Page 15 - FSUOGM Week 42 2019

FSUOGM PROJECTS & COMPANIES FSUOGM
SOCAR bags work at Turkish UGS project
AZERBAIJAN
THE drilling arm of Azerbaijan’s state-owned SOCAR has bagged a contract worth $100mn to help expand an underground gas storage (UGS) facility in central Turkey.
The Tuz Golu UGS, situated in the Aksaray province, is one of several gas storage sites Tur- key relies on to cover sudden spikes in demand. Its operator BOTAS wants to expand its capacity to 5.4bn cubic metres by 2023.
A joint venture between China CAMC Engineering and Turkey’s IC Ictas Con- struction Industries secured a contract from BOTAS worth $1.2bn to design, supply and install facilities during the second phase of the expansion in March. The pair have now hired SOCAR AQS to sink 40 wells as part of the project.
SOCAR AQS’s presence in Turkey is lim- ited, but its parent SOCAR supplies gas and petroleum products to the country and operates
refining and petrochemicals assets and a chain of filling stations.
Tuz Golu consists of large underground cav- erns made up of natural salt, located around 1,000 metres under the ground. Its expansion is slated to cost $2.5bn, the bulk of which is covered with loans from development banks.
The project is seen as crucial to the energy security of Turkey, which consumed 47.3 bcm of gas last year supplied from Azerbaijan, Russia and Iran. The country will also become a major transit route for gas with the completion of the Southern Gas Corridor (SGC) next year. SGC will pump gas via Turkey from fields off the coast of Azerbaijan all the way to Italy.
Turkey is set to receive extra gas from Russia after the launch of the first 16.75 bcm per year string of the TurkStream later this year. Turk- Stream’s second string is expected online in 2020 and will flow gas to Europe via Turkey.™
RUSSIA
Lukoil pledges to pay at
least 100% of cash flow in
dividends
The board of Russia’s second-largest oil producer, the independent Lukoil, approved the new dividend policy under which the company would pay at least 100% of free cash flow (FCF) less after buybacks, interest and lease payments, compared with around 65-70% previously.
As reported by bne IntelliNews, most recently Lukoil has already boosted its investment case by finishing its $3bn buyback programme ahead of schedule
and launching another $3bn buyback. The company is one of bne IntelliNews’ “King of the castle” names of most valuable stocks on the Russian market worth more than $50bn.
The dividend policy changes “represent a major shift in the cash flow distribution approach from buybacks to dividends. We see this development as a major positive for the stock and expect a further rerating,” Sberbank CIB commented on October 17.
Sberbank expects the total normalised payout yield to increase to around 16% by 2021 versus 11% under the previous approach, predicting the FCF to be distributed primarily as dividends, which is a more straightforward approach [as compared to buybacks] that should be
NEWS IN BRIEF
welcomed by investors.
The management also added that M&A
deals, if there are any, would be financed through debt and would not have an impact on the dividend.
“We reiterate our Long Lukoil Trade Idea after the company announced a buyout offer and a new dividend policy,” BCS Global Markets commented on October 17, seeing the dividend yield at 8% in 2019 “on top of 8% equity already purchased via buyback”.
For 2020 BCS estimates a 15% dividend yield for Lukoil, with a valuation of enterprise value to Ebitda of 3.3x, which is seen as low given the estimated 8% earnings per share.
As for the fixed debt, BCS expects “no significant impact on Lukoil’s credit metrics, which are the strongest in the Russian corporate universe.” The analysts see Lukoil Eurobonds as fairly priced, trading with the smallest premium to the sovereign curve among Russian corporate papers.
Pushed by the buybacks and new strategy presented in March 2018, Lukoil’s capitalisation caught up with that of state hydrocarbon majors in autumn 2018, despite lower output and reserves, as its share price almost doubled during the year.
The shares of Lukoil made it to the global top 10 of 2019 Value Creators Rankings
by the Boston Consulting Group (BCG), earning investors returns of 27.1% for the period of 2014 to 2018.
bne IntelliNews, October 17 2019
Russian pipemaker TMK under pressure in 3Q19
Russia’s largest steel pipe maker TMK reported a decline in seamless pipe shipments of 4% quarter-on-quarter to 0.65mn tonnes in 3Q19, while the welded pipe sales fell by 15% q/q to 0.29mn tonnes.
The report follows weakness in other metals and steel names such as NLMK and MMK. As reported by bne IntelliNews, TMK in particular is seeing additional pressure from increased competition in the seamless steel segment.
BCS Global Markets attributed the decline in seamless segment in 3Q19 to to weak demand in North America stemming from unstable oil price, decreased drilling activity, and high pipe inventories. Also, seamless pipe shipment decreased due to maintenance works in Russia and seasonally weaker economic activity in Europe.
In the welded segment, the decline was also due to weak US demand as well as declined large-diameter pipe shipments in Russia.
BCS GM sees 3Q19 trading update as weak and expects recovery only in the Russian segment, while foreign assets will likely continue showing weakening in their results. The report is seen as slightly negative report, with Hold recommendation reiterated for TMK with $4.2 target price per GDR.
“Going forward, the company anticipates Russian 2019 pipe consumption to remain stable, while US market may continue
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