Fitch Ratings-London-30 October 2014: The decline in the rouble and a progressive tax regime should offset the impact of weaker oil prices on Russian oil companies' profitability, Fitch Ratings says. As with any exporter, Russian oil producers benefit from a lower national currency, while the fall in oil prices over the last few months is hurting US dollar revenues. Costs will adjust downwards leading to a lower overall effect on cash flows, but the impact of taxation is even more important. Russia's progressive tax regime means that the effective tax rate paid by Russian oil producers falls as oil prices decline, and vice versa. Taking all these factors into account, we calculate that if the rouble stabilises and oil prices hold steady at USD85/bbl next year an average producer would report 2015 rouble operating profits broadly in line with 2013, when oil prices averaged USD109/bbl. A further decline in oil prices, however, would start to hurt profitability, as would a recovery for the rouble while oil prices remain weak. Most Russian oil companies have solid liquidity and would comfortably survive without new borrowing for at least the next one or two years. However, they may need to reconsider their financing model should access to international debt markets remain blocked for a long time, because of sanctions and overall uncertainty over the Ukrainian crisis. Nevertheless, their fundamentals remain strong, and we expect them to maintain flat oil production and generate stable cash flows for at least the next three or four years, even with lower oil prices. Our analysis is based on the assumption that the state will not attempt to increase its share of oil revenues by raising taxes. The government is implementing some changes in the tax system aimed at re-balancing the tax burden between upstream and downstream operations. But the principles of the taxation system should remain unchanged. We believe a significant increase of industry-specific taxes is unlikely. Oil taxes in Russia are already reasonably high and the state seems to realise that Russian oil companies need resources to proceed with the greenfield projects necessary to maintain output at least at the current level. Since the beginning of the year the rouble has weakened by almost 30%. Crude prices started to slip in the middle of the year and are now trading at around USD87/bbl, more than 20% lower than at the end of June.
RE: when is year up?
From my understanding the 12 months runs from when the offical sale period closed, which was 18/12/2013, however I don't know this for sure. Either way, I agree, Khotin risks more by not moving quickly. Khotin has significant investments in russian banks, I am sure he could source the funds easily enough. If EXI does finally get bought out, I think it will be the last of the Russia IPOs on our markets, Russia has become uninvestable for so many people.
RE: when is year up?
I believe Khotin bought his shares on, or slightly before, the 4th December 2013 at 377p. I think that means in less than two weeks he could make an offer at whatever price he likes. As gambier01 has said, that price is likely to be painfully low and in the region of 220-240p. I think Khotin has been riding his luck this year and will want to bring it to a conclusion just as soon as he can. He's been risking that another suitor won't make an offer before his 12 month period has passed. But, if it goes on much longer somebody surely will. There's too much to gain, or for Khotin, there's too much to loose. Put another way, he's got to consider himself a very lucky boy indeed that he's got this far with less than two weeks to go. Perhaps he has some sort of hold on the market that effectively prevents others making a bid. We can only speculate! It could get very interesting or very messy!
RE: when is year up?
> 18.12.2014 Oil price is down killing oil stocks, Russian foreign policy killing Russian stocks, will have to reveal new reserves early next year. Will they ever get it any cheaper? They will go for the lowest premium against current SP that prevents another bidder coming in. My bet 220p - 240p, which of course would be the lowest price ever paid in recent times in Russia for very large producing 2P reserves.
when is year up?
When is the 12 months up from when Khotin et al can make a new bid. Must be soon
8 Nov '14
Eight wells drilled adding an extra 3066 bbl/day. The average flow rate per well was 383 bbl/day. A further well will be drilled and connected this month adding around 220 bbl/day. Approximately 750 bbl/day were not connected until October. Approximately 2000 bbl/day were not connected until the middle of September. Now production increased in September by around 700 bbl/day from the July/August average, which would make sense if the new wells only contributed during the last half of that month (assuming some natural decline from old wells). If we take the July average of 16,678 bbl/day, round down to 16,500, discount the ninth well for Nov (220bbl/day) and then add the 3000 bbl/day, we get 19,500 bbl/day. Still not an acceptable drilling campaign. Ten wells is a paltry number at this stage of development. Thirty wells per year is the bare minimum for this sort of company. Additionally they have chosen easy wells, not the TP area or more difficult areas of WS. The board behaviour is quite bizarre, it's cloak and dagger manner and randomness is impossible to interpret. It is made very difficulty for anybody to invest in Exillon, yes it a great asset and has a excellent financial position, but quite frankly - it is Russian. After news the SP went down after most of the day having zero volume, the market is not interested. It is still my guess that it gets bought over in next few months at a below market average price.
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