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description
TNK-BP International Ltd.9 Month 2012 Operational and Financial Results
Moscow, 30 October, 2012
SPEAKERS
2
Jonathan MuirChief Financial Officer
Paul MaguireSenior Vice President – Financial Controller
Gennady ShulenkoVice President, Finance and Treasury
3
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Table of contents
4
1. Business Update9M12 Highlights
Health, Safety & Environment
Upstream
Downstream
2. Financial PerformanceFinancial Highlights
IFRS
Business Environment
Net Income – 9M12 v 9M11
Revenues
Costs
Taxes
Net income - 3Q12 v 2Q12
Sources and Uses of Cash
Debt and Liquidity
Business update
9M12 highlights
6
Growth complemented by strong free cash flow
• 2,024 mboe/d - total oil and gas production*, up 2.8%
• 18% greenfield contribution to liquids production, up from 14% in 9M11
• Progress in major projects
Rospan full field development Hydrocracking unit construction in Ryazan Yamal projects fiscal support
• Retail volumes up 13% to 3.1 mln tons
• Growing production of quality products with share of Euro-4 and 5 fuels up from 42% to 71%
• Potential gas exploration upside in Brazil
• Lan Do first gas on time, under budget offshore Vietnam
• USD 10.2 bn EBITDA
• USD 5.3 bn free cash flow
Note: All data in this presentation are for 9M12 and comparisons are 9M12 v 9M11, unless otherwise noted* Including affiliates
Health, Safety and EnvironmentTotal Recordable Injury Frequency Rate – 12 Month Rolling Average
Spills Frequency – 12 Month Rolling Average
7
9M12
Health and Safety
• Reduction of TRIFR* by 21%
• Reduction of DAFWC** by 32%
• No major road accidents recorded v 5 accidents in the same period last year
Environment
• Spills frequency continuously improving:– The number of spills per thousand tons
produced down 13%
– Spilt tons per thousand tons produced down 33%
2008
feb
mar
apr
may
jun
july
aug
sen
oct
nov
dec.08
2009
feb
mar
apr
may
jun
jul
aug
sen
oct
nov
dec.09
2010
feb
mar
apr
may
jun
jul
aug
sen
oct
nov
dec.10
2011
feb
mar
apr
may
jun
jul
aug
sen
oct
nov
dec.11
2012
feb
mar
apr
may
jun
00.10.20.30.40.50.60.70.8
0.63
0.19
0.35
TRIFR 2011 OGP *** average
2008
фев.08
мар.08
апр.08
май.08
июн.08
июл.08
авг.08
сен.08
окт.08
ноя.08
дек.08
2009
фев.09
мар.09
апр.09
май.09
июн.09
июл.09
авг.09
сен.09
окт.09
ноя.09
дек.09
2010
фев.10
мар.10
апр.10
май.10
июн.10
июл.10
авг.10
сен.10
окт.10
ноя.10
дек.10
2011
фев.11
мар.11
апр.11
май.11
июн.11
июл.11
авг.11
сен.11
окт.11
ноя.11
дек.11
2012
фев.12
мар.12
апр.12
май.12
июн.12
июл.12
авг.12
сен.12
00.020.040.060.080.1
0.120.14
0.048
0.02
0.122
0.006
spills per ths. tons producedspilt tons per ths. tons produced
* Total Recordable Injury Frequency Rate (TRIFR) comprises the total number of fatalities, lost time injuries, restricted work cases and medical treatment cases as per OSHA definitions.
