Novatek · RUS:NVTK
Novatek — Merrill Lynch GEM Conference 2006
34 slides from Novatek's conference presentation, Jun 7, 2006
Slide 1: Merrill Lynch GEM Conference One-on-One Investor Presentations
Merrill Lynch GEM Conference One-on-One Investor Presentations Mark A. Gyetvay, Chief Financial Officer and Member of the Board of Directors Ritz Carlton, Laguna Nigel Hotel, California, USA 7 - 8 June 2006
Slide 2: Disclaimer
Disclaimer This presentation is strictly confidential to the recipient, may not be distributed to the press or any other person, and may not be reproduced in any form. Failure to comply with this restriction may constitute a violation of applicable securities laws. This presentation does not constit
Slide 3: NOVATEK: key investment highlights
NOVATEK: key investment highlights Highly favorable gas market fundamentals Experienced Prolific, low-risk management resource base team Robust financials, Industry leading growing margins production and dividends growth 3
Slide 4: Gas market overview
Gas market overview Be 4 NOVATEK
Slide 5: Global gas balance – “Call on Russian Gas”
Global gas balance – “Call on Russian Gas” Russia,Other Russia, OtherFSU FSU Europe Europe P1 Reserves: 47.6 TCM;8.0 P1 Reserves: 47.6 TCM; 8.0TCM TCM P1Reserves: P1 Reserves:5.4 5.4TCM TCM N.America N. America 286 P1 Reserves:7.5 P1 Reserves: 7.5TCM TCM 139 193 (21) (62) (185) (295) (139) MiddleEas
Slide 6: Opportunity: natural gas market – Europe
Opportunity: natural gas market – Europe Gazprom European Market Share (%) Gas fired power generation to drive and Gazprom’s Supply (BCM) consumption growth 329 Deficit in Europe to expand BCM 277 – UK shift to net imports 40% BCM 38% 207 166 34% 130 BCM – Groningen decline BCM BCM 29% 30% 28% 2
Slide 7: Recipients of Russian Natural Gas Exports, 2004
Recipients of Russian Natural Gas Exports, 2004 Major European Importers, (Volume, % of domestic consumption) Germany 1,110 bcf/yr 44% Finland 269 bcf/yr Austria 100% 201 bcf/yr 63% Poland 258 bcf/yr Switzerland 60% 18 bcf/yr 17% Czech Republic 240 bcf/yr 82% France 470 bcf/yr Romania 26% 177 bcf/yr
Slide 8: Pipelines: Russia to Europe
Pipelines: Russia to Europe Russia: Existing and Planned Gas Routes Existing Gas Pipeline Gas Pipeline Project Shtokmanovskoye Europe Baltic Pipeline 22 – 35 bcm Yamal l - Europe 15 – 32 bcm Yamal ll - Europe + 35 bcm Blue Stream 16 bcm Source: IGU 2006 8
Slide 9: Target gas market to triple
Target gas market to triple Russian Gas Market: Demand, Supply 600 European supply deficit Market Uncertainty – will growing the Central Asian gas 500 imports materialize? 400 256 BCM (bcm) 300 Gazprom export share expanding 200 100 0 2005e 2007e 2009e 2011e 2013e 2015e 2017e 2019e 2003 Need for Ind
Slide 10: Gas production in the Russian Federation (BCM)
Gas production in the Russian Federation (BCM) 675 652.9 641.0 643.0 646.6 633.5 620.3 625 592.1 595.3 584.2 581.5 575 525 475 425 375 1999 2000 2001 2002 2003 2004 2005 2006E 2007E 2008E Gazprom Oil companies Joint ventures Novatek Other independents Oil cos. & Independents Source: Cambridge Energy
Slide 11: Alternative flows of Russian natural gas - Asia
Alternative flows of Russian natural gas - Asia The Russian Far East, West and East Siberian regions Significant competition have enough supply will come from the export potential to meet the future of LNG, which is abundant energy demand of in Southeast Asia Northeast Asia (Indonesia, Malaysia and
Slide 12: Natural gas demand growth - China
Natural gas demand growth - China • Up to 80 BCM • First deliveries as early as 2011 • 2 pipeline routes with 30 to 40 BCM p.a. each Natural gas from • 3,000 km western Altai pipeline, est. cost West and East Siberia And the Far East 4.5 – 5 billion US$ • Environmental and cultural worries may incre
Slide 13: Significant investment required – Russian gas sector
Significant investment required – Russian gas sector 1 Average investment needs in Russian gas sector Gas Investment in Russia 14 2001-2010 2011-2020 2021-2030 12 10 Bln $US E&P1 $5.2 bln p.a $ 7 bln p.a. 8 6 Transmission1 $3 bln p.a. 4 2 Total2 2003 – 2020 $9.4 bln -$11.1 bln p.a. 0 Notes: 2001-201
Slide 14: Demand driving prices to export netback parity
Demand driving prices to export netback parity Price increased by 11% eff. Russia-EU 01/01/2006. Forecasted price increase of 8% for 2007, Gas Reform for WTO $160 however, GZPM is seeking Accession increases in gas tariff of 22% in $140 2007 and 2008, and 10% in 2009 $120 (US$ / MCM) $100 METD count
Slide 15: Novatek snapshot
Novatek snapshot am 4 NOVATEK .
