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FSUOGM COMMENTARY FSUOGM

Novatek posts weaker Q2 numbers,

but stresses strengths

The Russian producer was spared the hefty impairments, cargo cancellations

and staff lay-offs that some of its competitors suffered

RUSSIA RUSSIA’S top LNG exporter Novatek suffered billions of dollars of impairment write-offs,
unsurprisingly weak numbers for the second cargo cancellations, bankruptcies and debt
WHAT: quarter, reflecting the ongoing fallout from the default as well as recent staff layoffs,” Gyetvay
Novatek suffered a 40% coronavirus (COVID-19) pandemic on global told analysts in an earnings call on July 30. “We
decline in net profit in the gas markets. had none of these negative impacts during the
second quarter. The company’s net profit slumped 40% year reporting period. No impairments, no cargo
on year to RUB41.6bn ($573mn), it reported on cancellations, no staff reductions.”
WHY: July 29, although this was an improved result on Novatek also showed some caution by reduc-
Novatek's international the first quarter, when it swung to a net loss of ing its capital expenditure programme for 2020
business suffered from RUB30.7bn on a weaker ruble, which inflated its by a further 15% to RUB170bn, in response to
COVID-19 volatility, but foreign-denominated debts. the market turmoil. The company in April cut its
its domestic operations With its debts already revalued, the com- capex plan by a fifth, from an original guidance
served as a hedge. pany was spared such forex losses in the second of RUB250bn.
quarter. Instead, a weaker ruble helped offset the “We will revise our capital expenditure guid-
WHAT NEXT: impact of much weaker international gas prices. ance downward again by 15% in addition to the
Novatek is pushing ahead Even so, Novatek’s revenues slumped 34.1% 20% reduction already announced,” CFO Mark
with its expansions, y/y to RUB143.9bn in the period, owing to Gyetvay told analysts in a conference call in July.
although no key decisions reduced prices and lower demand overseas. A board meeting will take place next month
on new projects have International gas sales plunged 32% y/y to 2.5bn to decide on dividends, which Novatek has
been taken. cubic metres, while domestic gas sales were also already pledged to increase. And unlike at many
down but much less significantly, by 4.6% to 14.4 other producers, Novatek’s management opted
bcm. in June to extend its share buyback programme
And while international gas prices collapsed, by another year until mid-2021.
domestic prices increased thanks to an increase
in regulated tariffs. Outlook
Novatek’s EBITDA slid 38.5% to RUB71.3bn, Novatek arrived on the global LNG market in
as expenses fell by only 26% to RUB116bn. late 2017, when it launched the first train of its
Yamal LNG export plant in the Russian Arctic
Strengths – a joint venture with France’s Total and Chi-
Despite the dip in earnings, Novatek CFO Mark na’s CNPC and Silk Road Fund. The terminal
Gyetvay stressed the company’s strengths ver- reached its 16.5mn tonne per year (tpy) name-
sus rival producers. Typically he pointed to plate capacity in late 2018 and has since exceeded
Novatek’s low costs, but also the stability pro- it.
vided by its domestic sales business. Novatek is now building its second LNG
“Many oil and gas companies have reported terminal, Arctic LNG-2, which will have an

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