Oil and Gas - Tax Overhaul Spells Higher Risks
In the second half of September, the Duma passed four bills that materially change the structure of tax incentives in the sector. To a large extent, the changes simply represent a shift of the tax burden within the sector. However, they will impact the companies differently and require boosting investment, weighing on sector FCF, and could be followed by another tax increase moving forward. Taking into account these tax changes, we have updated our models, raising our equity risk premiums by 1-2 pp and reducing sector target prices accordingly. We have upgraded Rosneft to a BUY, the company to be supported by additional tax breaks. Meanwhile, we reiterate our BUY on Tatneft and HOLD on Gazprom Neft, while downgrading Lukoil to a HOLD, seeing limited upside to our updated target price.> We estimate that the tax changes, taken together, will have a negative impact on sector EBITDA of less than $2 bln next year, which, however, would turn into a $2 bln boost per year in 2024-25. Yet, according to the 2021-23 budget bill, the Finance Ministry is targeting $4 bln in additional revenues from the oil sector next year, meaning the risk of a further tax increase could rise moving forward.> Rosneft looks to be the main beneficiary of the tax overhaul, which should boost its EBITDA by 8% in 2022-29. Although most of the gains will need to be reinvested, there should be a tangible impact on Rosneft's DPS - we anticipate a 1.4 pp boost to the dividend yield. > Tatneft, Lukoil and Gazprom Neft will lose about $0.5 bln each in terms of EBITDA next year. Due to the cancellation of tax benefits for highly-viscous crude projects, Tatneft and Lukoil will have to cut their highly-viscous capex and production to minimize losses at the FCF level. The implications for Gazprom Neft are of a more temporary nature, though the expected dividend flow in 2021-23 will be dragged on.> We see the mandated transfer of depleted fields to the EPT regime as being positive for the sector starting in 2024, when these fields will receive a 20% MET deduction, though it remains unclear how sustainable this benefit will be. This move probably also indicates that a further transition to EPT is only a matter of time.
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.