O&G Earnings Preview - 3Q21 Should Be Strong, 4Q21 Even Stronger
The 3Q21 earnings season kicks off next Wednesday, October 27, with Novatek, followed by Rosneft and Gazprom Neft (mid-November) and then Lukoil, Tatneft and Gazprom (end-November). We expect the gas companies - particularly Gazprom - to show a stronger improvement in financials again in 3Q21 on the back of the strong rise in European gas prices. However, the current market conditions suggest an even stronger - and in fact record - performance for the gas names in 4Q21. Gazprom's 2021 DPS could reach R52, offering a 14% yield already next year. This would be the best yield in the sector, with scope for a further improvement. > While the average Brent price climbed another 7% Q-o-Q to $73/bbl in 3Q21, we estimate that crude oil upstream gross profitability remained almost flat Q-o-Q at $19/bbl. The further decline in the export duty lag and growing MET component related to the domestic product subsidy were the key offsetting factors. On the other hand, the refining gross margin more than doubled Q-o-Q to $30 per tonne on the back of a further expansion in refining and domestic recoverable excises, a modest improvement in product crack-spreads and the LPG price spike. On balance, in the oil sector, downstream-heavy Lukoil and Gazprom Neft should have performed better in 3Q21, though Rosneft and Tatneft had a relatively lower base in 2Q21.> Despite a material slowdown in operating growth, the higher gas price means that the gas companies appear set to outperform in terms of earnings growth in 3Q21. For Gazprom, we expect a 53% Q-o-Q increase in the realized gas export price to Europe, which should support a 25% Q-o-Q surge in EBITDA and 33% jump in FCF. Even with a material decline in LNG re-sale volumes, Novatek should still benefit significantly from the much stronger European gas prices and jump in LPG prices. We forecast 16% growth in the company's 3Q21 EBITDA.> Looking ahead to 4Q21, the market environment promises a moderate improvement for the oil companies on the back of stronger oil prices and growing product crack spreads. Gazprom should be able to post record financials, with the European gas export realized price jumping above $550/mcm, on our estimates. Gazprom could generate more than $9 bln in 4Q21 FCF, which would exceed the aggregate result of the oil majors.
Gazprom Neft PJSC is vertically integrated oil company operating in the Russian Federation, CIS and internationally. Co.'s principal activities include exploration, production and development of crude oil and gas, production of refined petroleum products and distribution and market ing operations through its retail outlets. Co.'s Upstream segment includes the exploration, development and production of crude oil and natural gas (including joint ventures results), oil field services. Co.'s Downstream segment processes crude into refined products and purchases and sells and transports crude and refined petroleum products (refining and marketing).
PJSC Gazprom is a gas company based in Russia. Co.'s principal activity is the sale of gas. Co. is also involved in other types of activities which include leasing of assets, gas transportation and storage services, sale of gas condensate and refined products. Co. and its subsidiaries and associates operates gas pipelines systems in Russia. Co. is responsible for substantially all gas production and high pressure gas transportation in the Russian Federation. Co. is also a major exporter of gas to European countries. Co. is directly involved in exploration and drilling for hydrocarbons, production of gas and other hydrocarbons and domestic and export sale of gas and other hydrocarbons.
Novatek is an independent gas producer and natural gas producer in Russia. Co. is engaged in the exploration, production, and processing of natural gas and liquid hydrocarbons. Co.'s upstream activities are concentrated in the Yamal-Nenets region, which is a natural gas producing area and accounts for a significant part of Russia's natural gas production. Co.'s three core fields are located in the regions of Yurkharovskoye, East Tarkosalinskoye and Khancheyskoye. Co. maintains natural gas reserves of approximately 1,144 bcm. Co.'s total net proved reserves totals around 8,088 million barrels of oil equivalent (boe).
PJSC Lukoil is a vertically-integrated oil company engaged in the exploration and production of crude oil and natural gas. Co. is engaged in all main sectors of the modern oil business including supplies, refining, marketing, transportation, petrochemicals and oil-related activities. Co.'s operations are divided into five business segments: Exploration and Production; Refining, Marketing and Distribution; Chemicals; Power Generation and Other Business Segments. Co. owns and operates refineries in Bulgaria (LUKOIL Neftochim Bourgas AD) and Romania (Petrotel-LUKOIL).
OJSC OC Rosneft is a vertically-integrated Russian oil and gas company with upstream and downstream operations in each of Russia's oil-producing regions. Headquartered in Moscow, Co. operates ten oil and gas producing enterprises across Russia and is involved in over ten exploration projects. In addition to its upstream operations, Co. also owns two refineries, which have a combined capacity of 10 million tons per year, as well as four main oil export terminals and a nationwide network of over 600 service stations. Co.'s downstream operations consist of its crude oil export structure, refining operations and nationwide network of marketing subsidiaries.
Tatneft PJSC and its subsidiaries are engaged in crude oil exploration, development and production principally in the Republic of Tatarstan, Russia. Co. is a holding structure, which incorporates oil and gas production boards, crude oil and gas refining companies, as well as enterprises and servicing works selling the crude oil and also the products of crude oil and gas refining and petrochemical products. In addition to this, Co. is also participating in the banking and insurance activities. Co.'s operations are divided into the following main segments: Exploration and Production; Refining and Marketing; and Petrochemicals.
Sberbank CIB Investment Research is a research firm offering equity, fixed income, economics, and strategy research. It covers analysis on all aspects of Russia’s capital markets, issues and industries. The firm analyzes trends in Russia and combines local knowledge with a global perspective. It processes macroeconomic data, market and company-specific news, stock quotes and other information for providing research reports. The firm provides details and latest prices on the most traded names and most traded paper on all segments Russian market. In strategy research, it provides thematic research, tips and descriptions of the methodology used to evaluate companies.
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