Page 6 - FSUOGM Week 18

FSUOGM COMMENTARY FSUOGM
Novatek takes axe to capex
Even with its low-cost position, Novatek will still have to make savings
RUSSIA
WHAT:
Novatek has cut its 2020 capex plan by 20%.
WHY:
The company took the decision in order to preserve cash amid the market turmoil.
WHAT NEXT:
Novatek has warned of some project delays, but its long-term growth plans are unaffected.
RUSSIA’S biggest LNG producer Novatek has followed its international peers in announcing a 20% cut to its capital expenditure plan for 2020, to bolster cash ow amid market chaos.
e move was announced a er the private gas rm posted a net loss for the rst quarter of RUB30.7bn ($417mn), compared with a RUB381.8bn income a year earlier.
Novatek’s loss was widely anticipated. Like other Russian producers, its foreign-denomi- nated debts have in ated this year as the ruble has lost value. ere are indications that Rosne too will slide into the red in the rst quarter.
Excluding the forex effect, however, Novatek’s core earnings still fell 14.7%, arriving at RUB100.7bn, as a result of a 22% drop in rev- enues to RUB184.6bn.
“Considering the present macro-environ- ment, we will revise our capital expenditure guidance downward and may reduce this amount by up to 20%, or RUB50bn, of our planned investment programme,” CEO Mark Gyetvay told analysts in a conference call on April 30. “We will maintain our investment commitment to our LNG programme and key domestic-related production projects.”
However, the CFO stressed that despite the weaker numbers in the quarter, Novatek was well-placed to handle the crisis thanks to its low costs.
Despite the market turmoil, Novatek nev- ertheless approved a 24% increase in dividend payments this year to RUB32.33 per share. In contrast, many international majors are either keeping dividends at or, like Royal Dutch Shell, cutting them.
Gyetvay also praised Novatek’s domestic gas business as a source of stability. Russian sales account for 88% of its total and were una ected by the collapse in international prices.
“This element of our business resiliency should not be underestimated,” he said.
Novatek has also maintained its forecast for a 2-3% growth in gas production this year, thanks to increases at the North-Russky elds which cater for the domestic market.
Project implementation
Novatek entered the international gas market with the launch in December 2017 of the 17mn tonne per year (tpy) Yamal LNG plant, where it is partnered with France’s Total and China’s CNPC and Silk Road Fund.
Yamal LNG is only rst in a series of LNG export terminals that Novatek plans to bring on stream, as it targets production of up to 70mn
tpy by 2030.
Its next major project, the 19.8mn tpy Arc-
tic LNG-2, is still on track to start up in 2023, in spite of the COVID-19 pandemic and resulting market uncertainty. In fact, delays to LNG pro- ject approvals elsewhere in the world mean that the market should rebalance by the time Arctic LNG-2 enters production, Gyetvay said.
Drilling results at the Utrenneye eld that will supply the plant with gas have been “very good”, the CFO said, with wells owing at high- er-than-expected rates.
Even so, with the reduction in capex some project delays are inevitable. Gyetvay said Novatek was considering delaying a nal invest- ment decision (FID) at the 5mn tpy Obsk LNG project, which had been anticipated later this year.
“We will consider this question more thor- oughly during the next several months after reviewing various nancing options,” Gyetvay explained, noting that the launch of Obsk LNG’s rst 2.5mn tpy train might be pushed back by one year until 2024. However, he stressed this would have no bearing on Novatek’s 2030 out- put target.
e project remains “highly competitive,” he said.
Novatek is also building a fourth, small-sized liquefaction train at Yamal LNG. But this project was already running behind schedule before the COVID-19 pandemic took hold. e 0.9mn tpy train had originally been due to start up before the end of 2019. Construction is still only 79% complete, Gyetvay said, and will not nish until the third quarter, with commissioning taking place in the fourth.
As NewsBase reported earlier, delays were allegedly caused by design errors regarding the project’s pipeline system.
Novatek is also at the early stage of planning the 20mn tpy Arctic LNG-1 project. ™
P6
w w w . N E W S B A S E . c o m
Week 18 06•May•2020