1% | 2.9 | 2.64 | 1.6 | 9.8% | 4.1 | 2.56 | (31.3)% | (29.3)% | 2.9% | ||
Railroad and mixed | 10.5 | 77.2% | 29.5 | 2.81 | 12.2 | 74.9% | 41.0 | 3.36 | (13.9)% | (28.0)% | (16.4)% | ||
Pipeline and FCA | 2.0 | 14.7% | - | - | 2.5 | 15.3% | - | - | (20.0)% | - | - | ||
GAS | RUB/ | RUB/ | |||||||||||
bcm | m3 | bcm | m3 | ||||||||||
Pipeline*** | 7.8 | 9.6 | 1.23 | 8.1 | 8.9 | 1.10 | (3.7)% | 7.8% | 9.9% | ||||
Other transportation expenses**** | 15.8 | 19.1 | (17.3)% | ||||||||||
Total | 62.9 | 139 | 65.6 | 157 | (4.1)% | (11.5)% |
- Calculated based on unrounded data.
**Including crude oil purchased on international market, which was delivered to the German refineries.
***Part of gas volumes was dispatched on terms under which Rosneft does not bear transportation expenses.
****Other transportation expenses include cost of railroad transportation of petroleum products from refineries to tank farms and road transportation from tank farms to fuel filling station.
Crude oil pipeline transportation cost per tonne of international sales decreased in the third quarter of 2020 compared with the second quarter of 2020 and amounted to RUB 2.23 thousand per tonne.
Crude oil railroad and mixed transportation cost per tonne of supplies to refineries decreased by 12.7% in the third quarter of 2020 compared with the second quarter of 2020 that was caused by change in structure of transportation routes.
The decrease in railroad and mixed transportation per tonne of petroleum products international sales of 16.4% in the third quarter of 2020 compared with the second quarter of 2020 was mainly due to change of transportation structure.
30
Management's discussion and analysis of financial condition and results of operations of Rosneft in the third quarter of 2020 and in the nine months of 2020.
The table below sets forth comparison for costs per tonne of crude oil and petroleum products transported by pipeline, railway and mixed transportation and gas transportation costs via gas pipeline system in the nine months of
2020 and 2019, respectively:
For 9 months ended September 30, | % change | |||||||||||||
2020 | 2019 | |||||||||||||
Volume, | Sharein | Cost, | Costper | Volume, | Sharein | Cost, | Costper | Cost | ||||||
mln | export | bln | tonne, | mln | export | bln | tonne, | Volume | Cost | |||||
pertonne* | ||||||||||||||
tonnes | volumes | RUB | th.RUB/t* | tonnes | volumes | RUB | th.RUB/t* | |||||||
CRUDE OIL | ||||||||||||||
International sales | ||||||||||||||
Pipeline | ||||||||||||||
76.3 | 96.8% | 176.3 | 2.31 | 89.0 | 85.8% | 201.5 | 2.26 | (14.3)% | (12.5)% | 2.2% | ||||
Railroad and mixed | 1.4 | 1.8% | 3.9 | 2.86 | 1.7 | 1.6% | 6.1 | 3.60 | (17.6)% | (36.1)% | (20.6)% | |||
Pipeline and FCA | 1.1 | 1.4% | - | - | 13.0 | 12.5% | - | - | (91.5)% | - | - | |||
Transportation to refineries | ||||||||||||||
Pipeline** | 71.7 | 71.2 | 0.83 | 74.1 | 58.3 | 0.79 | (3.2)% | 22.1% | 5.8% | |||||
Railroad and mixed | 2.5 | 3.9 | 1.38 | 7.8 | 22.6 | 1.28 | (67.9)% | (82.7)% | 7.8% | |||||
PETROLEUM PRODUCTS | ||||||||||||||
International sales | ||||||||||||||
Pipeline | 4.5 | 10.2% | 12.0 | 2.67 | 5.3 | 11.3% | 12.9 | 2.45 | (15.1)% | (7.0)% | 8.8% | |||
Railroad and mixed | 32.8 | 74.2% | 111.5 | 3.40 | 35.2 | 75.2% | 102.7 | 2.91 | (6.8)% | 8.6% | 16.8% | |||
Pipeline and FCA | 6.9 | 15.6% | - | - | 6.3 | 13.5% | - | - | 9.5% | - | - | |||
GAS | RUB/ | RUB/ | ||||||||||||
bcm | m3 | bcm | m3 | |||||||||||
Pipeline*** | ||||||||||||||
24.2 | 27.5 | 1.14 | 27.0 | 31.7 | 1.17 | (10.4)% | (13.2)% | (3.2)% | ||||||
Freight and other commercial | ||||||||||||||
expenses | 14.7 | 47.7 | 10.3 | 38.3 | - | 42.7% | 24.5% | |||||||
Other transportation expenses**** | - | 56.6 | 56.9 | (0.5)% | ||||||||||
Total | 211.9 | 511 | 242.6 | 531 | (12.7)% | (3.7)% |
*Calculated based on unrounded data.
**Including crude oil purchased on international market, which was delivered to German refineries.
***Part of gas volumes was dispatched on terms where Rosneft does not bear transportation expenses.
****Other transportation expenses include cost of railroad transportation of petroleum products from refineries to tank farms and road transportation from tank farms to fuel filling stations.
Decrease in transportation costs in the nine months of 2020 if compared with the same period of 2019 was due to reduced demand and change of delivery basis.
Excise Taxes
Excise tax in the third quarter of 2020 was RUB 158 billion (including excise tax related to processing outside Russia in the amount of RUB 65.2 billion) compared with excise tax of RUB 159 billion in the second quarter of 2020.
In the nine months of 2020 the excise tax increased to RUB 442 billion in comparison with the same period of 2019 (RUB 188 billion) due to a change in the "reverse excise tax", which starting from the first quarter of 2020 became an accrued excise tax because of the decline in the world prices for gasoline and diesel fuel, and due to higher excise rates.
31
Management's discussion and analysis of financial condition and results of operations of Rosneft in the third quarter of 2020 and in the nine months of 2020.
Export Customs Duties
Export customs duties include crude oil and petroleum products export customs duties. Export customs duty rates are presented above under "Macroeconomic Factors Affecting the Results of Operations - MET, Excess Profit Tax, Export Duties and Excise Taxes" and more information on export duty taxation is provided further in the Attachment 2 "Taxation".
The following table sets forth Rosneft's export customs duties for the periods analyzed:
For 3 months ended | For 9 months | |||||
% | ended September 30, | % | ||||
September 30, | June 30, | change | 2020 | 2019 | change | |
2020 | 2020 | |||||
RUB billion, except % | ||||||
Export customs duty for crude oil | 51 | 38 | 34.2% | 199 | 445 | (55.3)% |
Export customs duty for petroleum products | 22 | 15 | 46.7% | 84 | 154 | (45.5)% |
Effect of export customs duty benefit of 2019 | - | - | - | (30)1 | - | - |
Total export customs duty | 73 | 53 | 37.7% | 253 | 599 | (57.8)% |
1The one-off effect of applying the benefit related to 2019 is associated with the exemption from payment of export customs duties for export deliveries of oil produced in fields where the excess profit tax regime is in effect since 2019, due to the adoption of Federal law No. 24-FZ of 18.02.2020.
Export customs duty increased in the third quarter of 2020 compared with the second quarter of 2020 due to higher enacted export customs duty rates driven by the increase in the average Urals price.
Export customs duty (without one-off effect of customs duty benefit) decrease in the nine months of 2020 compared with the same period of 2019 was mainly caused by lower export customs duty rates driven by lower Urals price and the completion of the tax manoeuvre.
