Russian Oil Giants Offer Bright Spot in Cloudy Economy
(Bloomberg) -- Russia’s oil companies are on a tear.
The nation’s top crude producers more than doubled their combined profit in the first half, trouncing estimates thanks to a weaker ruble and rebounding prices. And with output curbs easing, the influx of cash is set to continue.
“Russian oilmen feel financially better than any other crude producer in the world,” said Andrey Polischuk, an energy analyst at Raiffeisen Centrobank in Moscow. “Operating costs are low, production is either already at a record or close to a record, and oil in rubles is setting new historical records.”
Russia’s currency crisis, which has seen the ruble halve against the dollar since the first U.S. and European sanctions hit in 2014, has made it cheaper for local companies to pump oil, while boosting the price of crude in ruble terms. That paved the way for bumper half-year profits, while European and U.S. rivals delivered a mixed bag.
The combined revenue of Russia’s top five oil producers jumped 32 percent to more than 9.9 trillion rubles ($145 billion), while total net income doubled to almost 1.25 trillion rubles.
Yet the risk of more sanctions weighs heavily on the companies, clouding an otherwise sunny outlook.
Shares of Rosneft PJSC, Russia’s biggest oil producer, are trading at seven times estimated 12-month earnings compared with about 11 times for Royal Dutch Shell Plc, more than 12 times for BP Plc and 15 times for Exxon Mobil Corp.
“Russian equities are under pressure because of further sanctions threats,” said Alexander Kornilov, an analyst at Aton LLC in Moscow. This helps the nation’s exporters -- including oil companies -- by weakening the ruble, but on the other hand this damps their market value.”
While the market capitalization of the Micex Oil & Gas Index, which includes Rosneft and its closest rival Lukoil PJSC, hit a record high this week in the local currency, in dollar terms it is still below the levels of 2014 when the ruble crash began.
The U.S. administration this month imposed fresh sanctions on Russia over the March poisoning of a former Russian agent and his daughter in the U.K. Further sweeping measures may follow in November, including bans on the import of Russian oil and exports of other goods and technology.
‘Imperfect Vehicles’
As long as that risk is on the table, Russian oil stocks “remain imperfect vehicles,” said Julian Rimmer, an emerging-markets trader at Investec Bank Plc in London. “I doubt Russia-dedicated funds are registering inflows, nor will they while the mutual antipathy” with the West persists, he said.
Alexander Losev said he’s also wary of the “geopolitical subtleties,” but believes Russia’s Big Oil will remain attractive in the next six months. The Russian market veteran and chief executive officer of Sputnik Asset Management has started to increase his position in Lukoil, saying its shares are lagging behind peers.
All the positive drivers behind the Russian oil industry -- from global supply risks to the weaker ruble -- are here to stay, Losev said. “I’m still holding shares of Russian oil.”
To contact the reporters on this story: Dina Khrennikova in Moscow at dkhrennikova@bloomberg.net; Elena Mazneva in Moscow at emazneva@bloomberg.net. To contact the editors responsible for this story: James Herron at jherron9@bloomberg.net Rakteem Katakey, Rachel Graham.
WHAT DO YOU THINK?
Generated by readers, the comments included herein do not reflect the views and opinions of Rigzone. All comments are subject to editorial review. Off-topic, inappropriate or insulting comments will be removed.
- Falcon Oil Declares Commercial Flow Test Results for Shenandoah Well
- Macquarie Strategists Expect Brent Oil Price to Grind Higher
- Japan Failing to Meet Corporate Demand for Clean Power: Amazon
- Pennsylvania County Joins List of Local Govts Suing Big Oil over Climate
- UK Oil Regulator Publishes New Emissions Reduction Plan
- PetroChina Posts Higher Annual Profit on Higher Production
- US, SKorea Launch Task Force to Stop Illicit Refined Oil Flows into NKorea
- McDermott Settles Reficar Dispute
- Russian Navy Enters Warship-Crowded Red Sea Amid Houthi Attacks
- USA Commercial Crude Oil Inventories Increase
- New China Climate Chief Says Fossil Fuels Must Keep a Role
- Oil Demand Outpaces Expectations, Testing Calculus on Peak Crude
- House Passes Protecting American Energy Production Act
- TotalEnergies Restarts Production in Denmark's Biggest Gas Field
- Republican Lawmakers Say IEA Has Abandoned Energy Security Mission
- USA Oil and Gas Job Figures Jump
- Blockchain Demands Attention in Oil and Gas
- Houthis Warn Saudi Arabia of Retaliation If It Backs USA Attacks
- Macquarie Sees USA Oil Production Exiting 2024 at 14MM Barrels Per Day
- Summer Pump Prices Set to Hit $4 a Gallon Just as Americans Hit the Road
- New China Climate Chief Says Fossil Fuels Must Keep a Role
- Chinese Mega Company Makes Major Oilfield Discovery
- VIDEO: Missile Attack Kills Crew Transiting Gulf of Aden
- Norway Regulator Blasts Proposal to Halt New Oil and Gas Permits
- Chinese Mega Company Makes Another Major Oilfield Discovery
- What Is the Biggest Risk to Offshore Oil and Gas Personnel in 2024?
- Vessel Sinks in Red Sea After Missile Strike
- Exxon Rights in Stabroek Do Not Apply to Hess Merger with Chevron: Hess
- Equinor Makes Discovery in North Sea
- Analysts Reveal Latest Oil Price Outlook Following OPEC+ Cut Extension