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MD&A / Operating Results
(RUB million) 2012 2011 Change, %
Revenues
Sales 1,517,067 1,291,596 17.5
Less export duties and excise tax (286,801) (261,793) 9.6
Total revenue 1,230,266 1,029,803 19.5
Costs and other deductions
Purchases of oil, gas and petroleum products (430,485) (314,199) 37.0
Production and manufacturing expenses (123,367) (107,523) 14.7
Selling, general and administrative expenses (66,115) (51,430) 28.6
Transportation expenses (93,813) (81,935) 14.5
Depreciation, depletion and amortization (58,461) (55,799) 4.8
Taxes other than income tax (251,128) (208,196) 20.6
Exploration expenses (3,263) (2,105) 55.0
Total operating expenses (1,026,632) (821,187) 25.0
Other (loss) / gain, net (4,891) 925
Operating profit 198,743 209,541 (5.2)
Share of profit of equity accounted investments 28,281 6,874 311.4
Net foreign exchange gain 953 740 28.78
Finance income 3,174 1,956 62.3
Finance expense (11,160) (11,446) (2.5)
Total other income / (expense) 21,248 (1,876)
Profit before income tax 219,991 207,665 5.9
Current income tax expense (30,085) (33,728) (10.8)
Deferred income tax expense (5,754) (6,268) (8.2)
Total income tax expense (35,839) (39,996) (10.4)
Profit for the period 184,152 167,669 9.8
Less: Profit attributable to non-controlling interest (7,856) (7,307) 7.5
Profit attributable to Gazprom Neft 176,296 160,362 9.9

Operating profit, RUB million

Source: Company data

Revenues

(RUB million) 2012 2011 Change, %
Crude oil
Export 195,567 153,272 27.6
Export sales 346,213 304,758 13.6
Less related export duties (150,646) (151,486) (0.6)
International markets 1,740
Export to CIS 29,783 36,259 (17.9)
Domestic 12,988 2,052 532.9
Total crude oil revenue 240,078 191,583 25.3
Gas
International markets 6,281 5,366 17.1
Domestic 17,540 12,809 36.9
Total gas revenue 23,821 18,175 31.1
Petroleum products
Export 240,381 210,612 14.1
Export sales 349,049 287,753 21.3
Less related export duties (108,668) (77,141) 40.9
International markets 69,876 66,672 4.8
Sales on international markets 92,725 91,424 1.4
Excise (22,849) (24,752) (7.7)
CIS 54,539 38,394 42.1
Export sales and sales in CIS 59,177 46,808 26.4
Less related export duties (4,638) (8,414) (44.9)
Domestic 571,020 478,172 19.4
Total petroleum products revenue 935,816 793,850 17.9
Other revenue 30,551 26,195 16.6
Total revenue 1,230,266 1,029,803 19.5

Sales Volumes


2012 2011 Change, %
Crude oil, (MMtonnes)
Export 14.12 13.08 8.0
Sales on international markets 0.07
Export to CIS 2.50 2.99 (16.4)
Domestic sales 1.23 0.20 515.0
Total crude oil sales 17.92 16.27 10.1
Gas, (bcm)
International markets 0.46 0.44 4.5
Domestic sales 10.50 9.31 12.8
Total gas sales 10.96 9.75 12.4
Petroleum products, (MMtonnes)
Export 14.13 12.63 11.9
Sales on international markets 2.40 2.43 (1.2)
Export and sales in CIS 2.35 2.05 14.6
Domestic sales 25.10 24.29 3.3
Total petroleum products sales 43.98 41.40 6.2

Average Realized Sales Prices


2012 2011 Change, %
Crude oil, (RUB per tonne)
Export 24,519 23,300 5.2
Export and sales in CIS 11,913 12,127 (1.8)
Domestic sales 10,559 10,260 2.9
Petroleum products
Export 24,703 22,783 8.4
Sales on international markets 38,635 37,623 2.7
Export and sales in CIS 25,182 22,833 10.3
Domestic sales 22,750 19,686 15.6

Crude Oil Export Sales

  • The 13.6% increase in crude export sales year-on-year was driven by a 5.2% increase in realized oil prices and an 8.0% increase in sales volumes resulting from market expansion.
  • The year-on-year decrease in crude export and sales in the CIS was the result of the reallocation of crude oil from export to refining at Mozyr.
  • Domestic crude oil sales increased following the acquisition of a subsidiary in Orenburg in 4Q 2011.

