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in Chinese demand and falling liquefied natural gas (LNG) gas prices. "China has recommenced gas purchases from Uzbekistan, but Lukoil's PSAs are only being allowed to supply gas to the domestic market this year," Sberbank CIB reminds on August 31. The bank warned that "the issues with the Uzbek PSAs appear to be much more considerable than supposed," with the "collapse in Lukoil's Uzbek PSA volumes suggests that it faces material issues with exports to both countries". VTB Capital on August 31 wrote that Lukoil’s gas production in Uzbekistan was around 14bcm in 2019, 41% of the company’s overall gas output and approximately 10% of overall hydrocarbon production, with about 5bcm of this is produced at the Gissar field. "As such, we treat the production halt at Gissar and demand disruption at the company’s Uzbek assets as somewhat negative," VTBC noted. At the same time the company reiterated its capex guidance of RUB450bn-500bn for this year (up from RUB427bn in 2019). Sberbank CIB commented that Lukoil's strategy in maintaining high capex "appears to entail prioritizing the ability to recover production volumes quickly, which can be done at the expense of FCF generation."
Russia's second-largest crude oil producer and largest private oil company Lukoil has reported its 2Q20 IFRS financials, with revenues of $13.7bn missing the consensus expectations by 6%. Still, the company's Ebitda of $2bn and net loss of $0.3bn outperformed expectations. While the financials were low at the net income line, the Ebitda was ahead of estimates and cash flow numbers are seen as good by BCS Global Markets analysts. Free cash flow (FCF) came in at about $0.4bn, better than the BCS GM expectation of approximately zero, albeit down from an average of $2.3bn per quarter the previous 5 periods. The company's capital expenditures (capex) came in at $1.6bn, down 9% versus the $1.8bn average of the previous 5 quarters. "As with some of its peers, we think Lukoil probably hasn’t had time yet to fully adjust its capex plans to account for the [coronavirus] COVID-19 crisis and OPEC+ constraints from February, but it appears to be moving in the right direction," BCS GM commented on August 28. Overall, BCS GM considers the 2Q20 results as neutral for Lukoil, as Ebitda and FCF are more important than a modest net income miss in a trough quarter. "At first glance, Lukoil’s 2Q20 IFRS numbers came in stronger than we expected, with the reported EBITDA exceeding our forecast by 9%," VTB Capital (VBTC) wrote on August 28. But "this was mainly due to the $1.1bn net positive effect of the hedging gain and inventories revaluation, which is a one-off item," in VTBC's view, which warns that other costs (operational, distribution, SG&A) showed much higher cost inflation. "However, Interfax reports some market participants were disappointed that the FCF numbers pointed to an interim dividend of only RUB43-46/share, down sharply from RUB192/share paid on 1H19," BCS GM warns. VTBC also notes that dividend per share (DPS) for 6M20 is lower than the expected RUB63, and implies an "intangible" 0.9% dividend yield, seen by the bank as rather weak.
Lukoil is not able to acquire an interest in the offshore RSSD (Rufisque, Sangomar and Sangomar Deep) project on the Senegal shelf, as was announced earlier, Interfax reports. The reason is that Woodside, the project operator, has pre-empted the sale by agreeing to acquire the stake from Cairn Energy on the same terms.
● Other
Smart LNG is a joint venture between Russian independent gas company Novatek and shipowner Sovcomflot. BRL reported that financing is approved for the new building programme, stretching the employment to
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