OAO Novatek

07/29/2020 | Press release | Distributed by Public on 07/29/2020 05:05

NOVATEK Announces Consolidated IFRS Results for the Second Quarter and the First Half 2020

29 July 2020

Moscow, 29 July 2020. PAO NOVATEK today released its consolidated interim condensed financial statements as of and for the three and six months ended 30 June 2020 prepared in accordance with International Financial Reporting Standards ('IFRS').

IFRS Financial Highlights (in millions of Russian roubles except as stated)

2Q 2020

2Q 2019

1H 2020

1H 2019

140,641

215,789

Oil and gas sales

323,236

446,973

3,298

2,724

Other revenues

5,265

5,646

143,939

218,513

Total revenues

328,501

452,619

(116,239)

(157,507)

Operating expenses

(262,774)

(332,647)

-

-

Net gain on disposal of

interests in subsidiaries

-

308,578

(14,077)

(247)

Other operating income (loss)

(47,313)

(1,161)

27,336

60,759

Normalized profit from operations*

66,237

118,811

37,655

69,193

Normalized EBITDA of subsidiaries*

83,038

134,917

71,270

115,835

Normalized EBITDA including share in EBITDA of joint ventures*

171,938

233,777

(50,903)

(277)

Finance income (expense)

90,550

(6,298)

72,007

23,282

Share of profit (loss) of joint ventures,
net of income tax

(73,224)

94,255

34,727

83,764

Profit before income tax

35,740

515,346

41,564

69,175

Profit attributable to

shareholders of PAO NOVATEK

10,884

450,971

21,220

64,296

Normalized profit attributable to
shareholders of PAO NOVATEK
*, excluding the effect of foreign exchange gains (losses)

74,767

130,026

7.07

21.35

Normalized basic and diluted earnings per share*, excluding the effect of foreign exchange gains (losses) (in Russian roubles)

24.87

43.17

61,340

31,203

Cash used for capital expenditures

102,483

73,679

* Excluding the effects from disposal of interests in subsidiaries and joint ventures (recognition of a net gain on disposal and subsequent non-cash revaluation of contingent consideration).

COVID-19 and Macro-Economic Environment

The spread of the COVID-19 virus in 2020 and the mandated shutdowns by many governments have caused financial and economic stress to the global markets. This negative economic impact has lowered demand for crude oil, natural gas and oil products, which combined with the increase in the supply of crude oil due to the cancellation of the OPEC+ production agreement in the first quarter 2020, resulted in a decline in global hydrocarbon commodity prices.

Global economic activity has begun agradual recovery during the second quarter following the partial removals of restrictions aimed at preventing the epidemic spread, as well as a partial recovery in benchmark crude oil prices following the new OPEC+ production agreement reached and the compliance to the target cuts. Nevertheless, hydrocarbon benchmark prices remain much lower than their pre-crisis levels. In addition, the ongoing volatility in hydrocarbon commodity benchmark prices significantly influences the dynamics of the Russian rouble relative to foreign currencies. As a result, in each quarter 2020, we recognized substantial foreign exchange effects on foreign currency denominated loans by the Group's subsidiaries and joint ventures.

These exogenous events are outside of the Group's management control, and their scale and duration are difficult to assess. Despite the economic instability on the global markets, the Group continues to achieve strong operating results and implement its main investment projects in accordance with the Group's approved corporate strategy. The Group's management continues to assess the current situation and present macro-economic environment and will take appropriate actions if deemed necessary.

Revenues and EBITDA

In the second quarter 2020, our total revenues and Normalized EBITDA, including our share in EBITDA of joint ventures, amounted to RR 143.9 billion and RR 71.3 billion, respectively, representing decreases of 34.1% and 38.5% as compared to the prior year corresponding period. In the six months ended 30 June 2020, our total revenues and Normalized EBITDA, including our share in EBITDA of joint ventures, amounted to RR 328.5 billion and RR 171.9 billion, respectively, representing decreases of 27.4% and 26.5%, as compared to the first half 2019.

