Get the latest updates as we post them — right on your browser

. Last Updated: 07/27/2016

Oil Giant Reports 85% Drop In Profits

World oil markets sent first-quarter profits for state-owned Rosneft plummeting 85 percent compared with last year despite an increase in output, officials said Friday.

But analysts said the losses might be attributable to shady management ahead of the company's privatization.

The bleak financials come as the Russian government seeks to sell off a 75 percent controlling packet in the firm at a $2.1 billion price that almost all prospective bidders say is far too high under current market conditions.

Moments after telling a news conference that Rosneft officials expected the sale to go through, the company's vice president, Grigory Napolov, in an interview retreated from the bold statements. "The price, along with the situation on the world oil markets, does not inspire confidence," Napolov said.

"We hope the auction will happen as scheduled, or we will be hard-pressed to find the $100 million our Sakhalin-1 project will need in 1998 and 1999," he added.

Failure to find buyers for the 75 percent stake could mean selling the company in parts, a plan which would deprive Rosneft of investments worth $400 million guaranteed under present auction terms.

Rosneft recently has been fending off allegations that its managers are stripping assets and that they have allied with billionaire politician Boris Berezovsky, who also controls the oil major Sibneft.

Analysts said Rosneft, which exported almost half its output last year, is heavily exposed to the slide in crude prices, but the results also reflect poor financial management.

"Until the company is privatized, it is logical that the management, which is probably on its way out, has no incentive to improve financials," said Olga Spiranskaya, an oil analyst with Rye, Man & Gor Securities. She said other Russian oil companies would also see profits drop.

Stephen O'Sullivan, an analyst with United Financial Group, described Rosneft's refining operations as "inefficient, and it has no significant investment in the retail network."

But another analyst blamed the decline on Rosneft's ties with Berezovsky. Rumors that a merger between the tycoon's Sibneft and fellow oil major Yukos is on the rocks could mean that neither firm is currently in a position to bid for Rosneft.

"Now that the Yuksi deal looks dicey, [Berezovsky] probably does not want the auction to succeed, but would rather the company was sold in smaller, affordable chunks," said the analyst, who asked not to be identified.