Strong results for 1H2019 due to a weakening of ruble. For 1H2019 Gazprom Neft's revenue increased by 7% yoy to RUB1215 bn. Revenue from the sale of petroleum products increased by 5% and amounted to 788bn rubles or 65% of all revenue. Revenue from the sale of oil increased by 12%, providing 377bn rubles or 31% of total revenue. A strong increase in sales was mainly in the export sector, both for petroleum products (+15% yoy) and for oil (+13% yoy). Similarly, in physical volumes of oil products sold a growth was recorded only in export sales - 5.5mn tons (+ 8% yoy), while the total volume of oil products sales decreased by 0.8% yoy to 21.9mn tons. In crude oil, there is an increase in sales volumes in all directions, mainly in export (+ 8% yoy), which ensured an increase of 6% yoy to 12.9 mn tons. Despite the fact that the average world oil price in the reporting period weakened by 6.7% yoy to $65.97/bbl (Brent), having an impact on the price of diesel fuel (-4% yoy), gasoline (-10% yoy) , naphtha (-16% yoy) and other petroleum products, the selling price of both oil and petroleum products in rubles/ton showed an increase due to the weakening of the average ruble/dollar exchange rate from 59.35 to 65.32. As a result, the main expenses of the company related to the purchase of finished raw materials increased by 17% yoy, mainly influencing the growth of operating expenses by 5% to 977bn. Operating profit amounted to 238bn rubles, which is 13% higher than in the previous year. EBITDA increased by 12% to 369bn rubles. Other expenses increased 17 times due to the growth in revenue from the joint venture (11% yoy) and financial income 4 times. Net profit increased by 27% yoy to 225bn rubles.
We remain optimistic about the results for 2019. We expect that by the end of 2019 crude oil, condensate and liquid hydrocarbon production will amount to 62mn tons (-1% yoy) and will reach 72mn tons to 2022, followed by stabilization at 72-73mn tons in 2023-2027. The processing volume this year will be about 42.6mn tons and we expect gradual growth by an average of 2% during 2020-2027. For 2019, we expect that the world oil price will average $66.4/bbl, which is 7% lower than the previous year. The average ruble exchange rate against the US dollar, based on Bloomberg data, by the end of 2019 will also weaken to approximately 66rub/$1 against 62.7rub in 2018. We believe that the influence of relatively weak oil will have a significant effect on revenues, while the weakening of the ruble partially compensates for the loss in selling price. At the end of 2019 we expect a slight increase in revenue within 2% to the level of 2571bn rubles and an increase in operating profit by 6.4% yoy. We estimate an EBITDA of 662bn rubles quite achievable level at the end of 2019 and we are laying the increase in free cash flows from the level of 229bn rubles in 2018 up to 315bn rubles by 2024, largely influenced by rising average oil prices to $68/barrel. However, in the future, the price of rising oil will weaken, which, coupled with the stability of production, will affect the narrowing of FCF to the level of 182-274bn.
Dividends can get higher. Based on 1H2019 results, Gazprom Neft decided to pay semi-annual dividends in the amount of 18.14rubles/share or 40% of net profit. The last time the company paid semi-annual dividends was in 2015. According to the results of 2018, 37.8% of net profit was sent to the payment of dividends, which is equivalent to 30 rubles/share. According to the results of full 2019, we expect the company to pay dividends at the level of 37 rubles/share while maintaining the payout ratio of 40% of net profit. Subsequently, we maintain a neutral dividend forecast and lay 40% as the optimal payout level.
