Presentation 2Q09 - English audio (presentation only)
1. 2 Q 2009 US GAAP
Financial and
Operating Results
September 9, 2009
2. Disclaimer
This presentation contains forward-looking statements concerning the financial condition, results of
operations and businesses of Gazprom Neft and its consolidated subsidiaries. All statements other than
statements of historical fact are, or may be deemed to be, forward-looking statements. Forward-looking
statements are statements of future expectations that are based on management’s current expectations
and assumptions and involve known and unknown risks and uncertainties that could cause actual
results, performance or events to differ materially from those expressed or implied in these statements.
Forward-looking statements include, among other things, statements concerning the potential exposure
of Gazprom Neft to market risks and statements expressing management’s expectations, beliefs,
estimates, forecasts, projections and assumptions. These forward-looking statements are identified by
their use of terms and phrases such as ‘‘anticipate’’, ‘‘believe’’, ‘‘could’’, ‘‘estimate’’, ‘‘expect’’, ‘‘intend’’,
‘‘may’’, ‘‘plan’’, ‘‘objectives’’, ‘‘outlook’’, ‘‘probably’’, ‘‘project’’, ‘‘will’’, ‘‘seek’’, ‘‘target’’, ‘‘risks’’, ‘‘goals’’,
‘‘should’’ and similar terms and phrases. There are a number of factors that could affect the future
operations of Gazprom Neft and could cause those results to differ materially from those expressed in
the forward-looking statements included in this presentation, inclusively (without limitation): (a) price
fluctuations in crude oil and oil products; (b) changes in demand for the Company’s products; (c)
currency fluctuations; (d) drilling and production results; (e) reserve estimates; (f) loss of market and
industry competition; (g) environmental and physical risks; (h) risks associated with the identification of
suitable potential acquisition properties and targets, and successful negotiation and completion of such
transactions; (i) economic and financial market conditions in various countries and regions; (j) political
risks, project delay or advancement, approvals and cost estimates; and (k) changes in trading
conditions.
All forward-looking statements contained in this presentation are expressly qualified in their entirety by
the cautionary statements contained or referred to in this section. Readers should not place undue
reliance on these forward-looking statements. Each forward-looking statement speaks only as of the
date of this presentation. Neither Gazprom Neft nor any of its subsidiaries undertake any obligation to
publicly update or revise any forward-looking statement as a result of new information, future events or
other information.
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3. Management Participants in Today’s Call
Vadim Yakovlev
Deputy Chairman of the Management Board and CFO
Boris Zilbermints
Deputy Chairman of the Management Board,
Deputy CEO for Exploration and Production
Anatoly Cherner
Deputy Chairman of the Management Board,
Deputy CEO for Refining and Marketing
Yuri Kalner
Head of Strategic Planning Department
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4. 2 Q and 1H 2009 Highlights
• Increase in Daily Production +2,9% in 2Q 2009
• Rebranding program launched - 230 new style stations by the end of 2009
• Consolidation of Sibir Energy
• Consolidation of Moscow Refinery
• Acquisition of Chelyabinsk region retail chain (+ 41 gas stations and 2 tank
farms) – April 2009 (approx. $ 35 MM)
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5. Key macroeconomic factors: crude pricing
environment is steadily improving
Crude pricing, RUR/USD Rate (eop) Crude Export Profitability (per bbl)
160 40 $160
Urals, $/bbl (lhs) RUR/$ rate (rhs)
$140
140 35
117,4 Urals down 50%
$120
120 30
$100
$80
100 25
Netback less MET 58,5
$60 down 42%
80 20
$40
60 15 $20 35,9
25,2
$0
40 10 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09
($20)
Crude export netback less MET in Western Siberia MET Crude export duty Urals (cif Novorossiysk)
20 5
($40)
Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09
• In 2Q09 Brent prices averaged at $59/bbl (-51% y-o-y, +34% q-o-q), Urals prices averaged at $59/bbl (-50% y-o-y,
+33% q-o-q)
• In 2Q09 Russian Ruble depreciated vs. US Dollar by 27% y-o-y and appreciated by 5% q-o-q.
