Page 15 - FSUOGM Week 27 2021

FSUOGM NEWS IN BRIEF FSUOGM

RUSSIA positive economic effect from the potential company-specific drivers and potential
asset purchase. geopolitical shifts will provide the catalysts
Lukoil to take the reins at month Tatneft said it will acquire 100% of for a further appreciation in Russian gas
As reported by bne IntelliNews, last
stocks relative to oils.
Area 4 the Ekopet PET plant in Kaliningrad region investment appeal has been rapidly
Regardless of ESG, Gazprom's
from the "bad assets" of Trust Bank for
Russia’s Lukoil is slated to acquire a 50% RUB6.45bn ($87.8mn). Ekopet is the largest improving, supported by soaring prices,
stake in the production-sharing agreement polyethylene terephthalate (PET) plant bullish gas demand and improved dividend
(PSA) covering Area 4, located offshore in Russia and Europe, with a capacity of payments. Novatek is Russia's leading
Campeche State in the southern Gulf of 0.22mn tonnes per year (tpy). developer of liquefied natural gas (LNG)
Mexico, from the site’s current operator VTB Capital (VTBC) estimated that projects.
PetroBAL, a subsidiary of Mexico’s TAIF-NK might generate a refining margin It is expected that rising CO2 prices,
GrupoBAL. of $23 per tonne in 2021 versus $37/tonne coupled with the hot weather this summer
The Russian company announced the by Tatneft’s Taneko. in Europe (after the cold winter this year,
acquisition in a statement dated July 5, In order to improve the refining margin, which resulted in a tangible recovery in
saying it had signed an agreement with the plant needs to be modernised by gas demand, partly covered by gas from
PetroBAL on the project. The agreement constructing and commissioning secondary storage) and declining LNG supplies, will
provides for Lukoil to become the operator refining capacities, which would mean keep gas prices at historical seasonal highs.
of Area 4 as well as a shareholder in the additional capital expenditures for Tatneft VTBC sees the refusal of Gazprom
PSA, the statement said. and pressure on the company’s free cash to book additional transit capacities
Lukoil estimated the value of flow. through Ukraine as not likely to pose any
the transaction at $435mn plus any "We also note that TAIF-NK had a fundamental risks for the company.
expenditures incurred this year by the $1.3bn net debt as of the beginning of 2021. "However, it might spur spot gas prices
closing date of the deal. It also noted that Therefore, all in all we treat the potential in Europe, which would be positive for
the asset acquisition would have to be purchase of the refinery as negative for Gazprom’s margins, and also help Novatek’s
approved by Mexico’s government. Tatneft’s fundamentals, with the respective earnings (thanks to the spot LNG supplies),
The deal will allow the Russian major stock reaction," VTBC wrote, while although to a lesser extent," the analysts
to lead development operations within a maintaining a Hold rating on the company's argue.
58-square km area that lies 42 km from shares. The current gas market environment
shore in waters ranging from 30 to 45 In September 2018 the company contributes to VTBC's positive stance on
metres deep. Area 4 contains two oilfields approved a 2030 strategy, which targeted Gazprom (which might deliver the highest
known as Pokoch and Ichalkil. These more refining and downstream segment dividend in the sector, of more than 16%
fields contain some 564mn barrels of oil exposure, including the construction of a for 2021) and Novatek (which has the first
equivalent (boe) in recoverable reserves, RUB70.6bn gas chemical complex by 2024. "blue" hydrogen endeavour among domestic
with crude oil accounting for 80% of the But the shares of Tatneft have peers).
total. underperformed the market mostly on
PetroBAL acquired the right to develop disappointment with its dividend payouts.
the block in 2016, when it signed the Tatneft depends on tax
PSA, which has a term of 25 years and an
option for a 10-year extension. It has said CO2 prices supportive break regulation
it wants to develop the licence area in three
stages, the first of which is due to begin for Russian gas majors The shares of Russian oil regional oil major
production in the third quarter of this year. Tatneft of the Tatarstan republic have
Output levels will eventually peak at around Gazprom and Novatek underperformed the market mostly on
115,000 boe per day (boepd). disappointment with its dividend payouts,
Vagit Alekperov, the president of The CO2 price recovered to €54.20 per Sova Capital analysts wrote on June 29.
Lukoil, said he expected the Area 4 tonne ($64.50 per tonne) as of June 29, VTB As reported by bne IntelliNews, Tartneft
project to benefit his company. “Lukoil Capital (VTBC) wrote citing the Bloomberg is the company most exposed to the
considers Mexico a strategic region for the data. Spot gas prices (TTF) rose to $414 per proposed raising of the Mineral Extraction
development of our international upstream 1,000 cubic metres, as Gazprom opted not Tax (MET) on high-viscous oil and other
operations,” he commented. “The new to book additional gas transit volumes via proposed reforms to the taxation of the
project, where we will be the operator, is Ukraine for July, according to comments oil sector. The management estimated the
notable due to its considerable explored from Interfax. losses at RUB80bn ($1bn).
reserves and significant production VTBC analysts previously argued that As a result, the company's dividend
potential. It naturally complements our spot gas prices had started to correlate well payments have been in limbo. It was notably
existing portfolio of projects in the Gulf of with the CO2 quotes from early 2020 on the the first Russian oil company to cancel its
Mexico.”. back of the growing importance of climate- dividend for 4Q19, citing the impact of the
related issues globally. coronavirus (COVID-19) pandemic.
The CO2 prices have been rising steadily Sova now new estimates that Tatneft will
Tatneft could spend more in since the end of 2020, currently being close pay 50% of IFRS net income for 2021-2023
and then switch back to paying out 100%
to the historical high recorded in May
downstream 2021. Thus VTBC continues "to emphasise of free cash flow (FCF) from 2024, with the
return to paying out 100% of FCF seen as
our preference to gas names Gazprom and
Russian regional oil major Tatneft of Novatek vs. oil names in the sector". a potential positive trigger for the stock.
the Tatarstan republic could consider As followed by bne IntelliNews, VTBC However, it should depend on coming to an
purchasing the TAIF-NK refinery (part of previously argued that Gazprom and agreement with the Russian government on
TAIF) in Nizhnekamsk (Tatarstan), should Novatek have a fundamental advantage tax breaks.
it receive an appropriate offer and there is a in terms of ESG, which coupled with According to comments from Deputy

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