Novatek · RUS:NVTK
Novatek — Non-Deal Roadshow (February 2012)
58 slides from Novatek's roadshow presentation, Feb 20, 2012
Slide 1: Natural Gas Returns
Natural Gas Returns Mark Gyetvay, Chief Financial Officer & Member of the Board Otkritie Capital Investor Meetings London, UK 20 – 23 February 2012
Slide 2: Disclaimer
Disclaimer This presentation does not constitute or form part of, and should not be construed as, an offer to sell or issue or the solicitation of an offer to buy or acquire securities of the Company or any of its subsidiaries in any jurisdiction or an inducement to enter into investment activity in
Slide 3: Value Formula
Value Formula 25 year R/P life (P1), 41 year R/P life (P1+P2) 1,321 bcm P1 Gas reserves ~50 Total Proved Developed Reserves Low-risk Efficient Natural gas will remain Assets ~5.4 tcm of natural gas2 the fuel of choice in ~717 mmt of liquids2 the 21st century ~41.6 billion boe2 VALUE Domestic gas pri
Slide 4: Business Overview
Business Overview
Slide 5: NOVATEK's Fields and License Areas
NOVATEK’s Fields and License Areas Yamal-Nenets Autonomous Region (YNAO)1 – one of the world’s largest natural gas producing regions 1. Yurkharovskoye field 2. East-Tarkosalinskoye field 3. Khancheyskoye field 15. Severo-Termokarstoviy license area 27. Pyreinoye field 4. Olimpiyskiy license area 16.
Slide 6: NOVATEK Development Profile
NOVATEK Development Profile Khancheyskoye Field License term – 2044 East-Tarkosalinskoye Field License term – 2043 Yurkharovskoye Field License term – 2034 Sibneftegas Fields & License Areas1 License terms – 2021-2031 Olimpiyskiy Fields & SeverEnergiya Fields & License Areas1 License Areas License t
Slide 7: Reserve to Production Life
Reserve Growth, mm boe Proved Reserve Changes (SEC) Total reserves by category 3,394 (98) 15 409 2010 Termokarstovoye field 9 393 13 386 (1,722) 41 years 3,641 2009 South-Tambeyskoye field (51%) 10 589 Reserve to Production Life 2010 SeverEnergia 2010 Sibneftegas 2011 South-Tambeyskoye field (29%) 7
Slide 8: NOVATEK's Hydrocarbon Reserves
NOVATEK’s Hydrocarbon Reserves Historical natural gas reserve1 growth PRMS 2 108 Independent Reserve SEC Appraisal1, 31.12.2011 Proved+ Proved Probable 1 840 Probable bcm 1 321 1 585 523 2 108 1 462 1 321 Natural gas 1 144 tcf 47 56 18 74 1 006 1 015 1 029 1 017 967 923 784 750 mmt 91 118 81 199 681
Slide 9: World Class Reserve Metrics
World Class Reserve Metrics Reserve Replacement Costs Reserve Replacement Rate Reserve Life, (3-year average),$/boe (3-year average), % years 1 1 1 One of the lowest cost, most efficient and longest life producers in the global oil and gas industry Sources: Company data, IHS Herold Upstream Reviews,
Slide 10: Increasing Gas Condensate Production
Increasing Gas Condensate Production Structure of 2011 natural gas reserves “Wet” gas vs. “Dry” gas production 100% 66% 73% 29% 90% 21% 6% 80% 5% 70% 60% 50% 40% 30% Natural gas 1,500 m. 20% Gas/gas condensate 1,500 – 3,000 m. 10% 0% 1 2004 2005 2006 2007 2008 2009 2010 2011 Gas/gas condensate over
Slide 11: Ramping Up Hydrocarbon Production
Ramping Up Hydrocarbon Production Natural Gas Sales Production, bcm Liquids Sales Production, mmt Total Hydrocarbon Production, mmboe CAGR 14% CAGR 10% CAGR 14% 52.8 4.1 380 Absolute increase 152.6% Absolute increase 95.2% Absolute increase 145.2% 3.6 37.2 3.0 274 32.4 2.6 237 30.4 2.3 2.4 220 28.6
