Russian Oil Giants Offer Bright Spot in Sanction-Hit Economy

(Bloomberg) -- Russia’s oil companies are on a tear.

The nation’s top crude producers more than doubled their combined profit in the first half, trouncing estimates thanks to a weaker ruble and rebounding prices. And with output curbs easing, the influx of cash is set to continue.

“Russian oilmen feel financially better than any other crude producer in the world,” said Andrey Polischuk, an energy analyst at Raiffeisen Centrobank in Moscow. “Operating costs are low, production is either already at a record or close to a record, and oil in rubles is setting new historical records.”

Russia’s currency crisis, which has seen the ruble halve against the dollar since the first U.S. and European sanctions hit in 2014, has made it cheaper for local companies to pump oil, while boosting the price of crude in ruble terms. That paved the way for bumper half-year profits, while European and U.S. rivals delivered a mixed bag.

The combined revenue of Russia’s top five oil producers jumped 32 percent to more than 9.9 trillion rubles ($150 billion), while total net income doubled to almost 1.25 trillion rubles.

Yet the risk of more sanctions weighs heavily on the companies, clouding an otherwise sunny outlook.

Shares in Rosneft PJSC, Russia’s biggest oil producer, are trading at seven times estimated 12-month earnings compared with about 11 times for Royal Dutch Shell Plc, more than 12 times for BP Plc and 15 times for Exxon Mobil Corp.

“Russian equities are under pressure because of further sanctions threats,” said Alexander Kornilov, an analyst at Aton LLC in Moscow. This helps the nation’s exporters -- including oil companies -- by weakening the ruble, but on the other hand this damps their market .”

While the market capitalization of the Micex Oil & Gas Index, which includes Rosneft and its closest rival Lukoil PJSC, hit a record high this week in the local currency, in dollar terms it is still below the levels of 2014 when the ruble crash began.

This month the U.S. government imposed fresh sanctions on Russia over the March poisoning of a former Russian agent and his daughter in the U.K. Further sweeping measures may follow in November, including bans on importing Russian oil and exports of other goods and technology.