The following table sets forth certain information about the export customs duty on crude oil:
For 3 months ended | For 9 months | |||||
% | ended September 30, | % | ||||
September 30, | June 30, | сhange1 | 2020 | 2019 | change1 | |
2020 | 2020 | |||||
th. RUB per tonne, except % | ||||||
Enacted export customs duty on crude oil | 3.25 | 1.65 | 97.1% | 3.26 | 6.21 | (47.5)% |
Actual customs duty on crude oil exports | 2.46 | 1.68 | 46.4% | 2.38 | 5.63 | (57.7)% |
1Estimated from unrounded data |
The deviation of average actual export customs duty from the enacted one is caused by irregular monthly export volume due to differing export customs duty rates, and by application of tariff exemptions and special formulas of calculation of the export customs duty rates ("preferential" rates) according to provisions of Art. 3.1 and Art. 35 of the Act of the Russian Federation "On the customs tariff".
32
Management's discussion and analysis of financial condition and results of operations of Rosneft in the third quarter of 2020 and in the nine months of 2020.
Operating results of segment "Corporate and others"
Segment includes the Group entities that provide corporate services and holdings' expenses.
For 3 months ended | For 9 months ended | |||||
% | September 30, | % | ||||
September 30, | June 30, | change | 2020 | 2019 | change | |
2020 | 2020 | |||||
Financial results, RUB billion | ||||||
EBITDA | (11) | (5) | - | (32) | (33) * | 3.0% |
Capital expenditures** | 5 | 6 | (16.7)% | 14 | 8 | 75.0% |
*Reclass of allowance for expected credit losses (RUB 27 billion accrued in the first quarter of 2019) in the Downstream segment. **Refer to "Capital expenditures".
33
Management's discussion and analysis of financial condition and results of operations of Rosneft in the third quarter of 2020 and in the nine months of 2020.
Separate indicators of the consolidated financial statements
Costs and Expenses
General and Administrative Expenses
General and administrative expenses include wages, salaries and social benefits (except for wages and social benefits of technical staff of production and refining entities), banking commissions, third-party fees for professional services, insurance expenses (except for insurance of oil and gas production and refining entities), maintenance of social infrastructure, lease expenses, changes in loss allowance for expected credit losses and other general expenses.
General and administrative expenses, net of the allowance for expected credit losses, were RUB 31.5 billion in the third quarter of 2020 and RUB 38.6 billion in the second quarter of 2020.
In the nine months of 2020, general and administrative expenses, net of the allowance for expected credit losses, decreased by 5.3% to RUB 105.9 billion, if compared to the same period of 2019 (RUB 111.8 billion).
Depreciation, Depletion and Amortization
Depreciation, depletion and amortization include depreciation of crude oil and gas producing assets and other production and corporate assets.
In the third quarter of 2020 DDA amounted to RUB 160 billion decreased by 3.0% (decrease is mainly related to oil equipment) if compared with the second quarter of 2020 (DDA was RUB 165 billion).
In the nine months of 2020 DDA amounted to RUB 501 billion decreased by 1.8% if compared with the same period of 2019 (DDA was RUB 510 billion). Reduction is driven by reduced crude oil production in terms of new OPEC+ Agreement effective from May 2020.
Taxes Other than Income Tax
Taxes other than income tax include the mineral extraction tax, excess profit tax, the excise tax, the property tax and other taxes. The basis for calculation of mineral extraction and excess profit taxes is set in the section "Taxation" in the Attachment 2.
The following table sets forth Rosneft's taxes other than income tax for the periods:
For 3 months ended | For 9 months ended | ||||||
% | September 30, | % | |||||
September 30, | June 30, | change | 2020 | 2019 | change | ||
2020 | 2020 | ||||||
Mineral extraction tax | 330 | 182 | 81.3% | 957 | 1,654 | (42.1)% | |
Excess profit tax* | 28 | 7 | >100% | 64 | 65 | (1.5)% | |
Excise tax | 158 | 159 | (0.6)% | 442 | 188 | >100% | |
including accrued excise tax | 139 | 108 | 28.7% | 369 | 331 | 11.5% | |
including "reverse excise tax" | 19 | 51 | (62.7)% | 73 | (143) | - | |
Insurance contributions | 19 | 23 | (17.4)% | 65 | 57 | 14.0% | |
Property tax | 11 | 10 | 10.0% | 31 | 29 | 6.9% | |
Other taxes, interest, penalties and other | |||||||
payments to budget | 3 | 3 | - | 7 | 7 | - | |
Total taxes other than income tax | 549 | 384 | 43.0% | 1,566 | 2,000 | (21.7)% |
*Enacted starting from January 2019.
Taxes other than income tax in the nine months of 2020 compared to the same period of 2019 decreased by 21.7%. The decrease in mineral extraction tax was compensated by higher excise tax due to a change in the "reverse excise tax", which starting from the first quarter of 2020 became an accrued excise tax because of the decline in the world prices for gasoline and diesel fuel.
Finance Income and Expenses
In the third quarter of 2020, net finance expenses were RUB 31 billion compared with RUB 2 billion in the second quarter of 2020. In the nine months of 2020 and 2019 net finance expenses were RUB 89 billion and RUB 63 billion, respectively. The changes were caused mainly by the re-measurement of other financial assets in accordance with IFRS 9 Financial Instruments and fair value re-measurement of derivative financial instruments.
34
Management's discussion and analysis of financial condition and results of operations of Rosneft in the third quarter of 2020 and in the nine months of 2020.
Other Income and Expenses
In the third quarter of 2020, other income amounted to RUB 1 billion compared with RUB 1 billion in the second quarter of 2020. In the nine months of 2020 and 2019 other income was RUB 4 billion and RUB 7 billion, respectively.
Other expenses include assets impairment, effect of fixed assets disposal in the course of operating activities and other expenses. In the third quarter of 2020 other expenses were RUB 26 billion compared with RUB 21 billion for the second quarter of 2020. In the third quarter 2020, the impairment of assets of RUB 15 billion
was recognized. In the nine months of 2020 and 2019, other expenses were RUB 93 billion and RUB 135 billion, respectively, including the impairment of Downstream assets. Part of impairments recognized in the first quarter of 2019 was recovered in the fourth quarter of 2019.
Foreign Exchange Differences
Foreign exchange effects are mostly attributable to monthly revaluation of assets and liabilities denominated in foreign currency at the exchange rate at the end of the period.
Loss from foreign exchange effects was RUB 161 billion in the third quarter of 2020 compared with the profit of RUB 111 billion in the second quarter of 2020, respectively. In the nine months of 2020 loss from foreign exchange effects was RUB 227 billion, and in the nine months of 2019 profit from foreign exchange effects was RUB 41 billion, respectively. Sharp increase in foreign exchange loss in the third quarter of 2020 resulted from the revaluation of foreign currency assets and liabilities because of an increase in foreign exchange rate at the reporting date.
Capitalized exchange differences resulting from foreign currency borrowings used for capital construction projects and the acquisition of property, plants and equipment were RUB 31 billion and RUB 17 billion for the nine months of 2020 and 2019, respectively.
Income Tax
The following table sets forth the Company's effective income tax rate under IFRS for the periods analysed:
For 3 months ended | For 9 months ended September 30, | |||
September 30, | June 30, | 2020 | 2019 | |
2020 | 2020 | |||
Effective rate of income tax (IFRS) | 13.8% | 22.4% | 16.0% | 17.5% |
The Company applies the provisions of IAS 12 "Income taxes" to determine income tax in the consolidated profit or loss statement. The effective income tax rate for reported periods differs from the statutory rate of 20% because of differences in recognition of expenses and income for IFRS and tax purposes and due to application of tax relief.
Net Income/(Loss)
In the third quarter of 2020, net loss was RUB 50 billion (RUB 64 billion of income attributable to Rosneft shareholders) in comparison with income of RUB 45 billion (RUB 43 billion of income attributable to Rosneft shareholders) in the second quarter of 2020. Reduction of net income was mainly driven by negative impact of non- monetary factors.
In the nine months of 2020 net loss amounted to RUB 148 billion (RUB 177 billion attributable to Rosneft shareholders) and in the nine months of 2019, net income amounted to RUB 626 billion (RUB 550 billion attributable to Rosneft shareholders). Decrease in net income in the nine months of 2020 was mainly driven by lower operating income due to prices volatility, reduced demand impacted by COVID-19 and due to negative impact of non-monetary factors.
