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1Q 2009 Financial Results(US GAAP)
Leonid Fedun, Vice-President of LUKOIL
June 2009
1
Forward-Looking Statements
• Certain statements in this presentation are not historical facts and are “forward-looking”. Examples of such forward-looking statements include, but are not limited to:
– projections or expectations of revenues, income (or loss), earnings (or loss) per share, dividends, capital structure or other financial items or ratios;
– statements of our plans, objectives or goals, including those related to products or services;– statements of future economic performance; and – statements of assumptions underlying such statements.
• Words such as “believes,” “anticipates,” “expects,” “estimates”, “intends” and “plans” and similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying such statements.
• By their very nature, forward-looking statements involve inherent risks and uncertainties, both general and specific, and risks exist that the predictions, forecasts, projections and other forward-looking statements will not be achieved. You should be aware that a number of important factors could cause actual results to differ materially from the plans, objectives, expectations, estimates and intentions expressed in such forward-looking statements, including our ability to execute our restructuring and cost reduction program.
• When relying on forward-looking statements, you should carefully consider the foregoing factors and other uncertainties and events, especially in light of the political, economic, social and legal environment in which we operate. Such forward-looking statements speak only as of the date on which they are made, and we do not undertake any obligation to update or revise any of them, whether as a result of new information, future events or otherwise. We do not make any representation, warranty or prediction that the results anticipated by such forward-looking statements will be achieved, and such forward-looking statements represent, in each case, only one of many possible scenarios and should not be viewed as the most likely or standard scenario.
2
1Q 2009 Highlights
• Sales– $14,745 million
• EBITDA – $2,414 million
• Net income – $905 million
• Basic EPS – $1.07 per share
• Free cash flow – $229 million
• Oil production – 1,976 th. barrels per day(+3.2% y-o-y)
3
1Q 2009 to 1Q 2008
15.3%
0.7%
-8.3%
-18.6%
-46.0%
-40.6%
-53.1%
-70% -50% -30% -10% 10% 30%
Urals
Diesel fuel (Europe)
Fuel oil (Europe)
Diesel fuel (Russia)
Gasoline (Russia)
Electricity tariffs (Russia)
Pipeline transportation tariffs(Russia)
Producer prices (Russia)
Mineral extraction tax ( in dollars)
Real rouble appreciation
Positive factors
Negative factors
Export tariff
-66.6%
-64.3%
-48.4%
-51.3%
Macroeconomic and Tax Environment
REVENUE
EXPENSE
TAX
4
LUKOIL Continues Effective Cost Reduction
Transportation expenses,$ per boe of production
4.5
5.0
5.5
6.0
6.5
7.0
7.5
1Q2007
2Q2007
3Q2007
4Q2007
1Q2008
2Q2008
3Q2008
4Q2008
1Q2009
-20%
Cost of production drilling in Western Siberia, $ per meter
300
400
500
600
1Q 2008 2Q 2008 3Q 2008 4Q 2008 1Q 2009
-39%
Refining expenses, $ per barrel
2.0
2.2
2.4
2.6
2.8
3.0
1Q2007
2Q2007
3Q2007
4Q2007
1Q2008
2Q2008
3Q2008
4Q2008
1Q2009
-26%
Lifting costs, $ per boe
2.5
3.0
3.5
4.0
4.5
1Q2007
2Q2007
3Q2007
4Q2007
1Q2008
2Q2008
3Q2008
4Q2008
1Q2009
-28%
5
Tax Burden is Decreasing
Taxes paid* per barrel of production, $ per barrel
0
16
32
48
64
1Q 2007 2Q 2007 3Q 2007 4Q 2007 1Q 2008 2Q 2008 3Q 2008 4Q 2008 1Q 2009
-66%
MET: – Change in base oil price from $9 to $15 per barrel
– Introduction of tax holidays for a number of Russian regions
Export tariffs:
– Time lag in calculation is reduced
Income tax:
– Income tax rate is reduced from 24% to 20% from January 1, 2009
MET, $ per ton
0
50
100
150
200
jan feb mar apr may jun jul aug sept oct nov dec
2007 2008 2009
Export tariffs, $ per ton
0
100
200
300
400
500
jan feb mar apr may jun jul aug sept oct nov dec
2007 2008 2009
* Excise and export tariffs, income and other taxes.
