Page 9 - GLNG Week 31

GLNG COMMENTARY GLNG

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

PERFORMANCE RUSSIA’S top LNG exporter Novatek suffered
unsurprisingly weak numbers for the second
WHAT: quarter, reflecting the ongoing fallout from the
Novatek suffered a 40% coronavirus (COVID-19) pandemic on global
decline in net profit in the gas markets.
second quarter. The company’s net profit slumped 40% year
on year to RUB41.6bn ($573mn), it reported on
WHY: July 29, although this was an improved result on
The company’s the first quarter, when it swung to a net loss of
international business RUB30.7bn ($420mn) on a weaker ruble, which
suffered from COVID-19 inflated its foreign-denominated debts.
volatility, but its domestic With its debts already revalued, the com-
operations served as a pany was spared such forex losses in the second
hedge. quarter. Instead, a weaker ruble helped offset the
impact of much weaker international gas prices.
WHAT NEXT: Even so, Novatek’s revenues slumped 34.1%
Novatek is pushing ahead y/y to RUB143.9bn ($2.0bn) in the period, owing
with its expansions, to reduced prices and lower demand overseas. Novatek’s CFO, Mark
although no key decisions International gas sales plunged 32% y/y to 2.5bn guidance of RUB250bn ($3.4bn). Gyetvay
on new projects have cubic metres, while domestic gas sales were also “We will revise our capital expenditure guid-
been taken. down but much less significantly, by 4.6% to 14.4 ance downward again by 15% in addition to the
bcm. 20% reduction already announced,” CFO Mark
And while international gas prices collapsed, Gyetvay told analysts in a conference call in July.
domestic prices increased thanks to an increase A board meeting will take place next month
in regulated tariffs. to decide on dividends, which Novatek has
Novatek’s EBITDA slid 38.5% to RUB71.3bn already pledged to increase. And unlike at many
($974mn), as expenses fell by only 26% to other producers, Novatek’s management opted
RUB116bn. ($1.6bn) in June to extend its share buyback programme
by another year until mid-2021.
Strengths
Despite the dip in earnings, Novatek CFO Mark Outlook
Gyetvay stressed the company’s strengths ver- Novatek arrived on the global LNG market in
sus rival producers. Typically he pointed to late 2017, when it launched the first train of its
Novatek’s low costs, but also the stability pro- Yamal LNG export plant in the Russian Arctic
vided by its domestic sales business. – a joint venture with France’s Total and Chi-
“Many oil and gas companies have reported na’s CNPC and Silk Road Fund. The terminal
billions of dollars of impairment write-offs, reached its 16.5mn tonne per year (tpy) name-
cargo cancellations, bankruptcies and debt plate capacity in late 2018 and has since exceeded
default as well as recent staff layoffs,” Gyetvay it.
told analysts in an earnings call on July 30. “We Novatek is now building its second LNG
had none of these negative impacts during the terminal, Arctic LNG-2, which will have an
reporting period. No impairments, no cargo even greater capacity of 19.8mn tpy. It wants to
cancellations, no staff reductions.” expand production to as much as 70mn tpy by
Novatek also showed some caution by reduc- 2030, with a raft of other projects at the planning
ing its capital expenditure programme for 2020 phase.
by a further 15% to RUB170bn ($2.3bn), in Commenting on the global LNG market,
response to the market turmoil. The company in Gyetvay noted that LNG imports in the second
April cut its capex plan by a fifth, from an original quarter were roughly comparable to those in the

Week 31 07•August•2020 www. NEWSBASE .com P9