Sanctions and Tax Hikes Squeeze Russia's Rosneft

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Rosneft said its full-year net profit fell nearly 8% last year as it faced Western sanctions targeting the company specifically as well as broad sanctions against Russia and its energy industry.

Russia's biggest oil producer and exporter said its net profit for 2022 dipped to 813 billion rubles ($11.9 billion), despite an increase of 3.2% in its annual revenues versus 2021.

A broader measure of profitability — earnings before interest, taxes, depreciation and amortization (Ebitda) — showed a year-on-year increase of 9.5% to 2.55 billion rubles (see table).

The limited results (based on international financial reporting standards) that Rosneft published Monday reflect the impact of deep discounts for Russia's Urals crude grade for the past year.

Rosneft was also hit last year by huge fluctuations in the value of the ruble and the German government's decision to put a trustee in control of its refining assets in that country.

The company reported a 12% decline in its refinery throughput volumes for the year.

Rosneft said its oil and gas production rose to 5.1 million barrels of oil equivalent a day from 4.985 million boe/d in 2021.

But that was mainly attributable to a 15% increase in gas production to 74.4 billion cubic meters.

Rosneft did not break out its oil production, but Energy Intelligence estimates that it fell by about 1.2% to around 3.86 million b/d.

Costs and expenses rose by 2.2% to just over 7.5 trillion rubles. Rosneft cited higher costs for electricity and rail transportation.

Western officials have said that sanctions imposed since Russia's invasion of Ukraine last year are intended to drive up costs and limit revenues, but keep Russian oil flowing to the global market.

Evidence suggests that the strategy may be working, but there are also signs that Russia's economy is proving more resilient than many Western politicians and pundits had predicted.

Rosneft, Tatneft 2022 Results
(billion rubles)20222021%Chg.20222021%Chg.
Net Profit813883-7.9284.6198.443.4
Free Cash Flow--1,044--196.8148.432.6
Operational Data20222021%Chg.20222021%Chg.
Oil and Gas Output ('000 boe/d)5,1004,9852.3------
Oil Output ('000 b/d)3,860*3,905-1.25685434.6
Gas Output (Bcm)74.464.75150.940.895.6
Refinery Throughput ('000 b/d)1,8932,152-12%32424931.2%

Capex Grows

Rosneft’s capital spending rose by nearly 8% to more than 1.1 trillion rubles, with a big chunk of that going to the Vostok Oil mega project in Russia's onshore Arctic region.

Rosneft said that as a result of exploration work carried out last year, the resource base for the Vostok venture rose by 300 million tons to 6.5 billion tons (48 billion barrels).

In the second half of last year, the company started testing production from Vostok's core Payakha field.

Rosneft said that over the last three years the taxation of oil companies has been tightened 14 times, which "definitely creates risks for the realization of our production program."

Nevertheless, upstream investment seems to be holding up. The energy ministry has said capital spending related to oil production rose to 1.8 trillion rubles in 2022 from 1.5 trillion rubles in 2021.

Tatneft Profits and Debt Soar

Tatneft, a regional producer with less than one sixth of the oil output of Rosneft, reported that its net income grew by around 43% last year, while its revenues rose by around 18%.

It attributed the increases to higher prices and sales volumes for petroleum products and a stronger ruble for most of last year.

Tatneft reported growth in oil and gas production and in refinery throughput and also reported an increase in its crude oil exports to countries outside the former Soviet Union.

The company said its operating expenses rose by almost 30% last year, without providing further details, and also reported that its net debt rose almost fivefold last year.

For more coverage of the Ukraine crisis, visit Ukraine Crisis: Energy Impact

Earnings, Sanctions, Ukraine Crisis
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