The decreases in total revenues and Normalized EBITDA were largely due to a decline in global benchmark prices for hydrocarbons. Our revenues also decreased due to a reduction in LNG sales volumes on international markets resulted from an increase in the share of our joint venture OAO Yamal LNG direct sales under long-term contracts and a corresponding decrease in our spot LNG volumes purchased from Yamal LNG.

Profit attributable to shareholders of PAO NOVATEK

Profit attributable to shareholders of PAO NOVATEK amounted to RR 41.6 billion (RR 13.84 per share) in the second quarter 2020 and to RR 10.9 billion (RR 3.62 per share) in the six months 2020 as compared to RR 69.2 billion and RR 451.0 billion, respectively, in the corresponding periods in 2019.

The Group's financial results in 2020 were significantly impacted by the unfavorable macroeconomic environment noted above, which resulted in a decrease in our hydrocarbon sales prices and a recognition of substantial foreign exchange effects. Moreover, in both years, we recorded effects from the disposal of interests in the Arctic LNG 2 project by recognizing a gain of RR 308.6 billion from the disposal of a 10% participation interest in the Arctic LNG 2 project in the first quarter 2019, and subsequently recognizing losses of RR 34.1 billion and RR 13.7 billion in the first and second quarters 2020, respectively, related to the subsequent non-cash revaluation of contingent consideration on the sale of the 40% participation interest in 2019.

Excluding the effects from the disposal of interests in subsidiaries and joint ventures, as well as foreign exchange differences, Normalized profit attributable to shareholders of PAO NOVATEK totaled RR 21.2 billion (RR 7.07 per share) in the second quarter 2020 and RR 74.8 billion (RR 24.87 per share) in the six months 2020, representing decreases of 67.0% and 42.5%, respectively, as compared to the corresponding periods in 2019.

Cash used for capital expenditures

Our cash used for capital expenditures amounted to RR 61.3 billion in the second quarter 2020 and to RR 102.5 billion in the six months 2020 as compared to RR 31.2 billion and RR 73.7 billion, respectively, in the prior year corresponding periods. A significant portion of our capital expenditures was attributable to the ongoing developments of our LNG projects (the LNG construction center located in the Murmansk region, the Obskiy LNG project and the Arctic LNG 2 project prior to March 2019). In addition, we invested capital in the development of the North-Russkoye and Beregovoye fields, the preparation for production commencement at our new fields (the West-Yurkharovskoye and East-Tazovskoye), development of crude oil deposits of the East-Tarkosalinskoye and Yarudeyskoye fields, and capital spent on exploratory drilling.

Hydrocarbon Production

2Q 2020

2Q 2019

1H 2020

1H 2019

145.3

149.0

Total hydrocarbon production (million boe)

295.5

296.1

1.60

1.64

Total production (million boe per day)

1.62

1.64

18,500

18,910

Natural gas production including proportionate share in the production of joint ventures (mmcm)

37,579

37,570

9,567

9,935

Natural gas production by subsidiaries

19,341

20,034

8,933

8,975

Group's proportionate share in the natural gas production of joint ventures

18,238

17,536

2,921

3,035

Liquids production including proportionate share in the production of joint ventures (mt)

5,969

6,022

1,483

1,607

Liquids production by subsidiaries

3,054

3,207

1,438

1,428

Group's proportionate share in the liquids production of joint ventures

2,915

2,815

Our total natural gas production including our proportionate share in the production of joint ventures decreased by 2.2% in the second quarter 2020 compared to the corresponding period in the prior year mainly due to planned maintenance works performed on two LNG trains at our joint venture OAO Yamal LNG. The decrease in production at mature fields of our subsidiaries and joint ventures was almost offset by the launch of the North-Russkoye field at the end of 2019 and an increase in hydrocarbon production from the Achimov horizons at Arcticgas's Urengoyskoye field due to the expansion of the gas condensate treatment facility in January 2020. In the first half 2020, our total natural gas production marginally increased as compared to the corresponding period in 2019.

