The main conclusion made by Sberbank CIB analysts Alex Fack and Anna Kotelnikova in the May report on Russian oil and gas companies is the main beneficiaries of Gazprom's projects for the construction of three export gas pipelines to China (the "Power of Siberia") and Europe ("North Stream-2" and "Turkish flow") are not its shareholders, but contractors, including "Stroygazmontazh" Arkady Rotenberg and "Stroytransneftegaz" (about 50% belongs to Gennady Timchenko and his family).
According to calculations of experts of the investment bank, investments in these projects are low-profitable. "We find that Gazprom's decisions become absolutely understandable if we assume that the company is managed in the interests of its contractors, and not to obtain commercial benefits," the report says.
"This review is a commercial product that does not apply to the general public and is intended only for qualified investors who are customers of Sberbank CIB. We do not comment on details of commercial relationships with customers, "a representative of Sberbank CIB told RBC. Two clients of the bank confirmed to RBC the authenticity of the analytical report. Alex Fack declined to comment. The
A spokesman for Arkady Rotenberg, co-owner of Stroygazmontazh, told RBC that the company is not a beneficiary of Gazprom's investment program, as the newly constructed Siberia Power pipeline will remain the property of Gazprom and it will receive the ultimate benefit from the implementation of the investment project. "SGM participates in this project as a general contractor and on a paid basis performs construction and installation works within the framework of concluded contracts," she added. A representative of Stroytransneftegaz did not respond to RBC's request. The representative of Gazprom refused to comment.
"The Power of Siberia" instead of "Altai"
Speaking about specific projects, Sberbank CIB analysts write, in particular, about the high cost of building the "Siberian Power" against the background of the alternative considered earlier - the Altai project - and they doubt the benefits of the contract for the supply of 38 billion cubic meters. m of gas annually, which Gazprom concluded with the Chinese CNPC in May 2014, with an average price of oil at $ 65 per barrel.
"The power of Siberia" was chosen, despite the fact that Altai was much cheaper: $ 55.4 billion against $ 10 billion, experts say Sberbank CIB.
Analysts at Sberbank CIB claim that the Chinese were ready to sign a contract for "Altai" back in 2010. Altai's length would be comparable to the "Siberian Power" - about 3 thousand km, but the gas would come from the existing Nadym oil fields of the Pur-Taz province and would be cleaned at the existing Gazprom plants - it would not be necessary to build new facilities, argue the authors of the report.
The choice of the "Force of Siberia", in their opinion, could be due to the benefit of the main contractors of Gazprom - Stroytransneftegaz and Stroygazmontazh, which shared the "almost equal" basic contracts for this project. "The more the project, the more profitable contracts," the report says. "Alas, none of these companies are traded on the exchange, so they can not be invested in them."
The supply of gas in the "Force of Siberia" involves the development of the Chayandinsky and Kovykta deposits for $ 20 billion. The construction of the Amur Gas Processing Plant, where gas will be processed before shipment to China, will cost an additional $ 14 billion (the latest valuation of Gazprom) to almost $ 20 billion Evaluation of the Minister of Energy Alexander Novak), the report says. At the Amur Gas Processing Plant, NIPIGazpererabotka, which is connected with Sibur, will work, which received a contract for 790.6 billion rubles. Among the shareholders of Sibur - Timchenko, who also owns a stake in Stroytransneftegaz, the authors of the report reminded.
In addition, the binding of the gas contract with China to oil prices negatively affects the profitability, experts say Sberbank CIB. With oil prices of $ 110 per barrel, the contract for 38 billion cubic meters. m of gas per year was estimated at $ 400 billion. Accordingly, Gazprom will sell gas at 10-11% of the price of oil, Fake and Kotelnikova calculated. Hence, with oil at $ 60 per barrel, gas will cost $ 6-6.6 per 1 million British thermal units (MBTU). "Even with an average oil price of $ 65 per barrel, the net present value (NPV, shows the expected return on investment - RBC) of this project will be negative and amount to about $ 11 billion," the authors of the report stated.
The project "The Power of Siberia" is more likely to have a rate of return lower than the cost of Gazprom's capital (the cost of raising funds for the company), which means it has a negative impact on the company's shareholder value, Ildar Davletshin, the leading oil and gas analyst at Wood & Co, agrees.
But Gazprom earlier talked about the "undeniable" profitability of the "Siberian Power." "We have no doubts about the profitability of the gas pipeline. The formula of the price, which is prescribed in the contract with China, allows us to feel absolutely confident at the current prices for hydrocarbons, "said Alexei Miller, Gazprom's predecessor in an interview with Rossiya 1 channel in February 2018.