35
Management's discussion and analysis of financial condition and results of operations of Rosneft in the third quarter of 2020 and in the nine months of 2020.
Liquidity and Capital Resources
Cash Flows
The principal items of the statement of cash flows for the periods analysed are as follows:
For 3 months ended | For 9 months ended | |||||
% | September 30, | % | ||||
September 30, | June 30, | change | 2020 | 2019 | change | |
2020 | 2020 | |||||
RUB billion | RUB billion | |||||
Net cash provided by operating activities | 242 | 42 | >100% | 625 | 768 | (18.6)% |
Net cash used in investing activities | (274) | (179) | 53.1% | (639) | (547) | 13.3% |
Net cash provided by/(used in) financing activities | 87 | 90 | (3.3)% | 46 | (809) | - |
Net cash provided by operating activities
Net cash provided by operating activity for the analysed periods is presented in the table below:
For 3 months ended | For 9 months ended | |||||
% | September 30, | % | ||||
September 30, | June 30, | change | 2020 | 2019 | change | |
2020 | 2020 | |||||
RUB billion | RUB billion | |||||
Net cash provided by operating activity | 242 | 42 | >100% | 625 | 768 | (18.6)% |
Offset of prepayments received under long term | ||||||
supply contracts at average ex.rate | 126 | 91 | 38.5% | 319 | 234 | 36.3% |
Offset of other financial liabilities | 42 | 27 | 55.6% | 116 | 122 | (4.9)% |
Interest expense for prepayments under long | ||||||
term oil and petroleum products supply | ||||||
contracts1 | 8 | 9 | (11.1)% | 29 | 56 | (48.2)% |
Financing against future deliveries under the | ||||||
long term oil and oil products supply contracts | - | 12 | - | 12 | 67 | (82.1)% |
Net (increase)/decrease in assets and liabilities | ||||||
of subsidiary bank | (70) | (12) | - | (180) | 46 | - |
Adjusted net cash provided by operating | ||||||
activity2 | 348 | 169 | >100% | 921 | 1,293 | (28.8)% |
1Free cash flow estimation includes interest expenses on the prepayment on long-term oil and petroleum products supply agreements. Interest expenses on the prepayment on long-term oil and petroleum products supply agreements are composed of interests accrued for the reporting period and offset against crude oil supply under the contracts in the amount of RUB 7 billion and interests paid of RUB 1 billion in the third quarter of 2020, offsetting of RUB 1 billion and interests paid of RUB 8 billion in the second quarter of 2020; offsetting of RUB 17 billion and interests paid of RUB 12 billion in the nine months of 2020, offsetting of RUB 50 billion and interests paid of RUB 6 billion in the nine months of 2019.
2Previous periods have been adjusted for comparability for net change of subsidiary bank operations in operating activity.
Net cash used in investing activity
In the third quarter of 2020 the Company's cash flows from investing activity mainly referred to capital expenditures and acquisition of short-term financial assets and long-term assets.
Increase in net cash used in the investing activity in the nine months of 2020 is mainly due to higher proceeds from sale of short-term financial assets in nine months of 2019.
Net cash provided by/(used in) financing activities
The increase in cash provided by financing activities in the nine months of 2020 compared to the same period of 2019 is due to raising of bank loans.
36
Management's discussion and analysis of financial condition and results of operations of Rosneft in the third quarter of 2020 and in the nine months of 2020.
Capital Expenditures
The table below sets forth Rosneft's capital expenditures by operating segments and license acquisition
costs:
For 3 months ended | For 9 months ended | |||||
% | September 30, | % | ||||
September 30, | June 30, | change | 2020 | 2019 | change | |
2020 | 2020 | |||||
RUB billion | RUB billion | |||||
RN-Yuganskneftegaz | 41 | 40 | 2.5% | 119 | 137 | (13.1)% |
Samotlorneftegaz | 16 | 15 | 6.7% | 47 | 47 | - |
Vankor projects | 15 | 13 | 15.4% | 45 | 48 | (6.3)% |
Orenburgneft | 6 | 6 | - | 19 | 20 | (5.0)% |
Bashneft-Dobycha | 8 | 7 | 14.3% | 21 | 15 | 40.0% |
RN-Uvatneftegaz | 6 | 7 | (14.3)% | 19 | 16 | 18.8% |
RN-Nyaganneftegaz | 6 | 6 | - | 18 | 16 | 12.5% |
Bashneft-Polyus | 6 | 5 | 20.0% | 17 | 16 | 6.3% |
Vostsibneftegaz | 6 | 5 | 20.0% | 17 | 21 | (19.0)% |
RN-Purneftegaz* | 6 | 5 | 20.0% | 16 | 15 | 6.7% |
Samaraneftegaz | 6 | 5 | 20.0% | 17 | 20 | (15.0)% |
Verkhnechonskneftegaz | 6 | 5 | 20.0% | 15 | 14 | 7.1% |
Kondaneft | 4 | 5 | (20.0)% | 14 | 22 | (36.4)% |
Varyoganneftegaz | 6 | 5 | 20.0% | 15 | 15 | - |
Upstream projects (Zohr) | 2 | 4 | (50.0)% | 12 | 43 | (72.1)% |
Taas-Yuryakh Neftegazodobycha | 5 | 4 | 25.0% | 13 | 13 | - |
Tyumenneftegaz | 3 | 5 | (40.0)% | 11 | 12 | (8.3)% |
Rospan International | 4 | 4 | - | 11 | 18 | (38.9)% |
Kharampurneftegaz | 2 | 3 | (33.3)% | 7 | 8 | (12.5)% |
Upstream projects (Sakhalin-1) | 2 | 2 | - | 7 | 10 | (30.0)% |
RN-Severnaya Neft | 1 | 2 | (50.0)% | 6 | 10 | (40.0)% |
Sorovskneft | 2 | 2 | - | 6 | 5 | 20.0% |
Tomskneft VNK | 2 | 1 | 100.0% | 6 | 6 | - |
Sibneftegaz | 1 | 1 | - | 3 | 5 | (40.0)% |
Other | 23 | 9 | >100.0% | 41 | 30 | 36.7% |
Government grants | - | - | - | (1) | (4) | (75.0)% |
Total upstream segment | 185 | 166 | 11.4% | 521 | 578 | (9.9)% |
Novokuibyshevsk refinery | 1 | 2 | (50.0)% | 4 | 5 | (20.0)% |
Bashneft refineries | 1 | 1 | - | 3 | 6 | (50.0)% |
Angarsk refinery | 1 | 0 | - | 2 | 3 | (33.3)% |
Achinsk refinery | 1 | 1 | - | 2 | 3 | (33.3)% |
Syzran refinery | 1 | 0 | - | 2 | 2 | - |
Komsomolsk refinery | 1 | 0 | - | 2 | 6 | (66.7)% |
Tuapse refinery | 1 | 1 | - | 2 | 3 | (33.3)% |
Kuibyshev refinery | 0 | 1 | (100.0)% | 1 | 2 | (50.0)% |
Ryazan refinery | 0 | 0 | - | 1 | 2 | (50.0)% |
Saratov refinery | 0 | 0 | - | 1 | 1 | - |
Other refineries | 2 | 3 | (33.3)% | 7 | 3 | >100.0% |
Marketing Business Units and others | 3 | 1 | >100.0% | 7 | 12 | (41.7)% |
Total downstream segment | 12 | 10 | 20.0% | 34 | 48 | (29.2)% |
Total other activities | 5 | 6 | (16.7)% | 14 | 8 | 75.0% |
Total capital expenditures | 202 | 182 | 11.0% | 569 | 634 | (10.3)% |
Acquisition of licenses | 0 | 2 | (100.0)% | 3 | 4 | (25.0)% |
*Including Sevkomneftegaz.
37
Management's discussion and analysis of financial condition and results of operations of Rosneft in the third quarter of 2020 and in the nine months of 2020.
In the third quarter of 2020, capital expenditures amounted to RUB 202 billion (increase of 11.0%) compared with RUB 182 billion in the second quarter of 2020.
