Page 100 - RusRPTJul19

Novatek’s partner in Yamal. “Japan is an important LNG market and one of the priority destinations in our LNG marketing strategy,” said Leonid Mikhelson, Novatek’s chairman of the management board. He added that further development of the logistical chain using the Northern Sea Route and a trans- shipment terminal in Kamchatka will expand LNG supplies to Japan “as well as strengthen trade and economic links between our respective countries.” Novatek has already been shipping LNG to Brazil, China, India, and other countries. The company aims to expand its supply geography and increase the presence in key Asian markets. Earlier this month, two of Japan’s largest general trading companies, Mitsui & Co. and Mitsubishi Corporation said they will acquire a 10% stake in the Arctic LNG 2 project.
Novatek, Russia's second-largest natural gas producer with ambitious liquefied natural gas (LNG) strategy, will form a joint venture with Chinese Sinopec to sell and LNG and natural gas to end-customers on the domestic Chinese market, the company said on June 6. In April Novatek sold 20% in its second LNG project Arctic LNG-2 to Chinese CNOOC and CNODC, with 10% stake sold to each. The Russian company has already closed the deal to sell a 10% stake in the project to its French strategic partner and shareholder Total energy major. "Chinese companies are currently participating in Novatek’s LNG projects, so a JV in the Chinese market is a logical extension," BCS Global Markets commented on June 6, seeing the news as neutral for Novatek at this stage. The CEO of Novatek and Russia's richest Forbes-ranked stoligarch Leonid Mikhelson said the JV would ensure that LNG produced by facilities in Russia will be sold and would give Novatek access to the growing Chinese end-consumer segment. Novatek launched its first major LNG project Yamal in 2017 despite Western sanctions against its shareholder and influential Kremlin insider and stoligarch Gennady Timchenko. The company has also adopted an ambitious strategy for LNG growth through 2030 and is now lining up a tanker transportation strategy to back it up.
● Other
Russia's oil pipeline monopoly Transneft reported 11% quarter-on- quarter rise in Ebitda to $1.96bn in 1Q19, beating consensus expectations by 7%. The company's revenues slid by 1% q/q to $3.9bn, in line with expectations due to lower transportation volumes on the Opec+ output cut deal. Transneft and its dividend outlook were in focus since April due to the crisis surrounding supplies of contaminated oil through Druzhba pipeline and Ust-Luga port, and the possible compensations the company would have to pay to European refineries and Belarus. The company's net profit declined by 9% q/q in 1Q19 to $759mn, affected by a one-off $77mn foreign currency loss, still beating consensus expectations by 2%, BCS Global Markets commented on June 3. Transneft's adjusted free cash flow [FCF] almost doubled q/q to about $309mn, BCS estimated. "Ebitda and FCF adj. beat expectations due to efficient cost management," BCS noted, warning, however, that "the risks associated with oil pollution will continue to cap growth in the name." "Although we deem the results as positive for the stock, we believe that uncertainty over potential expenses and compensation payments due to the contaminated oil, as well as their effect on dividends, remain the key concerns for investors," VTB Capital wrote on June 3. VTB notes that the company has not booked any reserves for the contaminated oil in 1Q19, with potential dividends potentially lowered on compensation expenses, the size of which is yet unclear. Nevertheless, VTBC reiterated the Buy recommendation on Transneft with an unchanged 12-month target price of RUB225,000 per share implying an
100 RUSSIA Country Report July 2019 www.intellinews.com