Nord Stream-2, according to Sberbank CIB, will cost $ 17 billion - this amount also includes ground-based approaches to the pipeline (Gazprom estimated the cost of the project at € 9.5 billion). The contract for the construction of one of these approaches worth 74.6 billion rubles. without a tender recently received "Stroytransneftegaz", analysts recall.
Although both projects do not involve entering new markets (Gazprom already supplies gas to Europe via Ukraine and other routes), their main financial advantage, according to Gazprom, is the savings on transit through Ukraine after 2019, when the contract is over, experts recall. According to their calculations, in the case of Nord Stream-2, it is about $ 800 million, with "Turkish flow" - about $ 500 million per year.
With the preservation of gas exports through Ukraine, the additional costs for Gazprom to transport 30 billion cubic meters. m would be $ 25-42 billion for 25 years, Miller said in June 2016: the transit of gas through Ukraine is 20% more expensive than through the Nord Stream-2.
However, the implementation of both projects will not allow completely to abandon transit through Ukraine, experts at Sberbank CIB believe: "This will happen only if Gazprom exports to Europe fall by about 20% compared to last year's level (or almost 40 billion cubic meters ). According to their estimates, the Turkish flow will not reach the break-even level for almost 50 years even without inflation, its negative NPV will be $ 13 billion. And Nord Stream-2, using capacities by 60%, will not pay off within 20 years".
If Nord Stream-2 is to be used only as a substitute for Ukrainian transit without attracting new contracts in Europe, then, of course, it will be unprofitable, Davletshin says. But if Gazprom succeeds in attracting new contracts, especially amid favorable conditions in the gas market, then we can talk about the rate of return of 7-8%, which is also not attractive enough for investors, he concludes. "Nord Stream-2" will not allow a significant increase in revenue, said Alexei Kokin. But we should not consider the project only from this point of view: the pipe is replacing because of political reasons (conflict with Ukraine) and issues of supply stability: the Ukrainian gas pipeline system has historically been under-invested, he said.
20-50 years is a good payback period for an infrastructure project, says the co-owner of one of Gazprom's contractors. And in addition to financial advantages, gas pipelines bypassing Ukraine have technical and geopolitical benefits, the source added in one of the largest construction contractors of Gazprom: the gas supplier does not depend on the dictate of the transit prices and insures against the risks of problems with the failure of the Ukrainian gas transmission system, which has not been modernized for a long time.
Talked about Igor
Analysts of Sberbank CIB are known for their critical attitude to the largest oil and gas companies. In October 2017, Alex Fack, Valery Nesterov, and Anna Kotelnikova sent out a report on the Russian oil and gas sector, in which one of the chapters was called Rosneft: We Need to Talk About Igor (Rosneft: We Need to Talk About Igor). In this chapter, analysts criticized the strategy of Rosneft, indicating that after the purchase of TNK-BP in 2013, the company sent $ 22 billion "for acquisitions without a clear focus." "The problem is that organic growth will be too slow to satisfy the ambitions of the CEO [Igor Sechin]," the document said.
Rosneft reacted sharply to this report. "There is a feeling that the reporting people are on the verge of pathology. I would very much like to see the leadership of the system-forming bank of Russia render them the feasible assistance, "Mikhail Leontiev, the company's press secretary, said. Later, Sberbank CIB withdrew this report and issued a new version, softening some of the wording and removing critical remarks about Sechin. Investbank also apologized to Rosneft. Its head, Igor Bulantsev, noted that the first version of the report contained "gross violations of the accepted quality standards of Sberbank CIB analysts", namely - "compliance compliance procedures were not observed".
In early May, Rosneft's board of directors approved changes in the strategy, which include, inter alia, a reduction in capital expenditures and a reduction in debt this year by approximately $ 8 billion, or about 10%. "This can be perceived as an answer to the questions that we raised in our report in October 2017," the Sberbank CIB analysts report in a May report.
Pipes instead of dividends
Analysts of Sberbank CIB are not the first to pay attention to the cost of large-scale construction projects of Gazprom. "There is such an impression that the company for some reason works not for shareholders, not for consumers, not for the state, but actually for contractors who build various facilities for them," the director of Prosperity Capital complained to Gazprom CEO Vladimir Putin. shareholder of Gazprom) Alexander Branis at the forum "VTB Capital" in October 2016. Then Putin admitted that this was a "very serious issue," and promised to meet the representatives of the largest companies with state participation until the end of the year and afterwards give "performance assessments of a particular company."
The Association of Professional Investors addressed the government last year with a proposal to increase the size of Gazprom's dividends, said its chief executive, Alexander Shevchuk, to RBC. "Obviously, with a low payback of projects, the state as the main shareholder and the company itself is more profitable to increase dividends, rather than investing in new construction projects," he adds.
