Novatek · RUS:NVTK
Novatek — Investor Day (December 2011)
76 slides from Novatek's investor day presentation, Dec 9, 2011
Slide 1: Focus on Growth
Focus on Growth Corporate Strategy Day Presentation London Stock Exchange London, UK 9 December 2011
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: Presentation Team
Presentation Team Presenter Title Leonid V. Mikhelson Chairman of the Management Committee Mark A. Gyetvay Chief Financial Officer 3
Slide 4: Agenda
Agenda Topic Time 1. Introduction 5 min. 2. Strategy 90 min. 3. Q&A 60 min. 4. Reception 4
Slide 5: Leveraging Our Core Business Strengths
Leveraging Our Core Business Strengths Highly favorable gas market Compelling business case, fundamentals robust model, clear strategy Simple and transparent Organic growth platform based group structure on ample reserves High standards of corporate Strong profitability and cost governance and trans
Slide 6: Clear and Transparent Structure
Clear and Transparent Structure OAO NOVATEK Upstream Exploration & Russian Midstream & International E&P and Other Production (E&P) Marketing Marketing 100% production NOVATEK - NOVATEK - 100% Novatek Overseas 84% of Yurkharovneftegas 100% Purovsky ZPK Sherwood Premier 100% NOVATEK - NOVATEK Gas & 1
Slide 7: Core Strategy
Core Strategy Prudent Investment Decisions Sustainable Development Corporate Governance Increase hydrocarbon Maintain low cost structure production Grow resource base Optimize marketing channels Expand processing capacity Conservative Financial Policies 7
Slide 8: Delivering on Core Strategy
Delivering on Core Strategy Strategic Goals Results: 2005 – 2011 • Total P1 reserves increased approximately 2x Increased Resource • Organic growth at the Yurkharovskoye field • Strategic acquisition of Yamal LNG, SeverEnergia and Sibneftegas Base as well as licenses in the Gydan peninsula • Increas
Slide 9: Reserve Growth and Reserve to Production Life
Reserve Growth, mm boe Proved Reserve Changes (SEC) Total reserves by category 21,174 2,450 - 98 77 years 2010 Termokarstovoye field 8,088 14,869 - 1,342 2,900 Reserve to Production Life 2009 South-Tambeyskoye field 2010 SeverEnergia 2010 Sibneftegas 10,093 9,875 9,919 9,543 49 years 8,397 4,178 Yur
Slide 10: Sales Production Growth
Sales Production Growth Natural Gas Sales Production, bcm Liquids Sales Production, mmt Total Hydrocarbon Production, mmboe CAGR 14% CAGR 10% CAGR 14% 52.6 4.2 379 Absolute increase 151.7% Absolute increase 100.0% Absolute increase 144.5% 3.6 37.2 3.0 274 32.4 2.6 237 30.4 2.3 2.4 220 28.6 28.3 206
Slide 11: World Class Reserve Metrics
World Class Reserve Metrics Reserve Replacement Costs Reserve Replacement Rate Reserve Life, (3-year average),$/boe (3-year average), % years 29 30 567% 17.2 16.6 25 15.2 23 23 14.0 22 431% 12.3 14 259% 242% 13 13 13 13 13 243% 225% 195% 194% 158% 162% 2.2 1.0 0.9 1.1 0.6 '04-'06 '05-'07 '06-'08 '07
Slide 12: Financial Results – Double Digit Growth
Financial Results – Double Digit Growth Total Revenues, RR mln EBITDA, RR mln Net Income, RR mln CAGR 30% CAGR 37% CAGR 38% 117,024 57,506 40,278 Absolute increase 384.7% Absolute increase 562.1% Absolute increase 574.9% 89,954 79,272 39,691 36,807 25,722 22,927 62,370 29,436 18,728 49,373 23,229 23
Slide 13: Oil and Gas Results, RR/boe
Oil and Gas Results, RR/boe Oil &Gas Revenues Lifting Costs Oil &Gas Cash Flow1 CAGR 17% 424.3 CAGR 22% Absolute increase 160.6% 187.7 17.6 Absolute increase 234.7% 359.5 16.0 16.0 16.1 14.9 152.1 317.4 14.7 135.9 262.9 12.2 112.7 221.4 97.3 187.5 87.6 162.8 56.1 2004 2005 2006 2007 2008 2009 2010 2
Slide 14: Global & Russian Energy Market Outlook
Global & Russian Energy Market Outlook Global & Russian Energy Market Outlook 14