Taxes per barrel of production (including excise and export tariffs, income and
other taxes) decreased in 4Q 2008 and the reduction continued in 1Q 2009 as a
result of tax incentives of the Government and falling oil prices.
6
Main Operating Results
1Q 2009 to 1Q 2008 (1Q 2009 actual level)
-12% -6% 0% 6% 12% 18%
Marketable hydrocarbonproduction
Refinery throughputs(including ISAB)
Oil exports
Petroleum product exports
Retail sales ofpetroleum products
+3.2% (1,976 th. barrels per day)
+1.5% (2,225 th. boe per day)
+8.5% (1,163 th. barrels per day)
+3.9% (6.8 mln tons)
-0.5% (3.2 mln tons)
Marketable gas production
Oil production
-10.4% (249 th. boe per day)
+17.0% (885 th. barrels per day)
7
LUKOIL Refinery Throughputs Are Steadily Growing
0
5
10
15
20
25
30
35
40
jan
feb
mar apr
may jun jul
aug
sep
oct
nov
dec
2007
20082009
Refinery throughputs at Group refineriesand capacity utilization
800
900
1,000
1,100
1,200
2004 2005 2006 2007 2008
th. b
arre
ls p
er d
ay
50
60
70
80
90
100
%+29%
LUKOIL substantially increased refinery throughputs in 1Q 2009 thanks to volumes refined at the ISAB Complex as well as increase
in refinery throughputs at the Odessa Refinery, which was re-
launched in 2008 after modernization
Utilization rate
Refinery throughputs reconciliation (y-o-y),th. barrels per day
86
38
1,073
-4511
1,163
970
1,020
1,070
1,120
1,170
1,220
Refinerythroughputsin 1Q 2008
ISABrefinery
Odessarefinery
Volgogradrefinery
Otherrefineries
Refinerythroughputsin 1Q 2009
+8.5%+90 th. barrels per day
Refining margin of Russian cracking refinery,$ per barrel
8
Financial Results
1Q2009
4Q2008
Δ, % $ million 1Q2009
1Q2008 Δ, %
14,745 14,745
(1,232)
(3,717)
1,532
1,502
905
1.07
2,414
(1,232)
-40.924,955
(1,908)
(7,714)
4,071
4,174
3,163
(3,717)
3.83
-35.4
-51.8
-62.4
-64.0
-71.4
-72.1
1,532
1,502
905
1.07
4,805 -49.82,414
18,415
(2,244)
(7,338)
(791)
(1,842)
(1,621)
(1.91)
(906)
-19.9
-45.1
-49.3
-
-
-
-
-
Sales
Operating expenses
Taxes other than income tax(including excise and export duties)
Income from operating activities
Income before income tax
Net income (loss)
Basic EPS, $
EBITDA
9
Sales Breakdown, $ million
0
10,000
20,000
30,000
1Q 2008 1Q 2009
Other sales
Sales of gas and gas products*
Sales of petrochemicals in Russia
Sales of crude oil in Russia
Sales of petroleum products inRussia
International sales ofpetrochemicals
International sales of crude oil
International sales of petroleumproducts
14,745
24,955
18%
82%
-41%
82%
-40%18%
International market
Domestic market
* Includes international sales.