Our total liquids production including our proportionate share in the production of joint ventures decreased by 3.8% and 0.9% in the second quarter and the first half 2020, respectively, compared to the corresponding periods in 2019. The declines were mainly due to a decrease in production at mature fields of our subsidiaries and joint ventures and were largely offset by an increase in the production at Arcticgas (see above), as well as the commissioning of new producing wells at the Beregovoye field.

Hydrocarbon Sales Volumes

2Q 2020

2Q 2019

1H 2020

1H 2019

16,900

18,764

Natural gas (mmcm)

37,586

40,959

including:

14,434

15,114

Sales in the Russian Federation

32,670

33,888

2,466

3,650

Sales on international markets

4,916

7,071

4,166

4,130

Liquids (mt)

8,169

8,106

including:

1,893

1,841

Stable gas condensate refined products

3,589

3,638

1,090

1,214

Crude oil

2,254

2,341

688

674

Liquefied petroleum gas

1,412

1,351

491

396

Stable gas condensate

905

768

4

5

Other petroleum products

9

8

In the second quarter and the six months 2020, our natural gas sales volumes totaled 16.9 billion and 37.6 billion cubic meters (bcm), representing decreases of 9.9% and 8.2%, respectively, as compared to the corresponding periods in 2019. The declines were mainly due to a decrease in LNG sales volumes purchased from our joint venture OAO Yamal LNG, as a result of an increase in the share of Yamal LNG's direct LNG sales under long-term contracts and the corresponding decrease in LNG spot sales to shareholders, including the Group. Our natural gas volumes sold on the domestic market decreased as a result of the lower demand from end-customers in the first half 2020 primarily due to warmer weather conditions.

As at 30 June 2020, we recorded 1.0 bcm of natural gas in inventory balances compared to 1.4 bcm at 30 June 2019. Natural gas inventory balances fluctuate period on period and depend on the Group's demand for natural gas withdrawals for the sale in subsequent periods.

In the second quarter and the six months 2020, our liquid hydrocarbons sales volumes totaled 4.2 million and 8.2 million tons, representing marginal increases of 0.9% and 0.8%, respectively, as compared to the corresponding periods in 2019. As at 30 June 2020, we recorded 659 mt of liquid hydrocarbons in transit or storage and recognized as inventory as compared to 852 mt at 30 June 2019. Our liquid hydrocarbon inventory balances tend to fluctuate period on period and are usually realized in the following reporting period.

Selected Items of Consolidated Statement of Financial Position

(in millions of Russian roubles)

30 June 2020

31 December 2019

ASSETS

Non-current assets

1,584,460

1,516,371

Property, plant and equipment

644,873

556,798

Investments in joint ventures

517,926

585,340

Long-term loans and receivables

302,882

231,898

Current assets

380,293

496,496

Total assets

1,964,753

2,012,867

LIABILITIES AND EQUITY

Non-current liabilities

208,873

228,678

Long-term debt

118,499

139,852

Current liabilities

141,233

117,113

Total liabilities

350,106

345,791

Equity attributable to
PAO NOVATEK shareholders

1,595,825

1,647,509

Non-controlling interest

18,822

19,567

Total equity

1,614,647

1,667,076

Total liabilities and equity

1,964,753

2,012,867

The full set of consolidated interim condensed IFRS financial statements, the notes thereto and Management's Discussion and Analysis of Financial Condition and Results of Operations are available on the Company's web site (www.novatek.ru).

PAO NOVATEK is the largest independent natural gas producer in Russia, and in 2017, entered the global LNG market by successfully launching the Yamal LNG project. Founded in 1994, the Company is engaged in the exploration, production, processing and marketing of natural gas and liquid hydrocarbons. Upstream activities of the Company's subsidiaries and joint ventures are concentrated mainly in the prolific Yamal-Nenets Autonomous Region, which is the world's largest natural gas producing area and accounts for approximately 80% of Russia's natural gas production and approximately 15% of the world's gas production. NOVATEK is a public joint stock company established under the laws of the Russian Federation. The Company's shares are listed in Russia on Moscow Exchange (MOEX) and the London Stock Exchange (LSE) under the ticker symbol «NVTK».