Oil and Gas - Strong 4Q21 Results Expected, 1Q22 Outlook Even Brighter
The 4Q21 earnings season is about to kick off starting with Rosneft on Friday, followed by Novatek (February 16) and Gazprom Neft (February 17) next week. Lukoil, Tatneft and Gazprom will report 4Q21 financials in March-April. We expect sector EBITDA to rise again, particularly in the gas segment amid record high European gas prices. Dividend distributions should rise across the sector as well. Based on our estimates for 4Q21, most of the companies should see their full-year financials bounce back above the pre-pandemic 2019 levels, despite the ongoing OPEC+ production limits. The current, upbeat market environment indicates further upside for sector economics in 2022, in our view.> With Urals 9% higher Q-o-Q, a further improvement in downstream margins and - most importantly - skyrocketing European gas prices, the fourth quarter is set to be rather upbeat for Russian oil and gas names. We expect Gazprom and Novatek to lead the pack, posting record quarterly financials, driven by surging gas prices. We forecast Gazprom's EBITDA to jump 77% Q-o-Q to $19.4 bln with $7.6 bln in FCF, while we expect Novatek's EBITDA to climb 39% Q-o-Q to $3.4 bln. In the oil segment, we anticipate a more modest 7% increase in EBITDA and 38% contraction in FCF due to higher capex and normalizing working capital.> For the full year, the O&G sector should more than double EBITDA to $114 bln and nearly quintuple FCF to $47 bln, with the strongest growth coming from Gazprom. Rosneft's financial recovery in 2021 should be weaker than that of Lukoil and Gazprom Neft despite the substantial tax benefits that it receives from the government relative to the rest of the sector. We expect Tatneft to post the weakest financial recovery in 2021, as it lost key tax benefits.> We estimate that Gazprom offers the best dividend yield for 2021 at 16%, which is to be paid in one installment this year. Lukoil's dividend yield for 2H21 should jump to 7.6%, meanwhile. This is close to the annual yield we expect on Rosneft's dividend for the full 2021. Tatneft and Gazprom Neft have already paid out dividends for 9m21, so the remaining expected payments for 2021 should be relatively small.> The current, robust market suggests further upside for FCF and dividends. We project that upstream oil earnings will rise by 15% Q-o-Q in 1Q22, while Gazprom's realized export price should climb by another 15%. We continue to anticipate a much stronger outlook for the gas names in 2022.
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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