Oil and Gas - 3Q20 Earnings to Bounce Back Nicely from 2Q20 Trough
We expect Russian oil and gas companies to report solid improvements in their 3Q20 financials, with sector EBITDA jumping 82% Q-o-Q and FCF reaching $4 bln, above the 1H20 level. We believe that Rosneft, Gazprom and Gazprom Neft are best placed to outperform in terms of Q-o-Q EBITDA growth, as the base from 2Q20 was relatively low. Overall, we see 3Q20 as a turning point for sector financial performance: despite a moderate increase in leverage mainly due to dividend payments, FCF generation looks sustainable, and we expect further improvements next year across the sector, and for gas exporters in particular. Novatek will kick off the earnings season next week, while its peers will mainly be reporting in the second half of November, as usual. > In 3Q20, Brent rose 45% Q-o-Q to $42.9/bbl, which drove a considerable improvement in crude oil upstream profitability. On our estimates, the export netback less MET increased 26% Q-o-Q to $14/bbl. With the taxable base almost doubling, tax benefits for the upstream similarly jumped, while the downstream generally continued to struggle.> These market conditions are most favorable for Rosneft in the oil sector. We see it showing the strongest rebound in quarterly EBITDA (up 92% Q-o-Q), followed by Gazprom Neft (up 59% Q-o-Q). Overall, we expect oil companies' 3Q20 EBITDA to jump 62% Q-o-Q and to exceed the 1Q20 level, despite lower export prices and 14% lower crude production. We expect them to generate $3.8 bln in FCF, comparable with the 1H20 level.> Novatek's financial recovery has been slower than oils', mainly due to stronger resilience to the tough market conditions in 2Q20, its booking of liquids inventory in 3Q20 and a lag in its long-term LNG contracts to the oil price. We forecast its EBITDA (including affiliates) to rise 26% Q-o-Q, with FCF staying thin due to Novatek's ambitious capex program. The expected receipt of $2.1 bln of the remaining cash installments for Arctic LNG-2 should further strengthen its net cash position.> We expect Gazprom's EBITDA to triple in 3Q20 after a very difficult 2Q20. Though the average gas export price improved just moderately, we see other drivers for the 3Q20 financials, including a positive FX effect on receivables, higher export volumes and a stronger liquids segment. The 3Q20 performance should offset most of the negative contribution from 2Q20 for the annual dividends.> The 9m20 results should show the performance of oil companies and gas companies almost converging. We estimate that the 9m20 EBITDA of the former will decline slightly more than the overall decline of 49% y-o-y for the sector as a whole, while Gazprom (down 45% y-o-y) and Novatek (down 29% y-o-y) have been more resilient this year, as expected.
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.
Unfortunately, this report is not available for the investor type or country you selected.
Browse all ResearchPool reportsReport is subscription only.
Thank you, your report is ready.
Thank you, your report is ready.