Page 182 - RusRPTApr23

Obskiy LNG FID likely in 2Q23-3Q23. NVTK S-T performance may depend on positive news around LNG growth plans. In particular, we think the chances for a Final Investment Decision on Obskiy LNG, based on Novatek’s Arctic Cascade technology, is highly likely by year-end.
First production from Arctic LNG-2 likely in December. Train-1 of Arctic LNG-2 appears on schedule for an August departure from port for the Gydan Peninsula, with first production likely in December.
BCS forecast 2023e DPS at Rb76/sh, or a c7% DY.
Exposure to refined product embargo may be material. Novatek produces relatively little crude oil, but natural gas liquids output is material, much of it exported as naphtha and diesel from the Ust Luga refinery. As such, it faces potential disruption, if temporary, from the EU’s refined product embargo.
Arctic Cascade may still prove difficult to scale up. Although we think Novatek may have resolved most of the teething problems encountered with the launch of the c1mtpa Train-4 at Yamal LNG, a test-bed for Arctic Cascade technology, it may yet prove difficult to scale it up to the 2.5mtpa needed to make Obskiy LNG economic.
Stronger ruble, lower gas and Brent prices. BCS forecasts for 2023e and 2024e fall due to a stronger ruble assumption depressing the USD value of Russian gas sales, the collapse of European gas prices, and a YTD price of Brent (and thus of international refined products) lower than we expected.
TP upgraded, recommendation stable. Our NVTK TP rises 7% to Rb1500/sh on the roll-forward of our model by 3 months. We maintain our rating at BUY. We forecast 2023e DPS at Rb76/sh, or a c7% DY.
● Lukoil
Italian refinery sale avoids loss potential. The EU oil embargo raised the possibility that Lukoil’s ISAB refinery in Sicily could be nationalized, but its sale announced in January avoided that fate, albeit at an undisclosed price. • Dividend outlook for 2023e improving. Our 2023e DPS forecast rises significantly to Rb505/sh vs Rb210/sh as: 1) The fall in payout below 100% of FCF as foreign debt is retired early may be limited by the successful sale of the ISAB refinery and Ghana assets; 2) Higher-than-expected production due to a limited impact of sanctions despite a 500kbd voluntary reduction at the country level; and 3) A more optimistic view on the Urals discount.
Lack of reporting. Lukoil, like most of its peers, has not released IFRS results or operating data since the start of the Ukraine crisis. Although partly accounted for by our high Cost of Equity (20%), continued lack of reporting will tend to decrease our confidence in our model’s forecasts.
182 RUSSIA Country Report Russia April 2023 www.intellinews.com