** (DAFWC) Number of days away from work cases per 200 thousand man-hours worked.
*** The International Association of Oil and Gas Producers
9M12
Upstream: Production and renewal
8
2,024 mboe/d total hydrocarbon production, 2.8% increase y-o-y
73% exploration success rate, exploration spend of USD 227 mln
4 licenses acquired in Orenburg and Yamal with estimated resources of approx. 470 mln boe
Strategy: Resources Reserves Production
9
Upstream: Liquids production in 9M12
• 1,757 mb/d liquids production incl. affiliates, up 1.4%
• VCNG production at 142 mb/d, up 50%
• Uvat production at 129 mb/d, up 24%
• Share of greenfields in total liquids production at 18%,
up from 14% in 9M11
• Orenburg liquids production down 0.7%
• West Siberia liquids production down 6.2%
v 7.4% decline in 9M11**
* Venezuelan deal closed on 10 June 2011, production not consolidated up to this date
** Not adjusted for OAO “Novosibirskneftegas” and OAO “Severnoeneftegas”
Production – continued growth
Greenfields – increasing contribution
Brownfields – target to stabilize production
mb/d
Changes in liquids production, including affiliates
9M11
West Siberia
Orenburg
VCNG
TNK-UVAT
Rospan
Vietnam
Venezuela*
Slavneft
9M12
1732
1757.36717862607
(55)
(3)
(1)
(5)
+47
+25
+1
+16
Upstream: West Siberia
10
Effective waterflood management• Waterflood patterns analyzed -
optimization of water injection underway; 30% of over 4 000 patterns to be evaluated in 2012
• Organizational capability improvementproject underway including skills assessment, training and peer review
Improved drilling efficiency• Mean Time Between Failure of
electric submersible pumps increased to 649 days (from 615 in 2011)
• Low cost access drilling projects with Baker Hughes, Schlumberger and Halliburton targeting improved well construction
Innovative technologies in place• 66 pilot projects (465 jobs) are
expected to be completed in 2012
• “Asset of the future” concept of online monitoring of the field performance introduced at Samotlor for scaling up in Orenburg, Varyoganneftegas, Nyagan and Uvat
Successful application of multistage fracturing in horizontal wells:
up to 7 stage fracs 80 jobs performed in Jan-Sept 2012 – will contribute over 400 th.
tons in calendar 2012. nearly 140 jobs planned for 2012 tests in difficult layers with 2-3x higher flows than conventional
frac advanced completion technology with fully controlled stage frac
in cemented liner
Production decline lowered by 1.2% in 9M12 v 9M11
Yamal – major new oil province with 5.5 bn barrels of 3P reserves
11
• Suzunskoye - design and exploration work to complete in 2012
• Russkoye – trial crude transportation by road and rail to Nizhnevartovsk for delivery in Transneft system
• Messoyakha – first crude produced; action plan for 2013 – 2014 approved
• Tagulskoye – new productive layers added to base development scenario
• Russko-Rechenskoye – gas/condensate production levels determined
• Engineering survey completed
• Pipeline pilot construction planned for 2013
DEVELOPMENT
INFRASTRUCTURE – INTRAFIELD PIPELINE
TAX INCENTIVES IN PLACE• MET benefit
Russkoye – life of field Messoyakha
Russko-Rechenskoye
• Crude export duty benefit Suzunskoye Tagulskoye
TAX INCENTIVES PROPOSED• MET holidays extended till 2022
Suzunskoye Tagulskoye
• Unified mechanism for calculation of crude export duty – transparent and predictable rules for obtaining benefits
till 2022
12
Upstream: Gas sales in 9M12
mboe/d
Changes in gas sales, including affiliates
• 267 mboe/d gas sales incl. affiliates, up 12.8%
• 16 mboe/d gas sales from assets in Vietnam,
biggest contribution
Steady production growth
• 82% APG utilisation
• Gas processing agreement with Sibur on JV
Yugragaspererabotka extended till 2026
• JV set up to process APG at Zagorskaya plant in Orenburg
Progressing major project execution
• Rospan - first stage of full field development supported by
the Board; USD 600 mln allocated for 4Q12-1Q13
• Long-term gas sales agreements being negotiated – target
incremental gas delivery of 8.5 bcma in 2016
Developing gas value chain
9M11
Rospan
West Siberia