Slide 16: NOVATEK at a glance
NOVATEK at a glance Novatek’s 2005 production results – Natural gas production - 25.2 BCM (887 BCF) – Liquids production - 2.6 MMT (21 MMBBL’s) – Total production - 186 MM BOE – Novatek accounted for ~ 4% of total 2005 Russian gas production and ~ 7% of Russian domestic demand Novatek’s 2005 res
Slide 17: High quality portfolio: low risk, prolific basin
High quality portfolio: low risk, prolific basin Basin accounts for approx. 90% of Russian gas production and 20% of the world’s gas production Resource base – 4.6 billion BOE P1 (“proved”) – 7.4 billion BOE P2 (“proved + probable”) – R/P ratio of 25 years Near existing infrastructure – Gazpro
Slide 18: Reserves movements
Reserves movements Growth of proved reserves1 at appraised fields (MMBOE) 646 4,573 104 381 4,178 4,149 542 3,931 350 380 (184) (67) Existing fields: Liquids: 362 20 MMBOE Geoilbent: 425 MMBOE 49 MMBOE New fields: Natural gas: Yuzno-Pyreinoye: 221 MMBOE 4,192 164 MMBOE 18 MMBOE 3,928 3,769 3,828 3,5
Slide 19: World scale resource base
World scale resource base Net Proved Natural Gas Reserves as of 31/12/05, BCM 16,340 Majors 700 2,000 1,895 641 Independent E&P Companies 600 1,600 1,368 500 1,262 1,200 1,122 400 334 300 274 716701 664 241 224 800 641 207 195 194 545 540 516 200 172 408 400 100 29 9 0 0 1 Gazprom 1 PetroChina 1 Sta
Slide 20: Supporting our production growth
Supporting our production growth Focus on core natural gas and gas condensate Natural Gas production, BCM assets 30 25.2 Disposal of crude oil assets 19.8 20.9 Disposal of assets where we do not exercise 20 operational control 10 Average 2005 daily production volumes 69 MMCM of gas 0 5.4 MT
Slide 21: Increasing gas production
Increasing gas production Novatek achieves record level of production of 80 Monthly Gas Production, MMCM/day MMCM/day 90 80 70 60 50 40 30 Seasonality effect 20 10 0 Oct Oct May Dec May Dec Mar Mar Apr Mar Apr Nov Nov Jul Jul Jan Jun Jan Jun Aug Sep Feb Aug Sep Feb Feb Jan 2004 2005 2006 Avg. 56 MMC
Slide 22: Yurkharovskoye field
Yurkharovskoye field Field facts Gas production, BCM Licensed to OOO Yurkharovneftegas, 100% subsidiary 10 9.0 Commercial production began in 2003 8 6.7 Production from theYurkharovskoye field 6 is expected to drive the bulk of our growth in the future 4 3.1 Proved reserves 2 – Natural gas 2
Slide 23: East Tarkosalinskoye and Khancheyskoye fields
East Tarkosalinskoye and Khancheyskoye fields Field facts Gas production, BCM Licensed to OOO Tarkosaleneftegas, 16.2 14.7 13.8 15 100% subsidiary Unified development plans 10 Proved reserves – Natural gas 345 BCM 5 – Gas condensate 24 MMT 0 – Total 2,454 MMBOE 2003 2004 2005 Geographic locati
Slide 24: Hydrocarbon production flow
Hydrocarbon production flow Stable condensate, Unstable gas condensate by LPG by rail Export Domestic Gazprom & own pipelines Purovsky markets markets: Processing End Customers Plant Domestic LPG by rail markets UGSS NOVATEK Natural and gas production Oil products by rail, Traders subsidiaries light
Slide 25: Delivered gas – our main industrial regions