Petroleum Products Exports


2012 2011 Change, %
RUB million MM tonnes RUB million MM tonnes RUB million MM tonnes
High octane gasoline 9,827 0.32 3,444 0.13 185.3 146.2
Low octane gasoline 5,585 0.20 800 0.03 598.1 566.7
Naphtha 33,809 1.19 27,479 1.00 23.0 19.0
Diesel 117,812 3.93 126,351 4.66 (6.8) (15.7)
Fuel oil 129,435 6.66 110,607 6.15 17.0 8.3
Jet fuel 7,545 0.22 4,660 0.15 61.9 46.7
Other 45,036 1.61 14,412 0.51 212.5 215.7
Total 349,049 14.13 287,753 12.63 21.3 11.9
  • Gasoline export volumes increased more than three times year-on-year driven by growing refining throughput at the Mozyr refinery.
  • Fuel oil export volumes increased 8.3% driven by growing refining throughput combined with decreased domestic sales.
  • Jet fuel export volumes increased 46.7% driven by the growing jet fueling network: 35 new airports in 11 countries – Croatia, Ethiopia, Latvia, the Maldives, Nicaragua, Portugal, the Seychelles, Uganda, the United Kingdom, the United States and Vietnam.
  • Diesel export volumes decreased 15.7% due to growing domestic demand.

Petroleum Products Sales on International Markets

Sales of petroleum products on international markets increased 1.4% year-on-year driven by a 2.7% increase in prices.

Petroleum Products Export and Sales in CIS


2012 2011 Change, %
RUB million MM tonnes RUB million MM tonnes RUB million MM tonnes
High octane gasoline 18,928 0.65 15,564 0.57 21.6 14.0
Low octane gasoline 4,785 0.19 4,401 0.23 8.7 (17.4)
Naphtha 1,012 0.06 2,396 0.11 (57.8) (45.5)
Diesel 14,346 0.54 14,055 0.58 2.1 (6.9)
Fuel oil 2,842 0.23 952 0.08 198.5 187.5
Jet fuel 9,074 0.23 2,696 0.11 236.6 109.1
Other 8,190 0.45 6,744 0.37 21.4 21.6
Total 59,177 2.35 46,808 2.05 26.4 14.6
  • Fuel oil volumes sold in the CIS increased nearly threefold driven by increased sales in Kazakhstan.
  • Jet fuel volumes sold in the CIS more than doubled because of an expanded sales network.

Domestic Sales of Petroleum Products


2012 2011 Change, %
RUB million MM tonnes RUB million MM tonnes RUB million MM tonnes
High octane gasoline 214,569 7.71 180,123 7.11 19.1 8.4
Low octane gasoline 9,147 0.37 16,771 0.74 (45.5) (50.0)
Diesel 183,501 7.38 139,954 6.66 31.1 10.8
Fuel oil 21,000 1.91 44,119 3.72 (52.4) (48.7)
Jet fuel 62,019 2.65 49,305 2.50 25.8 6.0
Other 80,784 5.08 47,900 3.56 68.7 42.7
Total 571,020 25.10 478,172 24.29 19.4 3.3
  • Domestic sales volumes increased 3.3% driven by increased refining throughput.
  • The 50.0% and 48.7% decrease in volume of sales of low octane gasoline and fuel oil, respectively, were caused by the reallocation of volumes to export due to decreasing domestic demand for these products.

Other Revenue

Other revenue includes, primarily, revenue from transport, construction and other services.

The increase in other revenue of 16.6% was primarily driven by changes in volumes sold.

Purchases of Oil, Gas and Petroleum Products

Purchases of oil, gas and petroleum products increased 37.0% primarily due to an increase in volume of crude oil purchased on international and domestic markets.

