Surgutneftegaz Posts Huge Profits in 2018 on Cash Reserves

Russia’s oil major SurgutNefteGaz (Surgut) made more money from its enormous cash pile than it did from producing oil in 2018, Vedomosti reported last week citing company data.

The oil firm posted 4.4-fold net profit jump in 2018 to $13 billion under IFRS. Surguт made one of the largest corporate profits in the country, second only to Gazprom’s $23 billion.

Notably, 51% of pre-tax profit was due to a currency revaluation gain on Surgut’s massive and notorious cash pile. The company’s currency gain was bigger than that of all other oil majors put together.

In 2018 Surgut’s cash pile grew by 32% to over RUB3 trillion, making the highest value since 2013. As reported by bne IntelliNews, the company’s cash reserves are almost on par with the funds kept in the sovereign National Welfare Fund.

According to the bne Intellinews, Surgutneftegaz, described as “a famously opaque company that is nevertheless close to the Kremlin,” is supposed to pay over RUB80bn in dividends for 2018, out of which RUB58.7bn on preferred shares, under the current dividend strategy of 10% of net profit.

About three quarters of the dividend payments is due to the profits the company makes on investing its cash pile, with the rest from oil production and in this sense it is more like investing into a bank than an oil company.

Surgut’s huge cash pile has made its preferred shares a popular asset, despite the fact that company is notoriously secretive and shares little information with investors. However, the stock has performed poorly this year and is essentially flat versus the RTS index, which was up 16.5% YTD as of the end of April.

Overall, Russia’s oil and gas sectors have been underperforming the market this year after a stellar year in 2018 and one of the least popular stocks on the Russian market, returning only 12% YTD as of the end of April.