UNIMPORTANT RUSSIA SANCTIONS
FT - Higher energy prices and a weakened rouble saw second-quarter profits soar at three of Russia’s largest oil and gas groups, underlining a strong earnings season for the country’s energy industry that has weathered international sanctions to reap strong earnings.
Gazprom, the world's largest gas producer, said that second-quarter profits had risen an annual 440 per cent, as both exports to Europe and average prices jumped.
Lukoil, the country's second-largest oil producer, reported a 21 per cent rise in profits, while profits more than tripled at Surgutneftegas, the country's number four crude producer.
"Similar to other Russian oil producers, Lukoil benefited from 20 per cent spike in the rouble-based oil price," said Kirill Tachennikov, senior oil and gas analyst at BCS Global Markets in Moscow.
Those results boosted energy stocks across Moscow's main exchange, with the oil and gas index up 1.7 per cent at 1530, outpacing a 1.1 per cent rise across the wider market. Gazprom shares were up 1 per cent, Lukoil shares were 1.3 per cent higher and Surgutneftegas stock was up 1.7 per cent.
A higher crude price because of a deal between Opec and Russia to curb production and a weaker rouble caused by US sanctions against Moscow have boosted earnings across Russian energy companies this year, prompting increased dividends and share buybacks. Average oil prices were 11 per cent higher during the April-June quarter compared with a year previously, while the rouble was 9 per cent weaker.
At the same time, those sanctions have had very little impact on production and exports of Russian oil and gas. Gazprom, which has a monopoly on Russia's gas pipeline exports, sold record amounts of gas to Europe in 2017 and expects to further increase shipments this year.
The Kremlin-controlled company said on Wednesday that profit in the second quarter was Rbs259.2bn ($3.8bn), up from Rbs47.9bn a year ago and comfortably above analyst estimates.
Gazprom said that during the quarter it had sold 57bn cubic metres of gas to Europe and other non-CIS countries, at an average price of $238.40 per million cubic metre. A year ago, the same countries bought 53.5 bcm at $192.40 per mcm.
While the weaker rouble boosts sales income, it is a double-edged sword for the company, which has large borrowings denominated in dollars and euros.
Gazprom said that the sliding local currency had caused a roughly $2bn foreign exchange loss during the three months to June 30, and had seen its total debt inch up to Rbs2.4tn, despite an increase in its cash holdings.
Lukoil, Russia's largest private oil producer, reported a 20.6 per cent rise in second-quarter profit, slightly below market expectations. Sales rose an annual 51 per cent to Rbs2.06tn, while free cash flow rose 68 per cent to Rbs37.2bn.
Surgutneftegas said its profit for the first six months of the year rose an annual 338 per cent to Rbs390bn. Sales during the period were Rbs857bn, up from Rbs639bn a year previously.