Capital expenditures in Upstream segment increased by 11.4% to RUB 185 billion if compared with the second quarter of 2020. The decrease of 9.9% in the nine months of 2020 if compared with the same period of 2019 was due to optimization of the production drilling driven by negative market impact and reduction of crude oil production according to new OPEC+ Agreement from April 2020.
Capital expenditures of other activities are mainly related to scheduled purchases of IT equipment, vessels, transport and other equipment assets.
The license acquisition costs of RUB 3 billion in the nine months of 2020 referred to the acquisition of new licenses for research, exploration and production mainly at Khanty-Mansiysk autonomous region and Orenburg region.
Financial liabilities and liquid funds
Financial liabilities and liquid funds detailed by currencies are set in the table below*:
currency in bln | |||||||||||||||||
As of the date | September 30, 2020 | June 30, 2020 | September 30, 2019 | ||||||||||||||
Other | Other | Other | |||||||||||||||
USD | RUB | Euro | (RUB | USD | RUB | Euro | (RUB | USD | RUB | Euro | (RUB | ||||||
equi- | equi- | equi- | |||||||||||||||
valent) | valent) | valent) | |||||||||||||||
Financial liabilities | (24.8) | (2,513) | (4.1) | (1.1) | (25.7) | (2,121) | (4.3) | (0.5) | (26.7) | (1,909) | (2.9) | (0.6) | |||||
Liquid funds** | 4.9 | 536 | 0.3 | 3.6 | 4.4 | 481 | 0.3 | 2.3 | 6.2 | 383 | 0.6 | 2.4 | |||||
Net financial liabilities | (19.9) | (1,977) | (3.8) | 2.5 | (21.3) | (1,640) | (4.0) | 1.8 | (20.5) | (1,526) | (2.3) | 1.8 |
*Calculated based on unrounded data
**Include cash and cash equivalents, short-term financial assets and part of bank deposits
The level of financial assets and liquid funds, which generate additional yield to fulfil the Company's commitments, remained at the point which strongly secured the Company's high financial stability.
38
Management's discussion and analysis of financial condition and results of operations of Rosneft in the third quarter of 2020 and in the nine months of 2020.
Key consolidated financial highlights (in RUB terms)
Rosneft monitors and evaluates its activities on an ongoing basis. Key financial ratios are set forth below:
For 3 months ended | For 9 months ended September 30, | |||
September 30, | June 30, | 2020 | 2019 | |
2020 | 2020 | |||
EBITDA margin | 24.7% | 15.8% | 19.4% | 24.7% |
Net income margin attributable to Rosneft shareholders | (4.4)% | 4.1% | (4.2)% | 8.5% |
Current ratio | 0.72 | 0.62 | 0.72 | 0.83 |
RUB/bbl | ||||
EBITDA/bbl1 | 1,012 | 478 | 748 | 1,294 |
Upstream capital expenditures/bbl | 540 | 481 | 481 | 485 |
Upstream operating expenses/bbl | 255 | 260 | 250 | 247 |
Free cash flow/bbl2 | 426 | (38) | 325 | 553 |
RUB/boe | ||||
EBITDA/boe1 | 813 | 383 | 601 | 1,048 |
Upstream capital expenditures/boe | 433 | 385 | 387 | 393 |
Upstream operating expenses/boe | 205 | 208 | 201 | 200 |
Free cash flow/boe | 342 | (29) | 261 | 448 |
1The effect of income from associates and joint ventures is excluded for calculation
2 Previous periods have been adjusted for comparability for net change of subsidiary bank operations in operating activity
The Company considers EBITDA/bbl, Upstream operating expenses/bbl, Upstream operating expenses/boe and the related indicators as important measures of its operating performance. In addition, these measures are frequently used by financial analysts, investors and other interested parties in the evaluation of oil and gas companies. These measures have limitations as analytical tools and should not be considered in isolation, or as a substitute for analysis of the Company's operating results as reported under IFRS.
The following tables set forth relevant numbers relating to these measures for the periods and as of the dates indicated:
Upstream Measures*
For 3 months ended | For 9 months ended September 30, | |||
September 30, | June 30, | 2020 | 2019 | |
2020 | 2020 | |||
Liquids production (mln bbl) | 342.9 | 345.2 | 1,082.4 | 1,191.5 |
Hydrocarbon production (mln boe) | 426.9 | 431.1 | 1,346.6 | 1,471.3 |
*Excluding share in production of associates and joint ventures.
Calculation of EBITDA
For 3 months ended | For 9 months ended September 30, | |||
September 30, | June 30, | 2020 | 2019 | |
2020 | 2020 | |||
RUB billion | ||||
Revenues and equity share in profits of associates and | ||||
joint ventures | 1,439 | 1,039 | 4,243 | 6,452 |
Effect of prepayments offsetting | 44 | 35 | 111 | 89 |
Costs and expenses | (1,280) | (1,071) | (4,015) | (5,434) |
Depreciation, depletion and amortization | 160 | 165 | 501 | 510 |
EBITDA | 363 | 168 | 840 | 1,617 |
Expenses associated with COVID-19 | 3 | 2 | 5 | - |
EBITDA adjusted | 366 | 170 | 845 | 1,617 |
39
Management's discussion and analysis of financial condition and results of operations of Rosneft in the third quarter of 2020 and in the nine months of 2020.
Calculation of Free Cash Flow
For 3 months ended | For 9 months ended September 30, | |||
September 30, | June 30, | 2020 | 2019 | |
2020 | 2020 | |||
RUB billion | ||||
Operating cash flow | 242 | 42 | 625 | 768 |
Capital expenditures | (202) | (182) | (569) | (634) |
Offset of prepayments under long-term supply | ||||
agreements* | 126 | 91 | 319 | 234 |
Offset of other financial liabilities | 42 | 27 | 116 | 122 |
Interest expense on prepayments under long-term supply | ||||
agreements1 | 8 | 9 | 29 | 56 |
Financing of future deliveries | - | 12 | 12 | 67 |
Net (increase)/decrease in assets and liabilities of | ||||
subsidiary bank2 | (70) | (12) | (180) | 46 |
Free cash flow (RUB equivalent) | 146 | (13) | 352 | 659 |
- Based on average exchange rates during the reporting periods (monthly basis).
1Free cash flow estimation includes interest expenses on the prepayment on long-term oil and petroleum products supply agreements. Interest expenses on the prepayment on long-term oil and petroleum products supply agreements are composed of interests accrued for the reporting period and offset against crude oil supply under the contracts in the amount of RUB 7 billion and interests paid of RUB 1 billion in the third quarter of 2020; offsetting of RUB 1 billion and interests paid of RUB 8 billion in the second quarter of 2020; offsetting of RUB 17 billion and interests paid of RUB 12 billion in the nine months of 2020 and offsetting of RUB 50 billion and interests paid of RUB 6 billion in the nine months of 2019.
2Previous periods have been adjusted for comparability for net change of subsidiary bank operations in operating activity.
Calculation of EBITDA Margin
For 3 months ended | For 9 months ended September 30, | |||||||
September 30, | June 30, | 2020 | 2019 | |||||
2020 | 2020 | |||||||
RUB billion (except %) | ||||||||
EBITDA1 | 366 | 170 | 845 | 1,617 | ||||
Revenues and equity share in profits of associates and | ||||||||
joint ventures | 1,439 | 1,039 | 4,243 | 6,452 | ||||
Effect of prepayments offsetting | 44 | 35 | 111 | 89 | ||||
Adjusted revenues | 1,483 | 1,074 | 4,354 | 6,541 | ||||
EBITDA margin | 24.7% | 15.8% | 19.4% | 24.7% | ||||
1EBITDA adjusted for costs associated with COVID-19 | ||||||||
Calculation of Net Income Margin attributable to Rosneft shareholders | ||||||||
For 3 months ended | For 9 months ended September 30, | |||||||
September 30, | June 30, | 2020 | 2019 | |||||
2020 | 2020 | |||||||
RUB billion (except %) | ||||||||
Net income/(loss) attributable to Rosneft shareholders | (64) | 43 | (177) | 550 | ||||
Revenues and equity share in profits of associates and | ||||||||
joint ventures | 1,439 | 1,039 | 4,243 | 6,452 | ||||
Net income margin | (4.4)% | 4.1% | (4.2)% | 8.5% | ||||
Calculation of Current ratio | ||||||||
As of the date | September 30, 2020 | June 30, 2020 | September 30, 2019 | |||||
RUB billion (except ratios) | ||||||||
Current assets | 2,020 | 1,833 | 2,459 | |||||
Current liabilities | 2,820 | 2,978 | 2,971 | |||||
Current ratio | 0.72 | 0.62 | 0.83 |
40
Management's discussion and analysis of financial condition and results of operations of Rosneft in the third quarter of 2020 and in the nine months of 2020.
