Regional asset: Tatneft to accelerate capitalization up to $2 trillion

The most in the republic

Tatneft continues to break records of dividend payments, pleasantly surprising the shareholders with its generosity. On 21 June, the shareholders at the annual meeting with the participation of Tatarstan President Rustam Minnikhanov approved the decision to direct 100% of Tatneft’s net profit under RAS [Russian Accounting Standards] for 2018, or 197,5 billion rubles, to pay dividends. For comparison, last year the dividends were no less impressive: 92 billion rubles, or 75% of the net profit under IAS [International Accounting Standards], and, as you can see, there is no limit to wealth.

The turning point in the dividend policy was the year 2018. If in previous years, the oil company made one-time annual payments along with other oil companies of the Russian Federation, in the last two years it has changed the strategy of encouraging the shareholders by switching to interim accrual of dividends. This year, the board of directors of Tatneft has decided to direct all the money that is not used in investment activities, as well as remaining after the payment of mandatory payments and repayment of loan agreements, to bonuses. Therefore, this year the company has twice accrued interim dividends: at the end of six and nine months. As a result, in 2018 the company will pay 84,91 rubles per share. For comparison: at the end of 2017, Tatneft accrued 39,9 rubles for all types of shares. Thus, this year dividend payments have soared up, actually doubling in ruble terms.

Oil companies “accelerating” capitalization up to 2 trillion rubles

Large dividend payments are provided by the high profitability of the company. On 21 June, at the annual shareholders' meeting, Tatneft CEO Nail Maganov said that the profit of the joint-stock group has increased by 72% to 211 billion rubles, while the revenue has jumped not so much — by 33,7%. But if we take the final recalculation, the net profit has increased by 68% — up to 197,5 billion rubles. According to Nail Maganov, free cash flow has expanded and increased by 40%, and in terms of profitability, Tatneft is ahead of Russian oil companies.

“Tatneft seeks to reach the capitalization level of 2 trillion rubles,” Nail Maganov outlined the super-task for himself. “But we haven’t, like everyone else — by the end of the year the capitalization grew to $24 billion, and the current capitalization of the company has reached the value of $27,6 billion,” he reported, adding that Tatneft ranks the 8th in the list of the most expensive companies in Russia.

The new bar in oil production — 38,4 million tonnes by 2030

In 2018, Tatarstan oil companies increased the production to 29,5 million tonnes, Nail Maganov said. According to him, the containment of oil production is due to Russia's obligations under the OPEC+ agreement, so further plans are made on the basis of “waiting for the action of these restrictions until the end of the year”. “With a high probability, we predict that the action of this agreement will be prolonged not only for the second half of 2019 but also for a longer term,” he predicts. Although the company has the potential to further increase oil production. “Even next year, taking into account possible restrictions under the OPEC+ agreement, it is planned to further increase the production to 30 million tonnes,” he said.

Assessing the international situation, he suggested that the prerequisite for the preservation of restrictive measures in oil production is the continued growth of hydrocarbon production in the United States, which can be significantly slowed only at a price below $40 per barrel. “According to forecasts, this year the US is going to increase the production by 1,9 million barrels per day, and in 2020 — by another 1,4 million. This can lead to a significant excess of supply in the hydrocarbon market. Now we are continuing the dialogue on OPEC+. We are going to participate and act taking into account the results of the agreements under the agreement,” he said.

Meanwhile, in the long term, Tatneft intends to raise the production level to almost 40 million tonnes. Nail Maganov called the probable level of annual production of 38,4 million tonnes. According to him, the existing fields in Tatarstan are considered as the sources of growth, as well as “the potential of oil production development outside the Russian Federation is being assessed”. It’s understandable because more than half of the current recoverable reserves are hard to recover — carbonate reservoirs, ultra-viscous oil.

To expand the geography of the project for the production of ultra-viscous oil, this year the works have been started on the registration of a license for the sites in Samara, a package of documents for the study of the sites in Orenburg Oblast is being prepared. In general, the company expects double growth of production of ultra-viscous oil this year. In 2018, 2 million tonnes were produced, 18 fields of ultra-viscous oil are in development.

The Russian emergency with oil pumping through the Druzhba pipeline system, through which oil is exported from Russia through Belarus, was also mentioned. As it is known, it received contaminated by chlorides raw materials, Poland and Ukraine have stopped accepting oil on April 24-25. Tatneft started to receive complaints from customers because of the situation with contamination of the oil pipeline system Druzhba, Director General of the company Nail Maganov reported to journalists.

“We have already started to receive complaints. They are within the bounds of reason, within our contractual relationship. Claim settlement is underway. Therefore, today it is difficult to say what damage will be. The claims are from supplies, not from quality (of oil –editor’s note),” said Maganov. When asked about the damage assessment and whether the company would claim compensation, he replied that this was under discussion. The calculation of losses continues, Transneft will compensate for the damage due to oil contamination.

Tatneft will gradually reduce investments in TANECO

From this year, Tatneft begins to reduce investments in TANECO in connection with the completion of the construction of the complex, Nail Maganov said. Last year, five new technological units were put into operation: naphtha isomerization, the hydrotreating of diesel fuel and kerosene, the complex of aromatics production and the second ELOU-AVT with a capacity of 6 million tonnes a year. About 29 billion rubles have been spent. In June, the complex testing of ELOU-AVT-6 unit with a block of vacuum distillation of visbreaker tar began at the Tatneft oil refining complex, the first straight-run gasoline was obtained. In general, the development plan of TANECO project is designed until 2026.

According to Maganov, there have been more than 60 million tonnes of crude oil since 2010. In 2018, this brought Tatneft an additional income of 14 billion rubles. “The additional margin due to the increase in oil refining amounted to 14 billion rubles, or 1,800 rubles per 1 tonne of processed oil,” he said. TANECO's marginality may grow due to external factors. According to Maganov, by the decision of international organizations the restrictions on the sulphur content in the fuel are introduced from 1 January 2020, which will lead to the profitability of sales of medium distillates and diesel fuel.

After the completion of the construction of TANECO, Tatneft is going to put the resources into the construction of the oil and gas chemical complex. According to Maganov, until 2023 the company plans to build and put into operation the first line of the petrochemical complex. “We plan to increase profitability due to high-margin products of oil and gas chemistry, including import substitution ones: this is a wide range of plastics and products that have not previously been produced in Russia,” he concluded.