Page 117 - RusRPTNov22

The EU embargo on Russian oil is not likely to have much of an impact on profits, as a significant decline in export volumes could lead to a marked increase in oil prices, possibly largely offsetting volume effects for Russian exporters. We believe that even a full-fledged embargo could lead to less than 10% EBITDA decline, and in any case, the oil market should largely adjust its logistical routes to the embargo within 12-18 months.
Dividends. Since Gazprom owns more than 95% of Gazprom Neft's shares, we see no reason for the parent company to change the subsidiary's dividend policy, as it will be the main recipient of any payments. Gazprom Neft will almost certainly maintain a payout ratio under its dividend policy of 50% of IFRS net income.
● Rosneft
Rosneft continues implementing joint projects with BP, Chief Executive Officer of Russia’s oil major Igor Sechin said at the 15th Verona Eurasian Economic Forum in Baku, adding that the Kharampur gas project was brought into operation in September. "The successful implementation of joint projects with BP continues. For example, despite the lack of financing from the partner, the Kharampur gas project was brought into operation as scheduled in September, which allowed increasing the company’s production by 11bn cubic meters per year," he said. BP owning a 19.75% stake in Rosneft, said in February it would divest it.
British multinational BP remains Rosneft’s shareholder, with $700mn worth of dividends for 2H 2021 transferred to the company’s account, Chief Executive Officer of Russia’s oil major Igor Sechin said at the 15th Verona Eurasian Economic Forum in Baku.
BCS GM DDM-based TP for ROSN falls 12%, from 430/sh to 380/sh, and we upgrade our rating from HOLD to BUY. We continue to think that Rosneft will come through the current crisis in good shape, given the considerable cash reserves, which help to offset considerable debt on the balance sheet and full support of the government. However, the stock does not meet 2 of our 3 preference criteria: Although an oil company (positive), it is also state-owned and carries a relatively heavily-levered balance sheet (negative).
Sanctions are unlikely to affect long-term business plans. The new EU embargo on oil exports from Russia is not likely to have a strong impact on the company's profits in the long term. In the short term, pressure is possible, but the factor of reduced exports and the Urals discount will recede in the course of 2-3 years, and in the meantime will be partially offset by higher global oil prices.
Dividend risk has declined noticeably. After the unexpected declaration by Gazprom of its first-ever and record-breaking interim dividend on 1H22 results,
117 RUSSIA Country Report November 2022 www.intellinews.com