Page 78 - RusRPTJune18

Gazprom Neft , the oil arm of Russia's natural gas giant Gazprom , reported net IFRS profit of RUB69.7bn ($1.1bn) in the first quarter of 2018 , increasing by 12.4% year-on-year. Company's adjusted Ebitda was up 32% y/y to RUB156bn and free cash flow (FCF) stood at RUB11.6bn. The results came slightly above consensus expectations, driven by the supportive macro environment for the upstream operations, VTB Capital commented on May 29. "Although Gazprom Neft’s crude oil and oil products sales volumes dropped 3.9% q/q and 1.5% q/q in 1Q18, driven by both lower production/refining and purchases, strong macro (Urals [blend] was up $4/barrel q/q) meant that the company’s total revenues grew 2% q/q to $9.5bn," VTB notes. The analysts also note better-than-expected cost performance, which helped to contain slightly higher transport costs, costs of crude and products purchases, and taxes, and supported Ebitda growth. FCF in the reporting quarter was due to low capex, but VTB doubts that Gazprom Neft "sizably underinvest compared with its own guidance for 2018 of RUB380bn ($6.1bn)."
Advancing its ambitious LNG plans further, Russia's second-largest gas producer Novatek signing a binding agreement with France's Total for the purchase of 10% share in the Arctic LNG-2 project. Arctic-2 LNG is a second LNG plant Novatek is planning, launched its first major LNG project Yamal despite Western sanctions earlier this year. The company has also adopted an ambitious strategy for LNG growth through 2030 . Total will have the right to acquire an additional 5% in the project should Novatek decide to reduce its stake below the currently planned 60% in Arctic-2 (ALNG-2). The project is valued at $25.5bn for the purposes of the deal, which means Novatek raised about $2.55bn from Total. At the same time Novatek CEO and main shareholder Leonid Mikhelson said that with ALNG-2, unlike the Yamal LNG project, will prioritise equity financing over external borrowings. "Total already partners Novatek in Yamal LNG with a 20% share while holding a 19% stake in Novatek," Aton Equity reminds on May 24. "Though anticipated and logical, we believe Total's partnership in ALNG-2 is a Positive development for Novatek that is seeking to attract international partners to its next LNG endeavour while also financing its part of the investments via the sale of equity stakes in the project," the analysts believe.
Russia's independent oil major L ukoil reported first-quarter revenues of RUB1.63 trillion ($25bn), rising by 14% year-on-year and slipping 2% quarter-on-quarter. Company's Ebitda gained 6% y/y to RUB220bn, with net income at RUB190bn. Revenues and earnings came in line with the consensus expectations, while bottom line beat the forecast by 2%. Private Lukoil has recently caught up with capitalisation of Russia's state energy giants Gazprom and Rosneft , coming into investor focus despite smaller output and resource base. Company's earnings have been "expectedly affected by improved macro, but muted by softer production volumes vs 4Q17, and worsened refining margins," Aton Equity commented on May 29, seeing the numbers as neutral for the stock. Free cash flow in the first quarter was strong at RUB42bn, while debt burden stayed stable at 0.3x net debt to Aton's 2018 Ebitda estimate. The absolute debt number totals RUB313bn making a 9% q/q hike and a 33% y/y drop.
Russia's second-largest gas producer Novatek has established its own transportation subsidiary , Sea Arctic Transport (MAT, Morskoy Arktichesky Transport), to manage its fleet of tankers and icebreakers delivering liquefied natural gas (LNG) from its major projects, the company
78 RUSSIA Country Report June 2018 www.intellinews.com