NOVATEK

Earnings Release • Jul 29, 2020

National Storage Mechanism | Additional information

RNS Number : 4942U

PAO Novatek

29 July 2020

FOR IMMEDIATE RELEASE

NOVATEK Announces Consolidated IFRS Results

for the Second Quarter and the First Half 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 a gradual 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).

***

For further information, please visit www.novatek.ru or contact:

Press Service +7 (495) 721 2207 press@novatek.ru	Investor Relations +7 (495) 730 6013 IR@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».

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