We continue the series of articles on the public assets of the Gutserievs. In the last article we reviewed the retailer "M-Video-Eldorado", and now consider the oil and gas company RussNeft.
About company
RussNeft (MCX: RNFT) — a large oil and gas company, conducting geological exploration, oil and gas production, as well as their implementation. "RussNeft" produces oil and gas at 108 fields and divides assets into groups based on geographical location.
West Siberian group. This includes assets in the Khanty-Mansiysk and Yamalo-Nenets Autonomous Okrugs. The deposits are divided into three blocks: Varyogansky, Khanty-Mansiysk and Nizhnevartovsk. In recent years, about 5 million tons of oil have been produced here on average.. The group contains the largest assets of the company.
Volga group. Mostly mature fields in Saratov, Penza, Ulyanovsk regions and the Republic of Kalmykia. Conventionally, they are divided into two blocks: Saratov and Ulyanovsk. Here, production averages 1.3 million tons of oil per year..
Central Siberian group. This includes assets, located in the Tomsk region. In recent years, production has decreased significantly and in 2020 amounted to less than 0.25 million tons of oil.
Besides, the company has a subsidiary, Gea Holdings Limited, producing oil in Azerbaijan under production sharing agreements with local state-owned companies.
In recent years, RussNeft's reserves have been declining somewhat, but at the end of 2020 slightly increased, mainly due to oil. The main reserves are located in the West Siberian group. The company reports, that in the medium term reserves will be replenished mainly by hard-to-recover and unconventional.
The company's oil production grew little by little until the 2020 oil crisis, when expected to fall. Forecast production data for 2021 - 6.683 million tons, which is higher than in 2020, but less than in 2016. In 2022, RussNeft plans to further increase oil production to 6.78 million tons. This is in line with the company's strategic goal of 2-4% annual production growth over the next few years, without taking into account restrictions under the OPEC+ agreement..
But the production of natural and associated petroleum gas fell until 2020. A significant part of the oil and the vast majority of associated petroleum gas is produced in the West Siberian group, but almost all natural gas is in the Volga group.
RussNeft distinguishes three sales segments: Russia, CIS, Europe and other exports. Hydrocarbons are transported to Europe and far abroad through the Black Sea and Baltic seaports, as well as main pipelines. In the CIS segment, deliveries are made to the Republic of Belarus.
In the reporting, the company notes an important fact: more than half of oil sales are accounted for by five main buyers, while the largest accounts for 30% oil revenue for the first half of 2021. The situation is similar with the sale of gas: a significant amount under long-term contracts is bought out by the largest petrochemical company in Russia Sibur Holding.
Structure of the company's reserves by groups for 2020
| Oil | Natural gas | Associated petroleum gas | Condensate | |
|---|---|---|---|---|
| West Siberian | 81% | 52% | 88% | 32% |
| Volga region | 14% | 34% | 8% | 42% |
| Central Siberian | 5% | 14% | 4% | 26% |
Company's production structure by groups for 2020
| Oil, million tons | Natural gas, billion cubic meters | Associated petroleum gas, billion cubic meters | |
|---|---|---|---|
| West Siberian | 77% | 0% | 96% |
| Volga region | 19% | 99% | 3% |
| Central Siberian | 4% | 1% | 1% |
Explored reserves of the company by years
| Oil, million tons | Natural gas, billion cubic meters | Associated petroleum gas, billion cubic meters | Condensate, million tons | |
|---|---|---|---|---|
| 2019 | 601,6 | 60,4 | 90,5 | 5,7 |
| 2020 | 628,3 | 58,8 | 93,6 | 5,3 |
Company's production by years
| Oil, million tons | Natural gas, billion cubic meters | Associated petroleum gas, billion cubic meters | |
|---|---|---|---|
| 2016 | 7,00 | 0,49 | 1,99 |
| 2017 | 7,02 | 0,33 | 2,12 |
| 2018 | 7,11 | 0,29 | 2,33 |
| 2019 | 7,12 | 0,26 | 2,19 |
| 2020 | 6,40 | 0,27 | 1,91 |
Probable reserves of the company by years
| Oil, million tons | Natural gas, billion cubic meters | |
|---|---|---|
| 2016 | 217,1 | 36,6 |
| 2017 | 217,3 | 34,5 |
| 2018 | 209,8 | 34,4 |
| 2019 | 209,9 | 34,8 |
Structure of the company's revenue by sales regions
for the first half of 2021
| Russia | 55% |
| Europe and other exports | 42% |
| CIS | 3% |
55%
Financial indicators
Revenue and net profit of RussNeft grew until 2020, and during the oil crisis expectedly fell, even showed a loss at the end of the year. In 2021, indicators are recovering, and even in nine months, the company's revenue exceeded the figure for the entire 2020, and net profit is comparable to the profit of the entire successful 2019. Net debt is volatile: the company is building it up, it reduces.
