Moody’s: Weak ruble, low costs to help Russian oil, gas sector ‘17

MOSCOW, Oct 27 (PRIME) -- Credit metrics of Russian oil and gas companies will remain strong in 2017 thanks to a weak ruble and low production costs, rating agency Moody’s said on Thursday.

“We expect the profitability of Russian oil and gas companies to stay robust, shrugging off a slightly higher tax rate. Dominant upstream operations will benefit from a weak ruble and low production costs,” Denis Perevezentsev, vice president and senior credit officer at Moody’s, said.

The U.S. and the E.U. sanctions did not have a significant negative impact on Russian oil and gas companies, as sanctioned entities have turned to the domestic bond market and local state-controlled banks to meet their funding needs, Moody’s said.

The rating agency considers that Russian oil and gas companies will retain good liquidity profiles over the next 12–18 months, aided by sizeable cash balances, robust operating cash flows, despite elevated capital expenditure requirements.

The correlation between the ruble’s exchange rate and oil prices provides a natural hedge for Russian hydrocarbon exporters because a large share of their operating expenses are denominated in rubles, whereas their export cash inflows are in foreign currencies.

Moody’s notes that profitability in the downstream segment will remain pressured in 2017. Although Russian integrated companies have upgraded their refineries in recent years, margins have declined sharply. “We expect higher excise taxes on domestic sales and increased competition in export markets amid falling crack-spreads to continue to depress refining margins next year.”

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