Page 149 - RusRPTJun21

emergency by the Kremlin and Norilsk was fined $2bn for the accident.
While the amount of the Lukoil spill is much larger, it was mostly all spilled onto the land and only 9 cubic meters got into the local river, according to Lukoil, so the scale of the environmental damage will be less.
Moreover, BCS GM report that after the spill was discovered on a routine helicopter inspection the company rapidly rolled out a clean up response and informed the relative authorities, as required by law.
Lukoil released a press release on May 17 outlining the steps taken to contain the spill. Of the 90 tonnes of oil spilled (the equivalent of about 4 large truckloads), less than 9 cubic meters of oil made it into the river. Substantial containment and clean-up equipment has been employed, including floating barriers on the river and substantial amount of oil-absorbent material.
“Equity markets appear overly cautious on the oil spill issue. We frankly did not consider the Kommersant story to initially be newsworthy given the small nature of the problem relative to Lukoil’s overall operations. However, with Norilsk Nickel having recently been hit with extremely large fines for environmental violations, perhaps it is understandable that the market would be wary of such news,” BCS said in a note.
Lukoil has reported solid 1Q21 IFRS results, beating us and consensus thanks to better cost control and lower tax paid than we expected. FCF also came above our estimates and implies an indicative RUB211 DPS (3.5% quarterly DY). We see the numbers as supportive for our Buy recommendation.
Lukoil’s crude oil sales grew 44% q/q but came 10% below what we expected, due to lower than projected oil sales, as oil purchases turned out smaller than we forecasted. Refined product sales, up 17% q/q, were virtually in line with us, while growth in other sales (+29% q/q) supported revenues. The overall topline was thus reported at $25.2bn, up 26% q/q and 3% below our forecast. However, adjusted for lower than expected oil purchases and related purchase costs, it was on par with our expectations.
On the cost side, there were several favourable surprises. First, G&A expenses came 7% below our forecast, as they grew just 2% y/y (and seasonally fell 18% q/q) in RUBterms. Second, transport costs were 11% below our forecast. This was partially offset by greater than expected refining and other opex. Third, but probably most importantly, non-income taxes were 8% below our forecast, chiefly due to the 6% lower than expected MET. We remind readers that there has been a change in upstream taxation since January 2021. In particular, depleted assets lost the right to receive depletion MET reliefs, but received the right to transit to EPT. We expected Lukoil to transfer all of its depleted fields to EPT starting this year, but in fact only part of assets have been transitioned to EPT. All in all, the resulting EBITDA
149 RUSSIA Country Report June 2021 www.intellinews.com