Consolidated financial highlights (in USD terms)
Consolidated statement of profit or loss
For 3 months ended | For 9 months ended September 30, | |||
September 30, | June 30, | 2020 | 2019 | |
2020 | 2020 | |||
USD billion* | ||||
Total revenues and equity share in profits of | ||||
associates and joint ventures | 20.1 | 14.9 | 62.6 | 100.6 |
Costs and expenses | ||||
Production and operating expenses | 2.3 | 2.7 | 8.0 | 8.0 |
Cost of purchased oil, gas, petroleum products, goods | ||||
for retail and refining costs | 2.1 | 1.3 | 7.7 | 17.3 |
General and administrative expenses | 0.4 | 0.2 | 1.1 | 2.2 |
Transportation costs and other commercial expenses | 1.9 | 2.1 | 7.3 | 8.2 |
Exploration expenses | 0.1 | 0.1 | 0.2 | 0.1 |
Depreciation, depletion and amortization | 2.1 | 2.3 | 7.1 | 7.8 |
Taxes other than income tax | 7.4 | 5.3 | 22.4 | 30.8 |
Export customs duty | 1.0 | 0.7 | 3.6 | 9.2 |
Total costs and expenses | 17.3 | 14.7 | 57.4 | 83.6 |
Operating income | 2.8 | 0.2 | 5.2 | 17.0 |
Finance income | 0.3 | 0.3 | 1.0 | 1.7 |
Finance expenses | (0.7) | (0.3) | (2.2) | (2.7) |
Other income | 0.1 | − | 0.1 | 0.1 |
Other expenses | (0.4) | (0.2) | (1.3) | (2.1) |
Foreign exchange differences | (2.8) | 0.9 | (4.8) | (0.7) |
Cash flow hedges reclassified to profit or loss | − | − | − | (1.7) |
(Loss)/Income before income tax | (0.7) | 0.9 | (2.0) | 11.6 |
Income tax benefit/(expense) | 0.1 | (0.2) | 0.3 | (2.0) |
Net (loss)/income | (0.6) | 0.7 | (1.7) | 9.6 |
Net (loss)/income attributable to Rosneft | ||||
shareholders | (0.8) | 0.7 | (2.1) | 8.5 |
*Calculated using average monthly USD exchange rates based on the Central Bank of Russia data for the reporting period (Attachment 4).
Key consolidated financial highlights (in USD terms)
Key financial ratios in USD equivalent for the periods indicated are set forth below:
For 3 months ended | For 9 months ended September 30, | |||
September 30, | June 30, | 2020 | 2019 | |
2020 | 2020 | |||
EBITDA margin | 24.9% | 16.8% | 19.8% | 24.7% |
Net income margin attributable to Rosneft shareholders | (4.0)% | 4.7% | (3.4)% | 8.4% |
Current ratio | 0.72 | 0.62 | 0.72 | 0.83 |
USD/bbl* | ||||
EBITDA/bbl | 14.0 | 7.0 | 11.0 | 19.8 |
Upstream capital expenditures/bbl | 7.3 | 6.6 | 6.8 | 7.5 |
Upstream operating expenses/bbl | 3.5 | 3.6 | 3.5 | 3.8 |
Free cash flow/bbl | 5.7 | (0.5) | 4.9 | 8.4 |
USD/boe | ||||
EBITDA/boe | 11.2 | 5.6 | 8.8 | 16.0 |
Upstream capital expenditures/boe | 5.9 | 5.3 | 5.4 | 6.0 |
Upstream operating expenses/boe | 2.8 | 2.9 | 2.8 | 3.1 |
Free cash flow/boe | 4.6 | (0.4) | 3.9 | 6.8 |
*Calculated from unrounded data.
41
Management's discussion and analysis of financial condition and results of operations of Rosneft in the third quarter of 2020 and in the nine months of 2020.
Calculation of Free Cash Flow
For 3 months ended | For 9 months ended September 30, | |||||||||
September 30, | June 30, | 2020 | 2019 | |||||||
2020 | 2020 | |||||||||
USD billion | ||||||||||
Operating cash flow | 3.3 | 0.6 | 9.3 | 11.7 | ||||||
Capital expenditures | (2.7) | (2.5) | (8.0) | (9.7) | ||||||
Offset of prepayments under long-term supply | ||||||||||
agreements | 1.7 | 1.2 | 4.5 | 3.6 | ||||||
Offset of other financial liabilities | 0.6 | 0.4 | 1.7 | 1.9 | ||||||
Interest expense on prepayments under long-term supply | ||||||||||
contracts | 0.1 | 0.1 | 0.4 | 0.9 | ||||||
Financing of future deliveries | − | 0.2 | 0.2 | 1.0 | ||||||
Net (increase)/decrease in assets and liabilities of | ||||||||||
subsidiary bank | (1.0) | (0.1) | (2.7) | 0.6 | ||||||
Free cash flow | 2.0 | (0.1) | 5.4 | 10.0 | ||||||
Calculation of EBITDA Margin | ||||||||||
For 3 months ended | For 9 months ended September 30, | |||||||||
September 30, | June 30, | 2020 | 2019 | |||||||
2020 | 2020 | |||||||||
USD billion (except %) | ||||||||||
Revenues and equity share in profits of associates and | ||||||||||
joint ventures | 20.1 | 14.9 | 62.6 | 100.6 | ||||||
Operating expenses | (17.3) | (14.7) | (57.4) | (83.6) | ||||||
Depreciation, depletion and amortization | 2.1 | 2.3 | 7.1 | 7.8 | ||||||
EBITDA | 4.9 | 2.5 | 12.3 | 24.8 | ||||||
Expenses associated with COVID-19 | 0.1 | 0.03 | 0.13 | - | ||||||
EBITDA adjusted | 5.0 | 2.5 | 12.4 | 24.8 | ||||||
Revenues and equity share in profits of associates and | ||||||||||
joint ventures | 20.1 | 14.9 | 62.6 | 100.6 | ||||||
EBITDA margin | 24.9% | 16.8% | 19.8% | 24.7% | ||||||
Calculation of Net Income Margin | ||||||||||
For 3 months ended | For 9 months ended September 30, | |||||||||
September 30, | June 30, | 2020 | 2019 | |||||||
2020 | 2020 | |||||||||
USD billion (except %) | ||||||||||
Net income/(loss) attributable to Rosneft | ||||||||||
shareholders | (0.8) | 0.7 | (2.1) | 8.5 | ||||||
Revenues and equity share in profits of associates and | ||||||||||
joint ventures | 20.1 | 14.9 | 62.2 | 100.6 | ||||||
Net income margin | (4.0)% | 4.7% | (3.4)% | 8.4% | ||||||
Calculation of Current ratio | ||||||||||
As of the date | September 30, 2020 | June 30, 2020 | September 30, 2019 | |||||||
USD billion (except ratios) | ||||||||||
Current assets | 25.3 | 26.2 | 38.2 | |||||||
Current liabilities | 35.4 | 42.6 | 46.1 | |||||||
Current ratio | 0.72 | 0.62 | 0.83 |
42
Management's discussion and analysis of financial condition and results of operations of Rosneft in the third quarter of 2020 and in the nine months of 2020.
