NOVATEK Announces Consolidated IFRS Results for the Third Quarter and the Nine Months 2020

Mark Gyetvay, Deputy Chairman of the Management Board
Alexander Nazarov, Head of IR
+7 (495) 730-6013
ir@novatek.ru

 

Maria Dokuchaeva, Press-secretary
+7 (495) 721-2207
press@novatek.ru

 

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28 October 2020

Moscow, 28 October 2020. PAO NOVATEK today released its consolidated interim condensed financial statements as of and for the three and nine months ended 30 September 2020 prepared in accordance with International Financial Reporting Standards (“IFRS”). 

IFRS Financial Highlights
(in millions of Russian roubles except as stated)
3Q 2020
3Q 2019
 
9M 2020
9M 2019
161,211 
187,258 
Oil and gas sales
484,447 
634,231 
2,560 
1,904 
Other revenues
7,825 
7,550 
163,771 
189,162 
Total revenues
492,272 
641,781 
(125,570)
(140,604)
Operating expenses
(388,344)
(473,251)
366,390 
Net gain on disposal of interests
in subsidiaries and joint ventures
674,968 
352 
173 
Other operating income (loss)
(46,961)
(988)
38,553 
48,731 
Normalized profit from operations*
104,790 
167,542 
51,260 
56,415 
Normalized EBITDA of subsidiaries*
134,298 
191,332 
93,883 
104,519 
Normalized EBITDA including share in
EBITDA of joint ventures
*
265,821 
338,296 
88,487 
5,740 
Finance income (expense)
179,037 
(558)
(86,804)
18,714 
Share of profit (loss) of joint ventures,
net of income tax
(160,028)
112,969 
40,236 
439,575 
Profit before income tax
75,976 
954,921 
13,172 
369,959 
Profit attributable to
shareholders of PAO NOVATEK
24,056 
820,930 
35,720 
48,539 
Normalized profit attributable to
shareholders of PAO NOVATEK
*, excluding
the effect of foreign exchange gains (losses)
110,487 
178,565 
11.89 
16.12 
Normalized basic and diluted earnings per share*,
excluding the effect of foreign exchange gains
(losses) (in Russian roubles)
36.77 
59.29 
39,821 
36,519 
Cash used for capital expenditures
142,304 
110,198 
* 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 had 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. This recovery has continued throughout the third quarter. 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 third quarter 2020, our total revenues and Normalized EBITDA, including our share in EBITDA of joint ventures, amounted to RR 163.8 billion and RR 93.9 billion, respectively, representing decreases of 13.4% and 10.2% as compared to the prior year corresponding period. In the nine months ended 30 September 2020, our total revenues and Normalized EBITDA, including our share in EBITDA of joint ventures, amounted to RR 492.3 billion and RR 265.8 billion, respectively, representing decreases of 23.3% and 21.4%, as compared to the corresponding period in 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 13.2 billion (RR 4.39 per share) in the third quarter 2020 and to RR 24.1 billion (RR 8.01 per share) in the nine months 2020 as compared to RR 370.0 billion and RR 820.9 billion, respectively, in the corresponding periods in 2019.

The Group’s financial results in 2020 were significantly impacted by a weak macroeconomic environment noted above that resulted in a decrease in our hydrocarbon sales prices and a recognition of substantial foreign exchange effects. Moreover, in both years, we recorded the effects from the disposal of interests in the Arctic LNG 2 project by recognizing a gain in the aggregate amount of RR 675.0 billion from the disposal of a 10% and a 30% participation interests in the Arctic LNG 2 project in March and July 2019, and recognizing a loss of RR 47.8 billion in the first half 2020 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 35.7 billion (RR 11.89 per share) in the third quarter 2020 and RR 110.5 billion (RR 36.77 per share) in the nine months 2020, representing decreases of 26.4% and 38.1%, respectively, as compared to the corresponding periods in 2019.

Cash used for capital expenditures

Our cash used for capital expenditures amounted to RR 39.8 billion in the third quarter 2020 and to RR 142.3 billion in the nine months 2020 as compared to RR 36.5 billion and RR 110.2 billion, respectively, in the prior year corresponding periods. A significant portion of our capital expenditures was attributable to the ongoing development of our LNG projects (the Arctic LNG 2 project prior to March 2019, the LNG construction center located in the Murmansk region and the Obskiy LNG project). In addition, we invested capital in the development and launch of the fields within the North-Russkiy cluster (the North-Russkoye, the East-Tazovskoye and the Dorogovskoye fields), the development of our producing fields (the Beregovoye, the Yurkharovskoye, the West-Yurkharovskoye and others), the development of crude oil deposits of the East-Tarkosalinskoye and Yarudeyskoye fields, and capital spent on exploratory drilling.

