Page 156 - RusRPTMay21

‘wet’ gas from Achimov formation in ageing supergiant West Siberian fields). The reduction in cost mentioned above helps our view of the project, although the total CapEx bill – including that required to convert a pipeline to carry wet gas directly to Ust Luga – will be substantially more than the $5bn for the Linde contract. While we await more information, our view on Baltic LNG from the point of view of Gazprom shareholders is neutral, with a small positive bias.
Digging into Gazprom Neft 's project portfolio. The company's project execution is helping to unlock the value of Gazprom's reserves and supporting growth and project execution at Gazprom itself. Gazprom Neft's share of gas production is set to expand, while the importance of Gazprom's liquids business is growing substantially.
With opportunities for improvement along the gas production value chain, we consider Gazprom Neft the most attractive long-term growth story in the Russian oil sector. The company's reserves are already double the size of Lukoil's 3P reserves, and its exploration projects are comparable with Rosneft's Vostok Oil in terms of resources and production potential. We estimate that Gazprom Neft can secure a 5% CAGR in hydrocarbon production over the next decade, though some projects may require additional tax incentives.
We expect the management to improve its ESG focus as well, particularly in the upcoming quarters. Overall, we believe Gazprom Neft offers a unique combination of superb growth and competitive yields. Based on the timing of its project pipeline, we think an SPO could be on agenda on a medium-term horizon rather than in the short term.
We see Gazprom as a steadily growing business in terms of both gas and liquids. We expect its dividend yield to more than double next year to 12% on the back of stronger earnings and to climb above 15% in 2025. We think this year's investor day (scheduled for April 29) will be focused on cost control and FCF generation for the purpose of sustainably funding growing dividend distributions.
We maintain our positive view on the entire Russian oil and gas sector, reiterating BUY ratings for all the shares under our coverage. We have materially increased our target price only for Gazprom Neft, which we see it as a quality long-term growth play. In the short term, our preference remains with Tatneft, Gazprom, Rosneft and Lukoil due to expected stronger earnings and gathering dividend momentum.
● Rosneft
Rosneft has bought the North-Kustarnikovsky licence area in YaNAO from Rosnedra for RUB17.6bn ($235mn, the starting auction price was
156 RUSSIA Country Report May 2021 www.intellinews.com