Page 134 - RusRPTMar21

The company plans to spend some USD 7bn on upstream capex in 2021-22. Additionally, Lukoil has made an investment decision on D33 in the Baltic, with plans to select contractors for drilling in 1Q21. Production at the project, with estimated reserves of 21mnt, might start in 2022-23.
Based on the current OPEC+ agreement, we forecast Lukoil’s production for 2021 to be flattish (although we expect a production level of 77-78mnt, which might differ from the company’s estimates due to our assessment of Lukoil’s participation in international projects, we believe). The upstream capex guidance of USD 7bn for 2021-22 is based on the company’s strategy and assumes no OPEC+ agreement, we think (we forecast the company’s total capex at some USD 6.1bn in 2021-22). We do not account for potential production from the Baltic shelf project in our financial model (the company has not specified the projected production level either).
Lukoil’s climate strategy update will be presented in March. In March, LUKOIL plans to present its future climate strategy. Interfax reported. The goals and objectives of the climate strategy will be taken into account when updating the company's long-term strategy, which is planned to be completed by YE21. Analysis: Positive for ESG. With ESG issues becoming major indicators for investors, Russian oil & gas companies are increasingly focusing on burnishing their credentials in this sphere. Lukoil already produces a near 100-page Sustainability Report annually, which we expect to grow in complexity and data provided with time. The update should help fill the needs of investors who are increasingly screening stocks on ESG metrics.
Lukoil has offered to buy FAR Limited, an Australian exploratory company, for AUD 220mn ($170mn) at AUD 0.022/share, which is twice the last closing price, according to Reuters. FAR holds a portfolio of exploration licences in Senegal, The Gambia, Guinea-Bissau and Kenya.
Back in July 2020, Lukoil offered $400mn ($300mn compensation with a potential $100mn bonus) for 30% in the offshore RSSD (Rufisque, Sangomar and Sangomar Deep) project on the Senegal shelf. However, another participant in the project exercised its preemptive right for this stake, making Lukoil exit the project (see our Morning Comment of 18 August). FAR Limited was one of the participants in the project.
Although, we are generally cautious on the upstream activities of Russian companies abroad, Lukoil previously stated that its international upstream M&A was limited to projects with confirmed reserves in, which the company had technological expertise and decent partners. Therefore, we treat this potential deal as not market
134 RUSSIA Country Report March 2021 www.intellinews.com