JULY 26, 2010, 2:46 P.M. ET.

Rosneft Net Jumps 59% .

By JACOB GRONHOLT-PEDERSEN

MOSCOW—Russia's largest oil producer OAO Rosneft said Monday second-quarter net profit rose 59% on higher oil prices and increased crude output at its Vankor field.

London-listed Rosneft said net profit rose to $2.56 billion from $1.61 billion a year earlier.

Revenue increased 41% to $15.43 billion from $10.95 billion a year earlier, boosted by a rise in oil output in the three-month period—primarily due to the launch of Russia's Vankor field.

Rosneft's shares were trading 4% higher at $6.80 in London Monday. Its stock performance was hampered in the first half of the year by unsettled tax issues. Russia's government reinstated export duties on 22 East Siberian oil fields, including Vankor, on July 1, but hasn't yet decide on the export duty level for 2011. The government also has discussed raising the mineral extraction tax on oil.

Rosneft and other Russian oil majors are lobbying for tax reform in order to secure more funds for investments in production growth.

Rosneft's Chief Executive Sergey Bogdanchikov said output at both Vankor and Yuganskneftegaz—the company's largest production unit—exceeded targets due to "higher than expected flow rates of new wells, more wells drilled within the planned budget and more efficient well interventions."

But the better-than-expected output may have come at a steep cost.

A 19% increase in capital spending from the first quarter to $2.09 billion is a "worrying signal," said Metropol brokerage.

"We would like to think capital spending would go down after Vankor was launched, but it looks like they're still spending a lot on the field and maybe at Yuganskneftegaz," said Metropol analyst Alexei Kokin.

The company produced 2.32 million barrels a day in the quarter, up 9.3% from a year earlier and 1.2% from the first three months of 2010.

Rosneft, which borrowed $22 billion in 2007 when it bought up assets from the country's former top oil firm OAO Yukos, said its net debt fell by $2.7 billion in the second quarter to $15.8 billion. Rosneft will issue full financial results from the second quarter on Aug. 2.

http://online.wsj.com/article/SB1000142 ... 19592.html