Page 101 - RusRPTSept19

producing LNG at Arctic LNG-2 in 2022-2023. The plant, which is expected to cost around $25.5bn, will have an annual production capacity of 19.8mn tons. Novatek plans to retain a 60% stake in the project.
The Yamal LNG project of Russia’s biggest independent gas producer Novatek reported impressive 1H19 IFRS results on August 9. “Profitability remained impressively resilient despite a weak gas pricing environment and mostly spot LNG sales,” Sberbank CIB said in a note. Total estimated EBITDA from the project, including the trading margin, stood at an impressive $5.0/MMBtu, according to Sberbank CIB, with LNG spot prices averaging $5.5- 6.5/MMBtu. The overall project economics were virtually in line with the bank’s model assumptions despite much weaker gas market conditions in 2Q19-3Q19 and provide solid upside going into 2020-21 in light of a capacity utilization increase and a rising share of long-term oil-linked offtake. “Meanwhile, we expect a substantial reduction in capex and pickup in shareholder loan repayment going forward,” Sberbank said. Yamal LNG posted revenues of $2.3bn in 1H19, while EBITDA stood at $1.9bn, down just 5% half-on-half even though spot gas prices dropped 40-45% h/h. “The results were mainly supported by a 64% h/h surge in LNG shipments to 9.1mn tonnes, the start of some long-term oil-linked offtake contracts and export duty-exempt condensate sales (liquids output rose 20% h/h),” Sberbank CIB said. “All of the above more than offset the weak spot gas market environment (prices dropped 40% h/h) and the remaining high share of spot sales.”
● Other
Lukoil published its 2Q19 IFRS results, with the headline numbers sizably beating the consensus estimates. Adjusting revenues for higher oil and product purchases and EBITDA for the hedging gain, the numbers came broadly in line with our forecasts. What likely drove the positive market reaction in the name was the strong FCF of USD 2.5bn, which implies that Lukoil’s FCF by the year end available for the buyback might reach USD 1.6bn. The key discrepancy to our revenue forecast came from Lukoil’s higher than anticipated crude oil purchases (at 20.2mmt, or 13% above the average quarterly oil purchases in 2018 and 12% above our estimate), which increased 19% QoQ. Although crude oil production in 2Q19 was up just 1% QoQ, significant oil purchases led to crude sales volumes growing 9% QoQ to 42.0mmt. As a result, upstream revenues rose 25% QoQ to USD 11.7bn, additionally supported by the 9% QoQ growth in the price of Urals. The downstream segment demonstrated strong results as well, with revenues from refined products sales rising 17% QoQ, driven by the 2% QoQ production growth, 4% QoQ increase in volumes of purchased oil products and an inventory release of 0.6mnt (the first quarterly inventory release since 3Q17). Therefore, Lukoil’s top line grew 18% QoQ to USD 32.9bn, 4% and 7% above our forecast and the consensus, respectively. Adjusted for this significant unusual increase in crude oil purchases, Lukoil’s revenues came absolutely in line with our numbers. On the costs side, Lukoil showed good control of lifting costs per barrel in the upstream segment: they declined 2% YoY in RUB terms. The 5% QoQ increase in lifting costs in 2Q19 can mainly explained by the adoption 16 IFRS, which had a positive effect of USD 24mn in 1Q19. SG&A expenses declined 1%, mainly due to the decrease in expenses on the allowance for expected credit losses (and came 3% below our forecast). The cost of crude and products purchased grew 26% QoQ. They were supported by the positive result from hedging operations in the amount of USD 60mn (against a loss of USD 0.7bn in 1Q19), while we had forecasted a loss of USD 0.5bn in 2Q19.
101 RUSSIA Country Report September 2019 www.intellinews.com