Attachment 1: Risks and opportunities associated with climate change
The Company identifies and evaluates risks and opportunities, including those related to climate change, on an annual basis. In April 2020, the Board of Directors approved the expansion of the tasks and functions of the Strategic Planning Committee and renamed the Strategy and Sustainable Development Committee. The functions of the Strategy and Sustainable Development Committee, in particular, include analysing risks and opportunities for Rosneft related to climate change and environmental issues (including water management) and communicating relevant information to the Board of Directors of Rosneft.
Since 2009, the Company has been implementing the Rosneft energy saving Program, which aims to reduce energy consumption and improve economic, environmental and production indicators. At the moment, the Company's business development is focused on the world's best practices in combating climate change and is aimed at:
- increasing production of natural gas, the use of which in comparison with other types of fuels can significantly reduce greenhouse emissions;
- implementation of projects for the development of oil refineries( refineries), increasing the production of popular products, raw materials for petrochemicals;
- reducing emissions and improving efficiency at production facilities (in particular by reducing the APG combustion rate to less than 5 % in accordance with the target set by the Government of the Russian Federation as part of the implementation of the Investment gas program.);
- creation and production of new products that allow consumers to reduce emissions and improve fuel efficiency.
In 2017, in order to further improve the effectiveness of activities in the field of industrial safety, labour protection and the environment, a Committee was formed on the industrial safety, labour protection and environment, within which a carbon management subcommittee was subsequently created to help achieve goals to face climate change.
Rosneft develops various forecast scenarios for global energy development, taking into account the risks and opportunities associated with climate change, which in general, allow to conclude that the Company's business model remains stable throughout the forecast period (until 2050) and meets future challenges.
The decree of the Russian Government in June 2020 approved the "Energy strategy of Russia for the period up to 2035", which includes goals to reduce the negative impact of the fuel and energy complex on the environment and their adaptation to climate change, with the result that the Russian Federation will make a significant contribution to the transition to low-carbon development of the world economy, international efforts to preserve the environment and combat climate change.
On July 14, 2020, the Chief Executive officer approved the development of a plan for carbon management of Rosneft until 2035, taking into account the provisions of the "Energy strategy of the Russian Federation for the period up to 2035".
International assessment of Rosneft activity in the field of sustainable development
In December 2018, the Board of Directors confirmed that commitment to the 17 UN sustainable development goals is part of the Company's strategy and approved the public position:"Rosneft: contribution to the implementation of the UN sustainable development goals". In its activities, the Company is committed to the highest principles of sustainable development, which is confirmed by the positive assessment of the world community. Since 2007, Rosneft has published a report on sustainable development in accordance with the international standards of the Global reporting Initiative (GRI). Since 2010, the Company has been a member of the UN Global compact, and in June 2019, it joined the "Guidelines for reducing methane emissions".
In December 2019, the Company was included by the analytical division of the London stock exchange - FTSE Russell in the international stock index FTSE4Good Emerging Index and in January 2020, it became one of the leaders among global oil and gas companies participating in the international climate rating CDP (Carbon Disclosure Project). Based on the results of an independent evaluation, Rosneft was assigned a category B rating - the highest among Russian oil and gas companies and two levels higher than the average rating of European participating companies.
43
Management's discussion and analysis of financial condition and results of operations of Rosneft in the third quarter of 2020 and in the nine months of 2020.
Attachment 2: Taxation
Mineral Extraction Tax (MET)
MET rate calculation for crude oil
The rate of mineral extraction tax (MET) for crude oil is tied to the Urals price in the international market and is calculated in USD per barrel of crude oil produced using average exchange rate established by the Central Bank of Russia for the respective month.
Starting from 2019 the mineral extraction tax rate was calculated as follows:
919 × Kp - 559 × Kp × Krel + Kk+ Kman × Svn and Kabdt , where 919 − the base tax rate in RUB per tonne;
Kp − the coefficient characterizing the dynamics of world oil prices equal to (P − 15) × Eхchange rate / 261), where "P" is the average Urals price per barrel in USD and "Exchange rate" is the average RUB/USD exchange rate established by the Central Bank of Russia in the respective month;
Krel - the reduction coefficient, defined as the difference between 1 and the result of multiplication of the coefficients characterizing the degree of depletion of a particular field, a specific hydrocarbon deposit, the amount of reserves of a particular field, the degree of complexity of production, region of production and oil properties;
Kk - the additional term, increasing MET rate, in the amount of RUB 428 RUB (starting from January 01,
2019).
Kman × Svn and Kabdt have been added to the formula for calculating MET rate for oil in connection with the introduction of "reverse excise duty".
For the fields that pay excess profit tax, the MET rate is calculated as follows: (P - 15) × 7.3 × 0.5 × "K" × "Exchange rate" - "Export duty" × "Exchange rate",
Where:
"P" − Urals price (see above);
"Export duty" − export customs duty rate on crude oil in USD per tonne;
"K" - the coefficient characterizing the period of time elapsed from the date of the start of commercial oil production at the field (further "grace period"):
Groups | "К" | Note |
0.4 | prior to the expiration of the first 5 years of commercial production | |
1,2 | 0.6 | the 6th year of commercial production |
0.8 | the 7th year of commercial production | |
1.0 | from the 8th year of commercial production | |
3 | 1.0 | Not applicable |
0.5 | before the end of the 1st year of commercial production | |
4 | 0.75 | the 2nd year of commercial production |
1.0 | from the 3rd year of commercial production | |
0 | before the end of the 11 years of commercial production | |
0.2 | 12th year of commercial production | |
5* | 0.4 | 13th year of commercial production |
0.6 | 14th year of commercial production | |
0.8 | 15th year of commercial production | |
1.0 | from the 16th year of commercial production |
*entered into force on 01.04.2020 in accordance with Federal law No. 65-FZ of 18.03.2020
44
Management's discussion and analysis of financial condition and results of operations of Rosneft in the third quarter of 2020 and in the nine months of 2020.
In 2020, the Company applies various tax incentives for production and special tax treatment for MET on crude oil:
MET incentives for | Applicable to the Company |
production in 2020 |
Reduced rate due to the P=0
MET reduced by "Dm"
coefficient,which
characterizes crude oil production at a particular oil field
Tax deduction
Tax deduction in connection with the creation of infrastructure facilities*
Special tax regime for offshore projects in the Russian Federation
Special tax regime exempting the Company
from paying mineral extraction tax.
Oil fields of bazhenov, abalak, khadum, domanic formations.
Oil fields with high-viscosity crude oil (in-situ viscosity more than 10 000 mPa·s). Oil fields located:
- In Irkutsk region, the Republic of Sakha (Yakutia) and Krasnoyarsk Territory which is applicable for the first 25 million tonnes of production
- On the territory of the Nenets Autonomous district, Yamalo-Nenets Autonomous district - for the first 15 million tonnes of production
- Okhotsk sea fields subject to zero mineral extraction tax rate which is applicable for the first 30 million tonnes of production
Oil fields with reserve depletion rate of over 80%.
Oil fields with the volume of initial recoverable reserves being less than 5 million tonnes. Oil fields with high-viscosity crude oil (in-situ viscosity more than 200 mPa·s and less than 10 000 mPa·s)
Oil fields with permeability less than 2 × 10-3 μm2 and deposits of the Tyumen suite.
At fields located entirely within the boundaries of the Nizhnevartovsk region of KHMAO - Yugra, the initial recoverable oil reserves of which amount to 450 million tonnes or more as of January 1, 2016 (the amount of the deduction is determined in aggregate for the specified fields and amounts to RUB 2,917 million for the tax period (calendar month)).
Oil production at fields with export duty exemptions under "general" tax regime. The deduction is aimed at compensating the loss of economic effect from the granted export duty benefits in connection with the completion of the tax maneuver (due to which the duties are gradually reduced to zero by 2024).
