Page 120 - RusRPTMay20

above our forecast and 4% below the market estimate. Significant loss from associates and FX gain. Below the operating level, Novatek reported a $2.2bn loss from associates (due to the ruble appreciating 18% against the euro in 1Q20), which was close to our forecast of $2.1bn. However, the FX gain of $2.2bn was above our forecast. However, the difference in the FX gain was offset by $0.4bn of income tax, despite almost zero taxable profit before tax (we expected zero income tax). As a result, adjusted net income of -$62mn was close to our forecast of -$69mn and sizably less than the consensus estimate of -$330mn. The non-adjusted bottom line dropped to -$462mn in 1Q20. On the back of the $533mn capex for the period, the company’s FCF came at $357mn (including a $284mn gain from changes in working capital).
The government has approved a capacity expansion of the Utrenny LNG terminal on the Gydan Peninsula​, operated by Russian natural gas major and global LNG runner-up Novatek, according to Prime. Utrenny was originally designed to house LNG (liquefied natural gas) trains for the Arctic LNG-2 project of Novatek planned to be launched in 2023. However, the reported capacity expansion from 21.6mn tonnes to 43mn tonnes, will allow the terminal to also accommodate the next Novatek's LNG project, Arctic LNG-1. “Each of these projects is planned to produce 19.8 mln tonnes of LNG on three LNG trains," Sberbank CIB reminds on April 16. In addition, the government has also approved an increase in the capital investment for the terminal from RUB144bn (including funding from both the government and Novatek) to RUB164bn, according to RIA Novosti.
● Other
BP announced 1Q20 financial results, showing $17mn loss from Rosneft.
BP owns a 19.75% stake in Rosneft. Hence, the recognized loss may suggest Rosneft’s bottom line fell to -$86mn. That said, Rosneft’s 1Q20 IFRS may not perfectly match BP’s statements, as the latter includes various one-offs.Net income may become negative, but more likely in 2Q20. In 1Q20, BP’s numbers were likely impacted by FX loss on ruble devaluation. However lower q/q oil prices and relatively high export duty definitely implies weak results for Rosneft – we expect c$1.3bn net income adj for FX, nearly halved q/q, as net margin is low (due to its high leverage) and bottom line is highly sensitive to EBITDA fluctuations. In 2Q20, Rosneft’s net income may turn into a loss, given current Urals price dynamics.
Tatneft​ held a conference call on FY19 IFRS. ​A decrease in crude oil sales of 11% q/q was largely offset by an increase in refined product sales, as a result of the crude processing expansion at TANECO The growth of crude purchases in 4Q19 (to 5.3% of consolidated oil production) was related to intensified trading activities only Tatneft is examining different CapEx cut scenarios, depending on the market environment and possible production cuts. However, for now, the company sees no reason to change its projects Storage capacity is high, as illustrated by problems with Druzhba in 2019, albeit in the current environment there is no such thing as sufficient storage capacity Tatneft expects gasoline demand to decline, but for now, refineries are operating at full capacity Tatneft says it has no intention to change the dividend policy and 100% FCF distribution remains the main concept for now. However, the company also highlighted that there is no obligation to keep 2019 DPS flat y/y or higher (i.e., 4Q19 DPS may be rather low y/y). BoD will make its recommendation on 4Q19 dividends this month Kirill Tachennikov
120​ RUSSIA Country Report​ May 2020 ​ ​www.intellinews.com