DTEK Oil & Gas EBITDA rose 37% in 1H21

EBITDA at Ukraine’s largest private natural gas producer
DTEK Oil & Gas (DTEKOG) rose 37% yoy in 1H21 to USD 125 mln, according to
its financial statements published on Sept. 16.

 

Revenue jumped 59% yoy to USD 196 mln in 1H20, and net
profit from continuing operations was USD 109 mln (vs. a loss of USD 20 mln a
year ago).

 

Operating cash flow before working capital changes
jumped 64% yoy to USD 142 mln in 1H21, whereas cash flow from operations after
working capital changes (but before profit tax and interest) dropped 35% yoy to
USD 44 mln, and net operating cash flow plunged 56% yoy to USD 20 mln.

 

CapEx dropped 38% yoy to USD 26 mln and free cash flow
was a negative USD 6 mln in 1H21 (a positive USD 10 mln in 1H20, excluding
discontinued operations).

 

DTEK Oil & Gas had USD 429 mln of gross debt at
end-June, and its gross leverage ratio (gross debt to LTM EBITDA) was 2.0x.

 

The company’s natural gas production was 0.96 bcm in
1H21, or 10% more yoy.

 

DTEK Oil & Gas plans to maintain its natural gas
production at least flat yoy in both 2021 and 2022, according to the company
management statements at a conference call with investors the same day. Its
CapEx should amount to USD 50-70 mln in 2021, and should also remain flat yoy
in 2022.

 

Increases in the company’s accounts receivable (ARs)
resulted in a cash outflow of USD 99 mln in 1H21. The management stated at the
conference call that the reason for this increase in ARs was a short-term
liquidity gap at a counterparty and that these accounts should be fully settled
by the year’s end. The company’s minimum cash balance requirements are very
modest, USD 5 mln or less (USD 1 mln at end-June), due to the nature of its
business, the management added.

 

About 70% of natural gas sales in 4Q21 will be at
market prices, and the remaining 30% will be covered by forward contracts entered into in November 2020,
the management said. DTEK Oil & Gas has not hedged any of its 2022
production, and currently has no sales hedging strategy in place.

 

The company is comfortable with any value of gross
leverage ratio below its covenant limits, which is 3.0x, the management said.

 

DTEK Oil & Gas’ EBITDA for 2020 was stated at USD
185 mln in a presentation published the same day. This is USD 116 mln below the USD 301 mln value disclosed in May
that included USD 116 mln of net gains on reversal of provisions for
receivables.

 

Dmytro Khoroshun: DTEK Oil
& Gas’ gross leverage ratio should remain at a comfortable level of around
or below 2.0x in 2H21.

 

The company apparently has not suffered substantial
working capital outflows (aside from possibly the USD 99 mln due to increase of
accounts receivable) related to settlement of its forward sales contracts,
which is positive.

 

Nevertheless, the investors should be prepared to see
DTEK Oil & Gas’ cash balances in line with its stated minimum (USD 5 mln or
even less) regardless of its profits in a given period. The company might use
working capital and possibly other means to flexibly maintain only a minimal
cash balance, which might help support its relations with its direct customers
(most of which are related parties), we think.