I would like to specially note, that in 2020 the company not only showed a loss and increased debt, but even allowed a partial default, What impacted the company's credit rating?. Problems were not only with creditors, but also with the Federal Tax Service. RussNeft had to pledge property under installment agreements for the payment of mineral extraction tax. In the summer of 2021, these obligations were fulfilled.
An important point: a significant portion of the company's debt is pegged to a three-month LIBOR rate in dollars, and now, due to high inflation, central banks are forced to raise rates everywhere. Looks like, will do so in the foreseeable future and FED USA. Quite possibly, that the interest rates on RussNeft's debt will rise in a short- and medium term.
Revenue, net income and net debt, billion rubles
| Revenue | Net profit | net debt | |
|---|---|---|---|
| 2017 | 129,2 | 11,1 | 79,5 |
| 2018 | 177,8 | 16,8 | 95,9 |
| 2019 | 187,1 | 24,4 | 76,1 |
| 2020 | 133,2 | −17,0 | 89,6 |
| 9м2021 | 159,4 | 23,6 | 66,2 |
History and share capital
RussNeft was founded in 2002 by Mikhail Gutseriev. This is almost the only Russian public oil and gas company, which did not appear during the privatization of the 1990s, and later. RussNeft actively developed, but in the mid-2000s became the subject of intense law enforcement scrutiny due to alleged tax evasion. As a result, in the summer of 2007, the company was sold to the structures of Oleg Deripaska. But in January 2010, Mikhail Gutseriev regained control of RussNeft..
The matter didn't end there.: in the same 2010 49% the company's shares were sold to AFK Sistema, and also 2% - Sberbank. It wasn't for long.: Mikhail Gutseriev again became the sole shareholder of the company in 2013. But in 2015 Swiss trader Glencore received almost half of the company's shares as part of RussNeft's debt conversion.
In 2016, RussNeft held an IPO on the Moscow Exchange, but active actions with its shares continued. In 2019, a large block of shares in the company went to the bank of non-core assets "Trust" as part of the settlement of the reorganization of "Binbank" and "Rost-bank". In 2020, part of this stake was sold to VTB structures, and the bank received option for the sale of these shares in 2026 to the company itself for 21 billion rubles.
There were several other important events in 2021: sold to the group "Region" NPF "Safmar", renamed "Decent Future", who had a lot of RussNeft shares on his balance sheet, started selling them. And in the summer it became known, that Mikhail Gutseriev no longer has control over the company, since he transferred his shares to his brother, and resigned from the board of directors. Probably, this was due to the fact that, that Mikhail Gutseriev fell under eu sanctions as a "long-time friend of Belarusian President Alexander Lukashenko".
The authorized capital of the company is divided into two types of shares: 75% - ordinary, 25% - privileged. It is important to note, that only ordinary shares are traded on the Moscow Exchange.
The largest shareholders are the Gutseriev family, Swiss trader Glencore, there are also large blocks of shares, true mostly privileged, at two state banks: Trust and VTB.
