DTEK Oil & Gas production rose 11% in 2020

Natural gas production at Ukraine’s largest private
producer DTEK Oil & Gas (DTEKOG) rose 11% yoy in 2020 to 1.84 bcm,
according to its investor presentation published on May 28.

 

Revenue dropped to USD 270 mln in 2020, or by 32% yoy.
EBITDA inched up 1% to USD 301 mln in 2020, while free cash flow plunged 77% to
USD 60 mln.

 

The main factor of the yoy stability of EBITDA in 2020
(margin of 111%, according to Concorde Capital calculations, up from 75% in
2019) was a decrease in allowance on trade receivables, according to the
presentation.

 

The company had USD 427 mln of gross debt at the date
of the issuance of its DTEKOG’26 Eurobonds (May 2021), the presentation said,
adding that its leverage ratio, calculated using 2020 EBITDA, was 1.42x at the
date of Eurobond issue.

 

DTEK Oil & Gas plans to maintain its production at
the same level in 2021, according to the company management statements at a
conference call with investors the same day.

 

According to financial statements DTEK Oil & Gas
Holdings B.V., the top holding company of DTEK Oil & Gas, in 2020 it
suffered UAH 2.49 bln (USD 92 mln) of losses on fair value of forward contracts
concluded with related parties in November 2020. The contracts were for sales
of the total volume of 1.4 bcm during 2021 at prices of EUR 12.3-12.5/MWh.

 

Dmytro Khoroshun: DTEK Oil
& Gas will likely suffer further losses and free cash outflows in 2021
because of its forward contracts.

 

Particularly, the extraction rent that the company
pays scales with the spot prices for the entire volume it will extract, while
the selling price for about 76% of the planned volume seem to be fixed due to
the forward contracts. Therefore the forward contracts might not guarantee DTEK
Oil & Gas’ profitability and cash flows, we think, unless the forward
contracts were adjusted for the rent costs.

 

Nevertheless, we calculate that the prices at which
DTEK Oil & Gas Holdings B.V. concluded its forward contracts, EUR
12.3-12.5/MWh, were closely comparable to the averages of European hub futures
for the corresponding contract periods in November. Namely, the forward prices
were 6-7% lower than the minimal levels of the futures during November, and
10-13% lower than their maximum levels during the month.

 

It is not clear to us how DTEK Oil & Gas
calculated its EBITDA for 2020, particularly the decrease in what allowance on
trade receivables the company used for adjustments. In the 2019 financial
statements of PrJSC Naftogazvydobuvannya (NGV), the main production asset of
DTEK Oil & Gas, we found USD 170 mln of provisions on trade receivables as
of end-2019. These provisions could have been reversed during 2020, boosting
NGV’s EBITDA.

 

However, the trade receivables provisions at the
consolidated level of DTEK Oil & Gas Holdings B.V. (owns 73% of NGV) seem
to be much smaller (less than USD 1 mln) at both end-2019 and end-2020. This
would imply that NGV’s provisions were mostly on receivables from other members
of DTEK Oil & Gas Holdings B.V. group, we think.