TNK-BP reported its results for the first quarter of 2012.
Mikhail Fridman, Executive Chairman of TNK-BP, said:
“In the first quarter of 2012, TNK-BP achieved continued success in its focus on delivering operational excellence and sustainable growth. We increased production by 4% year-on-year to 2.037 million barrels of oil equivalent per day thanks to highly effective greenfield operations in Uvat and Verkhnechonskoye as well as contributions from our international assets. We proved our ability to operate in new areas, with successful completion of our first offshore well in Vietnam, and completed the acquisition of a participating interest in exploration and development blocks in the Solimoes basin in Brazil. In Russia, we progressed our refinery modernization program with completion of a hydrotreater upgrade in Saratov and continued our retail expansion to match the growing consumer demand for quality fuel.
As we proceed into 2012, TNK-BP’s focus will remain on execution and delivering sustainable results in everything we do.”
1Q12 OPERATIONAL HIGHLIGHTS
· Oil and gas production continued to grow, reaching 2,037 mboe/d including affiliates, up 4.0% on the first quarter of 2011.
· Greenfields contribution increased to 16% of total liquids production, compared to 11% in 1Q11.
· Acquisition from HRT O&G of a 45% interest in 21 exploratory blocks in the Brazilian Solimoes basin was completed on 28 March 2012 following receipt of approval from the Brazilian authorities.
· The first production well from our Lan Do satellite development in offshore Vietnam was successfully completed, with the second well also spudded and in progress at the end of the first quarter.
· Implementation of a comprehensive intervention plan in West Siberia continued with the focus on the application of new technologies: over 40 pilot projects are planned for 2012, including an increasing number of multistage fracs and scale-up of successful water shut-off technologies.
· Success replacing our reserves base continued: 9 exploration wells were completed with a 78% success rate, and 137 mln boe of resources were added through exploration and appraisal.
· The reconstruction of the hydrotreater was completed at Saratov refinery, which can now produce 100% of its diesel compliant with Euro-5 standards.
· Deliveries to the Linik refinery in Ukraine were halted from 1 March 2012 due to prevailing local economic conditions.
· A processing scheme at Mozyr refinery was launched with 247 thousand tons of crude oil processed in 1Q12.
· Our position in retail was strengthened with a growing number of higher-margin BP-branded sites and new offer TNK-branded sites: 4 new BP sites were constructed and 1 site modernised and re-branded as a BP site, 1 new TNK site was constructed and a further 5 sites converted into the new offer. The acquisition of 8 sites in the Orel region was completed.
· The share of direct sales to airlines compared to total domestic market jet sales increased to a record level of 78% compared to 45% in 2011. As part of this strategy, in March 2012 we completed acquisition of a 100% interest in the Koltsovo airport fuelling complex in Ekaterinburg.
Commenting on the financial results, Jonathan Muir, Chief Financial Officer, said:
“The first item to highlight is that, as promised, we have successfully made the transition to International Financial Reporting Standards this quarter, and so all numbers disclosed from now on will be under IFRS.
Overall, in the first three months of 2012, TNK-BP continued to demonstrate strong performance against a mixed environment of strong prices offset by rising fixed costs and regulatory pressure.
TNK-BP’s EBITDA adjusted for one-offs amounted to USD 3.9 bn, which is 1% higher year-on-year. The company has also once again confirmed its ability to generate healthy free cash flow, which increased by 48% year-on-year to USD 1.9 bn.
This cash flow is not at the expense of efficient investment in future growth however, and in the first quarter, we also raised our greenfield and inorganic investments to USD 0.5 bn and maintained financial discipline by keeping the gearing ratio at a prudent 29%, strengthening the sustainability of our business for the long-term.”
1Q12 FINANCIAL HIGHLIGHTS
· Gross proceeds for 1Q12 increased by 16% relative to 1Q11 driven by a 14% higher Urals price and production growth.
· Export duties and taxes other than income tax increased by 29% for 1Q12 relative to 1Q11 largely due to the effect of higher Urals prices on export duty and mineral extraction tax rates, increased excise and MET rates, abolishment of the reduced export duty rate for VCNG (starting from 1 May 2011) and lower duty lag benefit. These negative effects were partly offset by increased utilisation of MET allowances for depleted fields and higher production at Verkhnechonskoye field that is not subject to MET.
· Costs (operating expenses, transportation and SD&A) increased by 10% reflecting higher transport tariffs and other uncontrollable inflationary pressures, partly offset by the effect of a weaker rouble.
· EBITDA for 1Q12 amounted to USD 3.6 bn which is 9% lower compared to 1Q11. The positive effects of USD 0.3 bn due to the stronger markets, increased sales volumes, weaker rouble, “60-66” custom duty regime and higher earnings from equity investments were offset by the comparative impact of one-off events (impairment charges of USD 0.2 bn in 1Q12 and gain on the Kovykta assets disposal of USD 0.2 bn in 1Q11) and the negative effects of lower duty lag benefit (USD 0.2 bn).
· 1Q12 Net profit amounted to USD 2.2 bn, which is 17% lower compared to 1Q11 due to the impact of the lower EBITDA described above and a comparatively higher DD&A expense because of the increase in the share of greenfields production.
· Operating cash flow for 1Q12 totalled USD 3.4 bn, up 38% compared to 1Q11, primarily as a result of a comparative effect of changes in working capital, with 1Q 2011 being impacted by an increase in receivables of USD 0.3 bn due to allowing some customers 30 day payment terms where economically advantageous.
· Organic capital investments in 1Q12 amounted to USD 1.1 bn, 22% above 1Q11, largely related to an additional USD 0.4 bn in field development (primarily, Verkhnechonskoye and Yamal) as well as USD 0.1 bn of further investment in projects related to refinery quality upgrades.
1Q12 v. 4Q11 RESULTS
· Gross proceeds for 1Q12 increased by 2% quarter-on-quarter reflecting the Urals price increase partly offset by lower production due to the shorter quarter and a quarter-on-quarter increase in crude oil and products stock.
· Export duties and other taxes increased by 2% quarter-on-quarter driven by the Urals price effect on export duties and MET as well as increased excise and MET rates, partly offset by a comparatively higher duty lag benefit and lower sales volumes.
· Costs (operating expenses, transportation and SD&A) decreased by 4% largely due to the seasonally higher costs in 4Q11 partly offset by the effect of a stronger rouble.
· EBITDA for 1Q12 was 3% higher compared to 4Q11. The positive effects of the stronger markets and comparatively higher earnings from equity investments were partly offset by higher duties and taxes and impairment charges.
· 1Q12 Net profit increased by 6% relative to 4Q11. This increase outpaced the EBITDA growth primarily due to the positive foreign exchange effect on deferred tax.
· Operating cash flow in 1Q12 increased by 31% compared to 4Q11 primarily due to the comparative effect of changes in working capital, with a higher level of custom duty prepayments and lower taxes payable balances at end of 4Q11.