The structure of the company's share capital for 27 May 2021
| Shareholder | Beneficiary | Share of the authorized capital | Share of ordinary shares |
|---|---|---|---|
| Rambero Holding AG | Glencore | 23,46% | 31,28% |
| Trust Bank | Trust Bank | 19,23% | 3,61% |
| Bradinar Holdings Limited | Gutseriev family | 12,05% | 16,07% |
| VTB Bank | VTB Bank | 8,48% | 0,00% |
| JSC "Mlada" | Gutseriev family | 7,70% | 10,27% |
| Verge Investments Limited | Gutseriev family | 7,21% | 9,61% |
| JSC IK "Nadezhnost" | Gutseriev family | 4,95% | 6,60% |
| Other shareholders | Other shareholders | 16,92% | 22,56% |
Dividends and dividend policy
According to dividend policy, RussNeft intends to channel at least 50% net profit, received after the formation of a reserve for investments and the fulfillment of obligations on loans and borrowings, to pay dividends. And payments on preferred shares are even spelled out in the company's charter: their formula depends on the average annual price of a barrel of Brent oil.
As a result, the company regularly pays dividends on preferred shares., but has never in its public history paid dividends on common. Worth noticing, that in 2019 Mikhail Gutseriev announced plans to pay dividends on ordinary shares for three years.
Conditions for paying dividends on preferred shares of a company in accordance with its charter
| Average annual price of a barrel of Brent crude oil | Total dividends, million dollars |
|---|---|
| <65 $ | 60 |
| 65—70 $ | 70 |
| 70—75 $ | 80 |
| 75—80 $ | 90 |
| 80—85 $ | 100 |
| >85 $ | 110 |
Total dividends, million dollars
Why stocks can go up
Good business environment. After a sharp drop in oil prices in 2020, the situation has improved significantly: at the beginning of 2021, a barrel of Brent oil gave about 50 $, and at the beginning of 2022 prices are already tending to 90 $ per barrel. Naturally, significantly increased oil prices had a positive impact on the financial performance of RussNeft. At the same time, analysts do not expect oil prices to fall in the medium term., and even vice versa, predict further growth to three-digit numbers.
Possible start of dividend payments. Above, we have already discussed the statements of Mikhail Gutseriev in 2019 regarding the possible start of dividend payments on the company's ordinary shares within three years. If "RussNeft" really will switch to this practice in the near future, this could be a good driver for the revaluation of its shares.
Maybe, the worst is behind. The company's stock prices are now at historical lows.: since the IPO and until about March 2020, they fluctuated in the range of 500-600 R per share. After the covid collapse, they almost recovered again, and then, by spring 2021, rapidly decreased to 150-160 R.
The main drivers of the fall were the limited default of the company and the sale of shares of NPF "Worthy Future". Maybe, the worst for RussNeft is over: following the results of nine months of 2021, the company has a moderate debt burden by the net debt multiplier / EBITDA. And in general, according to the multipliers, it looks very cheap and attractive, both by its historical standards., as well as competitors.
Why stocks might fall
Dependence on market conditions. In many reviews of oil companies, such as Rosneft, we have already discussed, that they are highly dependent on the context, namely, oil prices and restrictions on its production. If the situation worsens, this will have a negative impact on the financial performance and stock prices of oil companies and, in particular, RussNeft.
Not the biggest fish. Undoubtedly, RussNeft is a large company: revenue for the nine months of 2021, which is almost 160 billion rubles, speaks for itself. However, everything is known in comparison: relatively small by the standards of Russian public oil companies "Bashneft" for the same period, revenue of almost 600 billion rubles. But all this fades against the backdrop of the indicators of Lukoil and Rosneft., whose revenue for this period significantly exceeded 6 trillion rubles.
Besides, RussNeft's public competitors are vertically integrated companies, which include oil refineries and own networks of filling stations. Undoubtedly, this business model is more sustainable, which was well shown by the oil crisis of 2020, from which these companies got out not without loss, but many even remained profitable.
