Page 89 - RusRPTAug20

Rosneft​ and​ N​ orilsk Nickel​ have sent a joint letter to the Ministry of Natural Resources, outlining their position on the gas assets in the Krasnoyarsk Region​, Vedomosti reports. According to the letter, Norilsk Nickel supports Rosneft’s acquisition of a licence to develop the Ushakovskoye field. The mining company also supported the terms of the auction for the field, as previously suggested by Rosneft. In its turn, Rosneft has agreed to supply gas to Norilsk Nickel if the company experiences shortages of gas from the existing fields. Furthermore, Rosneft is to deliver up to 123.9kt of oil products to Norilsk via the Northern Sea Route from the Arkhangelsk terminal between October 2020 and April 2021. Interfax reports that the Ministry of Natural Resources is supportive of the agreement reached by the companies
● Novatek
In general,​ ​Novatek​’s overall downbeat financial performance compared with 2Q19 was defined by the adverse macro environment and weaker operating data​. 2Q20 EBITDA was reported at $312bn, 37% below our estimates; however, if adjusted for the $195mn write-offs it was 3-4% above us and the consensus. We update our model for the recent macro, operating and financial data and reduce WACC for Novatek. This results in a new 12-month Target Price of $165/GDR. Given a 12% ETR, we reiterate our Hold recommendation. Adverse pricing environment. Novatek’s top line fell 41% y/y in 2Q20 to $2bn on the back of weaker performance from both the gas and liquids businesses. Lower dry gas sales in Russia (down 4.5% y/y) coupled with reduced LNG sales (32% lower y/y) and much decreased global LNG prices (by 55% y/y in Asia in 2Q20) resulted in a 32% drop of gas revenues. Liquids revenues declined 50% y/y due to the falling oil and product prices. Adjusted for non-cash item EBITDA came in line. The key surprise on the costs side came from the revaluation of the contingent consideration related to Arctic LNG (anticipated by the company payments from the partners in the project) down by $195mn, which hit the headline EBITDA ($312mn or 71% y/y down) and, which we did not account for in our forecasts. Adjusted for this non-cash item, EBITDA came at $507mn in 2Q20 (down 53% y/y) or 3% above our forecast. Other cost items, such as taxes other than income, transportation and G&A, came broadly in line with us. Tax benefit supported earnings, capex hike made FCF negative. Below the operating line, the $113mn income tax benefit (we had forecasted a $126mn expense) provided the main support to Novatek’s net income, which printed at $574mn (down 46% y/y). All other items (income from associates, FX loss, etc.) were broadly in line with our forecasts (2-5% difference). At the same time, we noted a near twofold y/y capex growth, to $757mn in 2Q20 (we had expected $566mn). This resulted in a negative $697mn FCF for the quarter (for the first time since 2013).
● Lukoil
Lukoil has reached an agreement to purchase Cairn Energy's 40% stake in the Rofisque, Sangomar and Sangomar Deep (RSSD) project in Senegal​ for $300 mln, the company reported in a statement yesterday. The deal also includes a bonus of up to $100 mln for Cairn Energy after production launches (depending on the launch time and the average Brent price during the first six months of production), according to Cairn Energy's statement. The deal is expected to close in 4Q20 (according to Cairn), following approval by the Senegalese government.
89​ RUSSIA Country Report​ August 2020 ​ ​www.intellinews.com