Slide 15: 2005 Forecast of Global Gas Market in 2010
2005 Forecast of Global Gas Market in 2010 North America Europe Central Asia export Emerging as largest LNG market. Dependence on imports. Russia dominant, although Europe Henry Hub to converge Russian market share trying to make inroads Import with oil to grow considerably Asia China and India high
Slide 16: 2010 – Global Gas Market Forecast Changes
2010 – Global Gas Market Forecast Changes North America Europe Central Asia export Self-sufficient and potential LNG exporter. Diversification progressing. Lowering dependence on Russia. Henry Hub diverged from rest of world Aggressive energy efficiency/ China is dominant player Import carbon reduct
Slide 17: Global Gas Market in 2020E
Global Gas Market in 2020E Sources: BP Statistical Review of World Energy 2011, IEA World Energy Outlook 2012, Russian Government’s Gas Strategy to 2030 and Company data 17
Slide 18: Global Gas Balance – Long vs. Short Gas
Global Gas Balance – Long vs. Short Gas “Call on Russian Gas” Europe Russia Central Asia North America Middle East South America Asia Pacific Africa 2010 Proved reserves, tcm Net Exports, bcm Net Imports, bcm Sources: US Energy Information Agency, International Energy Outlook 2011, BP Statistical Re
Slide 19: Gas Supply To Grow and Diversify
Gas Supply To Grow and Diversify Russia is uniquely positioned to supply demand growth for both piped gas and LNG to global markets Source: Exxon Mobil 2010 The Outlook for Energy: A View to 2030 19
Slide 20: Growing Global Demand
Growing Global Demand Increased demand for power generation is driving the global demand growth for natural gas Source: Exxon Mobil 2010 The Outlook for Energy: A View to 2030 20
Slide 21: Increasing Role in Russian Gas Balance
Increasing Role in Russian Gas Balance Total Russian gas production 2011F 2015F 2020F ~665 ~702 14% ~825 8% bcm 92% 10% bcm 90% bcm 86% 1 NOVATEK Other producers Source: Company data and projections Note 1: Based on the Company’s net interest in all fields 21
Slide 22: Future of Russian Gas
Future of Russian Gas The YNAO represents over 83% of Russia’s natural gas production NOVATEK producing fields NOVATEK new fields NOVATEK – Yamal & Gydan peninsula fields GAZPROM legacy fields GAZPROM new production Other fields and LA’s Yurkharov – Purovsky Plant gas condensate pipeline Unified Gas
Slide 23: NOVATEK – Positioned For Growth
NOVATEK – Positioned For Growth Current resource base sufficient to more than double natural gas production by 2020 Incremental growth in natural gas supplied to the domestic market is expected to come from independent gas producers1 Depleting YNAO fields will open up the necessary transportat
Slide 24: Creating Shareholder Value
Creating Shareholder Value Strategic Objectives 2012 – 2020 • Organic growth from exploration and development activities in Increase Resource the YNAO and Yamal & Gydan Peninsulas Base • Strategic acquisitions and active participation in license tenders • More than double 2011 production by 2020 thr
Slide 25: Capital Expenditures
a Capital Expenditures 25
Slide 26: Total Capital Expenditures 2011 – 2020
Total Capital Expenditures1 2011 – 2020 (excluding Yamal LNG) Breakdown by Company Breakdown by Activity 30% 43% ~RR 800 44% ~RR 800 billion billion 52% 9% 18% 4% NOVATEK Yurkharovneftegas SeverEnergia NOVATEK Tarkosaleneftegas Other Drilling Infrastructure Processing Note 1: 100% of planned capital
Slide 27: Total Net Capital Expenditures 2011 – 2020
Total Net Capital Expenditures 2011 – 2020 (excluding Yamal LNG) Breakdown by Company1 Breakdown by Activity1 Incl. JV Financing Conditions2 12% 56% 59% ~RR 580 ~RR 580 Project Financing at billion 11% Subsidiary level billion 38% 3% 2% NOVATEK’S net interest – 51% 13% of which, 25.5% will be 6% car