• In 2Q09 Russian CPI inflation stood at 2,0% vs. 3,9% in 2Q08 and 5,4% in 1Q09.
• Despite 50% average Urals price decline y-o-y in 2Q09 to 59/bbl, crude exports netback adjusted downwards by
MET reduced only 42% to $25/bbl.
Source: Platt’s, Federal Statistics Service, Company data, Central Bank of Russia, Argus 5
6. Key macroeconomic factors: crude exports netback
outperformed refining netbacks in 1H09
72,5
66,7 Refining netback, $/bbl
62,1 63,4 Crude exports netback, $/bbl
60,7 CIS crude exports netback, $/bbl
41.2% 18.7% 8% 42.3% 21.2% 9% 35,2
33,5
24,3 32,2
23,8 30,9 29,5
22,5
21,6 21,7
ONPZ MNPZ YANOS ONPZ MNPZ YANOS ONPZ MNPZ YANOS
2Q08 1Q09 2Q09
• One of the key trends observed both in 1H09 and 2Q09 was sharp reduction of refining profitability in Russia. In 2Q09
refining netbacks at all Gazprom Neft’s refineries was lower than that of crude oil export shipments.
• Going forward given crude prices staying at current level and recovered domestic prices for oil products refining netback
should again exceed that of crude exports.
Source: Company data
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7. Gazprom Neft’s Key Financials, $ mln
(48%) (48%) • Oil price fluctuations drove
24%
$18 002 Revenues up Q-o-Q and down Y-
o-Y
$9 957 $10 085 $9 365
Revenues* $4 988 $5 180 • High Refining share in crude
$4 185
balance constrained quarterly
revenue growth
2Q08 3Q08 4Q08 1Q09 2Q09 1H08 1H09
(53%) (55%) • Existing fiscal regime was the
57%
main contributor to thesurpassing
$3 204 $2 765 quarterly EBITDA growth
$5 413
EBITDA $957
$1 501
$2 459 • Rouble appreciation and
$416 commitment to Refining played
negative role in EBITDA growth
2Q08 3Q08 4Q08 1Q09 2Q09 1H08 1H09
(45%)
(57%)
258% • Gain from Sibir Energy acquisition
$3 607
and Fx gain were the main
$2 196 reasons for outstanding Net
$1 594 $1 534
Net Income $1 200 Income growth
$335
-$543 1H08 1H09
2Q08 3Q08 4Q08 1Q09 2Q09
Source: Company data * Revenues for 2007 and 1-3Q08 were adjusted for excise tax that was previously excluded (2007 –$ 0.7B; 1Q08 – $0.2B, 2Q08 - $0.3B; 3Q08 - $0.8B)
EBITDA includes the Company’s share in its equity affiliates (Slavneft , Tomskneft, Moscow refinery and Salym Petroleum Development) EBITDA 7
Source: Company data
10. Upstream: core assets daily output is surprising on
the upside
89
August average –
87 83 317 tonnes/day
January average – June average –
85 81 282 tonnes/day 82 567 tonnes/day
March average –
83
80 273 tonnes/day
81
79
77
75
Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09
Source: Company data
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11. Oilfield Development
Production Drilling (Th. Meters)
638
575
524 494
434
2Q08 3Q08 4Q08 1Q09 2Q09
Number of New Wells Launched*
171 178
151 160
122
55,4
55,7 54,2 53,4 51,1
2Q08 3Q08 4Q08 1Q09 2Q09
Average flow at new wells, Tonnes per day
Gazprom Neft Production by Field*
1Q09 2Q09
• Quarterly Organic production growth driven by:
Sugmutskoye Others 30,6% Sugmutskoye
Others 31,4% 13,1% 12,1%
• Increased drilling
Krapivinskoye
• More new wells launched
Priobskoye
3,1% Priobskoye
Krapivinskoye
24,6%
Muravlenkovsko 26,4% • Improved average flow rate at new wells
3,5% ye 2,3%
Muravlenkovsk Sutorminskoye • Production well stock optimization