When extracting oil from subsurface areas that meet the requirements set out in clause 2 of article 343.5 of the tax code of the Russian Federation. The tax deduction is provided in the amount of actually paid expenses (including the listed advances) for the creation of road transport, engineering, and energy infrastructure necessary for the development of subsoil plots of the 5th group in excess profit tax, and may not exceed the maximum coefficient Pvancor calculated in accordance with paragraphs 7 and 8 of article
343.5 of the tax code of the Russian Federation. The right to deduction arises in tax periods in which Urals exceeds the base oil price set by the tax code of the Russian Federation (USD 42.45 per barrel in 2020).
The offshore projects are categorized into one of four groups depending on its complexity and special MET rates for each project group ranging from 5% to 30% of hydrocarbon prices are applied.
Exploration projects in the Sakhalin-1 PSA.
* entered into force on 01.04.2020 in accordance with Federal law No. 65-FZ of 18.03.2020
MET rate calculation for natural gas and gas condensate
The production of gas condensate is mainly subject to MET rate for crude oil because the purification of gas condensate is compounded in the crude oil production. Gas condensate mineral extraction tax rate is applied in case of separate purification of gas condensate.
In line with the formula the base rate for gas condensate is RUB 42 per 1 tonne and for natural gas - RUB 35 per 1 th. cubic meters. The base rates are multiplied by a basic rate of standard fuel unit and reduced coefficient which estimates the difficulty level of natural gas and (or) gas condensate production. Starting from January 1, 2017 the tax rate for mineral extraction gas condensate is adjusted by the multiplying coefficient 6.5. Starting from 2019 the mineral extraction tax rate increased by the amount of reduction in export customs duties on crude oil multiplied by 0.75.
Reducing coefficient Applicable to the Company in 2020
0.5License areas: Rospan and Russko-Rechenskoe licensed fields and also at fields of Krasnodar and Stavropol regions
0.64License areas: Kynsko-Chaselskoye fields and at a number of fields of Sibneftegaz, and also at Nenets Autonomous District, the Chechen republic and Krasnodar region
0.1License areas: Irkutsk region, Krasnoyarsk region and the region of Far East or the sea of Okhotsk
0.21License areas: Turon deposits reserves of the Kharampurskoye field
0.5-1 | Fields with reserve depletion rate of over 70%. |
45
Management's discussion and analysis of financial condition and results of operations of Rosneft in the third quarter of 2020 and in the nine months of 2020.
Excess profit tax (Tax on additional income from hydrocarbons production)
Since January 1, 2019, the tax on additional income from production of hydrocarbons was enacted. The tax is charged at the rate of 50% of the hydrocarbons production income calculated as the difference between the estimated revenue and costs (losses). The new tax regime requires paying the MET but at a reduced rate and paying export duties with exemption from their payment for a certain period for Greenfields in Eastern Siberia and other new regions of oil production (groups 1-2).
New tax regime is applicable to the following groups of oil fields:
Groups | Geographic location | Depletion as of 01.01.17 |
Greenfields of Eastern Siberia and other new regions of oil production | ||
The Republic of Sakha, Irkutsk region, | ||
1 | NAO, KHMAO, the Caspian Sea, The | Not exceeding 5% |
Yamal-Nenets Autonomous district, | ||
Krasnoyarsk region
2
Brownfields of Western Siberia
3
Greenfields of Western Siberia
4
Greenfields in Arctic zone
5*
KHMAO, YANAO, Komi Republic, Tyumen region
KHMAO, YANAO, Komi Republic, Tyumen region
North in the Krasnoyarsk territory, the Republic of Sakha (Yakutia), the Chukotka Autonomous district
Deposits specified in the Note 8 to the Common Customs Tariff as of 01.01.2018.
From 20% to 80% or from 10% to 80% provided that on 01.01.2011 worked out >1%. List of fields is determined by the Law.
Not exceeding 5%. List of fields is determined by the Law.
Not exceeding 0.1% as of January 1, 2019
* entered into force on 01.04.2020 in accordance with Federal law No. 65-FZ of 18.03.2020
Excise tax
Petroleum products producers are taxpayers of an excise on petroleum products in the territory of the Russian Federation. Besides, the tax is paid by legal entities when importing excise goods into the territory of the Russian Federation.
The Company as an owner of raw materials applies excises deductions for particular types of petroleum products in the cases provided by the legislation, as well as "reverse excise" mechanism (deduction of the accrued excise tax with an increasing coefficient) for oil raw material.
Starting from January 1 2019 new excisable goods (oil raw material and dark bunker fuel) and new operations subject to excise taxation were introduced, with the possibility of applying the mechanism of "reverse excise" (deduction of the accrued excise tax with an increasing coefficient):
- for oil raw material (for the organizations-owners of crude oil raw material processed in the Russian Federation which received special certificate from the tax authorities);
- dark bunker fuel (when using fuel for bunkering (refuelling) of vessels and (or) machinery and constructions located in the internal sea waters and continental shelf of the Russian Federation, etc.).
From April 1, 2020 "dark bunker fuel" was excluded from the list of excisable goods, at the same time the concept of medium distillates was changed, as a result of which dark bunker fuel and a number of other dark oil products are recognized as medium distillates for the purposes of excise taxation.
The law sets the procedure of application of "reverse excise tax" on oil raw material, including:
- arrangements for obtaining a special certificate, required for the application of "reverse excise";
- the approach for calculating the excise rate on oil raw material (based on market oil prices, forex rates, the number and types of oil products, increased regional coefficients for curtain subjects of Russian Federation);
- the approach for calculating the "damping component" of the excise deduction aimed at reducing the effect of macroeconomic fluctuations on the domestic market of motor fuels.
46
Management's discussion and analysis of financial condition and results of operations of Rosneft in the third quarter of 2020 and in the nine months of 2020.
Export Customs Duty
Export Customs Duty on Crude Oil
The rate of export customs duty on crude oil is tied to the Urals price in the international market and is denominated in USD per tonne.
The table below sets forth the calculation of the ordinary export customs duty for crude oil:
Urals price (USD per tonne) | Export customs duty (USD per tonne) |
Below and including 109.5 | Export customs duty is not levied |
(15 USD per barrel) |
From 109.5 to 146 including (15 to 20 USD per barrel)
From 146 to 182.5 including (20 to 25 USD per barrel)
From 182.5 (25 USD per barrel)
35% of the difference between the average Urals price in USD per tonne and USD 109.5
USD 12.78 plus 45% of the difference between the average Urals price in USD per tonne and USD 146
USD 29.2 plus 30% of the difference between the average Urals price in USD per tonne and USD 182.5
The export customs duty changes every month and the duty for the next month is based on the average Urals price denominated in USD for crude oil for the period from the 15th day of the previous month to the 14th day (inclusive) of the current month and are applied starting from the 1st day of the month, following the monitoring period.
The export custom duties, calculated for the sequent month, are reported through the official informational resources not later than 4 days before the enforcement.
Since January 1, 2019, Federal law # 305-FZ of 03.08.2018 "on amendments to article 3.1 of the Law of the Russian Federation"on customs tariff" has added an addition to the formula for calculating export duty on oil: since January 2019, the duty rate is calculated as the product of the marginal rate (the calculation formula is given above) and a correction coefficient that reflects a gradual reduction in the export duty rate until it is reset in 2024. The value of the correction coefficient for 2020 is 0.667
At the same time, from January 1, 2019, the Government of the Russian Federation is entitled to impose "protective" duties on crude oil (in an amount not exceeding the level of 29.2 + 45% x (the price of "Urals" (USD /t) - 182.5) USD/t) if there is a significant change in oil prices and the price of oil is higher than USD182.5 per tonne. "Barrier" duties are applied for six consecutive calendar months, starting from the calendar month following the calendar month in which a significant change in oil prices is recorded in accordance with the procedure established by law
By the Federal law N 268-FZ, dated September 30, 2013, introducing a special tax regime in respect of the projects on the continental shelf of the Russian Federation a full exemption of hydrocarbons produced at offshore fields from the export customs duties is provided. Mainly thus exemption relates to the fields which commercial production starting from January 1, 2016. Such an exemption is set for various terms depending on complexity of a field development project.
