Russia's biggest oil producer OAO Rosneft (ROSN.RS) Wednesday said net profit for the fourth quarter fell 64% as crude oil prices plunged and export duties rose to a record high, while the company's net debt rose by almost $2 billion during the period.

The company said cash flow will stay positive this year at a $41 a barrel oil price, revised down from $47 a barrel. The company reiterated its target to grow output by 2% this year to 2.26 million barrels a day.

Rosneft reported net profit of $775 million for the quarter ended Dec. 31, down from $2.18 billion in the fourth quarter of 2007, but above analysts' estimates mostly due to one-off items.

"(Fourth quarter was) the most challenging in the Russian oil industry's history due to the sharp decline in prices coupled with unprecedentedly high tax rates," Chief Executive Sergei Bogdanchikov said in a statement.

The company's shares gained more than 12% to close at $3.7 each in Moscow, after Rosneft's net profit exceeded analysts' forecasts and in line with a stronger European oil and gas sector. They remain around 70% below their highs from June of last year, following a decline in oil prices and a selloff in Russian equities.

State-controlled Rosneft, which borrowed $22 billion in 2007, when it bought up assets from country's former top oil firm OAO Yukos, said its net debt fell by $5 billion throughout the whole year. However, heavy taxation and high transportation tariffs forced the company to obtain additional loans during the fourth quarter.

"The cost burden grew to 99% of the oil price, and there simply wasn't any money left to pay for interest rates, costs and capex," the company's Chief Financial Officer Peter O'Brien told Dow Jones Newswires.

The company's net debt increased by $1.9 billion during the quarter to total $21.3 billion by the end of the year.

"We plan to have a positive cash flow after dividend payments this year, while at the same time materially reduce our net debt," said O'Brien. Rosneft must repay $7 billion of its total net debt by the end of this year, he added.

O'Brien said Rosneft plans this summer to receive the first tranche of a new $15 billion loan from China Development Bank.

Last month, China and Russia signed a deal under which China will get 15 million tons of Russian crude oil a year for the next 20 years, while Rosneft and pipeline operator OAO Transneft (TRNFP.RS) will get a credit of $15 billion and $10 billion, respectively.

"We anticipate to be in a position to draw the first tranche before the end of the summer," O'Brien said.

O'Brien didn't give details on the loan, but said financial costs are "attractive" and that the interest rate will be based on international floating rates.

The company's fourth-quarter revenue was down 35% on the year to $10.80 billion from $16.49 billion, largely due to lower prices for the period and a 4.7% fall in production due to the sale of a 50% stake in Tomskneft.

Rumors of a merger between Rosneft and OAO Surgutneftegas (SNGS.RS) were revived this week after Vladimir Bogdanov, CEO of Surgutneftegas was nominated for Rosneft's board of directors.

Local media said the Kremlin is considering to merge Rosneft with Surgutneftegas to create a company that pumps more oil than Royal Dutch Shell PLC (RDSA).

Company Web site: www.rosneft.com

-By Jacob Gronholt-Pedersen, Dow Jones Newswires; +7 495 937 8445; jacob.pedersen@dowjones.com