Page 8 - FSUOGM Week 08 2020

FSUOGM PIPELINES & TRANSPORT FSUOGM
Novatek reports further delays at Yamal LNG train
RUSSIA
KEY FACTS:
• Yamal LNG’s fourth train is now expected to start up in the third quarter.
• Design errors are reportedly the cause.
• Novatek reported strong Ebitda growth in Q4 2019.
RUSSIA’S Novatek has warned of further delays at the fourth train of its Yamal LNG plant, with its launch now expected in the third quarter.
The train, which will produce up to 0.9mn tonnes per year of LNG, had been projected to start up by the end of last year, complementing the output of Novatek’s three existing 5.5mn tpy trains on the Yamal Peninsula. However, Novatek CEO Leonid Mikhelson told reporters last month that its start-up had been pushed back to the second quarter. He did not disclose reasons for the delay, but Russia’s Kommersant newspa- per cited sources as saying that the facility’s pipe- line system had been designed incorrectly.
Despite its small size, the train nevertheless plays a key role in Novatek’s growth strategy, as it will showcase the company’s proprietary Arctic Cascade technology for the first time. In contrast, the other Yamal LNG trains and the upcoming 19.8mn tpy Arctic LNG-2 project rely on foreign technology.
Novatek wants to see Arctic Cascade used at all its future LNG projects beyond Arctic LNG-2. Doing so will help shield the company’s opera- tions if the US imposes sanctions targeting LNG. After the fourth Yamal LNG train, the technol- ogy will next be deployed at the 5mn tpy Obskiy LNG project, which Novatek aims to take a final investment decision (FID) on this year.
In an earnings call on February 20, Novatek CFO Mark Gyetvay reported that the train was currently 73% complete, versus 61% at the end of September.
“When designing liquefaction trains using a modified version of our Arctic Cascade liquefac- tion technology for Obskiy LNG, we decided to improve and enhance the technical solutions on Train 4,” he said. “We will complete the construc- tion and begin commissioning of Train 4 in the 3Q 2020.”
He added that the timing of the fourth train’s launch would have no bearing on Obskiy LNG’s implementation.
Novatek serves as Yamal LNG’s operator with a 50.1% share, while France’s Total has a 20% stake and China’s CNPC and Silk Road Fund have 20% and 9.9% positions respectively. It has said before it does not anticipate needing any partners at Obskiy LNG, while at Arctic LNG-2, expected to start up in 2023, it is joined by Total, China’s CNPC and CNOOC Ltd, and Japan’s MitsuiandJOGMEC.
Gyetvay also commented on progress at Arc- tic LNG-2, noting that 14% of the project’s total $21.3bn capex had already been spent.
“Currently, we are constructing well pads, road infrastructure, water and energy infra- structure, as well as the contractors’ camp,” he
said. “Three drilling rigs are on site and started production drilling. We will mobilise another drilling rig and commence drilling shortly.”
The Utrenneye marine terminal that will han- dle LNG shipments from the plant has secured the main government permits, he said. Con- struction and dredging work is underway.
Arctic LNG-2 will consist of three gravi- ty-based structures (GBSs) positioned on the seabed and containing storage tanks. The pour- ing of concrete into the first GBS has begun and work will soon start on the second, according to Gyetvay.
Finances
Novatek reported Q4 Ebitda growth of 12% q/q under IFRS, beating consensus expectations despite a challenging market environment.
Growth in gas sales and a higher LNG price q/q, along with a higher share of LNG sold under the long-term oil-linked contracts, translated into 19% hike in revenue q/q to $3.5bn, beating consensus expectations by 5%, BCS Global Mar- kets commented on February 19.
Novatek’s net profit dropped by 88% q/q to $0.7bn in Q4, due to the abnormally high bot- tom line of $5.9bn in the previous quarter, when the company cashed in on selling stakes in the upcoming Arctic LNG-2 project to Chinese and Japanese companies. The bottom line in Q4 was also negatively affected by a $0.7bn currency loss.
At the same time the company’s free cash flow almost doubled q/q to $540mn, corresponding to 10% cash flow yield.
BCS GM welcomed the results and noted that solid Q4 performance made the recent sellout in the name seem as an overreaction, reiterating a Hold recommendation on Novatek with target price of $225 per GDR.
The analysts suggest focusing on the current LNG market environment, the launch of the final fourthtrainoftheYamalLNGplant,theprogress of the next Arctic LNG-2 project, as well as the upcoming changes to the dividend payout.
As reported by bne IntelliNews, last month the CEO of the company and the country’s rich- est man, Leonid Mikhelson, said Novatek would decide on improving its dividends in Q2 2020. ™
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