10
Operating Expenses
1Q2009
4Q2008
Δ, % $ million 1Q2009
1Q2008 Δ, %
787 602
202
159
22
29
209
354
(345)
1,232
5,362
266
-19.5748
268
69
33
80
262
384
64
142
1,908
-24.6
+130.4
-33.3
-63.8
-20.2
-7.8
-
-35.4
26
48
249
347
379
2,244
8,608 -37.75,895
Hydrocarbon lifting costs
Own refining expenses
Refining expenses at third-party refineries and ISAB refining complex
Excise included in processing fee paid to third-party refineries
29 -39.6 Petrochemical expenses
209 -16.1 Crude oil transportation to own refineries
354 +2.0 Other operating expenses
(345) -Change in operating expenses in crude oil and refined products inventory originated within the Group
Total
Cost of purchased crude oil, gas and products
602 -23.5
202 -24.1
159 +12.0
22 -15.4
1,232 -45.1
5,362 -9.0
11
LUKOIL Successfully Controls Operating Expenses
Lifting costs, $/boe
3.9
4.3 4.3
4.0
3.1
3.73.7
3.33.33.2
3.02.8
3.6
2.5
3.0
3.5
4.0
4.5
1Q 2006 1Q 2007 1Q 2008 1Q 2009
LUKOIL managed to decrease hydrocarbon lifting costs by 23% (in 1Q 09 to 4Q 08) to $3.10/boe
thanks to :- Rouble devaluation: the real rouble depriciation to the
US dollar was 18.6% (1Q 2009 to 1Q 2008)
- Cost cutting program, effective cooperation with suppliers and subcontractors
- Sharp – by 2 times q-o-q – growth of production at the Y-K field, the lifting costs at which are lower than the Group average
1Q 09 to 4Q 08: -23%
1,908
1,232
1,000
1,500
2,000
2,500
OPE
X in
1Q
2008
Incr
ease
inre
finin
gex
pens
es a
tth
ird-p
arty
refin
erie
s an
dIS
AB
Chan
ge in
oper
atin
gex
pens
es in
inve
ntor
y
Dec
reas
e in
liftin
g co
sts
Dec
reas
e in
own
refin
ing
and
petr
oche
mic
alex
pens
es
Dec
reas
e in
expe
nses
on
tran
spor
tatio
nto
ow
nre
finer
ies
Dec
reas
e in
othe
r O
PEX
Dec
reas
e in
the
exci
sein
clud
ed in
the
proc
essi
ng f
ee
OPE
X in
1Q
2009
$ m
ln +4.7%
-21.4%
-7.6%
-6.1%-2.8%
-1.6% -0.6%
-35.4%
12
SG&A and Transportation Expenses
SG&A expenses
729
1,0281,042994
796
948
796800
663
300
500
700
900
1,100
1Q 2007 3Q 2007 1Q 2008 3Q 2008 1Q 2009
$ m
ln
Transportation expenses (1Q 2009 to 1Q 2008)
-3% -3%
16%
-15%
1%
-5%
-20%
-10%
0%
10%
20%
Transportation volume Tariff
1Q2009
4Q2008
Δ, % $ million 1Q2009
1,412 1,169
729
1,898
1,028
1Q2008 Δ, %
1,169
2,440
Transportation expenses
729 -29.1 Other selling, general and administrative expenses 796 -8.4
1,898 -22.2 Total 1,991 -4.7
-17.2 1,195 -2.2
13
Net Income Reconciliation
-84-201
-370
-6,964263267581
676
3,997
0
3,000
6,000
9,000
Net
inco
me
in 1
Q 2
008
Dec
reas
e in
tax
es o
ther
tha
nin
com
e ta
x (in
clud
ing
exci
se a
ndex
port
tar
iffs)
Dec
reas
e in
OPE
X
Dec
reas
e in
inco
me
tax
Dec
reas
e in
SG
&A
Chan
ge o
f th
e re
sult
from
disp
osal
and
impa
irmen
t of
asse
ts
Dec
reas
e in
tra
nspo
rtat
ion
expe
nses
Net
dec
reas
e in
rev
enue
*
Incr
ease
in D
D&
A
Incr
ease
in o
ther
exp
ense
s
Chan
ge o
f th
e re
sult
from
curr
ecy
tran
slat
ion
Dec
reas
e in
equ
ity s
hare
inaf
filia
tes
Net
inco
me
in 1
Q 2
009
$ m
ln
905
3,163
-18
* Change in revenue less purchases of oil and petroleum products.
