Novatek: Rising Gas Industry Star

OAO Novafininvest, which was renamed into Novatek only in 2003 and had been established in 1994 based on OAO SNP Nova which in its turn was formed through the transformation of the soviet structural trust Kuibyshevtruboprovodstroy.

The main field of interests of Kuibyshevtruboprovodstroy was a construction of pipelines, roads and other industrial projects. The new company was focused on gas producing assets. The considerable funds were invested into the expending of the resort base of the company as well as into the geological prospecting and directly into the producing stations. After some time this choice proved to be the most successful. At the moment Novatek is the major independent producer of natural gas in Russia. In September 2006 the world’s leading gas producer GAZPROM acquired 20% of Novatek shares, proving the quality of the acquiring asset.

Nowadays Novatek keeps on developing and the level of debts remains low. At the beginning of 2007 the volume of the proved resources came to 4,7 billion barrels having increased by 109 million barrels during the year. The company will be assured at the current level of production approximately for 23 years. The total volume of proved and possible resources makes approximately7,445 billion barrels.

The next positive trend is liberalization of gas prices at the internal market which has two directions: the upturn of the upper bound of the price (from the beginning of 2000 gas price rose from 20 kopecks to 1,62 rubles per cubic meter) and the expansion of the free market share.

According to the program of liberalization of gas prices the free market gas share will make 100% for industrial enterprises by 2011, for the agricultural industry – by 2013 and for the population tentatively by 2015.
A sharp short-term increase in gas price rates is forecasted when Russia enters WTO. Since 2002 Novatek has been putting into practice the strategy of selling gas directly to internal consumers, mainly consisting of RAO Unified Energy System of Russia divisions. Considering the rapidly growing Russian economy the demand for electric power will be stable and therefore Novatek will be provided with orders.

Leading Russian analytical agencies don’t have common view regarding the prospects of the dynamics of Novatek capitalization, estimating the potential growth between the decrease of the price by 15% and the increase by 80%. The forecast makes it 23%. The shares of the company between March 2007 and March 2008 rose in price by 33% and growth from a floor price up to maximal made up 87,5 %.

Rapid development of Novatek, effective structure of the company’s business, rather low debt level and the currently stable environment at the energy market will influence the positive growth of the company capitalization.

We consider that the Novatek shares will continue growing at least up to the end of 2008 without any fundamental changes. Our target level of Novatek shares makes 250 rubles per share that corresponds to the potential growth of 38% from current prices.


Author: Alexandra Belyaeva