Page 106 - RusRPTMay19

9.2 Major corporate news 9.2.1 Oil & gas corporate news
● Gazprom
Russia's natural gas giant Gazprom reported a two-fold net profit increase in 2018 to RUB1.46 trillion ($22.6bn) under IFRS, the company said on April 29. Revenues of Gazprom increased by 26% year-on-year to RUB8.22 trillion, due to higher sales of gas, refining products, and crude oil. Most recently Gazprom recommended a record-high dividend in absolute value terms. Nevertheless, at 17% of total IFRS profit, it remained way below the 50% of IFRS net profit demanded by the Ministry of Finance. So far Gazprom has managed to avoid paying out the full 50%, citing the need to maintain a sizable investment programme and nation-wide gas infrastructure. In the meantime, the investment programme of the state behemoth might become more difficult to control and less transparent. RBC business portal reported on April 29, citing internal Gazprom memo's, that the RUB1 trillion capex programme for 2019 could be managed by a specially designated internal subcontractor reporting directly to the company's board. For the fourth quarter of 2018 alone, Gazprom "has printed strong headline numbers, coming above both our forecast and the market consensus on EBITDA and net income, but mainly due to the positive effect of the revaluation of pension liabilities," VTB Capital commented on April 29. Still, "during the conference call, the company reiterated its longstanding intention to gradually move to the 50% of IFRS payout ratio, which sounded supportive for the name and was reflected in the share price dynamics," VTB Capital commented. The bank maintains the Hold recommendation for the Gazprom stock, based on an unchanged 12-month Target Price of $2.30, which implies a 1% estimated total return (ETR). Gazprom's net debt increased by 26% y/y to RUB 3 trillion in 2018, on both higher long-term loans and loans in rubles due to currency rate changes in euro and US dollars.
Shell has decided to withdraw from Gazprom’s Baltic LNG project in Ust- Luga, according to Royal Dutch Shell CEO Cederic Cremers. The potential reason behind the decision was a change in the project’s concept, which might include the construction of a gas-chemical complex together with an LNG plant. Gazprom began talks with Shell back in 2015 for the construction of the plant in Ust-Luga. At that point, Shell was considered Gazprom's only partner for the project, and hoped to build off of their existing joint ventures at Sakhalin-2. Baltic LNG was slated to reach a capacity of 10mn tons of LNG annually, and projected to cost $11.5bn according to Shell's estimates. On March 29, Gazprom announced it was changing the structure of the concern running the project and was partnering with Rusgazdobycha to build an LNG plant with 13mn tons of annual capacity. Rusgazdobycha is controlled by a holding company owned by stoligarch Arkady Rotenberg. There was never any final decision regarding Shell's participation in Baltic LNG, but the announcement came as a surprise given the firm's hopes to expand operations in Russia during the current rush of LNG investments globally. After three years work on the Baltic Coast project, Shell discovered that Gazprom was bringing in a company linked to Arkady Rotenberg, who is on a U.S. sanctions blacklist. The sudden change in the line-up of partners was one of the key factors contributing to Shell's Wednesday announcement that it was pulling out of the project, according to three sources close to Shell and two other sources familiar with the project. According to the two sources close to Shell, Gazprom
106 RUSSIA Country Report May 2019 www.intellinews.com