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.
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.”