Slide 12: Production – All Fields
Production – All Fields1 Natural gas production, bcm Gas condensate and crude oil production, mmt 120 14 13.3 112.5 108 12 96 84 10 8.6 72 68.1 8 60 52.8 6 48 4.1 36 4 24 2 12 - - 2011 2015 F 2019 2020 F 2011 2015 F 2019 2020F Current Текущие Production Producing Fields Center добывающие м/р New New
Slide 13: New Acquisitions & Projects
New Acquisitions & Projects
Slide 14: Location of Acquired Fields
Location of Acquired Fields Core NOVATEK Fields NOVATEK’s Other NOVATEK Fields Yamal & Gydan peninsula Fields Sibneftegas License Areas SeverEnergia License Areas Samburgskoye Field YE 2011 • 8 deviated wells completed and tested (gas flow rate - 1.8 mmcm/day), Purovsky Plant • 4 horizontal wells (i
Slide 15: SeverEnergia Fields
SeverEnergia Fields1 Natural gas production, bcm Liquids production, mmt 40 Samburgskoye 36 Urengoiskoye 36.6 Yaro-Yahinskoye 32 Others 28 24 20.9 20 16 12 8 4 - 2011F 2015 F 2019 2020 F F F 2020 F Significant mid-term production contribution Note 1: 100% of SeverEnergia production volumes 15
Slide 16: SeverEnergia Fields
SeverEnergia Fields1 Capital expenditures, RR billion SeverEnergia Development Plan ♦ Samburgskoye field launch in 1Q 2012 ♦ Number of existing gas/gas condensate wells – 18 ♦ New gas/gas condensate wells to be drilled 2011-2020 – 47 ♦ 4 new gas/gas condensate wells drilled in 2011 ♦ Avg. new well f
Slide 17: Yamal & Gydan Peninsula Resources
Yamal & Gydan Peninsula Resources Russian Reserve Classification ABC1+C2 – Natural gas, bcm North-Obskiy Rusanovskoye Malyginskoye Leningradskoye Tasiyskoye Seyadorskoye North Tambeyskiy Russian Reserve/Resource Appraisal of New Licenses W. Tambeyskoye East-Tambeyskiy As at 31 December 2011 S. Tambe
Slide 18: Utrenneye & Geofizicheskoye Fields
Utrenneye & Geofizicheskoye Fields1 Gas production, bcm Gas condensate production, mmt 35 30.4 30 25 20 15 10 5 - 2015 F 2020F F F Utrenneye Geofizicheskoye Capital expenditures2, RR billion Preliminary Development Plans3 ♦ Flexible development options, pipeline (UGSS) or LNG ♦ Gas/gas condensate we
Slide 19: Adding Value to Hydrocarbon Production
Adding Value to Hydrocarbon Production NOVATEK producing fields NOVATEK new fields 4,178 km1 Yamal & Gydan Peninsula fields and license areas (LA) Other fields and LA’s 3,795 km1 Yurkharov – Purovsky Plant gas condensate pipeline Potential markets for Gydan peninsula hydrocarbon production Railway N
Slide 20: Purovsky Gas Condensate Stabilization Plant
Purovsky Gas Condensate Stabilization Plant De-ethanized Currently: exported through Port of Vitino Production stable gas condensate Stabilization Fields Unstable gas condensate 4Q 2012: to Ust-Luga fractionation unit Propane-butane fraction (LPG) Sold to domestic market extraction LPG dryer methano
Slide 21: Ust-Luga Transshipment and Fractionation Unit
Ust-Luga Transshipment and Fractionation Unit Ust-Luga Projected Output • Six million tons per annum capacity (1st 3mmt per annum train in 4Q 2012, 2nd 3mmt per annum train in 2013) • Two berths for tanker (Aframax) loading • Total planned capital expenditures1 both trains, approximately RR 20 – 25
Slide 22: Yamal LNG Production Facility
