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 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 
Other petroleum products

 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».

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