oye 2,4% Vyngapurovsko 7,7% Sporyshevskoye
Sutorminskoye Sporyshevskoy ye 11,3% Vyngapurovsko • Priobskoye (+13 749 bbl a day) and Vyngayakhinskoye (+3 457 bbl a day)
5,6% ye 12,2%
7,8% e 5,9% are leaders in terms of quarterly organic extraction growth
Source: Company data
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*Gazprom Neft data not including its share in equity affiliates (Slavneft , Tomskneft) and NIS
12. Refineries complexity
Refining Conversion Ratio, %
100
Omsk • Omsk refinery tends to be one of the most
95
technologically advanced in Russia
90 Moscow
85 Yanos • High gasoline and light products yield favors
80 Gazprom Neft in case of equalization of export
duty for heavy and light products
75
70 • Modernization at Moscow refinery is more
65 visible in view of Sibir Energy acquisition
60
55
50
6M08 9М08 2008 3М09 6М09
Oil Products Slate, % (6M08 and 6M09)
3,624 3,869 Fuel Oil
Diesel 100% 100% 19%
35%
2 2
90% 90%
80% +13% 80% Other
20%
0 0
70% 70%
Gasoline 60% 60% Gasoline
28%
0 Other
50%
40% -29%
50%
40%
29%
0
8 15%
30%
20%
30%
20% 9
10% +16% 10% Diesel
Fuel Oil 0% 32%
0%
22%
Source: Company data Other Gasoline Low -octaine gasoline High-octaine gasoline
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13. Oil Products Marketing expansion
Oil Products Sales in Russia (MM Tonnes) Sales regions
4,4 4,4 New assets -1H 2009
4,1 4,0
3,6
Murmansk
2Q08 3Q08 4Q08 1Q09 2Q09 Ust-Luga
Archangelsk
Oil Products Sales Through
premium channels (MM Tonnes) Belorussia
1,3
1.1
1,1
1,0 0,9
Khabarovsk
0,5 0,4 0,4
0,3 Italy
-15% -18% 0,3 22% Serbia
+30% 0,8 0,7
0,7 0,6 0,7
Kazakhstan
2Q08 3Q08 4Q08 1Q09 2Q09 Kirgizia
Novorossiysk Chelyabinsk region
Retail network other premium sales* Sibir +40 gas stations
Caucasus
Harbor
Number of Active Gas Stations 133
Bunkering
NIS
435
Airports
865 896
777 782
673
+15% +1% +11%
+4% Retail – Most Efficient Downstream Segment
• Oil products sales through premium channels grew by 22% in 2Q09
31 Dec, 2005 31 Dec, 2006 31 Dec, 2007 31 Dec, 2008 30 Jun, 2009 • Own retail network (including NIS and Sibir) totaled 1 514 gas stations
Source: Company data
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* Other premium sales includes sales of new business units – bunkering, aero fuelling and lubricants business
14. Rebranding campaign
Retail – Most Efficient Downstream Segment
• 45 filling stations are operating under new style; rebranding activity is on the way on 43 stations
• In 2009 a new brand is to be introduced at 230 fuelling facilities operating currently under different brands
• By the end of 2011 there will be 1003 gas stations under GazpromNeft brand
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17. Taxes: Gazprom Neft benefited from lagging export
duties and reduced MET
Duty lagging effect gaining ground in 2Q08 & 2Q09, $/t Actual MET vs. “OLD” MET, per bbl
$30
700
+/- Actual duty Theoretical duty
600 $25
500 $20
400
$15
300
$10
200
$5
100
+/- MET Old MET
0 $0
Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09
• In 2Q09 Gazprom Neft’s export duty payables grew only modestly by 6,9% q-o-q to $623 mln despite strong
Urals price growth by 16,6% to $58/bbl as a result of duties calculation lagging effect. Thus in 2Q09 Gazprom Neft
was benefiting from limited duties increase.
