RussNeft Review: oil and gas company not without problems

Обзор «РуссНефти»: нефтегазовая компания не без проблем

RussNeft Review: oil and gas company not without problems

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. «РуссНефть» добывает нефть и газ на 108 месторождениях и делит активы на группы по географическому признаку.

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. За последние годы тут в среднем добывалось около 5 million tons of oil. 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. Здесь добыча составляет в среднем 1,3 млн тонн нефти в год.

Central Siberian group. This includes assets, located in the Tomsk region. В последние годы добыча значительно снизилась и по итогам 2020 года составила менее 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, но по итогам 2020 года немного увеличились, 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.

Добыча нефти компанией понемногу росла до нефтяного кризиса 2020 of the year, when expected to fall. Прогнозные данные по добыче за 2021 year - 6,683 million tons, что превышает показатели 2020 of the year, но меньше показателей даже 2016 of the year. IN 2022 году «РуссНефть» планирует еще нарастить добычу нефти до 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..

А вот добыча природного и попутного нефтяного газа падала и до 2020 of the year. 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% выручки от реализации нефти за первое полугодие 2021 of the year. 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.

Структура запасов компании по группам за 2020 year

OilNatural gasAssociated petroleum gasCondensate
West Siberian81%52%88%32%
Volga region14%34%8%42%
Central Siberian5%14%4%26%

Структура добычи компании по группам за 2020 year

Oil, million tonsNatural gas, billion cubic metersAssociated petroleum gas, billion cubic meters
West Siberian77%0%96%
Volga region19%99%3%
Central Siberian4%1%1%

Explored reserves of the company by years

Oil, million tonsNatural gas, billion cubic metersAssociated petroleum gas, billion cubic metersCondensate, million tons
2019601,660,490,55,7
2020628,358,893,65,3

Company's production by years

Oil, million tonsNatural gas, billion cubic metersAssociated petroleum gas, billion cubic meters
20167,000,491,99
20177,020,332,12
20187,110,292,33
20197,120,262,19
20206,400,271,91

Probable reserves of the company by years

Oil, million tonsNatural gas, billion cubic meters
2016217,136,6
2017217,334,5
2018209,834,4
2019209,934,8

Structure of the company's revenue by sales regions
for the first half of the year 2021 of the year

Russia55%
Europe and other exports42%
CIS3%

55%

Financial indicators

Выручка и чистая прибыль «РуссНефти» росли до 2020 of the year, and during the oil crisis expectedly fell, even showed a loss at the end of the year. IN 2021 году показатели восстанавливаются, и даже за девять месяцев выручка компании превысила показатель всего 2020 of the year, а чистая прибыль сопоставима с прибылью всего успешного 2019 of the year. Net debt is volatile: the company is building it up, it reduces.

I would like to specially note, what in 2020 году компания не просто показала убыток и нарастила долг, 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 summer 2021 года эти обязательства были исполнены.

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

RevenueNet profitnet debt
2017129,211,179,5
2018177,816,895,9
2019187,124,476,1
2020133,2−17,089,6
9м2021159,423,666,2

History and share capital

«РуссНефть» была основана в 2002 году Михаилом Гуцериевым. 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. В итоге летом 2007 года компания была продана структурам Олега Дерипаски. Но в январе 2010 года Михаил Гуцериев вернул себе контроль над «РуссНефтью».

The matter didn't end there.: в том же 2010 year 49% the company's shares were sold to AFK Sistema, and also 2% - Sberbank. It wasn't for long.: Михаил Гуцериев вновь стал единоличным акционером компании в 2013 year. But in 2015 швейцарский trader Glencore received almost half of the company's shares as part of RussNeft's debt conversion.

IN 2016 году «РуссНефть» провела IPO на Московской бирже, but active actions with its shares continued. IN 2019 году крупный пакет акций компании достался банку непрофильных активов «Траст» в рамках урегулирования санации «Бинбанка» и «Рост-банка». IN 2020 году часть этого пакета была продана структурам ВТБ, and the bank received option на продажу этих акций в 2026 году самой компании за 21 billion rubles.

IN 2021 году было еще несколько важных событий: 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 of the year

ShareholderBeneficiaryShare of the authorized capitalShare of ordinary shares
Rambero Holding AGGlencore23,46%31,28%
Trust BankTrust Bank19,23%3,61%
Bradinar Holdings LimitedGutseriev family12,05%16,07%
VTB BankVTB Bank8,48%0,00%
JSC "Mlada"Gutseriev family7,70%10,27%
Verge Investments LimitedGutseriev family7,21%9,61%
JSC IK "Nadezhnost"Gutseriev family4,95%6,60%
Other shareholdersOther shareholders16,92%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, what in 2019 году Михаил Гуцериев заявлял о планах выплат дивидендов по обыкновенным акциям в течение трех лет.

Conditions for paying dividends on preferred shares of a company in accordance with its charter

Average annual price of a barrel of Brent crude oilTotal 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. После резкого падения цен на нефть в 2020 году конъюнктура значительно улучшилась: at the beginning 2021 года за баррель нефти марки Brent давали около 50 $, а в начале 2022 цены уже стремятся к 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. Выше мы уже обсуждали заявления Михаила Гуцериева 2019 года по поводу возможного начала выплаты дивидендов по обыкновенным акциям компании в течение трех лет. 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.: со времен IPO и примерно до марта 2020 года они колебались в диапазоне 500—600 Р за акцию. After the covid collapse, they almost recovered again, and then, к весне 2021 of the year, 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: after nine months 2021 года у компании умеренная долговая нагрузка по мультипликатору net debt / 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: выручка за девять месяцев 2021 of the year, которая составляет практически 160 billion rubles, speaks for itself. However, everything is known in comparison: у относительно небольшой по меркам российских публичных нефтяных компаний «Башнефти» за тот же период выручка практически 600 billion rubles. But all this fades against the backdrop of the indicators of Lukoil and Rosneft., выручка которых за этот период значительно превысила 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, что хорошо показал нефтяной кризис 2020 of the year, 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:

  1. While, когда государственная «Роснефть» и другие российские нефтяные компании не перезаключили контракт с Беларусью на поставку нефти на 2020 year, 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.
  2. We have already discussed EU sanctions against Mikhail Gutseriev. This is also a negative moment for RussNeft..
  3. Геополитическая напряженность в начале 2022 года вызвала значительное снижение российского фондового рынка — и тут уже «РуссНефти» досталось просто за компанию. 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, уже упоминавшийся НПФ «Достойное будущее» на конец 2021 года владел более 3,8 млн акций «РуссНефти». 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 2021 of the year

P / EROENet debt / EBITDA
Lukoil7,9312,6%0,01
Rosneft5,2920,8%2,54
Gazprom Neft5,1018,4%0,31
"Tatneft"7,1918,8%−0,04
Bashneft4,899,6%1,05
RussNeft2,6942,9%1,17

Multipliers of RussNeft by years

P / EROENet debt / EBITDA
201716,221,5%2,66
20189,2628,3%1,97
20196,6439,2%1,55
2020LesionLesionNegative EBITDA
9м20212,6942,9%1,17

Revenue of some public oil companies
Russian companies for 9 Months 2021 of the year, billion rubles

Lukoil6667
Rosneft6224
Gazprom Neft2162
"Tatneft"897
Bashneft596
RussNeft159

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.