14
1Q 2009 Cash Flow Reconciliation
2,239
1,663
1,388
644 109 45 -1,434
-1,363
-80
2,000
2,800
3,600
4,400
5,200
6,000
6,800
Cas
h a
t th
e b
egi
nni
ng
of
1Q
20
09
Op
era
tin
g a
ctiv
itie
s
Net
mov
em
ents
of l
ong
-te
rm d
ebt
Ne
t m
ove
me
nts
of s
hor
t-te
rm b
orr
owin
gs
Net
mov
em
ents
of
inve
stm
ent
s
Pro
cee
ds
fro
m s
ale
of
pro
pe
rty
and
inte
rest
s in
aff
ilia
tes
and
sub
sidi
ari
es
CAP
EX
Purc
has
es
of
inte
rest
s in
subs
idia
ries
and
aff
ilia
tes
Div
ide
nds
paid
to
min
ori
ty a
nd
on
Com
pan
y co
mm
on s
tock
Oth
er
Ca
sh a
t th
e e
nd o
f 1Q
200
9
$ m
ln
3,197-14
15
CAPEX Breakdown
1Q2009
4Q2008
Δ, % $ million 1Q2009
1Q2008 Δ, %
1,118 1,118
960
158
303
154
149
29
3
26
16
1,466
960
-43.61,981
1,779
202
356
229
127
27
5
22
158
48
-46.0
-21.8
-14.9
-32.8
+17.3
+7.4
-40.0
+18.2
-66.7
303
154
149
29
3
26
16
2,412 -39.21,466
1,738
1,374
364
711
463
248
28
7
21
342
2,819
-35.7
-30.1
-56.6
-57.4
-66.7
-39.9
+3.6
-57.1
+23.8
-95.3
-48.0
Exploration and production
Russia
International
Refining and marketing
Russia
International
Petrochemicals
Russia
International
Other
Total (cash and non-cash)
16
Northern Caspian: Start of Commercial Development in 2009
• LUKOIL has been operating in the region since 1995
• During this time LUKOIL discovered eight major fields: Khvalynskoye (2000), Yu.Korchagin (2000), 170 km (2001), Rakoushechnoye (2001), Sarmatskoye(2002), V.Filanovsky (2005), Tsentralnoyeand Zapadno-Rakoushechnoye (2008)
• Total CAPEX into the Russian sector of the Caspian sea by the Company is about $700 mln
Start of construction of an offshore platform for Yu. Korchagin field.
Proved reserves of 6 fields are over 1.4 bln boe,
3P reserves – 4.7 bln boe
The first project:Yu. Korchagin field
Rakoushechnoye
Yu. Korchagina field
Sarmatskoye
170 km field Khvalynskoye
Astrakhan region
Kalmykiya
Dagestan
V. Filanovsky field
17
Development of the Northern Caspian Fields:Key Event of 2009–2010
0
50
100
150
200
250
300
2009E 2010E 2011E 2012E 2013E 2014E 2015E 2016E
Yu. Korchagin V. Filanovsky Other fields
Estimated oil production in the Northern Caspian, th. barrels per day
Karayskaya,Ukatnaya structures
Filanovskogo,Rakushechnoye fields
Atashskaya, West-Rakushechnayastructures
Khvalynskoye, 170 km, Sarmatskoye fields
Yuzhnaya, Diagonalnaya structures
Sea depth3-4 m Sea depth
4-10 m Sea depth13-30 m
Yuri Korchagin field infrastructure (2009)
Water depth at Caspian fields
18
The Company is Preparing for the Production Launch at the Yu. Korchagin field
Living quarters for the Yu. Korchagin field
Ice-resistant platform-1 at the Astrakhansky korabel shipyard
- The Company plans to launch the Yu. Korchagin field in December 2009
- 3P reserves at the field are estimated at 570 mln boe
- Peak liquids production at the field is 2.3 mlntons per year, gas production – 1.2 bcm per year
- Sea depth in the area of the field varies from 10 to 13 meters
Ice-resistant platform-2 jacket
19
LUKOIL is the Only Russian Company to Develop Offshore Fields on Its Own
LUKOIL uses its proprietary technology of zero-discharge,which allows the Company to work successfully in environmentally
sensitive territories of the Baltic and Caspian seas.
Status: PSAOperator:Exxon Neftegaz Ltd. (Sakhalin-1),Shell, Gazprom (Sakhalin-2)
JV of LUKOILand Gazprom:Tsentralnaya structure
JV of LUKOIL and Rosneft
LUKOIL: productionKravtsovskoye field (development since 2004)
LUKOIL: production(since 2009)Yu. Korchagin field
LUKOIL:V. Filanovsky field
20
Positive Effects from the Global Financial Crisis
• Optimization of the investment program
• Positive effect from the rouble devaluation
• Cost optimization
• Considerable decrease in tax burden
21
Conclusions
The Company plans to develop dynamically thanks to:
- Start of significant domestic tax burden decrease in 2009
- Optimizing and significantly reducing 2009 CAPEX and OPEX
- Hydrocarbon production growth
- Development of R&M segment
- Development of a program aimed at securing positive cash flowsamid financial crisis
- Maintaining conservative financial policy, keeping access to domestic and international financial sources comfortable and open
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