On May 16, Gazprom's board of directors recommended approval of dividends at the level of last year - about 190 billion rubles, or 26% of net profit under IFRS. This is half what the Ministry of Finance expected. The representative of the company explained that this amount of dividends takes into account the need to "maintain a high degree of financial stability" and implement "priority strategic projects", among which is the construction of export pipelines.
According to calculations of experts of the investment bank, investments in these projects are low-profitable. "We find that Gazprom's decisions become absolutely understandable if we assume that the company is managed in the interests of its contractors, and not to obtain commercial benefits," the report says.
"This review is a commercial product that does not apply to the general public and is intended only for qualified investors who are customers of Sberbank CIB. We do not comment on details of commercial relationships with customers, "a representative of Sberbank CIB told RBC. Two clients of the bank confirmed to RBC the authenticity of the analytical report. Alex Fack declined to comment. The
A spokesman for Arkady Rotenberg, co-owner of Stroygazmontazh, told RBC that the company is not a beneficiary of Gazprom's investment program, as the newly constructed Siberia Power pipeline will remain the property of Gazprom and it will receive the ultimate benefit from the implementation of the investment project. "SGM participates in this project as a general contractor and on a paid basis performs construction and installation works within the framework of concluded contracts," she added. A representative of Stroytransneftegaz did not respond to RBC's request. The representative of Gazprom refused to comment.
"The Power of Siberia" instead of "Altai"
Speaking about specific projects, Sberbank CIB analysts write, in particular, about the high cost of building the "Siberian Power" against the background of the alternative considered earlier - the Altai project - and they doubt the benefits of the contract for the supply of 38 billion cubic meters. m of gas annually, which Gazprom concluded with the Chinese CNPC in May 2014, with an average price of oil at $ 65 per barrel.
"The power of Siberia" was chosen, despite the fact that Altai was much cheaper: $ 55.4 billion against $ 10 billion, experts say Sberbank CIB.
Analysts at Sberbank CIB claim that the Chinese were ready to sign a contract for "Altai" back in 2010. Altai's length would be comparable to the "Siberian Power" - about 3 thousand km, but the gas would come from the existing Nadym oil fields of the Pur-Taz province and would be cleaned at the existing Gazprom plants - it would not be necessary to build new facilities, argue the authors of the report.
The choice of the "Force of Siberia", in their opinion, could be due to the benefit of the main contractors of Gazprom - Stroytransneftegaz and Stroygazmontazh, which shared the "almost equal" basic contracts for this project. "The more the project, the more profitable contracts," the report says. "Alas, none of these companies are traded on the exchange, so they can not be invested in them."
The supply of gas in the "Force of Siberia" involves the development of the Chayandinsky and Kovykta deposits for $ 20 billion. The construction of the Amur Gas Processing Plant, where gas will be processed before shipment to China, will cost an additional $ 14 billion (the latest valuation of Gazprom) to almost $ 20 billion Evaluation of the Minister of Energy Alexander Novak), the report says. At the Amur Gas Processing Plant, NIPIGazpererabotka, which is connected with Sibur, will work, which received a contract for 790.6 billion rubles. Among the shareholders of Sibur - Timchenko, who also owns a stake in Stroytransneftegaz, the authors of the report reminded.
In addition, the binding of the gas contract with China to oil prices negatively affects the profitability, experts say Sberbank CIB. With oil prices of $ 110 per barrel, the contract for 38 billion cubic meters. m of gas per year was estimated at $ 400 billion. Accordingly, Gazprom will sell gas at 10-11% of the price of oil, Fake and Kotelnikova calculated. Hence, with oil at $ 60 per barrel, gas will cost $ 6-6.6 per 1 million British thermal units (MBTU). "Even with an average oil price of $ 65 per barrel, the net present value (NPV, shows the expected return on investment - RBC) of this project will be negative and amount to about $ 11 billion," the authors of the report stated.
The project "The Power of Siberia" is more likely to have a rate of return lower than the cost of Gazprom's capital (the cost of raising funds for the company), which means it has a negative impact on the company's shareholder value, Ildar Davletshin, the leading oil and gas analyst at Wood & Co, agrees.
But Gazprom earlier talked about the "undeniable" profitability of the "Siberian Power." "We have no doubts about the profitability of the gas pipeline. The formula of the price, which is prescribed in the contract with China, allows us to feel absolutely confident at the current prices for hydrocarbons, "said Alexei Miller, Gazprom's predecessor in an interview with Rossiya 1 channel in February 2018.
Nord Stream-2, according to Sberbank CIB, will cost $ 17 billion - this amount also includes ground-based approaches to the pipeline (Gazprom estimated the cost of the project at € 9.5 billion). The contract for the construction of one of these approaches worth 74.6 billion rubles. without a tender recently received "Stroytransneftegaz", analysts recall.