The law names the Vostochno-Messoyakhskoye field (the total volume of oil that can be exported from 01.01.2019 using a "preferential" rate is 32.08 mln tons), the Srednebotuobinskoye field (32.742 mln tons) and the kuyumbinskoye field (76.433 mln tons).
According to the Federal law of 19.07.2018 № 201-FZ "On amendments to articles 3.1 and 35 of the Law of the Russian Federation "On customs tariff", the export of oil produced in the subsoil areas that have passed on excess profit tax from production of hydrocarbons (1,2 group), since January 1, 2019 is exempt from payment of export customs duties before the expiration of 7 years of industrial production, after the expiration of the exemption - standard duty rates. Federal law No. 24-FZ of 18.02.2020 "On amendments to article 35 of The law of the Russian Federation "On customs tariff" clarified the procedure for applying this exemption, according to which persons who are not tax payers of excess profit tax in the relevant subsoil area can export oil with an exemption from payment of export customs duty if there is a corresponding written confirmation of the organization - taxpayer of excess profit tax. The provisions of Federal law No. 24-FZ of 18.02.2020 apply to legal relations that have arisen since 01.05.2019.
47
Management's discussion and analysis of financial condition and results of operations of Rosneft in the third quarter of 2020 and in the nine months of 2020.
Export customs duty on crude oil export to countries that are members of Eurasian Economic Agreement
In accordance with the Eurasian Economic Agreement dated May 29, 2014 and effective from January 1, 2015 export duties are not payable on crude oil export to countries-participants of Eurasian Economic Agreement. Meanwhile, the Eurasian Economic Agreement enables some export limits on oil and oil products.
Export duties are not payable on crude oil exports to countries that are members of Eurasian Economic Agreement. At the same time quotes for tax-free sale of crude oil and petroleum products are set. In accordance with agreement with Armenia and the Kyrgyz republic all supplies above the quotes are subject for the duties.
In accordance with agreement between the Governments of Russian Federation and the Kazakhstan Republic on trade and economic cooperation in crude oil and petroleum products supplies dated December 9, 2010 the export ban was set for a specified list of petroleum products exported from Russian Federation to the Kazakhstan Republic.
The Protocol on amendments to the Agreement between the Government of the Russian Federation and the Government of the Republic of Belarus on measures to regulate trade and economic cooperation in the export of oil and oil products dated January 12, 2007 introduced quotas for duty-free export of oil and oil products to the Republic of Belarus and a ban on export in excess of the established quotas from November 1, 2018.
Export Customs Duty on Petroleum Products
Export customs duty on petroleum products except liquefied petroleum gas (LPG) is set every month as the marginal export customs duty rate on crude oil multiplied by the estimated ratio depending on the type of petroleum product.
Export customs duty on LPG is based on the average price of LPG at Poland board (DAF Brest) denominated in USD per tonne for the period from the 15th day of the previous month to the 14th day (inclusive) of the current month.
Marginal export customs duties for petroleum products are set as a percentage of the marginal export customs duty for crude oil as listed in table below:
Marginal export customs duty (% of the marginal | |
Type of petroleum product | export customs duty for crude oil) for the period |
Since January 1, 2017 | |
Light and middle distillates (excluding: naphtha and gasoline), benzene, toluene, | |
xylenes, lubricants, diesel | 30 |
Naphtha | 55 |
Gasoline | 30 |
Fuel oil, bitumen oil, other dark oil products | 100 |
In 2020 and 2019, marginal export customs duties are set for estimation of customs duty, depending on the type of oil product.
By the Federal law of 03.08.2018 № 305-FZ "On amendments to article 3.1 of the law of the Russian Federation "On customs tariff" the Government of the Russian Federation additionally to the right to impose "protective" duties on crude oil (in an amount not exceeding the level of 29.2 + 45% x (the price of "Urals")/t) - USD 182.5)/t with a significant change in oil prices and the price of oil above USD 182.5 per tonne has the right to impose "protective" duties to the oil products.
When applying the "protective" duty on crude oil, the rates of export duties on petroleum products may be set by the Government of the Russian Federation in the amount of 60% of the duty on crude oil.
48
Management's discussion and analysis of financial condition and results of operations of Rosneft in the third quarter of 2020 and in the nine months of 2020.
Attachment 3: EBITDA by segment
For 3 months ended September 30, 2020 | ||||||
Exploration | Refining | Corporate | Consolidated | |||
and | and | Intersegment | ||||
segment | P&L | |||||
Production | distribution | |||||
Total revenues and equity share in profits of | 805 | 1,455 | 53 | (874) | 1,439 | |
associates and joint ventures | ||||||
Total costs and expenses | 510 | 1,419 | 65 | (874) | 1,120 | |
Effect of prepayments offsetting | 44 | - | - | - | 44 | |
EBITDA | 339 | 36 | (12) | - | 363 | |
Expenses associated with COVID-19 | 2 | - | 1 | - | 3 | |
EBITDA adjusted | 341 | 36 | (11) | - | 366 | |
For 3 months ended June 30, 2020 | ||||||
Exploration | Refining | Corporate | Consolidated | |||
and | and | Intersegment | ||||
segment | P&L | |||||
Production | distribution | |||||
Total revenues and equity share in profits of | 493 | 1,057 | 54 | (565) | 1,039 | |
associates and joint ventures | ||||||
Total costs and expenses | 337 | 1,075 | 59 | (565) | 906 | |
Effect of prepayments offsetting | 35 | - | - | - | 35 | |
EBITDA | 191 | (18) | (5) | - | 168 | |
Expenses associated with COVID-19 | 2 | - | - | - | 2 | |
EBITDA adjusted | 193 | (18) | (5) | - | 170 | |
For 9 months ended September 30, 2020 | ||||||
Exploration | Refining | Corporate | Consolidated | |||
and | and | Intersegment | ||||
segment | P&L | |||||
Production | distribution | |||||
Total revenues and equity share in profits of | 2,161 | 4,290 | 159 | (2,367) | 4,243 | |
associates and joint ventures | ||||||
Total costs and expenses | 1,473 | 4,216 | 192 | (2,367) | 3,514 | |
Effect of prepayments offsetting | 111 | - | - | - | 111 | |
EBITDA | 799 | 74 | (33) | - | 840 | |
Expenses associated with COVID-19 | 4 | - | 1 | - | 5 | |
EBITDA adjusted | 803 | 74 | (32) | - | 845 | |
For 9 months ended September 30, 2019 | ||||||
Exploration | Refining | Corporate | Consolidated | |||
and | and | Intersegment | ||||
segment | P&L | |||||
Production | distribution | |||||
Total revenues and equity share in profits of | 3,625 | 6,421 | 119 | (3,713) | 6,452 | |
associates and joint ventures | ||||||
Total costs and expenses | 2,192 | 6,295 | 152 | (3,713) | 4,924 | |
Effect of prepayments offsetting | 89 | - | - | - | 89 | |
EBITDA | 1,522 | 126 | (33) | - | 1,617 | |
Expenses associated with COVID-19 | - | - | - | - | - | |
EBITDA adjusted | 1,522 | 126 | (33) | - | 1,617 | |
49
Management's discussion and analysis of financial condition and results of operations of Rosneft in the third quarter of 2020 and in the nine months of 2020.
Attachment 4: Average monthly RUB/USD exchange rates, calculated using the Bank of Russia data
2020 | 2019 | ||
RUB/USD | |||
January | 61.78 | 67.35 | |
February | 63.88 | 65.86 | |
March | 73.32 | 65.15 | |
April | 75.23 | 64.62 | |
May | 72.62 | 64.82 | |
June | 69.22 | 64.23 | |
July | 71.29 | 63.20 | |
August | 73.80 | 65.53 | |
September | 75.66 | 64.99 | |
October | 64.36 | ||
November | 63.87 | ||
December | 62.94 |
50
Attachments
- Original document
- Permalink
Disclaimer
OAO Neftyanaya Companiya ROSNEFT published this content on 13 November 2020 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 13 November 2020 09:02:04 UTC