Slide 28: Project Implementation Timeline
Project Implementation Timeline bcm Projects 2018-2020 120 • Raduzhnoye field • N.Yubileyniy+W.Urengoyskiy+ Projects 2015-2017 N.Yamsoveyskiy license area 100 • Khadyryakhinskoye field • Yamal LNG • Termokarstovoye field Projects 2012-2014 • Utrenneye field 80 • Yurkharovskoye field 4th • North Russ
Slide 29: Upstream Strategy
Upstream Strategy Upstream 29
Slide 30: Key Upstream Goals
Key Upstream Goals ♦ Increase reserve base through exploration activities and participation in license tenders ♦ Double natural gas production and triple liquids production ♦ On-time delivery of development projects (SeverEnergia fields, South–Tambeyskoye field and Gydan peninsula fields) ♦ Maintain
Slide 31: Reserve Growth Forecast
Reserve Growth Forecast Forecasted NOVATEK 1 reserve growth (ABC1), mm boe 45,000 40,000 7 105 35,000 12 000 33 000 31 169 (5 274) 30,000 (2 699) 25,000 21 868 20,000 15,000 10,000 5,000 0 2 3 2 3 2 2010 reserve growth production 2015F reserve growth production 2020F Exploration activities projected
Slide 32: 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 53.4 6 48 4.2 36 4 24 2 12 - - 2011F 2015 F 2019 2020 F 2011 F 2015 F 2019 2020F Current Текущие Production Producing Fields Center добывающие м/р New
Slide 33: Field Development Capital Expenditures
Field Development Capital Expenditures1 Capital Expenditures 2011 – 2020, RR billion Capital Expenditures, RR billion 12% 105,000 10% ~600 57% 9% 90,000 12% 75,000 NOVATEK Yurkharovneftegas NOVATEK Tarkosaleneftegas 60,000 SeverEnergia Yamal LNG (South-Tambeyskoye field) Other 45,000 30,000 42% ~600
Slide 34: SeverEnergia Fields – Production
SeverEnergia Fields1 Natural gas production, bcm Liquids production, mmt 40 14 Samburgskoye 36 Urengoiskoye 36.6 12 11.7 Yaro-Yahinskoye 32 Others 28 10 24 8.0 8 20.9 20 6 16 12 4 8 2 4 - - 2011F 2015 F 2019 2020 F 2011F 2015 F 2019 2020 F Gas condensate Crude oil Significant mid-term production con
Slide 35: SeverEnergia Fields – Capex and Development Plan
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 36: Recent License Acquisitions
Recent License Acquisitions 36
Slide 37: Yamal & Gydan Peninsula Resources
Yamal & Gydan Peninsula Resources Russian Reserve Classification ABC1+C2 – Natural gas, bcm North-Obskiy South-Tambeyskoye Field Rusanovskoye Malyginskoye Salmanovskiy/Geofizicheskiy LA Leningradskoye Tasiyskoye - 250 500 750 1,000 1,250 1,500 Seyadorskoye North Tambeyskiy Russian Reserve/Resource A
Slide 38: Utrenneye & Geofizicheskoye Fields
Utrenneye & Geofizicheskoye Fields1 Gas production, bcm Gas condensate production, mmt 35 1.4 30.4 1.3 30 1.2 25 1.0 20 0.8 15 0.6 10 0.4 5 0.2 - - 2015 F 2020F 2015 F 2020F Utrenneye Geofizicheskoye Utrenneye Geofizicheskoye Capital expenditures2, RR billion Preliminary Development Plans3 ♦ Flexibl
Slide 39: New On-shore blocks
New On-shore blocks Salmanovskiy (Utrenniy) License Area Geofizicheskiy License Area License type: Exploration and production License type: Exploration and production Expiration date: 31.08.2031 Expiration date: 31.08.2031 License area: 2,958.75 km2 License area: 825.3 km2 License obligations includ
Slide 40: New Off-shore Blocks
New Off-shore Blocks North-Obskiy License Area East-Tambeyskiy License Area License type: Geological study, exploration and License type: Geological study, exploration and production of hydrocarbons production of hydrocarbons Expiration date: 31.08.2041 Expiration date: 31.08.2041 License area: 6,62
Slide 41: Purovsky Plant & Ust-Luga Fractionation Unit
Purovsky Plant & Ust-Luga Fractionation Unit 41
