Russian energy companies see profit rise thanks to sanctions

Russian energy companies see profit rise thanks to sanctions Photo: Bureau of Land Management California

Russia's oil and gas industry has weathered international sanctions to obtain strong earnings, which are prompting increased dividends and share buybacks, considers Financial Times. At least three of the country's top energy companies have reported significant profit growth in the second quarter of 2018.

Higher energy prices and a weakened ruble saw second-quarter profits soar at three of Russia's largest oil and gas groups, reports Financial Times. In April-June, average oil prices were 11% higher compared to the corresponding period of 2017 because of an output cut agreement between OPEC and non-OPEC nations led by Russia. At the same time, the Russian currency was 9% weaker in the second quarter of 2018 as a result of Western sanctions against Moscow.

These factors have boosted earnings across Russian energy companies this year. The world's largest gas producer Gazprom reported a rise of 440% in second-quarter profits due to an increase in both average prices and the company's export to Europe. The producer, which has supplied a record amount of gas to European customers this year, expects to further increase its shipments. During the quarter, Gazprom had sold 57 billion cubic metres of gas to Europe and other non-CIS countries at an average price of $238,4 per million cubic metres. Last year, the same customers bought 53,5 bcm at $192,4 per mcm. As a result, the company's profit in the second quarter totalled 259,2 billion rubles ($3,8 billion), up from 47,9 billion rubles ($700 million) a year ago and considerably above analyst estimates.

However, the weaker ruble has also caused losses for the company, as it has large borrowings denominated in dollars and euros. According to Gazprom, it lost roughly $2 billion on foreign exchange in April-June.

Gazprom CEO Alexey Miller and Minister of Energy of Russia Aleksandr Novak. Photo: kremlin.ru

Simultaneously, Russia's second-largest oil producer Lukoil saw a 21% rise in profits, which was slightly below market expectations. The company's sales added 51% and reached 2,06 trillion rubles ($30 billion), while free cash flow rose by 68% to 37,2 billion rubles ($544 million). ''Similar to other Russian oil producers, Lukoil benefited from 20% spike in the ruble-based oil price,'' commented Kirill Tachennikov, senior oil and gas analyst at BCS Global Markets in Moscow.

The country's number four crude producer Surgutneftegas said that its profit for the first six months of 2018 increased by 338% to 390 billion rubles ($5,7 billion). Sales during the period amounted to 857 billion rubles ($12,5 billion), while in the same period of 2017 they totalled 639 billion rubles ($9,3 billion).

By Anna Litvina