Oil and Gas - 2Q21 Earnings Season: Gazprom's Yields in the Spotlight Again
We expect further improvements in oil and gas sector financials in 2Q21. We forecast sector EBITDA growing 8% Q-o-Q and a 28% Q-o-Q jump in sector net income, though we expect FCF to ease modestly Q-o-Q, mainly due to a seasonal uptick in capex. We expect Gazprom (10%) and Tatneft (7%) to lead the sector in terms of 1H21 FCF yields. We see the highest semiannual dividends coming from Lukoil (5.7%) and Gazprom Neft (5.5%), while Gazprom's proxy 1H21 dividend yield (a contribution to the annual DPS) could reach 6.5%. Novatek will be first to report on July 28, followed by Rosneft and Gazprom Neft in mid-August, with Lukoil, Tatneft and Gazprom bringing up the rear in late August.> Although Brent averaged 15% Q-o-Q higher last quarter at $68/bbl, we anticipate only a moderate improvement in upstream profitability. Effectively, upstream profitability is flattening on a quarterly basis. Downstream margins remain relatively weak due to low diesel and jet fuel crack-spreads, though gasoline profitability has almost fully recovered and both domestic and refining recoverable excises have increased. European spot gas pricing jumped 35% Q-o-Q and was up more than fivefold y-o-y.> Despite seasonal factors, we expect another strong quarter for Gazprom on the back of stronger export pricing. We see EBITDA jumping almost sevenfold y-o-y. We expect 2Q21 to provide an even stronger DPS contribution to the full-year payment, raising the 1H21 proxy DPS to R18 (for a 6.5% yield) - already higher than any of Gazprom's historical annual dividend payments. The current gas pricing environment and forwards underscore that Gazprom's earnings and FCF still retain really strong momentum.> We expect Gazprom Neft's and Tatneft's financials to improve substantially, while Rosneft is catching up with the sector after a really weak 1Q21 financial performance. Among all of the oil companies, we expect the strongest 1H21 dividend yields from Lukoil (5.7%) and Gazprom Neft (5.5%) and the weakest from Rosneft (3.2%). Tatneft should pay at least 4.3% for 1H21 (with a FCF yield of 7.4%).> We expect Novatek's financials to improve Q-o-Q in 2Q21, mainly due to a stronger contribution from Yamal LNG and robust European gas pricing, though we see it lagging peers in terms of y-o-y growth because of the company's operating and financial resilience last year. We think the highlight of Novatek's results will be a robust improvement in FCF generation driven by Arcticgas dividends.
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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