"Tatneft" (MCX: TATN) — a large Russian oil and gas holding. Located in Tatarstan, engaged in oil and gas production, oil refining and petrochemical industry. Besides, the company operates its own filling station network, controls Zenit Banking Group and develops and manufactures equipment for the oil and gas industry.
11 January, the company published operating results for 2021, which reflected the growth of key production indicators relative to the crisis year 2020.
I propose to assess the situation in the oil and gas industry and consider the dynamics of Tatneft's key production results over the past 5 years, to understand, did the company manage to return to pre-crisis indicators and what can be expected from the company's financial results in 2021.
Disclaimer: if we write, that something has risen or fallen by X% or X times, then by default we mean a comparison with the report data for the same period last year, unless otherwise stated.
Position in the industry
In 2021, the global oil market continued to recover from one of the deepest crises in the industry. Let me remind you, that at some point the market prices of contracts for the supply of oil went negative - for the first time in history.
The largest oil-producing countries have agreed on restrictions on oil production with 1 May 2020 as part of the OPEC+ deal, which are still active. Partly thanks to this, it was possible to stabilize the situation and restore oil prices., which since 2 half of 2021 exceeded pre-crisis levels. On 11 January, the price of futures contracts for the supply of Brent crude oil exceeded 83 $ per barrel - a very comfortable level for oil companies.
Despite the fact that OPEC+ countries are gradually reducing restrictions, the world market in the coming years may face a shortage of oil against the backdrop of a general lack of funding for the oil sector in recent years. In particular, major Russian oil companies are already reporting, that they have practically exhausted free capacities for increasing production. All this can lead to, that free capacities will end in 2022, that is before, than all restrictions on production will be lifted.
What about production
The main production facilities of Tatneft are located in Russia, and owns one of the world's largest deposits - Romashkinskoye, whose oil reserves are estimated at 5 billion tons.
According to the results of 2021, the company's enterprises produced more than 27.8 million tons of oil, What's on 7% exceeds 2020 results. Growth linked to production recovery from low 2020 base, when oil production dropped to a minimum amid the crisis and restrictions. I will note, that at the end of 2021, production has not returned to pre-crisis levels, and since May, the monthly volume has been approximately in the same range and does not exceed 2.5 million tons.
Tatneft controls a number of oil refining and petrochemical production sites through the TANECO production complex.
In 2021, the volume of crude oil refining at TANECO enterprises increased by 10% and amounted to a record 12.5 million tons. The volume of output of petroleum products also reached a historical maximum - increased by 14% and amounted to 12.9 million tons. About 1.5 million tons of this volume fell on gasoline, and 5.8 million tons - for diesel fuel.
Growth in the output of petroleum products is mainly due to the expansion of production capacities against the backdrop of the implementation of the investment program, as well as with an increase in demand for products in the Russian market.
Operating indicators of TATNEFT, million tons
| Oil production | Oil processing | Release of petroleum products | |
|---|---|---|---|
| 2017 | 28,9 | 7,9 | 8,2 |
| 2018 | 29,5 | 8,6 | 9,2 |
| 2019 | 29,8 | 10,1 | 10,1 |
| 2020 | 26,0 | 11,4 | 11,4 |
| 2021 | 27,8 | 12,5 | 12,9 |
What's the bottom line?
2021 the year turned out to be successful for Tatneft in terms of production results. All key operating metrics up from a tough 2020 for the industry. The company managed to break records in terms of refining and output of petroleum products, but oil production has not yet returned to pre-crisis levels. Note also, that since May 2021, production has remained approximately in the same range, despite gradual easing of oil production restrictions by OPEC+.
In recent years, the company has been systematically increasing the share of refining in the total volume of oil produced. If in 2017 the share was only 27%, then in 2021 the figure rose to 45%. This should have a positive impact on the margins of the business due to the higher value added of petroleum products..
Strong operational performance of Tatneft against the backdrop of high prices for oil and oil products gives hope for good financial results for the entire 2021. So, revenue for the first 9 months of 2021 amounted to 892.7 billion rubles, What's on 24% outperforms all of 2020. Given the strong operating results in 4 quarter, I guess, that the revenue for the past year will exceed 1.1 trillion rubles, and it will be a record.
In 2022, the company will strengthen its market position with M&A-deals. In January, the FAS approved the deal, according to which Tatneft becomes the owner of six oilfield service companies of the Tagras holding with a total annual revenue of about 16 billion rubles. These enterprises are located in Tatarstan and provide mechanical and drilling services, and also increase oil recovery. If the deal goes through, this will strengthen Tatneft's vertical integration and increase business efficiency through a synergistic effect.
