Russneft Mikhail Gutseriev in the next three years, the loss of $ 260 million

Such is the fee for an unsuccessful hedge against falling oil prices - raw materials are becoming more expensive.
The wrong forecast of oil prices can be costly for Mikhail Gutseriev's Russneft. In September 2017, the company entered into contracts with VTB and Promsvyazbank, which fixed the price of oil, according to a report from analysts Raiffeisenbank on October 30. It is about selling 10% of the extracted oil at $ 35 per barrel. The contracts are valid until December 2020. Already in 2018, they could lead to RussNeft losing 4 billion rubles. (about $ 64 million). And for the whole period of validity in 2018–2020. - to losses in the amount of $ 260 million. If current oil prices remain, insurance losses will cost the company 23% of its free cash flow over three years, the report says.

Russneft is the sixth largest oil company in Russia, in 2017 it produced 7 million tons of oil. The founder of the company, the chairman of the board of directors Mikhail Gutseriev, and his family members own 47% of the shares, the Swiss trader Glencore 33%, the rest is in free circulation.

The company incurs most of its operating expenses in rubles. Therefore, the rise in oil prices, accompanied by a weakening of the national currency, could give the company a significant increase in profitability - one of the best in the industry. According to analysts at Raiffeisenbank, the company's revenue per barrel of oil equivalent rose in 2018 by 65% ​​to $ 13. But more than 40% of this difference is lost due to the contracts concluded in September 2017 with VTB and Promsvyazbank.

The conclusion of such an agreement with banks could be forced as part of the restructuring of loans, suggests one of the authors of the report, Raiffeisenbank analyst Sergei Garamit. VTB is the largest lender of Russneft. The company owes him about $ 1.26 billion. “The exact date of the conclusion of options is not known, but the cut-off level roughly corresponds to market quotations in the third quarter of 2017,” says Garamita. “In the event of a fall in the price of oil, nominally losing money under an agreement with Russneft, the bank would support the borrower's ability to service the debt, and with growth it would guarantee additional income for itself.”

The company did not disclose hedging data from changes in oil prices. But it is known that for Gutseriev this is not the first such deal. At the end of 2014, the Neftis company owned by him made a price hedging transaction with Sberbank. This was done on the direct recommendation of the President of Sberbank German Gref, then told Reuters, citing its sources. “Gutseriev owed a lot to Sberbank, and Gref actually ordered him to hedge in 2015,” a source quoted Reuters. Hedging allowed Neftis Gutseriev to sell 50 million barrels of oil at about $ 85 / bbl. at a market price of $ 85-110 / barr. But by the end of 2015, the average annual price of oil was $ 50, and the profit of Neftisa increased by $ 1.75 billion.