Hydrocarbon Production
3Q 2020
3Q 2019
 
9M 2020
9M 2019
150.4 
145.2 
Total hydrocarbon production (million boe)
445.9 
441.3 
1.63 
1.58 
Total production (million boe per day)
1.63 
1.62 
19,131 
18,313 
Natural gas production including
proportionate share in the production of
joint ventures (mmcm)
56,710 
55,883 
10,167
9,679 
Natural gas production by subsidiaries
29,508 
29,713 
8,964
8,634 
Group’s proportionate share in the natural gas
production of joint ventures
27,202 
26,170 
3,023 
3,041 
Liquids production including proportionate
share in the production of joint ventures (mt)
8,992 
9,063 
1,611 
1,632 
Liquids production by subsidiaries
4,665 
4,839 
1,412 
1,409 
Group’s proportionate share in the liquids
production of joint ventures
4,327 
4,224 

Our total natural gas production including our proportionate share in the production of joint ventures increased by 4.5% and 1.5% for the third quarter and the nine months 2020, respectively, compared to the corresponding periods in 2019. The main factors positively impacting our production growth were the launch of the fields within the North-Russkiy cluster at the end of 2019 and in the third quarter 2020 (the Cenomanian and Valanginian horizons of the North-Russkoye field, the East-Tazovskoye and Dorogovskoye fields), as well as 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.

Our total liquids production including our proportionate share in the production of joint ventures marginally decreased by 0.6% and 0.8% in the third quarter and the nine months 2020, respectively, compared to the corresponding periods in 2019. An increase in the production due to the expansion of the gas condensate treatment facility at Arcticgas and the commencement of gas condensate extraction at the North-Russkiy cluster (see above) mostly offset production declines at mature fields of our subsidiaries and joint ventures.

Hydrocarbon Sales Volumes
3Q 2020
3Q 2019
 
9M 2020
9M 2019
16,563 
16,700 
Natural gas (mmcm)
54,149 
57,659 
 
 
including:
 
 
14,359 
13,660 
Sales in the Russian Federation
47,029 
47,548 
2,204 
3,040 
Sales on international markets
7,120 
10,111 
3,771 
4,000 
Liquids (mt)
11,940 
12,106 
 
 
including:
 
 
1,348 
1,551 
Stable gas condensate refined products
4,937 
5,189 
1,093 
1,265 
Crude oil
3,347 
3,606 
723 
684 
Liquefied petroleum gas
2,135 
2,035 
603 
489 
Stable gas condensate
1,508 
1,257 
11 
Other petroleum products
13 
19 
 

In the third quarter and the nine months 2020, our natural gas sales volumes totaled 16.6 billion and 54.1 billion cubic meters (bcm), representing decreases of 0.8% and 6.1%, 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 increased in the third quarter 2020 compared to the prior year corresponding period due to the launch of additional production facilities. Our sales volumes for the nine months 2020 changed marginally as a result of the lower natural gas demand from end-customers in the first half 2020 primarily due to warmer weather conditions.

As at 30 September 2020, we recorded 1.5 bcm of natural gas in inventory balances compared to 1.8 bcm at 30 September 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 third quarter and the nine months 2020, our liquid hydrocarbons sales volumes totaled 3.8 million and 11.9 million tons (mt), representing decreases of 5.7% and 1.4%, respectively, as compared to the corresponding periods in 2019. The decreases were primarily due to changes in stable gas condensate refined products inventory balances. As at 30 September 2020, we recorded 945 mt of liquid hydrocarbons in transit or storage and recognized as inventory as compared to 938 mt at 30 September 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 September 2020
31 December 2019
ASSETS
 
 
Non-current assets
1,623,463 
1,516,371 
Property, plant and equipment
677,463 
556,798 
Investments in joint ventures
433,981 
585,340 
Long-term loans and receivables
382,126 
231,898 
Current assets
394,020 
496,496 
Total assets
2,017,483 
2,012,867 
LIABILITIES AND EQUITY
 
 
Non-current liabilities
235,865 
228,678 
Long-term debt
144,845 
139,852 
Current liabilities
193,347 
117,113 
Total liabilities
429,212 
345,791 
Equity attributable to
PAO NOVATEK shareholders
 
1,570,063 
1,647,509 
Non-controlling interest
18,208 
19,567 
Total equity
1,588,271 
1,667,076 
Total liabilities and equity
2,017,483 
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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