Page 21 - FSUOGM Week 20

FSUOGM
NEWS IN BRIEF
FSUOGM
RUSSIA
InterRAO to power Rosneft’s Vostok Oil megaproject
Russian utility major InterRao has signed a co-operation deal to power the Vostok Oil extraction megaproject of the country’s largest crude producer Rosneft, Kommersant daily reported on May 12.
As reported by bne IntelliNews, in October last year the Russian government agreed to provide Vostok Oil with a RUB600bn ($9bn) break on the mineral extraction tax (MET), but the project could see investments cut as Rosneft scales back its capital expenditure programme.
Reportedly, InterRAO could get a contract for new power plants burning residual natural gas with a total capacity of 2.5 GW at the Taymir Peninsula, costing an estimated RUB175bn-200bn ($2.4bn- 2.7bn).
However, the financing sources and the investment project for the deal remains unclear, according to Kommersant.
Vostok Oil also comprises the Paiyakhsky fields operated by private firm Neftegazholding, controlled by former Rosneft president Eduard Khudainatov, and the assets of Rosneft-BP joint venture Yermak-Neftegaz. Rosneft has said before that it is seeking international investors to take the project forward.
“We estimate that the construction of 2.5 GW of electric generating capacities would require roughly RUB182.5bn (excluding
the grid system), while the cash pile of InterRAO as of end-2019 was roughly RUB250bn,” Sberbank CIB commented on May 13.
“Though InterRAO’s cash pile could be used to finance the energy infrastructure for the project, the previous experience of cooperation between InterRAO and Rosneft indicates that the final agreement is likely
to be beneficial for InterRAO shareholders,” Sberbank CIB believes.
The analysts see the main questions concerning the economics of the Vostok Oil project itself and the rate of return InterRAO will receive for meeting the project’s energy needs, while awaiting further clarification of the basic parameters of the project.
Sberbank CIB also notes that the market is “still ignoring InterRAO’s cash pile - if
it is invested at an adequate rate of return, investors should start incorporating it into their valuation.”
InterRAO has most recently postponed
the presentation of its key strategy that was anticipated by the analysts amid worsening results in 1Q20.
“We see the delay as negative in the short [term], as many bets were made prior [to] the previously planned date of late May,” BCS Global Markets wrote on April 30, noting that as July and August usually are vacation months the strategy release is only expected in September.
InterRAO saw an 18% decline year on year in electricity output (down by 15% for Russian assets only) and exports volume down by 39% y/y due to weak electricity prices in Europe in 1Q20.
Transneft to pay 75% of
profit in dividends if tariff
raised
Russian oil pipeline monopoly Transneft may pay 50–75% of its net profit in dividends if the government raises the company’s oil pumping tariff to the market level, Transneft said in a presentation on May 18.
“Taking into account the structure
of shareholders in the oil sector, it is reasonable not to reduce, but to raise Transneft tariffs to the market level to eliminate the artificial imbalance that emerged in the sector. Given the increase, Transneft could raise payments to the state and allocate 50–75% of the net profit on dividends,” the company said.
Reduction of tariffs will lead to losses of the state. Transneft pays RUB40–79 of each RUB100 of net profit to the government, while the oil companies pay only RUB14 rubles per RUB100 of net profit to the state in dividends, while RUB42 go to private shareholders.
“Transneft points out that 78.6% of its dividends are allocated to the state, while 15% of dividends go to the Russian Direct Investment Fund and foreign sovereign funds that are friendly to Russia, as
well as to the pension fund of Gazprom and subsidiaries of Gazprombank,” the presentation read.
“Transneft tariff are too low and they are increased slower than inflation. Transneft provides services that are 2.5 times cheaper on average as compared with similar foreign companies,” while work of Russian oil companies is based on the open market principles that allow them to maintain
high profits and make super profits under favorable circumstances, Transneft said.
Demand recovering in Europe, Asia
A fall of oil demand in Europe and the Asia- Pacific Region slowed down to 22% and 12% respectively year-on-year in May from 28% and 18% in April, Russian oil major Rosneft said in a presentation on May 15.
The company also said it will continue development of new oil fields regardless of the OPEC+ deal.
“Rosneft’s approach to production cuts: asset selection (to cut production) based on economic efficiency; continued development of new fields; efficient long-cycle well works to be continued according to schedule; efficient well stock management,” the presentation read.
The company said that it limits flow rates of wells without any shut-ins, ensures recurring well operations, and optimizes the well works program on the existing well stock..
EASTERN EUROPE
Naftogaz pays $1bn to state budget in January-April
In January-April, Ukraine’s state-run oil and gas company Naftogaz paid UAH28bn in taxes and fees to the state budget, the company announced on May 13.
Revenues from the group amounted
to more than 12% of total state budget revenues for the specified period, Naftogaz said.
As reported, Naftogaz and its affiliated companies paid UAH121bn ($4.5bn) in taxes and dividends to the state budget in 2018.
Naftogaz unites the largest oil and gas producing enterprises of the country. The group is a monopolist in storing natural gas in underground storage facilities and transporting oil through pipelines across the country.
Earlier this month, the Ukrainian government said that the majority of
the UAH39.7bn ($1.5bn) generated by Ukraine’s state-run oil and gas company Naftogaz in net profits in 2019 will be spent on funding hospital and road construction and renovation.
Week 20 20•May•2020
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