Slide 42: 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 43: 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 44: Ust-Luga Transshipment and Fractionation Unit
Ust-Luga Transshipment and Fractionation Unit Ust-Luga Projected Output 34% 39% 13% 4% 10% Light Naphtha Heavy Naphtha Aviation Kerosene Diesel Heating Oil • 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)
Slide 45: Yamal LNG
_& Yamal LNG 45
Slide 46: 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 47: South-Tambeyskoye Field
South-Tambeyskoye Field1 Natural gas production, bcm Gas condensate production, mmt 27 1.8 25.2 24 1.5 1.4 21 1.3 18 15 1.0 12 0.8 9 0.5 6 0.3 3 - - 2015 F 2020 F 2015 F 2020F Export-oriented natural gas and de-ethanized gas condensate feedstock Note 1: 100% of South-Tambeyskoye field production vol
Slide 48: South-Tambeyskoye Field Development Plan
South-Tambeyskoye Field1 Capital expenditures, RR billion South-Tambeyskoye Field Development Plan ♦ Field launch in 2016 ♦ Total number of wells to be drilled 2011-2020 – 198 ♦ Current number of exploration wells drilled – 58 ♦ Number of exploration wells to be converted into production wells – 4 5
Slide 49: LNG Shipping Scenarios
LNG Shipping Scenarios Key issues to be resolved Shipping Scenarios ♦ Target markets ♦ Direct transportation to markets ♦ LNG carrier design approval ♦ Transshipment ♦ Ice class, Winterization & LNG tank system ♦ Ice-free port or Ship-to-Ship (Moss, SPB, membrane) ♦ Combination of different options
Slide 50: 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 ic
Slide 51: Sabetta Port Infrastructure
Sabetta Port Infrastructure Seaway and approach channels Port facilities, berths and harbor Government facilities Administrative facilities Ice protection MOB1 (existing) construction Port harbor MOB Port harbor Approach RO-RO2 berth channel Seaway channel Yamal LNG facilities Administrative and war
Slide 52: Yamal LNG Research & Consulting Partners
Yamal LNG Research & Consulting Partners Organization Description Status Due by Pre-FEED (comparative analysis of options and preparation of 1Q 2011 LNG Plant preliminary project documentation) CNIIMF1 ABS Design project and model testing of LNG-tanker 3Q 2011 FEED / Project (preparation of fina
Slide 53: 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 54: Yamal LNG Project – Government Support
Yamal LNG Project – Government Support Yamal LNG is part of a governmental program aimed at developing the Yamal peninsula’s resources and related off-shore areas until 2035 Tax concessions • Federal (according to Federal Law No. 258-FZ, 21 July 2011) • MET for natural gas and gas condensate • LNG a
Slide 55: Yamal LNG Financing Plan
Yamal LNG Financing Plan1 Disproportionate/ Project Cash Flows Contributions proportionate Project Financing from First Phase of to Charter Capital Shareholder Loans Yamal LNG 30% 35% 50% ~$US 3 43% ~$US 6 - 7 ~$US 7 - 8 ~$US 2 billion billion billion billion 15% 27% Potential Partners Total NOVATEK
Slide 56: Commercial Strategy
a Commercial Strategy 56
Slide 57: 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 58: Russian Natural Gas – Supply & Demand
Russian Natural Gas – Supply & Demand Russian Natural Gas Supply, bcm Gazprom NOVATEK Central Asian Gas Other Independent Producers 13% 9% 8% 5% 74% 5% ~698 5% 69% ~785 ~882 61% 21% 17% 13% 2011F 2015F 2020F Russian Natural Gas Demand, bcm 37% 31% 37% 67% ~698 61% ~785 58% ~882 2% 2% 5% Domestic Exp
Slide 59: NOVATEK’s Domestic Gas Deliveries, bcm
NOVATEK’s Domestic Gas Deliveries, bcm 2012F 2015F 2020F 3% 3% 27% 13% 33% 43% 43% ~59.5 45% ~72 ~90 28% 27% 19% 16% Power generation Res. and commercial Industrial Traders 59
Slide 60: Market Presence
Market Presence (Forecast for Primary Regions) 60
