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    Novatek to Cut 2020 Capex by up to 20%

Summary

Novatek said it may delay one of its upcoming LNG projects by a year.

by: Joseph Murphy

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Novatek to Cut 2020 Capex by up to 20%

Russia's Novatek will cut its capital expenditure plan for 2020 by up to fifth, its CFO Mark Gyetvay told investors in a conference call on April 30.

The move comes after Novatek swung to a net loss in the first quarter because of the impact of the ruble's devaluation on its debts. Its core earnings were also down on lower prices and weaker demand as a result of the Covid-19 crisis. Earlier Novatek set a capex guidance for 2020 of rubles 250bn ($3.3bn).

"Considering the present macro-environment, we will revise our capital expenditure guidance downward and may reduce this amount by up to 20%, or rubles 50bn, of our planned investment programme," Gyetvay said. "We will maintain our investment commitment to our LNG programme and key domestic-related production projects."

Despite the weaker numbers in the first quarter, Gyetvay said Novatek fared better than some of its peers thanks to its low cost structure. He also pointed to the strength of the company's domestic business, which accounts for 88% of its sales and was unaffected by the collapse in global prices.

The fourth and smallest train of the Novatek-led Yamal LNG project, originally due on stream before the end of 2019, is only 79% complete, Gyetvay said. More than 2,700 people are working at the site and no additional delays are expected because of Covid-19, he said, Construction of the 0.9mn mt/yr train should finish in the third quarter, with commissioning due in the fourth.

Russian president Vladimir Putin in April signed into law amendments that will loosen restrictions on the number of projects eligible to export LNG, clearing the way for Novatek's 5mn mt/yr Obsk LNG development to move forward. However, Gyetvay warned that Novatek may delay taking a final investment decision on the plant, which had been expected this year.

"We will consider this question more thoroughly during the next several months after reviewing various financing options, but may consider delaying the start of the first train by one year to 2024," he said.

Obsk LNG remains "highly competitive," he said, noting that the deferral would have no impact on Novatek's long-term goal of producing 57-70mn mt/yr of LNG by 2030.

Gyetvay confirmed earlier press reports of a Covid-19 outbreak at the LNG construction yard it is building in Murmansk, where there are presently 11,000 construction workers from 20 different countries. Progress will not be affected by the outbreak, he said.