Yamal LNG Production Facility Integrated facility at Sabetta Gas treatment and liquefaction facility • Onshore LNG plant: three production trains of 5.0 mmt per annum • 1 mmt per annum gas condensate production capacity • Single site – integrated utilities and infrastructure • LNG tanks 4 x160 mcm
Slide 23: Yamal LNG Project Stages - Pre FID
Yamal LNG Project Stages - Pre FID Completed License changes (extended until 2045) Agency agreement signed with Gazprom Export providing for the export of LNG Government support: tax concessions, government participation in developing infrastructure, optimized tariffs for icebreaking support v
Slide 24: Yamal LNG Carrier Concept
Yamal LNG Carrier Concept Based on operational experience from ice class tankers at Lukoil’s Varandey project (Barents Sea) and Norilsk Nickel’s arctic operations Main concept - Double Acting Ship (DAS): •Bow – forward movement in open water and thin ice •Astern – reverse movement through thick ice
Slide 25: Natural Gas and Liquids Marketing
Natural Gas and Liquids Marketing 25
Slide 26: Hydrocarbon Marketing
Hydrocarbon Marketing Maximize Net-backs on Natural gas and Liquids sales Gas Marketing Focus Liquids Marketing Focus ♦ Long-term contracts with large ♦ Maximize liquids value chain end-customers and ex-field traders through Ust-Luga fractionation unit ♦ Increase market penetration in ♦ Increase usa
Slide 27: Domestic Natural Gas Sales and Production
Domestic Natural Gas Sales and Production NOVATEK’s natural gas sales to primary Russian regions 1 2011E Sales Breakdown Note 1: Percent of NOVATEK’s total deliveries to end-customers 27
Slide 28: Market Presence
Market Presence (Forecast for Primary Regions) 28
Slide 29: NOVATEK's Domestic Gas Deliveries, bcm
NOVATEK’s Domestic Gas Deliveries, bcm 2012F 2015F 2020F ~59.5 ~72 ~90 29
Slide 30: Domestic Gas Market Liberalization
Domestic Gas Market Liberalization 1 Domestic market liberalization is expected between 2015 and 2018 Note 1: Mineral Extraction Tax (MET) 30
Slide 31: Optimizing Netback on Natural Gas
Optimizing Netback on Natural Gas Natural Gas Sales Portfolio, bcm 2011F 28.5 ~52.8 ~59.5 24.3 Traders End Customers Natural gas netback1 expected to increase ~10-12% in 2012 Note 1: Based on the Federal Tariff Services’ stated increase in the regulated natural gas price of 15% and a planned 6% incr
Slide 32: NOVATEK Strategy Implementation
NOVATEK Strategy Implementation Natural gas spot price1, $/mmbtu Summer transportation route to target markets, liquids & LNG All season transportation route to target markets, liquids & LNG Transportation routes to other markets 2 3 USA Notes: 1. Based on average actual prices in 3Q 2011 from Argus
Slide 33: Liquids Marketing
Liquids Marketing —_ NOVATEK th GAS CONDENSATE — EUROPE mt 299 1083 _ shipment S —m . GAS CONDENSATE — USA NOUmnn a, Arr 201 | 20 j © vent 9,tenke . oh mt 1242 603 a 7 (0 LITHUANIA aN aee shipment 21 10 yo NETHEREARDS > ates Route 1 —— SLOVAKIA, “ Ln YEE) POMANIA © stable gas condensate ~~ export sa
Slide 34: Purovsky & Ust-Luga Product Slate
Purovsky & Ust-Luga Product Slate 2012F 2015F 2020F 15% 38% ~3.2 ~6.1 ~10.2 13% mmt mmt mmt 34% Stable Gas Condensate ♦ Target market – global petrochemical and refining industries in the Asian-Pacific Region and South America ♦ Use transshipment facilities of Ust-Luga to market stable gas condensat
Slide 35: LPG Marketing Structure
