A Rosneft-owned facility: shares in Rosneft, Russia's biggest oil producer, are trading at seven times estimated 12-month earnings against about 11 times for Royal Dutch Shell, more than 12 times for BP and 15 times for Exxon Mobil, due to sanctions threats from the West.

Moscow

RUSSIA'S oil companies are on a tear. The nation's top crude producers more than doubled their combined profit in the first half, trouncing estimates thanks to a weaker ruble and rebounding prices.

And with output curbs easing, the influx of cash is set to continue.

"Russian oilmen feel financially better than any other crude producer in the world," said Andrey Polischuk, an energy analyst at Raiffeisen Centrobank in Moscow. "Operating costs are low, production is either already at a record or close to a record, and oil in rubles is setting new historical records."

Russia's currency crisis, which has seen the ruble halve against the dollar since the first US and European sanctions hit in 2014, has made it cheaper for local companies to pump oil, while boosting the price of crude in ruble terms.

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That paved the way for bumper half-year profits, while European and US rivals delivered a mixed bag. The combined revenue of Russia's top five oil producers jumped 32 per cent to more than 9.9 trillion rubles (S$200 billion), while total net income doubled to almost 1.25 trillion rubles.

Yet the risk of more sanctions weighs heavily on the companies, clouding an otherwise sunny outlook.

Shares in Rosneft PJSC, Russia's biggest oil producer, are trading at seven times estimated 12-month earnings compared with about 11 times for Royal Dutch Shell, more than 12 times for BP and 15 times for Exxon Mobil.

"Russian equities are under pressure because of further sanctions threats," said Alexander Kornilov, an analyst at Aton LLC in Moscow. This helps the nation's exporters - including oil companies - by weakening the ruble, but on the other hand this damps their market value."

While the market capitalisation of the Micex Oil & Gas Index, which includes Rosneft and its closest rival Lukoil PJSC, hit a record high this week in the local currency, in dollar terms it is still below the levels of 2014 when the ruble crash began.

Last month the US government imposed fresh sanctions on Russia over the March poisoning of a former Russian agent and his daughter in the UK.

Further measures may follow in November, including bans on importing Russian oil and exports of other goods and technology.

As long as that risk is on the table, Russian oil stocks "remain imperfect vehicles," said Julian Rimmer, an emerging-markets trader at Investec Bank in London. "I doubt Russia-dedicated funds are registering inflows, nor will they while the mutual antipathy" with the West persists, he said.

While the sanctions risk isn't going away for Russia's oil sector, it may have bottomed out, said Rollo Roscow, who manages Schroders' International Selection Emerging Europe fund that has Rosneft and Lukoil among its top 10 holdings. "We see the direct sanctions potential over the next few months as low" for individual producers, he said.

Alexander Losev said he's also wary of the "geopolitical subtleties" but believes Russia's Big Oil will remain attractive in the next six months. The Russian market veteran and chief executive officer of Sputnik Asset Management has started to increase his position in Lukoil, saying its shares are lagging behind peers.

All the positive drivers behind the Russian oil industry - from global supply risks to the weaker ruble - are here to stay, Mr Losev said. "I'm still holding shares of Russian oil." WP