Today, Bashneft Group, which comprises JSOC Bashneft, its subsidiaries and affiliates, released its unaudited consolidated financial statements for the second quarter and the six months ended June 30, 2014 prepared in accordance with International Financial Reporting Standards (IFRS)

2Q 2014 vs. 1Q 2014:

The Group’s revenue from sales increased by 11.3% to RUB 163,176 million;

Adjusted EBITDA gained 15.9% and reached RUB 29,520 million;

Net income attributable to the shareholders of the parent company increased by 13.6%to RUB 15,855 million;

Operating cash flow increased from 5,121 million roubles to RUB 42,001 million;

Capital expenditure rose by 7.8% to RUB 9,758 million;

Oil production increased by 6.3% (4,374 million tonnes), while the output of petroleum products added 5.5% (5,112 million tonnes);

Output of Euro 5 gasoline and diesel fuel increased by 18.8% and 36.5% respectively.

1H 2014 vs. 1H 2013:

The Group’s revenue from sales increased by 18.9% to RUB 309,844 million;

Adjusted EBITDA grew by 24.6% to RUB 54,995 million;

Net income attributable to the shareholders of the parent company increased by 18.5% to RUB 29,814 million;

Operating cash flow grew from RUB 22,757 million to RUB 47,122 million;

Capital expenditure rose by 31.7% to RUB 18,811 million;

Oil production grew by 9.3%, while the output of petroleum products increased by 3.6%.

Output of Euro 5 gasoline and diesel fuel gained 34.9% and 26.1% respectively.

A considerable improvement in financial performance in the second quarter and the first half of 2014 was driven mainly by increased oil production and petroleum product output combined with a favourable pricing environment.

A significant increase in the amount of cash generated from operating activities was caused mainly by changes in working capital, including prepayment received in the second quarter of 2014 under a long-term contract for supply of petroleum products and amounting to US$ 500 million. Under the contract, which is valid until July 2019, the total minimum amount of petroleum product supplies will amount to approximately 3.15 million tonnes. The price for petroleum products shall be calculated based on current market prices, while prepayment will be returned through physical delivery of petroleum products starting from 2016.

Increased capital expenditure was related primarily to an increase in investment in the development of the Trebs and Titov fields in the Nenets Autonomous District and financing of LLC Burneftegaz, an exploration and production company based in the Tyumen Region and acquired by Bashneft in March 2014.

As of June 30, 2014, the Group’s total debt amounted to RUB 164,604 million, which is 13.1% higher than at March 31, 2014 (RUB 145,519 million). As of June 30, 2014, adjusted net debt totalled RUB 107,124 million, down 6.1% from the level reported as of March 31, 2014 (RUB 114,024 million).

In the first half of 2014, oil production at the Company’s fields totalled 8,489 thousand tonnes, up 9.3% compared to the same period in 2013. In the second quarter of 2014, average daily oil production reached a 20-year high of 48.1 thousand tonnes per day.
In the first half of 2014, strong growth in oil production was driven by a 2.4% increase in production at brownfields due to highly efficient geological and engineering operations and by the fact that Bashneft produced 361 thousand tonnes of oil at the Trebs and Titov fields and 174 thousand tonnes at the Sorovskoye field developed by LLC Burneftegaz.
In the first half of 2014, Bashneft’s refining complex in Ufa processed 10,799 thousand tonnes of hydrocarbons, which is 2.8% more than in the same period in 2013. In the first half of 2014, the average refining depth (84.9%) and the average share of light products (60.5%) remained almost unchanged year-on-year.

In the second quarter of 2014, output of commercial products increased by 5.5% quarter-on-quarter to 5,112 thousand tonnes. Additionally, in the second quarter of 2014, gasoline output added 9.2% quarter-on-quarter and reached 1,268 thousand tonnes.
As Bashneft proceeded with its refinery upgrade programme, including the start of pilot operations of a catalytic cracking gasoline hydrotreater, the Company was able to boost production of Euro 5 gasoline by 18.8% quarter-on-quarter to 1,126 thousand tonnes in the second quarter of 2014.
In the second quarter of 2014, output of diesel fuel rose by 8.4% quarter-on-quarter to 1,950 thousand tonnes. In the second quarter of 2014, output of Euro 5 diesel fuel amounted to 703 thousand tonnes, up by 36.5% quarter-on-quarter.
Due to changes made by JSOC Bashneft and OJSC Lukoil to the Agreement of Members of LLC Bashneft-Polyus, which was granted the licence for the Trebs and Titov fields in May of this year, the operating and financial results of this project will continue to be consolidated within Bashneft Group’s IFRS financial statements.

Key financial and operating results for the second quarter and the six months of 2014