Production and Manufacturing Expenses

(RUB million) 2012 2011 Change, %
Upstream expenses 50,911 47,795 6.5
RUB per toe of production 1,263 1,262 0.0
USD per boe 5.54 5.86 (5.5)
Downstream expenses 32,737 27,010 21.2
Refining expenses at own refineries 17,602 15,815 11.3
RUB per tonne 521 478 9.1
USD per boe 2.29 2.22 3.1
Refining expenses at equity associates' refineries 10,530 7,897 33.3
RUB per tonne 1,099 1,069 2.9
USD per boe 4.82 4.96 (2.8)
Lubricants manufacturing expenses 4,605 3,298 39.6
Transportation expenses to refineries 21,946 17,786 23.4
Other operating expenses 17,773 14,932 19.0
Total 123,367 107,523 14.7
  • Upstream expenses include expenditure on raw materials and supplies, maintenance and repairs of extraction equipment, labor costs, fuel and electricity costs, activities to enhance oil recovery, and other similar costs at the Group's Upstream subsidiaries.
  • Upstream expenses increased 6.5% year-on-year due to increased hydrocarbon production and the acquisition of the Orenburg assets.
  • Refining expenses at our own refineries include expenditure on raw materials and supplies, maintenance and repairs of production equipment, labor and electricity costs, and other similar costs.
  • Refining expenses at our own refineries increased 11.3% year-on-year primarily due to natural monopolies charging higher tariffs, the launch of new processing units at Omsk, and scheduled maintenance at the primary refining unit in Moscow (performed every two years).
  • Refining expenses at equity associates' refineries increased 33.3% year-on-year due to higher throughput at the Yaroslavl and Mozyr refineries.
  • Lubricants manufacturing expenses increased 39.6% year-on-year due to differences in maintenance schedules at the Omsk lubricants plant, and increased production of packaged lubricants.
  • Transportation expenses to refineries increased 23.4% year-on-year due to 7.0% higher refining throughput and increases in tariffs.

Selling, General and Administrative Expenses

Selling, general and administrative expenses include general business expenses, wages, salaries (except wages and salaries at our production and refining subsidiaries), insurance, banking commissions, legal fees, consulting and audit services, allowances for doubtful accounts and other expenses.

  • Selling, general and administrative expenses increased by 28.6% year-on-year due to business expansion, including higher premium sales, and inflation.

Transportation Expenses

Transportation expenses include costs to transport crude oil and petroleum products to end customers. These costs consist of pipeline transportation, sea freight, railroad, shipping, handling, and other transportation costs.

  • The increase in transportation expenses year-on-year was driven by higher tariffs and increased sales volumes.

Depreciation, Depletion and Amortization

Depreciation, depletion and amortization expenses include depreciation of oil and gas properties, refining and other assets.

  • Depreciation, depletion and amortization expenses increased 4.8% year-on-year in line with the increase in depreciable assets driven by capital expenditure.

Taxes Other than Income Tax

(RUB million) 2012 2011 Change, %
Mineral extraction taxes 156,164 133,335 17.1
Excise 76,408 58,308 31.0
Property tax 7,029 6,140 14.5
Other taxes 11,527 10,413 10.7
Total taxes other than income tax 251,128 208,196 20.6
  • Mineral extraction tax (MET) expenses increased 17.1% year-on-year due to higher tax rates for both gas and crude oil:
    • The MET rate for gas doubled from January 1, 2012; and
    • The MET rate for crude oil increased in proportion to oil prices, and the base rate also increased from 419 RUB/tonne to 446 RUB/tonne.
  • Excise tax expenses increased 31.0% year-on-year due to the introduction of higher rates on January 1, 2012. Excise rates on gasoline increased 31%, naphtha 28%, diesel 55% and lubricants 30%.

Share of Profit of Equity Associates


2012 2011 Change, %
Share of profit / (loss) of Slavneft 12,229 (140)
Share of profit of Tomskneft 7,078 2,972 138.2
Share of profit of SPD 8,436 3,188 164.6
Share of loss of SE (170) (294) (42.2)
Share of profit of other companies 708 1,148 (38.3)
Share of profit of equity accounted investments 28,281 6,874 311.4
  • The Group’s share of profit of equity investments increased more than fourfold due to the adoption of the 60/66 tax regime in 4Q 2011 (the regime reduced export duty rates for crude oil from 65% to 60%), which resulted in higher domestic crude oil prices and consequently an increase in the profit of associated entities selling crude oil domestically.

