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Tatneft publishes US GAAP financials for 1Q 2009


	Tatneft

Capitalization: 10 566 134 892,53 $

Common shares
Price	4,69 $

Price changing
week	month	year
3,2%	-4,3%	24,6%

Preferred shares
Price	2,29 $

Price changing
week	month	year
1,5%	-8,5%	66,6%

23.06.09 10:35

The 1Q 2009 financial results from Tatneft have surpassed expectations on net income, but fallen below expectations on the EBITDA indicator. Appreciation of the dollar has strongly impacted revenue and profit margins. The company has achieved good results in cutting administrative and commercial expenses, but a sharp downturn in geological exploration expenses is cause for concern.

On June 22, Tatneft released unaudited consolidated 1Q 2009 US GAAP financials in ruble terms. Revenue dropped 33% y-o-y, with the fall attributed to a 52% fall in average Urals oil prices, a 2% decline in oil extraction and a 40% appreciation in the dollar rate. The latter factor had a strong impact on company financials, given that the company receives around 60% of its revenue in dollars.

Table: Tatneft: basic financials for 1Q 2008 and 1Q 2009

Indicator	1Q 2008	1Q 2009	1Q 2009/1Q 2008
Sales revenue, mn RUB.	109052	73540	-32.6%
Taxes and duties other than income tax, mn RUB	50000	25638	-48.7%
The cost of purchased oil, gas and oil products, mn RUB.	15053	7801	-48.2%
Other expenses, mn RUB	33552	26776	-20.2%
- including: operating,	13 383	15 380	+14.9%
- commercial and administrative	10 576	5 349	-49.4%
- depreciation & amortization	2 518	3 820	+51.7%
- transportation	2 781	3 302	+18.7%
- gain/loss from revaluation of fixed assets and capex	790	-1 710	-316.5%
- exploration	3 053	293	-90.4%
EBITDA, mn RUB .	11165	15063	+34.9%
Net income, mn RUB	6335	7929	+25.2%
EBITDA margin, %	10.2%	20.5%	+10.2 pp
Net margin, %	5.8%	10.8%	+5.0 pp

EBITDA has risen by 35% to RUB 15 billion. To compare the company with rivals in terms of efficiency, it is necessary to consider the impact of the stronger dollar. If gauged in dollar terms, EBITDA fell by just 4%, which is much lower than the respective fall at other companies. However, the EBITDA margin came in at 20%, falling short of the levels achieved by industry leaders, such as Rosneft, which leads with an EBITDA margin of 28%.

Tatneft posted steeper growth in operating expenses than its rivals, while the fall in overall expenses is specifically due to a more than tenfold drop in geo-exploration expenses, which may affect the replenishment of oil reserves in the future. On the upside, we note that a nearly 50% cut in administrative expenses, which proves the company’s ability to effectively control its managerial staff. However, administrative expenses as a share of total costs remain at a higher level for Tatneft than for its rivals.

The company’s leverage has risen slightly; the net debt/equity multiple has increased from 14% to 18%. However, the company’s financial position remains fairly stable, enabling it to service current debts and successfully raise new ones.

In general, Tatneft has shown an upward trend, but some of its production indicators are still worse than those of its rivals. According to our estimates, the company’s financials will trigger a neutral market reaction.

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