Rosneft's earnings for the second quarter of 2019 slid from Rbs228bn ($3.45bn) to Rbs194bn ($2.94), while its net income margin fell from 11% between April and June last year to 9.1% over the same period this year
Russia’s most productive oil producer Rosneft has said the shutdown of the Druzhba pipeline is behind its disappointing profit margin for the second quarter of 2019, which was 15% down on the same period last year.
The firm’s total earnings slid from 228bn Russian rubles ($3.45bn) to Rbs194bn ($2.94) after the pipeline, which transports 1.5m barrels of crude oil a day to the EU, was contaminated with corrosive chemicals in May, forcing a temporary shutdown.
Its net income margin fell from 11% between April and June last year to 9.1% over the same period in 2019, while the board has recommended a first-half dividend payout totalling 50% of its profit — the same as 2018.
Rosneft’s CEO and chairman of the management board Igor Sechin also attributed its financial dip to the decreased oil production mandated by the OPEC+ Agreement, in which its 24 member countries agreed to reduce oil output by 1.2m barrels a day.
He said: “In 2Q 2019 the company continued to execute strategic objectives of growing the efficiency of existing assets and reducing debt.
“Despite efforts of the management to achieve those goals, the influence of external one-offs should be noted, which limited the capacity to grow production in 2Q 2019.
“First of all, these factors include limiting crude oil intake by the Transneft pipeline system due to the pollution caused by circumstances beyond the company’s control as well as a decrease in crude oil production within the OPEC+ Agreement.
“Net income attributable to Rosneft shareholders grew by more than 9% in the first half of 2019, compared to the same period of last year.
“Despite the unstable macroeconomic environment and external limitations, the Company reduced its financial debt and trade prepayments by more than Rbs800bn ($12.12bn) since the beginning of 2019.
“The optimisation of the debt portfolio structure continued with a share of long-term debt growing to 80% and the short-term debt decreasing by 25% since the beginning of the year.
“With the ultimate goal of increasing returns for the shareholders Rosneft will continue to invest in realisation of its resource base potential and delivery of new oil and gas production projects.”
Druzhba disaster dents Rosneft profit
In April, roughly five million tonnes of oil intended to be exported via the Druzhba pipeline to countries such as Germany, Hungary and Poland was contaminated with organic chloride, which is used to boost oil extraction but has the potential to damage refining equipment.
The discovery prompted the pipeline’s operator Transneft to cease operations indefinitely, which wreaked havoc with the global oil industry, leaving many companies still feeling the effects despite the facility having since come back online.
Reuters reported the firms negatively impacted, which range from oil giant BP to mining conglomerate Glencore, cannot claim compensation until they have sold the oil originally intended for delivery.
One of its trading sources said: “You can’t file a claim against Russia until you have actually sold your oil and counted your losses.”