Delivered gas – our main industrial regions • Novatek delivers gas to 30 regions from Western Siberia to European Russia • 9 core regions accounted for ~ 80% of 2005 delivered volumes Novatek’s core fields Leningrad region Yamal Nenets AO Western Siberia Kostroma region Kirov region No transportatio
Slide 26: Gas condensate – maximizing our value chain
Gas condensate – maximizing our value chain • Processing: Purovsky processing plant at 100% capacity Kirkenes (Norway) • Transportation: 2005 signed long-term agreement with Sverdlovsk RR (affiliate of Russian RR) for transportation from Purovsky to Vitino Vitino • 1Q 2006 “Gold Star” partner for 20
Slide 27: NOVATEK brings BOPP production line on-stream
NOVATEK brings BOPP production line on-stream June 2005, NOVATEK’s subsidiary, NOVATEK- POLIMER, brought its BOPP production line on- stream. The production line has an estimated processing capacity of 25,000 tons per annum Polymers production (tons): 20,000 18,073 15,000 11,589 12,271 10,000 2005 a
Slide 28: Stellar financial performance
Stellar financial performance 1Q 05 1Q 06 +/(-)% RR million 2004 2005 +/(-)% 8,789 11,504 31% Total revenues & other income 24,727 42,187 71% 8,482 11,319 33% Oil & gas sales 21,018 37,246 77% 4,153 5,820 40% EBITDA(1) 8,785 22,876 160% nm nm nm EBITDA (net of disposals and other income) (2) 8,342 2
Slide 29: Sales volumes growth
Sales volumes growth Natural gas volumes, MMCM Liquids sales volumes, MT 27,330 2,460 2,112 17,277 13,161 1,235 2003 2004 2005 2003 2004 2005 Crude oil Oil products End-customers Wholesale traders Stable gas condensate LPG 9 2005 natural gas sales volumes 9 2005 liquids sales volumes increased by in
Slide 30: World class efficiency
World class efficiency Lifting Costs (2005) 1,2 Reserve Replacement Cost (2005) 3 Quicksilv er 10.07 Bill Barret t 23.07 Murphy Oil 7.92 15.74 Pioneer Dev on 7.43 Devon 14.34 Chesapeake 6.72 Encana 6.69 Chesapeake 13.82 Pioneer 6.64 Anadarko 11.26 Apache 6.27 10.07 Burlington Anadarko 5.38 Apache 9.
Slide 31: Valuation upside as production and prices grow
Valuation upside as production and prices grow EV1/2005 Reserves2 EV1/Production 2005 23.8 147 19.6 18.6 US$'000/BOE p.d. 16.515.5 14.713.7 85 84 80 US$/BOE 75 72 62 36 35 4.2 4.2 3.4 24 22 21 2.3 2.1 NOVATEK XTO Quicksilver EnCana BG Burlington Chesapeake Bill Barrett Bill Barrett Quicksilver Sibne
Slide 32: Achieved first-time corporate credit rating
Achieved first-time corporate credit rating Novatek’s first-time ratings are in line with the first-time ratings of the Russian oil majors Baa1/BBB+ Baa2/BBB Baa3/BBB- Ba1/BB+ Ba2/BB Ba2 Ba3/BB- BB- B1/B+ B2/B B3/B- Norilsk Nickel Wimm-Bill- RAO UES MegaFon Severstal Gazprom Novatek TNK-BP Sistema L
Slide 33: Concluding comments
Concluding comments am 4 NOVATEK .
Slide 34: NOVATEK: turning opportunity into strategy
NOVATEK: turning opportunity into strategy Substantially increase our production of hydrocarbons, especially natural gas – Targeting 45 BCM of natural gas production and liquids of 4.6 MMT by 2010 from our key fields Maintain our low-cost structure and leverage competitive cost advantage – Prove