Page 131 - RusRPTNov20

Arktika is completing tests and will be commissioned next month,” he said. Arctic LNG 2 is Novatek’s second liquefied natural gas project at the Gydan Peninsula in Russia’s Yamalo-Nenets Region. Besides Novatek, Chinese CNOOC and CNPC, France’s Total and a consortium of Japan’s Mitsui and Jogmec have a 10% share each in the project. Last month, Germany said it may participate in the project with investments of up to €300mn ($354mn). Russia wants to turn the Northern Sea Route, which stretches the entire length of Russia’s Arctic and Far East regions, into a major trade artery between Europe and Asia. In the first half of the year, freight transportation via the route reached almost 15mn tons. Last year, 31.5mn tons were transported using the Arctic route.
● Other
Transneft​ released a detailed operating update for 3Q20 on October 13​. Crude deliveries decreased by 3% Q-o-Q and 17% y-o-y to 106 mln tonnes in 3Q20, while product deliveries declined by 2% Q-o-Q and y-o-y to 9 mln tonnes. Our view: Overall, the results were in line with our expectations. Oil and product transportation has been under pressure since the OPEC+ limitations came into force in May. The effect of these restrictions on the 2Q20 results was milder than we had anticipated; most of the impact was felt in 3Q20. We estimate that overall turnover declined 6% Q-o-Q and 18% y-o-y in 3Q20 as a result. We expect EBITDA to decline 16% Q-o-Q and 32% y-o-y to $1.4 bln in 3Q20, down from $1.6 bln in 2Q20. Notably, the company's publication of a detailed operating update can be seen as a defensive move against a potential tariff reduction. So far, it seems that the efforts to avoid a tariff adjustment have been successful, in our view. Last week, Interfax reported that the head of the FAS, Igor Artemiev, had proposed extending the current tariff policy for Transneft (i.e. raising tariffs at the inflation rate minus 0.1 pp) for the next 10 years starting in 2021. If the extension is approved, we would consider this positive for the stock.
Transneft​ reported its 2Q20 IFRS results. They came somewhat stronger than both consensus on the EBITDA level due to slightly higher revenues and cost economy. ​Below the operating level, the company reported a PPE impairment of RUB21bn, which can be explained by the underutilisation of the oil product pipeline infrastructure. If the company adjusts its net income for the PPE impairment when calculating DPS, for 1H20 DPS is implied at RUB6,320 (an 8.7% annualised DY). Cost economy supports EBITDA. Oil transportation revenues declined 8% q/q and were 3% above our forecast, driven by the 2% higher than we expected total throughput and, specifically, export oil volumes. Revenues from oil product transportation fell 16% q/q but also exceeded our projection due to the 2% higher than forecast product volumes and the changing mix of transportation routes. However, lower oil and product sales as well as other revenues somewhat offset the outperformance of the key business lines. The overall top line thus decreased 13% q/q, but stood 1.5%
131 ​RUSSIA Country Report​ November 2020 www.intellinews.com