Fitch: Russian majors balance cash flows

Progressive taxation and a weak ruble helped major Russian oil and gas companies balance cash flows in the first half of this year, reports Fitch Ratings.

Although operating earnings denominated in dollars fell due to low oil prices and an October 2015 tax increase, local costs were down because of ruble weakness. And the tax structure allowed oil taxes to fall as a share of revenue as oil prices declined.

Fitch tracks Gazprom, Lukoil, Gazprom Neft, Novatek, Tatneft, and Bashneft.

For all those companies free cash flows (FCF) averaged $2/bbl before dividends and minus 50¢/bbl after dividends. FCF is cash generated by normal business operations less capital expenditures.

Helping FCF remain “decent,” according to Fitch, were sharp decreases in dollar-denominated capital expenditures and dividends resulting from the weak ruble.

Tatneft performed best among the Fitch group, with FCF of $3.70/bbl before dividends and $1.90/bbl after.

Gazprom had negative FCF before dividend of $1.40/bbl because of heavy capital spending.

Major European oil majors had FCF of minus $5/bbl before dividend and minus $11/bbl after dividend, Fitch pointed out.

“Russian oil and gas producers should remain FCF-neutral provided taxation is unchanged and the ruble broadly follows oil prices,” the credit-rating firm said.

It called the risk of further tax hikes “the key challenge for the Russian oil and gas producers.”

Fitch said it assumes Russian taxes will remain at the 2016 level but warned, “Further tax increases cannot be excluded.”

Did You Like this Article? Get All the Energy Industry News Delivered to Your Inbox

Subscribe to an email newsletter today at no cost and receive the latest news and information.

 Subscribe Now


The Time is Right for Optimum Reliability: Capital-Intensive Industries and Asset Performance Management

Imagine a plant that is no longer at risk of a random shutdown. Imagine not worrying about losing...

Going Digital: The New Normal in Oil & Gas

In this whitepaper you will learn how Keystone Engineering, ONGC, and Saipem are using software t...

Maximizing Operational Excellence

In a recent survey conducted by PennEnergy Research, 70% of surveyed energy industry professional...

Leveraging the Power of Information in the Energy Industry

Information Governance is about more than compliance. It’s about using your information to drive ...