Other Financial Items

  • Foreign exchange gains/losses were mainly driven by a revaluation of the portion of the Group’s debt portfolio that is denominated in foreign currencies.
  • Finance income increased year-on-year due to more efficient cash management.
  • Finance expenses declined 2.5% year-on-year as a result of the Group’s success in reducing its effective interest rate.

Liquidity and Capital Resources

Cash Flows

(RUB million) 2012 2011 Change, %
Net cash provided by operating activities 231,073 180,871 27.8
Net cash used in investing activities (166,615) (142,289) 17.1
Net cash used in financing activities (16,032) (45,505) (64.8)
Net increase/(decrease) of cash and cash equivalents 48,426 (6,923)

Net Cash Provided by Operating Activities

(RUB million)

2012

2011

Change, %
Net cash provided by operating activities before changes in working capital 259,034 277,321 (6.6)
Net changes in working capital (9,179) (57,302) (84.0)
Income tax paid (25,361) (43,047) (41.1)
Interest paid (11,302) (9,657) 17.0
Dividends received 17,881 13,556 31.9
Net cash provided by operating activities 231,073 180,871 27.8
  • Net cash provided by operating activities increased 27.8% year-on-year due to a 9.9% increase in profit and improved working capital management.

Net Cash Used in Investing Activities

(RUB million) 2012 2011 Change, %
Capital expenditures (158,102) (130,788) 20.9
Acquisition of subsidiaries and shares in equity affiliates (2,261) (17,745) (87.3)
Net changes in deposits (4,239) 3,395
Other transactions (2,013) 2,849
Net cash used in investing activities (166,615) (142,289) 17.1
  • Net cash used in investing activities increased 17.1% year-on-year RUB million due to:
    • 20.9% increase in capital expenditure;
    • Decreased cash used in M&A activities. In the 4Q 2011 the Company acquired the Orenburg assets, but did not make similar expenditures in 2012; and
    • Increased volume of cash deposited in banks (there were net withdrawals in 2011).

Net Cash Used in Financing Activities

(RUB million) 2012 2011 Change, %
Net changes in debt 25,418 8,334 205.0
Payment of dividends to shareholders (34,433) (29,157) 18.1
Acquisition of non-controlling interest in subsidiaries (5,572) (23,722) (76.5)
Other transactions (1,445) (960) 50.5
Net cash used in financing activities (16,032) (45,505) (64.8)
  • Net cash used in financing activities decreased 64.8% year-on-year mainly due to the acquisition of non-controlling interests (mostly in NIS and Sibir Energy) during 2011 to the amount of RUB 23,722 million. There were no significant transactions in 2012.

Capital Expenditure

(RUB million) 2012 2011 Change, %
Exploration and production 90,812 70,606 28.6
Refining 41,844 31,227 34.0
Marketing and distribution 16,224 16,259 (0.2)
Others 9,802 7,102 38.0
Subtotal capital expenditure 158,682 125,194 26.7
Change in advances issued and material used in capital expenditures (580) 5,594
Total capital expenditure 158,102 130,788 20.9
  • Capital expenditures for Exploration and Production increased 28.6% year-on-year mostly due to the development of the Orenburg assets. The focus on drilling more expensive horizontal wells also led to increased capital expenditures.
  • Capital expenditure for refining increased 34.0% year-on-year mostly due to the construction of the isomerization unit and catalytic cracking gasoline hydrotreating unit and the reconstruction of the diesel hydrotreating unit at the Moscow refinery.

Debt and Liquidity

(RUB million) 2012 2011 Change, %
Short-term loans and borrowings 66,195 44,330 49.3
Long-term loans and borrowings 166,417 176,979 6.0
Cash and cash equivalents (76,012) (29,435) 158.2
Short-term deposits (7,495) (246) 2,946.7
Net debt 149,105 191,628 (22.2)
Short-term debt / total debt, % 28.5 20.0 8,5 pp
Net debt / EBITDA 0.51 0.71
  • The Group has a diversified debt structure that includes pre-export financing, syndicated and bilateral loans, bonds, and other instruments.
  • The average maturity of the Group’s debt increased from 2.68 years in 4Q 2011 to 3.81 years in 4Q 2012 as a result of the USD 1.5 billion 10-year Eurobonds issued in September 2012. However, this also resulted in a slight increase in the average interest rate to 3.48% as at December 31, 2012.

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