Sibneft $0.423 — BUY
Sees 2001-2002 production growth at industry-record rates
Last week, Sibneft invited analysts and commercial bankers to visit its upstream operation in Noyabrsk ahead of the planned Eurobond issue scheduled for October. The company unveiled its production plans for 2001 and 2002, implying record-high growth rates in the domestic oil and gas industry. Sibneft plans to raise output by 19.5% this year, producing 404,945bpd (20.5mn tonnes) of crude, while in 2002 its production would grow 24.4% y-o-y to 503,712bpd (25.5mn tonnes). By 2006, Sibneft intends to increase crude oil production to 592,603bpd (30.0mn tonnes).
We take the latest management forecast as realistic, based on 20.1% y-o-y output growth reported in 1H01, analysis of company's reserve base, and planned upstream capital expenditures. Sibneft's reserves are among the youngest in Russia, with the share of residual reserves above 74%. Around 50% of Sibneft's oil fields by volume of proven reserves have depletion rate of less then 10%. Development of these fields represents a perfect opportunity to grow output from 2000's level, the first year when the company managed to reverse a downtrend in production.
Poor production results in 1990-1999 were mainly due to under-investment in upstream operations. With upstream capex of $220mn in 2000, the company was able to grow its production to 338,807bpd (17.2mn tonnes). This year, Sibneft plans to invest $595mn in upstream operations to bring the company's new fields on stream. Sibneft plans to drill 340 and 380 new wells in 2001 and 2002, respectively, including 34 high-well-flow horizontal wells in 2001 and 50 horizontal wells in 2002.
The efficiency of Sibneft's capex is demonstrated by 1H01 production figures, which show a steady month-on-month increase in output. Production growth will remain the major value driver of Sibneft in the coming years, given falling oil prices. High production growth rates, large exposure to domestic market, and consolidation of offshore trading companies are set to make Sibneft the only Russian oil company to increase its EBITDA and net profit this year. The meeting with Sibneft officials reinforced our positive view on Sibneft, which we rate as a Buy.
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