Orenburg
Vietnam
Slavneft
Venezuela
9M12
236
267
+1
+6
+6
+16
+2
+0.1
13
International Projects: Vietnam, Venezuela, Brazil
Vietnam
Venezuela
Brazil
Key performance indicators, 9m12 (TNK-BP share)
Production, mmboe
EBITDA,USD mln
Capex, USD mln
Vietnam 4.8 152 62
Venezuela 7.5 -23 72Brazil 0 -52 56
• Lan Do development project successfully completed with first gas delivered on 7 October
• No lost time injuries, no reportable spills amid growing operations
• PetroMonagas: record production of 140 mb/d (gross) following successful drilling campaign
• Junin-6: first production within Early Oil project officially launched in September
• Current negative effect on EBITDA due to impact of discounting of outstanding payments from PDVSA
• 2 successful gas wells drilled in 3Q with HRT-9 reported as highest flow-rate from any on-shore Brazil well
• Significant improvement of drilling efficiency: HRT-9 drilled in 60 days v 127 days average in 2011
• Letter of intent for gas monetization signed with Petrobras
• Key personnel placed in TNK-BP office in Brazil and seconded to HRT project organization
Downstream: Refining
14
Strategy: Maximization of integrated business value of production
• Throughput of 644 mb/d at Russian refineries in 9M12 v 654 mb/d in 9M11 due to turnarounds
• Refining margins of USD 10/bbl in 3Q12
• Successful Euro-5 delivery
• Diesel and gasoline produced at Saratov and YANOS Euro-5 compliant since July 1
• Significant increase in Euro-5 fuels at Ryazan
• Incremental performance effect of approx. USD 60 mln due to excise rates differentiation
• Hydrocracker project at Ryazan supported by the Board; other major projects on schedule
1Q 2Q 3Q -
100
200
300
400
500
600
700
800
0
4
8
12
16
641
595 694 5
13
10
Refin
ing
thro
ughp
ut, m
b/d
Refin
ing
mar
gin,
$/b
bl
Increasing share of Euro-4 and Euro-5 fuels
9M11 9M120
1020304050607080
42%
71%
Note: Share of Euro-4 and Euro-5 fuels in total gasoline and diesel output of TNK-BP Russian refineries
%
Downstream: Supply, trading and logistics, retail and B2B
15
Retail• Expanding presence in the south of Russia - consolidation
of TNK-South joint venture, incl. 121 retail sites and 11 oil depots
• High-margin sales of accompanying goods at retail sites delivering USD 193 mln in revenue, 5% up y-o-y
B2B• Direct “in wing” sales to airlines increased to 74% v 42% in 9M11
• Expansion of jet fuel sales to airports in Novy Urengoy and Ivanovo
• Sales of Valvoline premium brand lubes launched at over 3,000 retail sites
Supply, trading and logistics• Price-setting mechanism for wholesale gasoline and diesel
sales agreed by Federal Anti-Monopoly Service
• ESPO crude shipments of 25 mln bbl, 26% up on 9M11
Retail volumes in Russia – 13% growthth.litres per
site daily
9m 2011 9m 20120.02.04.06.08.0
10.012.014.016.018.020.0
16.7 18.8
Financial performance
Financial Highlights
17
IFRS 9M12 9M11 % Change
EBITDA 10.2 10.8 -6%
Net Income 5.7 6.6 -13%
Cash flow from Operations 9.5 8.2 16%
Capex (organic) 4.0 3.5 14%
Gearing 17% 22%
USD bn
9M 2011 under IFRS
18
• 9M11 and 3Q11 numbers have been restated for comparative purposes
• The main change relates to deferred tax, with higher forex driven volatility under IFRS
• ‘Affiliates’ relates to the change in Slavneft’s functional currency from the USD to the Rouble
(1%)
0%
6.8 6.6
(2%) (1%)
-
2
4
6
8
9M11US GAAP
DTrecalculation
Aff iliates Replacementaccounting
Other 9M11IFRS
9M11 Net Income IFRS v US GAAPUSD bn
(1%)
1%
2.31.8
(18%) (3%)
-
1
2
3
3Q11US GAAP
DTrecalculation
Af f iliates Replacementaccounting
Other 3Q11IFRS
3Q11 Net Income IFRS v US GAAPUSD bn
Business Environment
19
9M12 v 9M11: Negative duty lag offset by stronger Urals and 60/66 benefit• Urals up 1% to USD 110.8/bbl• Negative duty lag: USD 3.5/bbl• 60/66 regime benefit: USD 1.5/bbl EBITDA benefit in respect of available crude
3Q12 v 2Q12: Stronger environment due to both positive duty lag and price growth• Urals up 2% to USD 109.0/bbl• Positive duty lag: USD 20.0/bbl