Although both projects do not involve entering new markets (Gazprom already supplies gas to Europe via Ukraine and other routes), their main financial advantage, according to Gazprom, is the savings on transit through Ukraine after 2019, when the contract is over, experts recall. According to their calculations, in the case of Nord Stream-2, it is about $ 800 million, with "Turkish flow" - about $ 500 million per year.
With the preservation of gas exports through Ukraine, the additional costs for Gazprom to transport 30 billion cubic meters. m would be $ 25-42 billion for 25 years, Miller said in June 2016: the transit of gas through Ukraine is 20% more expensive than through the Nord Stream-2.
However, the implementation of both projects will not allow completely to abandon transit through Ukraine, experts at Sberbank CIB believe: "This will happen only if Gazprom exports to Europe fall by about 20% compared to last year's level (or almost 40 billion cubic meters ). According to their estimates, the Turkish flow will not reach the break-even level for almost 50 years even without inflation, its negative NPV will be $ 13 billion. And Nord Stream-2, using capacities by 60%, will not pay off within 20 years".
If Nord Stream-2 is to be used only as a substitute for Ukrainian transit without attracting new contracts in Europe, then, of course, it will be unprofitable, Davletshin says. But if Gazprom succeeds in attracting new contracts, especially amid favorable conditions in the gas market, then we can talk about the rate of return of 7-8%, which is also not attractive enough for investors, he concludes. "Nord Stream-2" will not allow a significant increase in revenue, said Alexei Kokin. But we should not consider the project only from this point of view: the pipe is replacing because of political reasons (conflict with Ukraine) and issues of supply stability: the Ukrainian gas pipeline system has historically been under-invested, he said.
20-50 years is a good payback period for an infrastructure project, says the co-owner of one of Gazprom's contractors. And in addition to financial advantages, gas pipelines bypassing Ukraine have technical and geopolitical benefits, the source added in one of the largest construction contractors of Gazprom: the gas supplier does not depend on the dictate of the transit prices and insures against the risks of problems with the failure of the Ukrainian gas transmission system, which has not been modernized for a long time.
Talked about Igor
Analysts of Sberbank CIB are known for their critical attitude to the largest oil and gas companies. In October 2017, Alex Fack, Valery Nesterov, and Anna Kotelnikova sent out a report on the Russian oil and gas sector, in which one of the chapters was called Rosneft: We Need to Talk About Igor (Rosneft: We Need to Talk About Igor). In this chapter, analysts criticized the strategy of Rosneft, indicating that after the purchase of TNK-BP in 2013, the company sent $ 22 billion "for acquisitions without a clear focus." "The problem is that organic growth will be too slow to satisfy the ambitions of the CEO [Igor Sechin]," the document said.
Rosneft reacted sharply to this report. "There is a feeling that the reporting people are on the verge of pathology. I would very much like to see the leadership of the system-forming bank of Russia render them the feasible assistance, "Mikhail Leontiev, the company's press secretary, said. Later, Sberbank CIB withdrew this report and issued a new version, softening some of the wording and removing critical remarks about Sechin. Investbank also apologized to Rosneft. Its head, Igor Bulantsev, noted that the first version of the report contained "gross violations of the accepted quality standards of Sberbank CIB analysts", namely - "compliance compliance procedures were not observed".
In early May, Rosneft's board of directors approved changes in the strategy, which include, inter alia, a reduction in capital expenditures and a reduction in debt this year by approximately $ 8 billion, or about 10%. "This can be perceived as an answer to the questions that we raised in our report in October 2017," the Sberbank CIB analysts report in a May report.
Pipes instead of dividends
Analysts of Sberbank CIB are not the first to pay attention to the cost of large-scale construction projects of Gazprom. "There is such an impression that the company for some reason works not for shareholders, not for consumers, not for the state, but actually for contractors who build various facilities for them," the director of Prosperity Capital complained to Gazprom CEO Vladimir Putin. shareholder of Gazprom) Alexander Branis at the forum "VTB Capital" in October 2016. Then Putin admitted that this was a "very serious issue," and promised to meet the representatives of the largest companies with state participation until the end of the year and afterwards give "performance assessments of a particular company."
The Association of Professional Investors addressed the government last year with a proposal to increase the size of Gazprom's dividends, said its chief executive, Alexander Shevchuk, to RBC. "Obviously, with a low payback of projects, the state as the main shareholder and the company itself is more profitable to increase dividends, rather than investing in new construction projects," he adds.
On May 16, Gazprom's board of directors recommended approval of dividends at the level of last year - about 190 billion rubles, or 26% of net profit under IFRS. This is half what the Ministry of Finance expected. The representative of the company explained that this amount of dividends takes into account the need to "maintain a high degree of financial stability" and implement "priority strategic projects", among which is the construction of export pipelines.
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