Well, let's not forget about not the strongest foundation of RussNeft's business.: greater concentration of buyers, expected slight increase in production, increase in reserves due to hard-to-recover and unconventional.
Dividends. While the company does not pay dividends on ordinary shares, this disadvantageously distinguishes it from most public competitors in the industry. For example, the same "Lukoil", according to some analysts, over the next few years will provide a double-digit dividend yield to its shareholders. More worth noting, that the dividend policy of RussNeft in the current edition is not the most transparent, since it implies not only common 50% net profit, and with some adjustments.
Politics. Surprisingly, but private RussNeft may suffer and has already suffered because of the policy on several points at once:
- While, when the state-owned Rosneft and other Russian oil companies did not renegotiate a contract with Belarus for the supply of oil for 2020, RussNeft did it. Quite possibly, that in that situation there was a considerable share of politics in relations between Russia and Belarus - and it is not known, how did the Kremlin react to such steps of the company.
- We have already discussed EU sanctions against Mikhail Gutseriev. This is also a negative moment for RussNeft..
- Geopolitical tensions at the beginning of 2022 caused a significant decline in the Russian stock market - and here already RussNeft got it just for the company. It is hard to say, how will this situation be resolved, but, maybe, the fall will continue.
You won't get bored with her. We have already considered above, that during its not very long history, RussNeft has changed the composition of shareholders many times, directly or indirectly participated in such not very pleasant things, like defaults, restructuring and settling huge debts. Not a fact, that the series of these stories is over. For example, the already mentioned NPF "Worthy Future" at the end of 2021 owned more than 3.8 million shares of "RussNeft". It is possible to continue the sale of this stake in the company, what will put pressure on quotes, and don't forget about "Trust", who a few years ago also planned to implement them.
ESG. Well, of course, when it comes to an oil company, we must not forget about the risks, related to the now so popular ESG. Quite possibly, that this topic will continue to gain momentum.
Multipliers of some public oil companies in Russia for 9 months of 2021
| P / E | ROE | Net debt / EBITDA | |
|---|---|---|---|
| Lukoil | 7,93 | 12,6% | 0,01 |
| Rosneft | 5,29 | 20,8% | 2,54 |
| Gazprom Neft | 5,10 | 18,4% | 0,31 |
| "Tatneft" | 7,19 | 18,8% | −0,04 |
| Bashneft | 4,89 | 9,6% | 1,05 |
| RussNeft | 2,69 | 42,9% | 1,17 |
Multipliers of RussNeft by years
| P / E | ROE | Net debt / EBITDA | |
|---|---|---|---|
| 2017 | 16,2 | 21,5% | 2,66 |
| 2018 | 9,26 | 28,3% | 1,97 |
| 2019 | 6,64 | 39,2% | 1,55 |
| 2020 | Lesion | Lesion | Negative EBITDA |
| 9м2021 | 2,69 | 42,9% | 1,17 |
Revenue of some public oil companies
Russian companies for 9 months of 2021, billion rubles
| Lukoil | 6667 |
| Rosneft | 6224 |
| Gazprom Neft | 2162 |
| "Tatneft" | 897 |
| Bashneft | 596 |
| RussNeft | 159 |
6667
Eventually
RussNeft is a large oil and gas company with a rather turbulent history. She is slowly growing her business., and improvements in the oil industry have helped to strengthen its financial position and solve its most pressing debt problems.
Now RussNeft stock quotes are at historical lows, and the values of its multipliers are quite attractive. The possible start of the payment of dividends on ordinary shares may trigger a significant increase in their quotations. At the same time, in terms of fundamental indicators and business size, the company is significantly inferior to all major public competitors in the industry., and some very much.
As a result, RussNeft is a risky investment, hardly suitable for conservative investors, but potentially it can give a good return, if the market revalues the company's shares on the back of any positive events.