Slide 61: Domestic Gas Market Liberalization
Domestic Gas Market Liberalization 1 Domestic market liberalization is expected between 2015 and 2018 Note 1: Mineral Extraction Tax (MET) 61
Slide 62: Optimizing Netback on Natural Gas
Optimizing Netback on Natural Gas Natural Gas Sales Portfolio, bcm 2011F 2012F 43.4 28.3 ~52.5 ~59.5 24.2 16.1 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
Slide 63: NOVATEK Strategy Implementation
NOVATEK Strategy Implementation Natural gas spot price1, $/mmbtu Summer transportation route to target markets All season transportation route to target markets Transportation routes to other markets 2 3 USA Notes: 1. Based on average actual prices in 3Q 2011 from Argus Global LNG 2. Average of: Tit
Slide 64: Expanding Our Liquids’ Commercial Reach
Expanding Our Liquids’ Commercial Reach 7 16 21 20 23 40 34 APPROXIMATE # OF DELIVERY DAYS 64
Slide 65: Purovsky & Ust-Luga Product Slate
Purovsky & Ust-Luga Product Slate 2012F 2015F 2020F 10% 24% 9% 9% 15% 38% 3% 3% ~3.2 ~6.1 ~10.2 13% mmt mmt 25% mmt 24% 75% 34% 9% 9% Light Naphtha Heavy Naphtha Aviation Kerosene Diesel/Heating Oil Stable Gas Condensate - Purovsky Stable Gas Condensate - S. Tambey Stable Gas Condensate ♦ Target mar
Slide 66: LPG Marketing Structure
LPG Marketing Structure 2012F 2015F 2020F 29% 25% ~1.1 ~2.1 ~3.1 50% mmt 50% 28% mmt 26% mmt 49% 43% 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
Slide 67: Financial Guidance Summary
Financial Guidance Summary 67
Slide 68: Financial Management Objectives
Financial Management Objectives • Maintain Net Debt – to – EBITDA target of 1.0x over the cycle1 (excluding potential Financial acquisitions) targets • Maintain EBITDA Net Interest Coverage of 10x to 15x over the cycle • Maintain Operating Cashflow/Capex coverage of 100% over the cycle • Maintain un
Slide 69: Financial Policies
Financial Policies Established track record of adhering to creditor friendly financial policies Metric Policy Target 2008 2009 2010 9M 2011 2011F Debt/EBITDA1, (x) ~1.0x 0.7 1.0 1.3 1.2 1.0 Cash Balance, million $ 100 – 150 442 332 337 530 792 Lines of credit, million $ 300 - 500 250 823 695 545 495
Slide 70: Financial Guidance
Financial Guidance Metric 2007 2008 2009 2010 9M 2011 2012 Guidance EBITDA margin, %1 47.2% 46.4% 44.1% 49.1% 49.4% 45–50% Effective tax rate2 26.5% 19.7% 20.7% 21.0% 20.2% 19–22% Profit margin, %3 30.0% 28.9% 28.6% 34.4% 33.0% 25–30% ROE, %4 24.9% 25.7% 22.4% 26.7% 32.3% 20–25% ROCE, % 5 23.6% 21.9
Slide 71: Operational Guidance
Operational Guidance Metric 2007 2008 2009 2010 2012 Guidance Lifting costs, $/boe 0.58 0.64 0.50 0.53 0.50–0.75 F &D costs, $/boe 1.03 2.21 1.71 1.71 1.50–3.00 (3Y Avg.) RR costs, $/boe1,2 1.03 2.21 0.93 1.11 1.00–3.00 (3Y Avg.) RR rate3 158% 162% 431% 567% 125% (3Y Avg.) Notes: 1. Includes acquisi
Slide 72: Summary
Summary Summary 72
Slide 73: 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 74: Maximizing Shareholder Returns
Maximizing Shareholder Returns Share price and market capitalization since IPO1 Dividend history, RR/share 1000% 55 CAGR 35% 4.00 900% 50 Absolute growth 344.4% 800% 45 700% 40 2.75 600% 35 2.52 2.35 500% 30 2.50 400% 25 1.65 300% 20 200% 15 1.50 0.90 100% 10 1.00 1.00 0.83 0% 5 0.55 0.38 -100% 0 IP
Slide 75: Appendix 1: Yurkharovskoye Field Development
Appendix 1: Yurkharovskoye Field Development 75
Slide 76: Yurkharovskoye Field – Development Stages
Yurkharovskoye Field – Development Stages Field development stages: • Phase 1: up to 9 bcm/yr – 1Q 2003 • Phase 2/stage 1: up to 7 bcm/yr – 3Q 2008 • Phase 2/stage 2: up to 7 bcm/yr – 4Q 2009 • Methanol plant: 40 thousand ton/annum – 2Q 2010 • Gas condensate pipeline to Purovsky Plant – 3Q 2010 • Fi