• Following MET formula calculation amendment incorporating increased crude threshold price from $9/bbl to
$15/bbl effective from January 1, 2009 Gazprom Neft had net benefit of $1,3/bbl for all crude volumes produced
domestically both in 2Q09 and 1H09.
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18. Costs under control
Unit costs dynamics, $/bbl Absolute costs dynamics, $ mln
7,0 6,83
6,5 6,00
5,80 1Q09 2Q09 2Q09A* QoQ QoQA*
6,0 5,33 5,91
5,5 5,24 Operating: 387 427 10% -1%
4,80 5,13 385
5,0 5,15 4,56
4,5 4,67 Upstream 258 291 262 13% 2%
4,74 4,84
4,49 Downstream 129 136 5% -5%
4,0 4,27 123
3,5 3,18
3,0
2,94 Transportation 382 428 386 12% 1%
2,55
2,5 2,86
2,24 SG&A 282 330 298 17% 6%
2,0
2Q08 3Q08 4Q08 1Q09 2Q09
Upstream Downstream A* - adjusted for real Ruble appreciation vs. USD of 10.9% in 2Q09
Transportation SG&A
• In 2Q09 most of cost lines declined y-o-y following Ruble devaluation in the beginning of 2009. Upstream
operating costs were down by 20% y-o-y to $291 mln. Downstream operating costs were down 10% y-o-y to $136 mln.
Transportation cost in 2Q09 reduced only marginally by 1% y-o-y to $428 mln as devaluation effect was diminished by
transportation tariffs hikes in the beginning of 2009. SG&A costs were up 20% y-o-y neglecting devaluation effect due
to NIS and marketing units consolidation starting from 2009.
• Q-o-Q costs analysis shows Gazprom Neft’s modest cost increase if adjusted for real Ruble appreciation vs. US
Dollar of 10.9% in 2Q09.
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19. EBITDA is on strong recovery track
Adjusted EBITDA per barrel ($/bbl) Adjusted EBITDA Margin
40 37%
32,2%
35 32,5
37,6 31% 29,0%
27,4%
30
25% 22,9%
25
20 19%
17,9
15
12%
5,0 8,3%
10 11,5
6%
5
0 0%
2Q08 3Q08 4Q08 1Q09 2Q09 2Q08 3Q08 4Q08 1Q09 2Q09
• In 2Q09 Gazprom Neft’s adjusted EBITDA reduced by 53% y-o-y and increased by 57% q-o-q to $1 501 mln.
• Adjusted EBITDA per barrel of production in 2Q09 is down 52% y-o-y and up 52% q-o-q to $17,9/bbl.
• In 2Q09 adjusted EBITDA margin of 29% almost restored its pre-crisis record values.
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20. Consistent Cash Performance
Cash Sources and Uses (US$MM), 6m 2009 Available Net Cash Flow (US$MM)
$219 $1 665 -$1 197
$577
$2 000
$2 075 -$2 219
$2 564 $1 676 $1 498
-$502
$888
$502
$1 717
$1 197
31.12.2008 Operating Capital Other Debt Net Dividends 30.06.2009
Cash Flow Expenditures (Investing Change
$52 Activities)
Sources Uses
Operating Cash Flow (US$MM)
Operating Activity (excl. Working Capital) Working Capital
Capital Expenditures Dividends 2 147
Debt Received Debt Repaid
-61%
Investment Other
+49%
Cash Increase/Decrease 1 442
1 264
+50%
636 847 -21% 999
• Debt used for refinancing and M&A 17 666 282
191
• Capex financed by operating cash flow 806 883 830 717
475
• $1.5B of cash remained at end 2Q09
2Q08 3Q08 4Q08 1Q09 2Q09
Capex Free cash Flow
Source: Company data
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21. Organic Capex Breakdown
Capex Dynamics, $ mln
$806 • 2Q09 CAPEX is 11% below that in
$717
-11% 42 2Q08 due to Ruble devaluation
42 effect and CAPEX efficiency
114 increase.
