On 3 July 2019, Nikolay Gorban, CPC General Director, answered some questions asked by Russian and international media correspondents about CPC’s performance results in 2018 and prospects for 2019, as well as a number of other questions related to the Company's current activities.
2018 CPC PERFORMANCE RESULTS
CPC General Director N.N. Gorban stated that CPC’s 2018 IFRS revenues totaled USD 2.19 bn (note: consolidated CPC-R and CPC-K). RAS revenues (note: CPC-R only) - RUR 109.7 bn, profit after tax - USD 322 (CPC-R and CPC-K). EBITDA USD 1.16 bn , EBITDA margin (note: % of the revenues) is 53%.
CPC paid a significant amount in regional and federal taxes, duties and payments for 2018 - about RUR 14.7 bn. Out of that, the Federal Budget received over RUR 2.6 bn, the Krasnodar Krai - RUR 6 bn, Moscow – RUR 1.3 bn, Astrakhan Region – RUR 2 bn, Stavropol Krai - about RUR 1.2 bn, the Republic of Kalmykia - over RUR 1.6 bn.
In 2018, the CPC Expansion Project up to 67 MTA was completed. Speaking about savings of project funds, N.N. Gorban informed that the original budget approved by the shareholders was USD 5.6 bn, but “the actual spent was USD 5.1 bn, which resulted in USD 475 mln of savings”.
He also stated that in 2018, 61,084,031 gross tons of oil were loaded, which was 10.8% up on 2017 results. The peak loading month was December: 5,954,994 tons (47,142,565 barrels) were loaded. A total of 558 vessels were loaded in 2018.
Out of the 61 million tons of oil loaded at the Marine Terminal in 2018, 54.3 million tons of crude oil was supplied by Kazakhstan shippers, with another 6.8 million tons of oil coming from Russia.
It was also noted that the largest volumes of oil had come from the Kazakhstan fields: 28.7 million tons from Tengiz; 10.3 million tons from Karachaganak; 13.2 million tons from Kashagan.
CURRENT OIL LOADING VOLUMES
CPC General Director N.N. Gorban informed that CPC Marine Terminal (MT) had loaded 5,671,579 gross tons of oil (44,943,540 barrels) and loaded 52 tankers in June 2019. The June lifting schedule was completed in full.
In total, from January through June, MT loaded 286 vessels taking 30,502,006 gross tons (242,764,644 barrels) into their tanks.
Out of the 5,612,196 tons lifted in June 2019, 2,463,511 tons of crude oil came from the Tengiz field, 937,223 tons from Karachaganak, 1,456,245 tons from Kashagan and 125,294 tons from other Kazakhstani producers.
In total, the Kazakhstani producers shipped in total 4,982,273 tons of crude, and 689,306 tons of lifted crude came from Russia.
From 2001 through 30 June 2019, 613,113,609 net tons of crude oil were delivered to world markets via the Tengiz-Novorossiysk pipeline system. 533,919,222 tons of that came from Kazakhstan and 79,194,387 tons of crude were produced in Russia.
The July 2019 loading target is 5,592,550 tons (5,067,550 tons Kazakh crude (2,538,500 tons - TCO, 882,000 tons - KPO, 1,402,500 tons - Kashagan Shippers and 244,550 tons other RoK Shippers) and 525,000 tons - Russian-origin crude).
2019 PROSPECTS
2019 total CPC-R and CPC-K revenues are expected at about USD 2.3 bn.
Answering a question about equipment upgrades and new construction in 2019, the CPC General Director informed that the 2019 Capex budget was about USD 50 million, including: CPC-R - USD 32 million and CPC-K - USD 18 million.
He went on to add that the budget was used to implement a CPC facility security upgrade program, a project for a bridge over the Kigach river, a rotation camp at Astrakhan PS, and an administrative building at the Marine Terminal. Also, fire detection systems are being replaced at the Komsomolsk, Astrakhan, and Kropotkin pump stations, MT TF and SF, leaking block valves are being replaced at pump station and pipeline sites, a quality loop is being installed on inlets/outlets of booster pumps at the Atyrau pump station to monitor wax content in crude oil, and shunting reactors are being installed at a 220kv substation.
With regard to the loading plan for the entire 2019, the number that was announced was 67.7 MTA. “That is nominations officially received from oil producers in the annual schedule”, stressed N.N. Gorban.
He also stated: “Technologically, the system is able to pump the volume by using DRA and throughput mode optimization. At the same time I’d like to note that this is not oil production date. This is, essentially, a declaration of capability to ensure throughput and satisfy the shipper nominations”.