LPG Marketing Structure 2012F 2015F 2020F 25% ~1.1 ~2.1 ~3.1 50% mmt 50% mmt 26% mmt 49% NOVATEK export НОВАТЭК Экспорт NOVATEK domestic НОВАТЭК Россия SIBUR СИБУР Marketing via own distribution network (wholesale and retail) ♦ Reduce wholesale sales to third party distribution networks ♦ Develop ou
Slide 36: Low Cost Producer/Capital Efficiency
Low Cost Producer/Capital Efficiency
Slide 37: Production Cost per boe
Production Cost1 per boe Production costs (RR/boe) Production costs (USD/boe) 209.4 6.87 190.9 6.00 5.62 4.93 139.8 Transport 135.8 Transport 4.46 126.1 Transport 120.1 Transport 2.92 Transport 3.78 Transport 2.50 Transport 72.6 Transport 64.0 DD&A 0.77 21.7 DD&A 23.3 DD&A 0.66 0.68 DD&A 0.76 16.8 D
Slide 38: Unrivalled Capital Efficiency
Unrivalled Capital Efficiency Exploration & Development Capital Expenditures Converted to Production 1 1 Source: Company filings and NOVATEK data Source: Company filings and NOVATEK data Source: SEC filings and Company data High production flow rates yet low capital intensity 38
Slide 39: Operating CF / CAPEX
Internally Funded Investment Program 20 000 5.0 17 500 4.5 15 000 4.0 12 500 3.5 Operating CF / CAPEX 10 000 3.0 RR millions 7 500 2.5 5 000 2.0 2 500 1.5 - 1.0 (2 500) 0.5 (5 000) 0.0 (7 500) (0.5) (10 000) (1.0) 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 2008 2008 2009 2009 2009 2009 2010 2010 2010 20
Slide 40: Return on Capital and Assets
Return on Capital and Assets Return On Capital Employed Return on Equity Return on Assets 1 Source: Company data, Bloomberg data Note 1: Peer group includes: Anadarko, Apache, BG Group, EOG , SWE, Nexen, EnCana, Chesapeake, Lukoil, Rosneft, Pioneer and Devon 40
Slide 41: Core Fields Generating Free Cash Flow
Core Fields Generating Free Cash Flow Core cash generating assets to fund future investments New project and exploration capex 41
Slide 42: Investment Case
Investment Case Creating ♦ World-class resource base – one of the largest globally Shareholder Value ♦ Low-cost production – one of the lowest in the industry ♦ Close proximity to infrastructure – gas/liquids transportation & processing ♦ Experienced management team – excellent project delivery trac
Slide 43: Maximizing Shareholder Returns
Maximizing Shareholder Returns Share price and market capitalization since IPO1 Dividend history, RR/share CAGR 35% 4.00 Absolute growth 344.4% 2.75 2.52 2.35 2.50 1.65 1.50 0.90 1.00 1.00 0.83 0.55 0.38 2011 2005 2006 2007 2008 2009 2010 1H 2011 Interim Dividend Final Dividend Committed to increasi
Slide 44: Appendix 1: Financial Overview
Appendix 1: Financial Overview
Slide 45: Summary Highlights – 9M 2011
Summary Highlights – 9M 2011 Gross production increased by approximately 33.3% Y-o-Y on a boe basis – Gross natural gas production increased Y-o-Y by 45.1% – Gross liquids production increased Y-o-Y by 16.1 % Sales volumes of natural gas and liquids increased Y-o-Y by 45.7% and 19.6%, respective
Slide 46: Comparison of Quarterly Results (RR million)
Comparison of Quarterly Results (RR million) Q-o-Q Y-o-Y 3Q 10 4Q 10 1Q 11 2Q 11 3Q 11 +/- % +/- % Oil and gas sales 28,786 34,089 44,793 40,501 39,835 -1.6% 38.4% Total revenues 29,441 34,135 44,861 40,576 39,980 -1.5% 35.8% Operating expenses 17,587 19,267 23,421 22,439 22,881 2.0% 30.1% EBITDA (1
Slide 47: Debt Composition and Financial Policies