+49%
323
$480 204
• In 2Q09 upstream CAPEX grew only
43 modestly by 9% q-o-q to $399 mln
72
• In 2Q09 refining CAPEX almost
181 224 tripled vs. 1Q09 level to $204 mln.
398 due to the acceleration of upgrade
programs at the Company’s
184 175 processing facilities
• In 2Q09 Marketing and Distribution
1Q09 2Q09 2Q08 CAPEX more than doubled vs. 1Q09
to $114 mln due to the launch of the
Upstream - Brown Fields Upstream - Green Fields Refining Marketing & Distribution wide-spread rebranding program by
the Company’s marketing units.
1Q09 2Q09 2Q08
Upstream $6.9/bbl $7.3/bbl $12.6/bbl
Brown Fields $4.6/bbl $4.4/bbl $9.1/bbl
Green Fields $13.5/bbl $15.2/bbl $24.1/bbl
Source: Company data
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22. Debt Profile
Net Debt/EBITDA, Gearing (%) Maturity Profile (US$MM)
0,90 30% 1 278 1 256
0,60 20%
0,30 10% 581
219
0,00 0% 119
2006 2007 2008 2Q09 2010 2011 2012 2013 2014
Net Debt/EBITDA (lhs) Gearing (rhs)
Debt Structure as of March 2009, % Credit Ratings
BBB/Baa2
Investment Grade
9% BBB-/Baa3
BB+/Ba1
43%
BB/Ba2
41% BB-/Ba3
91% B+/B1
16%* B/B2
B-/B3
2003 2004 2005 2006 2007 2008 2009
Foreign Currency (USD,
Sberbank* Short-term EUR, RSD) S&P Moodys
Long-term RUR
Net Debt totaled US$ 3,369
*Bridge agreement, that would be refinanced under the long term basis
Source: Company data
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24. Sibir Energy: Overview
Gazprom Neft share in Sibir Energy, % (as of)
Upstream business
54,71%
Reserves
33,72% - 120 MM Tonnes (C1 reserves)
27,54%
16,94% Production
- 4.8 MM Tonnes in 2009E
23.04.2009 22.05.2009 17.06.2009 23.06.2009 Downstream business
Moscow Refinery
Shares acquisition (joint venture with Gazprom Neft )
- 10 MM Tonnes of refining throughput
In a series of public transactions Gazprom Neft
(capacity 12 MM Tonnes )
consolidated 54.71% of Sibir Energy
- 133 filling stations
- One of the leading position in Moscow and Moscow region market
of oil products
Source: Company data,
Public sources 25
26. 2Q 2009: Accounting reclassifications and one-offs
Moscow Refinery Valuation Net Income, USD mln.
1,200
805 470
470
335 +258%
335 730
Carrying Value Fair Value Gain from Sibir 1Q09 2Q09
Energy acquisition
As of June 23, Gazprom Neft purchased 55% of Sibir Energy, thus increasing it share in Moscow Refinery to 59% and making it a fully
consolidated subsidiary
As per Purchase Price Allocation the Fair Value at Moscow Refinery was estimated at $805 mln
Difference between Carrying value and Fair value in the amount of $470 mln. was recorded as Gain from Sibir Energy acquisition in the
Income Statement
Other accounting reclassifications
2Q 2008 6M 2008
Excise tax Revenue
Revenue 9,957 (+146) 18,002 (+325)
Gross up
Opex
Opex 517 (-10) 974 (-21)
SG&A
SG&A 265 (-10) Unified Social 439 (-19)
Taxes 1,545 (+166) Tax reclassification 2,859 (+365) Taxes
Source: Company data
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