Rosneft 3Q 20 - Oil prices recovery and cut in other opex propped EBITDA up

Today, Rosneft published its 3Q 20 results, which came in stronger on both revenue and EBITDA compared to our projections and the market estimates. We believe that higher than expected EBITDA is caused by lower than forecasted companys operating expenses. Notably, in 3Q 20 Rosneft reduced its operating expenses by almost 20% thanks to the cut in other opex (-70% to USD 201 mn), which was overstated in the previous quarters of 2020. In turn, the companys net income in 3Q 20 came in expectedly negative, staying close to our forecast, while being weaker compared to consensus, which we believe is due to higher than expected FX losses. Further, Rosnefts net operating cash flow beat our expectations thanks to stronger than expected EBITDA, while capex came in almost in line with our estimates. In total, free cash flow returned to the positive zone and exceeded our forecast, reaching as much as USD 1.98 bn. We should also mention that in 3Q 20 Rosneft repaid additional USD 1.7 bn of obligations under prepayments, which decreased to USD 15.2 bn, whereas net debt (incl. these obligations) declined to USD 64.3 bn. We treat the results as positive due to stronger than expected EBITDA and free cash flow.