Page 13 - FSUOGM Week 50 2020

FSUOGM INVESTMENT FSUOGM

Lukoil eyes sale of oldest Kazakh asset

KAZAKHSTAN RUSSIAN oil firm Lukoil is reportedly planning free cash flow (FCF) all goes back to sharehold-
to sell its interest in Kumkol oilfield in Kazakh- ers in the form of dividends, despite difficult
Lukoil has a 50% stan’s southern Kyzylorda region, representing market conditions.
interest in Turgai its oldest asset in the country. According to the sources, the expected buyer
Petroleum, operator Lukoil has a 50% stake in Kumkol’s operator of Lukoil’s stake in Turgai is a private company
of the mature Kumkol Turgai Petroleum, whose other owner is Petro- called KVK Petroleum, co-owned by former
field. Kazakhstan, a joint venture between China’s Kazakh President Nursultan Nazarbayev’s son-
CNPC and Kazakhstan’s state-owned KazMu- in-law Timur Kulibayev. A deal is expected to
nayGas (KMG). Kumkol was discovered in close this month, Reuters said.
1984 and began oil production in 1997. Output Kulibayev has gained international notoriety
peaked in 2007 at 72,500 barrels per day but following a December 3 report by the Financial
has since fallen rapidly and now averages only Times which alleged that he siphoned off tens of
around 7,000 bpd. millions through a corruption scheme linked to
Lukoil is looking to divest the asset to focus the construction of the Central Asia-China gas
on more profitable ventures in Kazakhstan, pipeline system.
Reuters reported on December 11, citing indus- Lukoil has a 13.5% stake in the Karacha-
try sources. The company is a minority partner ganak field and a further 5% interest in Ten-
in the Tengiz and Karachaganak fields, which gizchevroil, the operator of the Tengiz and
alongside Kashagan represent the country’s big- smaller Korolev fields. The company also has
gest upstream projects. a 12.5% position in Caspian Pipeline Consor-
Oil produced by Turgai is transported to tium (CPC), which ships Kazakh and Russian
Kazakhstan’s Pavlodar oil refinery and to China oil to the Black Sea coast, for export to Europe
via the Atasu-Alashankou pipeline. via tankers.
Lukoil, Russia’s second-biggest oil producer In addition, Lukoil has committed to explor-
by output, entered Kazakhstan in 1995. It is cur- ing several areas in Kazakhstan’s section of the
rently under pressure to raise cash, as its adjusted Caspian Sea. ™

Surgutneftegas recovers in Q3

RUSSIA RUSSIAN oil major Surgutneftegas (Surgut) removed, BCS GM argues, while reiterating Buy
reported $3.7bn in Q3 2020 revenues under calls for both ordinary and preferred shares of
The company's Russian Accounting Standards (RAS), with Surgut.
infamous cash pipe was Ebitda of $1.1bn. Surgut's net cash position, or Previously ruble weakness in 2020 drove
up $0.5bn quarter on the infamous "cash pile", was up $0.5bn quar- expectations of a huge foreign currency gain on
quarter. ter on quarter, from circa $47.3bn to $47.8bn, the company’s $48bn cash position. With a 40%
largely in line with expectations. dividend payout of earnings per share, Surgut
As followed by bne IntelliNews, Surgut is is likely to have its fourth very large dividend
the Russian oil sector's "dinosaur", known for payout of the last 6-7 years, BCS GM argued in
its ultra-conservative financial policies, bas- October.
ing operations only in rubles, and its huge cash "9M20 net income implies RUB8.33 9M20
reserves, which are almost as large as Russia's dividend per share (DPS) for preferred shares
sovereign reserves. (some 20% non-annualised interim dividend
BCS Global Markets commented on Decem- yield)," VTB Capital commented on December
ber 11 that the significant normalisation of prof- 14.
itability seen in Q3 2020 underlines the trough However, VTBC analysts expect the com-
nature of Q2 2020 for Surgut. pany to realise an foreign currency loss in the
The analysts note that Q3 2020 Ebitda per final quarter of the year, and project the 2020
barrel of oil was only -8% compared with DPS to be somewhat lower, although still "trans-
the $12.6 barrel of the previous five quarters, lating into tangible 17% dividend yield."
and as such was almost completely "normal- Sova Capital estimated the dividend yield on
ised". "The remainder can largely be put to a Surgut preferred shares at 15%-17% on Decem-
still-struggling refining sector in Russia," BCS ber 14, depending on the ruble exchange rate
GM believes. projections. "The company’s preferred shares
Even though no management call or com- were up on Friday following the results release,"
mentary on these results are expected, further Sova wrote, continuing to like the preferred
rebounds in earnings will come more from vol- shares exposure for their 2020 dividend and
ume increases as OPEC+ deal constraints are reiterating a Buy call. ™

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