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. Last Updated: 07/27/2016

A Sinking Dollar Drags Down Surgut H1 Profit

Surgutneftegaz, the country's fourth-largest oil company, said net profit slipped 9 percent in the first half because of a stronger ruble, despite a 38 percent increase in sales.

The company reported results on Monday to Russian accounting standards on a year-on-year basis without giving a breakdown of results on a quarterly basis.

Some analysts praised the second-quarter results after making their own calculations, while others said the results were broadly in line with expectations.

Net profits fell to 47.9 billion rubles ($1.8 billion) in the first half, from 52.4 billion rubles in the first half of 2005. Sales rose to 266.5 billion rubles, from 194.2 billion rubles.

Analysts said they were concerned by Surgut's mounting cash pile, estimated at over $16 billion, which offered poor returns at a time of ruble appreciation.

"When you buy into Surgut, you buy not only into an oil firm but into a banking deposit account. A quarter of the firm's market cap consists of financial investment," said Kakha Kiknavelidze of UBS.

"It once again confirms our view that [Russia's largest oil company] LUKoil is much better leveraged to the oil price than Surgut," he added.

Surgut shares fell 0.74 percent to 42.45 rubles on the MICEX exchange.

Its market capitalization stood at around $60 billion on Monday. Analysts calculated that it had over $16 billion of cash, long- and short-term investments and other current assets, up 1 percent quarter-on-quarter and 28 percent year-on-year.

The firm says it needs a huge cash pile as it prepares for massive investment projects such as the exploration of untapped oil fields in East Siberia.

Oleg Maximov from Troika Dialog brokerage said he was impressed by a 25 percent rise, to $1.716 billion in Surgut's operating profit in the second quarter compared with the previous quarter.

"This came as a positive surprise as netbacks only rose by 12 percent during the period, and Surgut's oil output was up by only 1.4 percent quarter-on-quarter," said Maximov.

Sales rose 35 percent quarter-on-quarter, to $5.55 billion, but the cost of sales outpaced the growth in revenues, rising 42 percent, to $3.57 billion, in the second quarter, according to analysts' calculations.

 Transneft, the oil pipeline monopoly, said its $11.5 billion link from Eastern Siberia to the Pacific coast would help Surgutneftegaz boost exploration, Bloomberg reported. Transneft is designing a 2,800-kilometer pipeline from Ust-Kut, in the Irkutsk region, along the left bank of the Lena River to the Talakan field being developed by Surgut.