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. Last Updated: 07/27/2016

Rosneft Beats LUKoil on Margins in Q2

VedomostiShareholders attending Rosneft’s annual meeting in June. The oil giant had second-quarter profit of $1.61 billion.

Rosneft beat nearest rival LUKoil on margins in the second quarter despite a forecast-missing 63 percent drop in net profit due to a foreign-exchange loss and high taxes.

“Costs are under more severe control at Rosneft than at LUKoil,” said Raiffeisenbank oil and gas analyst Anna Yudina.

State-run Rosneft said Tuesday that its EBITDA margin — a ratio of core earnings to revenues regarded as an indicator of a company’s effectiveness — was 32.6 percent in the second quarter. LUKoil, which reported on Aug. 28, had an EBITDA margin of 20 percent.

Rosneft’s second-quarter net profit was $1.61 billion, missing the average $1.72 billion forecast in a Reuters poll of analysts.

The company said the drop in net income, from $4.31 billion a year ago and $2.06 billion in the first quarter, was mainly due to the effective income tax rate rising to 19.9 percent from 5.7 percent, and a foreign exchange loss of $391 million.

VTB Capital analyst Svetlana Grizan said Rosneft was more efficient than LUKoil in terms of oil production and refining costs, despite the fact that LUKoil’s net income came in higher, at $2.32 billion. “LUKoil had inflated costs and revenues due to more active trading operations,” she said.

“Rosneft made a free cash flow in the second quarter [$222 million], while LUKoil didn’t,” said Oleg Maximov, an analyst at Troika Dialog.

CEO Sergei Bogdanchikov said in a statement that Rosneft would continue to focus on costs in the second half, when oil production is set to grow. “We … are confident we will deliver average daily production 5 percent higher than in the first half of the year, in large part due to our recent successful launch of production at Vankor,” he said. Revenues in the second quarter reached $10.95 billion, down from $21.13 billion in the same period last year but in line with a forecast $10.88 billion.