Impact of weaker ruble on free cash flow
The free cash flow of Lukoil (LUKOY) has gone up by 372% in 4Q15 compared to 4Q14 in ruble terms. However, in dollar terms, it only went up 192% in the same timeframe. The free cash flow for Russian (RSX) (ERUS) oil giant Rosneft OAO has actually fallen 9% in 4Q15 compared to 4Q14 in US dollar terms. However, in Russian ruble terms, it moved up 46%. Gazprom NEFT’s free cash has fallen 457% in ruble terms, but in dollar terms, it fell 322% in 4Q15 compared to 4Q14. Gazprom NEFT primarily exports to CIS (Commonwealth of Independent States) countries. Therefore, it’s not able to take advantage of the stronger US dollar.
The trend in free cash flow correlates to depreciation in the ruble. The ongoing sanctions against Russia due to the Ukraine crisis and other geopolitical turmoils like the presence of Russian troops in Syria are adding volatility to its currency. The graph below shows the changes in free cash flow for different Russian oil and gas companies. The Russian companies discussed above operate with a high production mix in crude oil while Gazprom Pao (OGZPY) operates with a high production mix of natural gas.
Debt situation in Russian oil and gas companies
Rosneft OAO’s total debt has fallen 2% in ruble terms in 4Q15 compared to 4Q14. However, in dollar terms, it fell by 22%. Rosneft paid $7 billion in debt in December 2015. Tatneft’s (OAOFY) debt has fallen 36% in ruble terms while it fell 49% in US dollar terms. The trend was the same for other Russian oil and gas companies like Lukoil and Gazprom NEFT.