Debt Composition and Financial Policies Debt Composition as at 30 September 2011 – Total Debt = RR 95.8 billion Currency Type USD Bonds 36% 64% RR Credit Facilities Established track record of adhering to creditor friendly financial policies Metric Policy Target 2008 2009 2010 9M 2011 2011E Debt/EBI
Slide 48: Appendix 2: Peer Comparisons
Appendix 2: Peer Comparisons
Slide 49: Global Reserves
Global Reserves Total proved reserves 2010 (bln boe) Proved natural gas reserves 2010 (bcm) Gazprom 123.7 18,991 ExxonMobil 24.8 Petrochina 22.5 BP 17.8 Lukoil 17.3 Rosneft 15.2 Shell 14.0 Природный газ1 500 м Petroleos Mexicanos 13.5 Petrobras 12.8 Chevron 10.5 Total 10.3 Conoco Philips 8.3 NOVATEK
Slide 50: Industry Comparisons
Industry Comparisons 2010 Proved SEC gas reserves, bcm1 2010 Natural Gas R/P Ratio2, Years NOVATEK 31 Pioneer 18 Chesapeake 17 Apache 14 EOG 13 South Western Energy 12 EnCana 11 Devon Energy 11 Anadarko 10 Nexen 4 Source: Company data, SEC filings Source: Company data, SEC filings Notes: 1. For comp
Slide 51: Industry Comparisons
Industry Comparisons Total 2010 Production (mm boe) 2010 Gas Production, % of Total Production South Western Energy 100% EnCana 96% Chesapeake 89% NOVATEK 89% EOG 73% BG Group 73% Devon Energy 68% Anadarko 59% Pioneer 56% Apache 48% Nexen 19% Source: Company data, and SEC filings Source: Company dat
Slide 52: Still the Most Efficient Producer
Still the Most Efficient Producer Long life1 Low cost 275 NVTK 600% NVTK 250 APA BG APC 500% 225 DVN SWN ECA 2010 Production, MM boe 3YR RR Rate (2008-2010) 200 400% 175 CHK CHK 150 300% EOG EOG 125 BG 200% DVN APA 100 PXD 75 NXY 100% NXY APC 50 SWN PXD 0% ECA 25 0 -100% 0 5 10 15 20 25 30 35 - 10.0
Slide 53: Appendix 3: Macroeconomic Environment
Appendix 3: Macroeconomic Environment
Slide 54: Russian Natural Gas – Supply & Demand
Russian Natural Gas – Supply & Demand Russian Natural Gas Supply, bcm 8% 72% 704 5% ~785 ~882 15% 2011 2015F 2020F Russian Natural Gas Demand, bcm 67% 31% ~785 704 ~882 2% Domestic Export LNG 54
Slide 55: Realizing Production Potential
Realizing Production Potential Analysis of Current Independent Natural Gas Production Potential Gas Condensate Gas Condensate Associated Gas Access to Gas Access to End- Company Transportation Processing Processing Focus Infrastructure Customers Capacity Capacity Capacity Natural Gazprom + + + + + G
Slide 56: Natural gas supplied to RF domestic market
Natural gas supplied to RF domestic market mm cm/day mm cm/day 2 000 160 1 800 144 1 600 128 1 400 112 1 200 96 1 000 80 800 64 600 48 400 32 200 16 - 0 Feb Feb Feb Feb Feb Feb May May May May May May Mar Jun Sep Jan Aug Jan Mar Jun Aug Sep Mar Jun Sep Aug Jan Mar Jun Jan Aug Sep Mar Jun Sep Aug Jan
Slide 57: Predictable Gas Pricing Model
Predictable Gas Pricing Model Historical and forecasted regulated price increases for Russian domestic gas 250% 5 000 225% 4 500 % change in regulated price 200% 15%??% 4 000 15% 175% 15% 3 500 150% 15% 3 000 RR/mcm 15% 125% 6.2% 2 500 7% 5% 7% 100% 25% 2 000 75% 15% 1 500 10.6% 18.8% 50% 1 000 23.4
Slide 58: Questions and Answers
Questions and Answers Contact details: NOVATEK’s Investor Relations Mark Gyetvay, Chief Financial Officer Gregory Madick, Head of Investor Relations Tel: +7 (495) 730-6013 Email: ir@novatek.ru Website: www.novatek.ru