9M12 v 9M11 and 3Q12 v 2Q12: positive impact of average weaker rouble on costs • 9M12 average rouble rate at 31.1, 8% weaker• 3Q12 average rouble rate at 32.0, 3% weakerStronger rouble (30.9) at 3Q end: USD 0.5 bn under IFRS deferred tax benefit q-o-q
25
30
35
Month-end exchange rates (RUR/USD)
1Q11 3Q11 4Q112Q11 1Q12 2Q12 3Q12
32.831.9
30.930.5
32.2
29.3
60
80
100
120
Price
1Q11 2Q11 3Q11 4Q11 1Q12
USD/bbl
$110.8/bbl
Urals
Duty reference price
$109.2/bbl
$109.0/bbl$106.5/bbl
Duty lag: +$7/bblDuty lag:-$13/bbl
2Q12 3Q12
Net income – 9M12 v 9M11
20
Environment:• Price & Duty lag: negative duty lag – USD 3.5/bbl
offset by 60/66 duty regime benefit and 1% higher Urals
• Forex: positive impact on rouble denominated costs due to a weaker rouble together with the forex benefit on deferred tax
• Tariffs & Tax: primarily increases in MET and excise (USD 0.6 bn) rates and transportation tariffs (USD 0.2 bn) as well as the abolition of export duty allowance for VCNG in May 2011 (0.2 bn)
Performance:• Operations: total TNK-BP oil and gas production
up 55 mboe/d (+2.8%), MET relief utilization partly offset by a 6% reduction in refining throughput and by inflationary pressure on costs
• One-offs: primarily due to 1Q12 Linik impairment (USD 0.3 bn) and 2011 disposal gains (USD 0.3 bn) partly offset by a gain on Novosibirsk assets disposal (USD 0.1 bn) in 3Q12
(0.4)
0.7
(1.1) (0.6) (0.1)
6.65.7
0.4 0.2
-
2
4
6
8
9M11 Price - Market Price - Duty lag
Forex Tarif fs & Tax rates
Operations One-offs Other 9M12
USD bn
160
81114
93
106173
9296
97
117
Crude - Export Crude - Domestic and CISProducts - Export Products - Domestic and CISGas, Gas Products and Condensate
Revenues
21
• Price: 2% sales growth, on the back of a 1.4% Urals price increase
• Volume and Mix of crude oil and oil products:
- 10 mmboe volume increase due to 1.2% own crude oil production growth together with a stock reduction from increased sales
- sales mix: products share decreased primarily due to suspension of crude refining at Linik since March, partly offset by processing at Mozyr
• Other sales: Primarily 11 mmboe increase in sales of gas, condensate and gas products as a result of production growth (incl. 4.8 mmboe Vietnam contribution)
9M11 9M12
• Sales volumes up 19 mmboe, or 4%
• Products share* 42% in 9M12 vs 46% in 9M11
554 mmboe 575 mmboe
* Share from combined crude and oil products sales
10
20
30
40
50
9M11 Crude Products Crude Products Gas & Other 9M12
USD bn
Price(+2%)44.5
Volume & Mix (+1%)
0.4
46.1
0.4 2.1(1.5)
0.2
Other(+1%)
Costs
22
Transportation costs: • 7% weighted-average increase in Transneft
and rail tariffs was offset by forex (7%)• Changes in routes and in sales mix resulted
in costs growth by 1% due to increased crude export volumes via higher margin routes
Opex & SD&A dynamics reflect the weaker rouble partly offset by inflationary pressure :
• Costs down by 7% due to a weaker rouble• Volume & Mix factor reflecting production
growth• Other: costs of operating a larger retail
network partly offset by savings from the Linik suspension
3.1 3.1
0
1
2
3
4
9M11 Forex Tariff Routes 9M12
USD bn Transportation
1%7%(7%)
5.4 5.4
0
2
4
6
9M11 Forex Inflation& tariffs
Volume& Mix
Other 9M12
USD bn OPEX & SD&A
(7%) 5% 1% 1%
Taxes
23
Export duties and Taxes other than income tax up 7% to USD 22.6 bn primarily due to higher Urals price and a higher duty reference price• Increase in MET and excise rates starting
1 January 2012• MET reliefs: sustaining production at
depleted fields in Orenburg and increase in non-taxable VCNG production
• Volume&Mix, other: primarily increase in crude export leading to growth in export duties
Income tax decreased by 9% to USD 1.9 bn primarily through lower taxable profits and the foreign exchange impact on the deferred tax charge.• 9M12 effective tax rate was 22.8%, above
the 20% statutory rate primarily due to non-deductible costs, including impairment and operating losses in Ukraine, partly offset by the foreign exchange impact on deferred tax
21.122.6
16
17
18
19
20
21
22
23
24
9M11 Price Duty lag MET & Excise rate
60/66 regime Export duty MET Volume&Mix, other
9M12
Export duties and Taxes other than Income TaxUSD bn
ReliefsLegislationEnvironment
