WOOD Flash – Russian oil and gas: five questions for the start of the year
Unlike a typical sector outlook, with a comprehensive discussion on various subjects, in this flash note, we have decided to focus on the most important questions that could help to generate better returns. In 2020, we are looking to get more clarity on: 1) developments at Surgutneftegas; 2) the potential next steps by Gazprom’s management to raise the efficiency of operations; 3) Rosneft’s dividends, with the yield potentially rising above 10%; 4) external macro events (IMO 2020, the LNG glut, geopolitical risks); and 5) domestic policy, which has been quite favourable for exporters so far. We continue to view the Russian oil & gas sector as quite attractive, supported by strong macro factors (not least by yield compression, which seems to have reached the Russian market, after many years) and bottom-up fundamentals (e.g., improved cost efficiency, higher dividend distributions, better returns on capital). Our top picks remain Lukoil (BUY, PT USD 120) and Tatneft (commons: BUY, PT USD 93; preference shares: BUY, PT RUB 869), as well as Gazprom (BUY, PT USD 8.7).
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