Russia's largest oil producer Rosneft said Tuesday that its net profit slipped 13 percent to $3.3 billion in the first quarter, a period that set the stage for a phenomenal leap in income as a result of its acquisition of the Anglo-Russian joint venture TNK-BP.
The state oil firm's reported profit for the first three months of the year was slightly above the consensus. The drop was largely attributed to seasonal factors that lead to weaker sales of petroleum products.
The quarter only included 10 business days of the company's integration of Russia's number three oil producer TNK-BP in a deal that made Rosneft the largest publically-traded producer of oil in the world.
"The key event for Rosneft in the reporting period was the acquisition of a 100-percent equity interest in TNK-BP," company chief Igor Sechin said in a statement.
He also noted the Arctic sea oil and natural gas development projects that Rosneft signed with international majors ranging from ExxonMobil to Statoil and ENI.
"The company has strengthened its leading positions in development of the (Arctic) shelf and signed a number of significant long-term agreements on monetisation of hydrocarbon production," said Sechin.
Rosneft has ballooned in size in the past year thanks to its friendly relations with the Kremlin.
Sechin is a close associate and key confidant of President Vladimir Putin -- Russia's ultimate arbitrer of big business decision and a staunch proponent of making Rosneft into a global giant worthy of the country's status as the world's largest oil producer.
Analysts have largely discounted the first quarter results however because they included a massive one-off gain from the disposal of $1.0 billion in treasury shares that Rosneft used to help finance the TNK-BP purchase.
"The second quarter numbers will draw much more attention," the Alfa Bank investment house observed.
Rosneft stock was up about a third of a percent and underperforming a generally positive Moscow market minutes after the statement's release.
Yet the company still reported an 82.4-percent rise in hydrocarbon production and a 180.9-percent jump in commercial gas output.
Rosneft is now eyeing the natural gas market and has voiced intentions of developing LNG plants in Russia's Far East that would potentially make it into a key partner of energy-hungry South Korea and Japan.
It said some of the gains also came from a fall in exploration expenses and drop in administrative costs -- good news to investors who fear that the state behemoth needs more streamlining.
Rosneft's purchase of TNK-BP resolved a dramatic dispute between the profitable company's British and Russian co-owners.
The firm was a cash cow for BP by bringing about $19 billion in dividend payments since its formation in 2003.
But everyday business decisions were effectively paralysed in its last year of existence because of disputes about investments and payouts.
BP was eventually happy to part with the stake for about $25 billion at a time when it needed to cover the costs of the Gulf of Mexico oil spill and repair its increasingly antsy shareholders' trust.
Yet its hopes of converting the strategic alliance with Rosneft into access to the untapped energy riches of the Artic have so far failed to bear fruit.
Sechin has also taken control of all TNK operations that had previously belonged to four Soviet-born tycoon who included the powerful mogul Mikhail Fridman.
Rosneft then quickly halted the practice of TNK-BP paying out up to 90 percent of its profits in dividends and announced that those in the immediate term would be turned into payments for the purchase.
TNK-BP's stock plunged to new lows on the news.