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Oil Report

UPDATE 2-Rosneft posts record Q2 results,sees growth in Q3

(Adds more details, share price, CFO comment from para 9)

MOSCOW, Oct 16 (Reuters) - Russian oil major Rosneft ROSN.MM reported record profits for the second quarter on Tuesday and said it would show even better figures in future due to organic growth and consolidation of new assets.

The state-controlled firm said the second-quarter results, including a 49.5 percent year-on-year rise in net profit, were pushed up by accelerated production growth as well as the continuing consolidation of assets from bankrupt ex-rival YUKOS.

“As these financial results only partially included the recently acquired assets while their integration is still ongoing, I believe that the true impact of significant shift in the company’s profitability ...is yet to be shown,” Rosneft’s president Sergei Bogdanchikov said in a statement.

Earlier this year Rosneft bought two YUKOS production units and five refineries, at state-forced auctions, to become Russia’s largest oil producer and refiner.

Rosneft’s net profit adjusted for the effect of non-operating YUKOS payments soared to $1.66 billion from $1.11 billion in the second quarter 2006 and exceeded the average of analysts’ forecasts of $1.40 billion.

Revenue, calculated under U.S. Generally Accepted Accounting Standards (GAAP), rose by 25.4 percent to $10.79 billion, slightly below analysts’ forecast of $11.02 billion.

In the first half of the year profits rose by 21 percent to $2.35 billion, while revenue rose by 19 percent to $19 billion.

PRODUCTION GROWTH

Rosneft said it increased output by 21.1 percent to 1.88 million barrels per day in the second quarter including the newly acquired assets of YUKOS. Excluding them, organic oil production growth stood at 7.3 percent in the first six months.

“Keep in mind that the full effect of asset consolidation will be seen in the third quarter. So it will be a good quarter. We are very optimistic about it,” Rosneft’s chief financial officer Peter O’Brien told Reuters.

"We are begining to work more actively in the refining products segment. Today in the domestic market most of light products offer higher netbacks than crude oil exports," he said. Rosneft's stock closed 0.4 percent up, outperfoming the broader market .MCX.

Rosneft said its free cash flow almost tripled in the second quarter to $1.12 billion although in the first half of 2007 it was up only 2.9 percent following a weak first quarter.

Capital expenditures increased by 63.1 percent to $2.29 million in the first half of this year compared to $1.40 million in the first six months of 2006.

Rosneft said the growth was primarily due to further field developments at Yuganskneftegas, where capital expenditures grew by 51.8 percent and full-scale development at the Vankor field, where investments increased by 129.3 percent year-on-year.

Net debt soared to $24.8 billion at the end of the second quarter from $13.3 billion at the end of 2006 as Rosneft borrowed heavily to buy YUKOS’s assets.

O’Brien said the firm was on its way to refinance $11 billion before the end of the year, the outstanding part of its $24.5 billion jumbo loan. “We continue to monitor the market for a Eurobond issue,” he said.

Rosneft’s first purchase of YUKOS’s assets dates back to 2004, when the company bought YUKOS’s then biggest unit Yugansk. Rosneft then sued YUKOS for billions of dollars of lost profits on behalf of Yugansk.

On Tuesday the company said its non-adjusted second quarter net income was $7.66 billion, including $7.9 billion of proceeds from YUKOS’s bankruptcy before tax, which in turn amounted to $1.9 billion.

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