During the second quarter of 2011, the market conditions for crude oil further improved. In turn, the oil products market faced higher costs and new fiscal initiatives. The price of Urals increased by more than 12% quarter-on-quarter.
The Russian Ruble strengthened against the US Dollar. Demand for oil products continued to grow yet with weakening margins. Higher crude export duties and production taxes resulted from recent quarters’ oil price increases.
The Company’s financial performance improved and EBITDA was up by nearly 40% year-on-year with net income increasing by 64%. Consolidated EBITDA and net income decreased compared to the first quarter of 2011, primarily due to lower sales volumes of crude oil, increases in taxes and reduced margins on oil products. Alliance Oil Company produced 3.8 million barrels and refined 6.9 million barrels of oil in the second quarter of 2011.
In the upstream segment, revenues were in line with the first quarter of 2011 as higher realized gross prices and improved netbacks compensated lower sales volumes. EBITDA decreased by 18% compared to the first quarter of 2011.
The Company drilled 18 new wells in the reporting period including 6 wells at the Kolvinskoye oil field. The 146 kilometer pipeline from the Kolvinskoe oil field to the Kharyaga terminal has been completed.
In the downstream segment, higher sales volumes and higher prices for oil products led to revenue growth of 24% quarter-on-quarter. EBITDA declined by 29% compared to the first quarter of 2011 primarily due to higher crude oil prices, transportation costs and taxes. The government increased export duties for gasoline and naphta and is considering some further initiatives to support domestic markets.
The Company successfully placed Rouble bonds for a total amount of RUB 10 billion (approximately MUSD 360) in the second quarter of 2011. The debt portfolio was further optimized as RUB 3 billion bonds were swapped into USD resulting in lower interest and hedged currency exposure. Our credit ratings remained unchanged with S&P (B+), outlook “Stable”, and Fitch (B), outlook “Stable”.
Despite volatile financial and commodity markets, we maintain positive expectations for the macro environment and the upstream segment, in particular.
For the downstream segment, the current fiscal policy presents further challenges to economic performance.
We reiterate our target for the upstream segment to produce 20 million barrels of crude oil in 2011. Today the Company produces about 41,300 bopd. Our targets are based on projected rapid growth from the Kolvinskoye oil field in the Timano-Pechora region. This field is scheduled to be on production in early September 2011 initially producing 22,000 barrels of oil per day. In the downstream segment, capacity utilization at the Khabarovsk refinery remains high, with a current run-rate of 77,300 bopd. The volume target for 2011 has been increased from 23 mbbl to 25 mbbl.
Overall, the Company is recording sustainable growth and the financial position remains strong, currency exposure is balanced and debt obligations are primarily long-term.
In June, Alliance Oil Company signed a Memorandum of Understanding with Repsol to form a joint venture intended to serve as a growth platform for both companies in Russia. The intention is to create significant value for our shareholders and make meaningful contributions to our reserves and production.
Arsen Idrisov, Managing Director
Quarter ended 30 June 2011
— Total revenue amounted to MUSD 784.2 (Q2 2010: MUSD 531.5).
— EBITDA amounted to MUSD 124.1 (Q2 2010: MUSD 89.5).
— Profit before tax amounted to MUSD 76.9 (Q2 2010: MUSD 46.4).
— Net profit amounted to MUSD 56.0 (Q2 2010: MUSD 34.1).
— Basic and diluted earnings per share amounted to USD 0.31 and USD 0.29,
respectively (Q2 2010: USD 0.19 and USD 0.19, respectively).
— 6.9 mbbl (Q2 2010: 6.0 mbbl) of oil were refined and 3.8 mbbl (Q2 2010: 3.8
— Rouble bond offering raised MUSD 360 in June 2011.
— Repsol and Alliance Oil to form an exploration and production joint venture
in the Russian Federation.
Six months ended 30 June 2011
— Total revenue amounted to MUSD 1,462.9 (six months 2010: MUSD 1,032.6).
— EBITDA amounted to MUSD 280.4 (six months 2010: MUSD 190.2).
— Profit before tax amounted to MUSD 190.0 (six months 2010: MUSD 105.2).
— Net profit amounted to MUSD 146.1 (six months 2010: MUSD 79.6).
— Basic and diluted earnings per share amounted to USD 0.83 and USD 0.77,
respectively (six months 2010: USD 0.45 and USD 0.45, respectively).
— 13.1 mbbl (six months 2010: 11.6 mbbl) of oil were refined and 7.9 mbbl
(six months 2010: 7.7 mbbl) produced.
— Rouble bond offering raised MUSD 170 in February 2011.
— Downstream volume target 2011 raised from 23 to 25 mbbl and upstream target
remains to produce 20 mbbl of oil.