22.5% 22.8%
0
5
10
15
20
25
9M11 effective rate
Forex LINIK non-deductible expenses
Deferred tax valuation provision
9M11 Kovykta disposal
Other permanent differences
9M12 effective rate
% Income Tax Rate
Net income – 3Q12 v 2Q12
24
Environment:• Price: Urals up USD 2.5/bbl (2%), realised
crude domestic price up 24% supported by duty lag
• Duty lag: positive duty lag – USD 20/bbl• Forex: a significantly stronger rouble at the end
of 3Q vs 2Q had a positive impact on deferred tax together with the positive effect on costs of a weaker average rouble q-o-q
Performance:• Operations: positive impact of selling during
3Q previously accumulated crude and product inventory, partly offset by a net decrease of total production by 29 mboe/d (-1.5%)
0.7
0.6 0.1
0.8
2.70.5
-
1
2
3
2Q12 Price - Market Price - Duty lag Forex Operations 3Q12
USD bn
Income Statement – 3Q12 v 3Q11
25
USD bn %3Q12 3Q11 Change
Revenues 15.7 15.3 3%Sales of accumulated stock in 3Q12, partly offset by
lower Urals price (-2%)
Export Duties (3.9) (4.6) -15%Positive duty lag, lower Urals price and positive effect of 60/66 regime partly offset by increased export sales volumes
MET & Excise (2.9) (2.9) -1%Lower Urals price and decrease of excisable products
offset by increase in MET and excise rates
Costs (2.9) (2.9) -1%10% weaker rouble benefit offset by legacy environmental provision accrual in 3Q12
Other (1.7) (1.4) 23%Primarily increase in crude purchases and exploration expenses
EBITDA 4.3 3.5 25%
DD&A (0.6) (0.5)
Income tax & other (1.0) (1.2)
Net Income* 2.7 1.8 53%
*Profit for the period attributable to Group shareholders
Sources and Uses of Cash
26
• Cash from operations (before WC and income tax paid) of USD 10.2 bn is net oftaxes other than income tax and export duty payments of USD 22.6 bn
• Capex: field development, associated gas, refinery and retail network modernization• Acquisitions: exploration assets in Brazil, jet fueling complex Koltsovo partly offset with
Novosibirsk assets disposal• Net Borrowings: decrease primarily due to $0.5 bn Eurobond and other debt
repayment • Equity: TNK-Yug minority buy-out
1.34.0
10.2 1.0
(1.7)
(4.1) (0.3) (0.6)
(1.6) (0.2)
-
2
4
6
8
10
12
Cash & deposits as
of 31.12.2011
Cash f rom operations before WC
Income tax paid
Change in Working Capital
Capex Free Cash Flow
Acquisitions& Other
Net Borrowings
Dividends Equity Cash & deposits as
of 30.09.2012
USD bn Operating activities Investing activities Financing activities
5.3
1.3
Debt and liquidity
27
Borrowing and Portfolio• USD 675 mln unsecured loan facility obtained
from a club of 9 international banks in September• Second USD 200 mln instalment paid under the
Brazilian LC(3) in September • Gearing level at 17%• Average portfolio life at 3.23 years
Liquidity• Strong cash balances maintained• Five undrawn committed lines in the total amount
of USD 440 mln available• Smooth repayment profile maintained
Ratings• Investment grade ratings• Strong credit metrics maintained
(1) Financial Indebtedness and gearing are calculated based on IFRS(2) Finance debt includes outstanding indebtedness under loan agreements and Eurobonds(3) Represents deferred payment obligation in favor of HRT related to Brazil assets acquisition
TNK-BP Financial indebtedness(1)
30.09.2012Actual
30.06.2012Actual
30.09.2011Actual
Financial indebtedness, incl.: USD 8.3 bn USD 8.0 bn USD 7.8 bn
- Finance debt(2) USD 7.7 bn USD 7.2 bn USD 7.8 bn
- Letter of credit(3) USD 0.6 bn USD 0.8 bn -
Gearing 17% 23% 22%
Fixed / Floating 58%/42% 62%/38% 64%/36%
USD denominated 100% 99% 97%
LT / ST debt 84%/16% 84%/16% 86%/14%
Unsecured / Secured 100%/0% 100%/0% 100%/0%
Average portfolio life 3.23 years 3.53 years 3.84 years
Financial indebtedness maturity profile as of 30 September 2012
Q4 2012
2013 2014 2015 2016 2017 2018 2019 20200
200,000,000
400,000,000
600,000,000
800,000,000
1,000,000,000
1,200,000,000
1,400,000,000
1,600,000,000
133,333,333
736,904,762
1,517,460,317867,857,143
600,000,000 500,000,000
1,000,000,000800,000,000
1,100,000,000
500,000,000
400 200
Letter of credit Bank debt EurobondsUSD mln