In addition, it was reported that the current expectation of the annual throughput volume based on actual injections was 65.1 MTA: Kazakhstan - 57.7 million tons, Russia - 7.4 million tons. TCO – 29.9 million tons, KPO – 10.2 million tons, Kashagan – 15.4 millin tons, Other Kazakhstan Shippers – 2.2 million tons.
SHAREHOLDER DEBT REPAYMENT
In 2018, CPC repaid a USD 1.45 bn part of its debt. In the first quarter, CPC directed USD 364 million to debt repayment, in the second quarter - USD 261 million, the estimated total for 2019 - USD 1.432 bn. “But everything strongly depends on oil volumes pumped”, stressed CPC General Director.
DIVIDEND PAYMENTS
Answering a question about prospects for dividend payments in the forth quarter 2020, the CPC General Director said: “There are always plans, but in what quarter to start will be decided by the shareholders”.
At the same time he commented that CPC had by now developed a draft dividend policy and corresponding changes to the Treasury Policy. “Work is progress to get these documents endorsed by Shareholder finance working groups. The draft policies would be submitted for endorsement and approval to the CPC-R and CPC-K Board and Shareholder Meetings respectively, tentatively in September 2019. “We will be able to disclose a calculation methodology after approval and permission by the shareholders”, Nikolay Gorban stressed.
CPC DEBOTTLENECKING PROGRAM (DBNP)
With regard to longer term throughput prospects, N.N. Gorban stated that forecasts were based on 5 year forecasts. According to 10-year forecast shipper nominations, it is expected that the volume of Kazakhstani crude oil injections will exceed the current throughput capacity of the CPC pipeline system starting from 2022.
In that context, Caspian Pipeline Consortium needs to upgrade a number of its pipeline system facilities.
“The objective of the DBNP is to optimize current capacities of the CPC oil pipeline system received as a result of the completion of the Expansion Project. Once the Program has been completed, the throughput capacity of the system will allow to support oil transportation from the territory of the Republic of Kazakhstan up to at least 72.5 MTA”.
These steps will allow to ensure the flexibility of operating modes of injection points and the capability to receive additional crude oil volumes from RoK with optimal DRA (drag reducing agent) quantities and at higher operating factors.
Further throughput capacity increase can be achieved by increasing DRA consumption without equipment replacement.
The Program scope will involve work activities at all CPC sites (pump stations and the Marine Terminal).
The program scope does not include any pipeline upgrades.
According to the FID package (final investment decision):
• Program completion dates:
• Enable additional crude oil volumes injections into the CPC oil pipeline system from Kazakhtan from mid-2022.
• Program completed before December 2024.
• 2019-2023 investment costs will amount to $599.9* million, out of which CPC-K - $156.4 million and CPC-R - $443.5 million.
(The investment cost amount was calculated prior to pre-design survey, engineering studies, and design engineering, including contingency to cover that).
CPC BLEND QUALITY
Answering journalists’ questions about the quality of the CPC Blend, N.N. Gorban informed that CPC blend sulfur content and gravity fluctuations stayed with sustainably allowed limits: API - 46.5 (46.4 annual average), sulfur - 0.55 (0.56 annual average).
IMPLEMENTATION OF SOCIAL PROGRAMS IN THE REGIONS
CPC is actively engaged in the development of social infrastructure in the regions where it operates. In 2018, the Consortium implemented charity projects for the value of RUR 875.2 million in Russia and 1,773 million KZT in Kazakhstan.
For reference:
CPC Pipeline System is one of the major investment projects in energy sector with participation of foreign capital in the CIS. The length of the Tengiz–Novorossiysk Pipeline is 1,511 km; it transports over two thirds of all Kazakhstan export crude, as well as crude from Russian oil fields, including the Caspian Region. CPC Marine Terminal is equipped with three Single Point Moorings (SPM) that allow to load tankers safely at a significant distance offshore, also amid poor weather conditions.
CPC Shareholders: Russian Federation (represented by Transneft – 24% and CPC Company – 7%) – 31%; Republic of Kazakhstan (represented by KazMunayGaz – 19% and Kazakhstan Pipeline Ventures LLC – 1.75%) – 20.75%; Chevron Caspian Pipeline Consortium Company – 15%; LUKARCO B.V. - 12.5%, Mobil Caspian Pipeline Company – 7.5%, Rosneft-Shell Caspian Ventures Limited – 7.5%, BG Overseas Holding Limited - 2%, Eni International N.A. N.V. - 2% and Oryx Caspian Pipeline LLC – 1.75%.