Rosneft SWOT and PESTLE Analysis

Strengths

1. Increase in operating efficiency - In the year 2016, Russian oil refineries’ oil production had decreased by more than 17% and Euro 5 gasoline and diesel fuel’s output increased by about 56%. In 2016, because process units were more efficient and operations were optimized resulting in increase in light product yield to 56.6% and conversion rate to 72.0%. 2. Strong marketing operations - In both the wholesale customers as well as the retail customers in the entire Russia its marketing operations are very strong and because of this fact it has an advantage of a widespread visibility in the market which in turn enables it to penetrate new markets and still expand customer base. 3. Largest retail network - Rosneft is continuously expanding retail network mostly in places of strategic importance, and it is constantly increasing retail sites which includes stores, cafes, car wash areas and service stations for vehicles. Also towards end of 2016 Rosneft had largest network in Russia considering geographical areas covered and filling stations.

Weaknesses

1. Drop in the net income of Rosneft - The net income of the company dropped to one third to $1.38 in FY Q2 2016 from the total of 134bn rubles a year which was noticed earlier. For the first half of the year 2016 a whole net income fell to 46 per cent to about Rbs103bn. 2. Reserves concentration in Western Siberia - Upon observing closely, it is noticed that most of the Oil and Gas reserves of the company are in the west Siberia region. This fact increases the business risk of the company as it is not advisable to have all portfolios of similar nature to avoid business risks. This factor if not paid enough attention has the hazardous potential leading to the severe repercussions on the financial performances of the company in case of occurrence of any geo-political risks from this western Siberian region.

Opportunities

1. Modernisation and expansion of Company’s export terminals - Rosneft is competitive because of its own export terminals in Tuapse, De-Kastri and Nakhod making Rosneft’s export operations a highly efficient one, improving planning optimizing costs. This feature gives Rosneft a competitive position and so it should work more upon implementation of expansion and modernization proposals at the mentioned terminals thereby ensuring about their capacity which could match up with the export needs of future. 2. Expansion of operations in other parts of the world - As of now the Oil and Gas reserves are concentrated mostly in Western Siberian region. This fact may result in significant dangers of repercussions upon finances of Rosneft if there are any geo-political risks from these region in future.

Threats

1. Weak oil prices prevalent - The fall in prices of oil since the mid-2014 year has impacted the Russian economy very severely, which is now in conditions of deep recession, despite the fact that the latest GDP data has shown some signs of improvement. Russia’s economy got shrunk by 0.6 per cent year-on-year in the Q2 upon comparison with the 1.2 per cent decline in the first three months of 2016. 2. Huge drops in earnings continual - The company reported a 34% drop in earnings on June 8, 2016 due to weak oil prices. The EBITDA of Rosneft decreased by one third (quarterly basis) to $ 3.2 billion, underperforming consensus by about 8%.

3. Local demands doldrums - Local demand remains in the doldrums and not helping the company meet revenue targets. Also, there is a lack luster demand in Russia for oil and trend seems to continue for upcoming years making the situation tougher for Rosneft.

The unpublished sections of the entire SWOT analysis is available in the 'Complete Report' on purchase.

References

1. Rosneft Annual Report 2016: https://www.rosneft.com/upload/site2/document_file/a_report_2016_eng.pdf

2. Russia’s oil giant just saw its profits drop 75%: https://www.cnbc.com/2016/06/08/russias-oil-giant-just-saw-its-profits-drop-75.html

3. Rosneft Oil Company IFRS Results Q4 and 12M 2016: https://www.rosneft.com/upload/site2/document_file/FY2016_Results_27022017_ENG.pdf

Political

1. Stricter Government laws - Stringent Health, Security and Environment regulations which are adopted by the governments of the areas / different countries where Rosneft operates can result in incurring substantial capital and operating costs to meet such standards. 2. Some announcements made by the Prime Minister of Russia about state owned companies - In the year April 2016, Dmitry Medvedev had announced about signing a resolution requiring state-owned companies to give away not less than 50% of net profit as dividends. Doing this the budget would receive extra 100 billion rubles. The government of Russia may plan to sell stakes of state-owned firms maybe in the next bid to increase the cash. According to Alexei Ulyukayev (Economy Minister) the government may sell stakes to strategic investors or stock market.

Economic

1. Huge drop in revenues of the company - Net income dropped more than a third to 89bn rubles ($1.38bn) in the three months to June 30 from 134bn rubles (Rbs) a year earlier. For the first half as a whole net income fell 46 per cent to Rbs103bn. The company reported a 34% drop in earnings on June 8, 2016 due to weak oil prices. Rosneft's EBITDA shrank 33% on a quarterly basis to $3.2 billion, underperforming consensus by 8%. Analyst forecasted 33 bn rubles in net income but actual figures were 14 billion rubles. Russian oil company Rosneft said Wednesday it still had a steady stream of operating cash flow despite a 75 percent drop in net profits. 2. Huge investments in Science and innovation and safety of the environment - The company has continuously achieved best results by improving its approaches of managing environment related activities by expanding investments for environmental protection. In 2016, the environmental expenses had been up by 3% including roubles47.1 bn being invested in fixed assets meant to reduce adverse impact on environment. In 2016, the Research and Development costs of Rosneft amounted to rubles20.2 bln. All measures which were meant for 2016 were implemented fully.

Social

1. Local demand of oil continues to be stagnant - Local demand remains in the doldrums since a long time affecting the company worst and not helping the company meet revenue targets. Also there is a lack luster demand in Russia for oil and trend seems to continue for upcoming years making the situation tougher for Rosneft. Because of weak prices of oil continuing from middle of 2014 Russian economy is being affected negatively resulting in recession. Russia’s economy shrank by 0.6 per cent year-on-year in the second quarter compared to a 1.2 per cent decline in the first three months of the year 2016.

2. Weak oil prices in the market - The World Bank has estimated that the Russian economy will continue in recession because of weak conditions prevailing in the oil market. According to the Russian Central Bank there's a high level of uncertainty surrounding the movement in crude oil prices and the momentum for any positive trends recently observed in the Russian economy.

The unpublished sections of the entire PESTLE / PESTEL analysis is available in the 'Complete Report' on purchase.

References

1. Rosneft Annual Report 2016: https://www.rosneft.com/upload/site2/document_file/a_report_2016_eng.pdf

2. Russia’s oil giant just saw its profits drop 75%: https://www.cnbc.com/2016/06/08/russias-oil-giant-just-saw-its-profits-drop-75.html

3. Rosneft Oil Company IFRS Results Q4 and 12M 2016: https://www.rosneft.com/upload/site2/document_file/FY2016_Results_27022017_ENG.pdf