Surgutneftegas SWOT and PESTLE Analysis

Strength

1. Unbeatable low debt to equity ratio with proven strong financials: Surgutneftegas is a state owned company in Russia. Oil industry supports Russian economy more than any other sector, hence, oil companies enjoy favoritism in government circles. Added to that, Russia is one of the developed nations in the world with high requirement of energy. All these benevolent factors allow the Russian oil companies to grow. The same could be reflected in the financial result of Surgutneftegas also. External factors, like agreement with OPEC+ to limit oil exploration to control oil price, overall slowdown in demand and falling oil prices caused the company’s revenue, in. fiscal 2019, to grow marginally by 2% to RUB 1555 million and operating profit declined by 4.2% to RUB375 million, but the interesting part lies in its asset management. The company has mind blowing long-term debt to equity ratio of 0.058 and current ratio of 8.65. This means that the company has almost zero debt and its current assets are on high surplus by over 8 times to current liabilities, which means it can clear off its dues quite easily without any affect to long term assets in most adverse situations. The company is highly cash rich as it sits on a whopping $51.6 billion cash pile as of 2020. It can absorb the risks of low oil prices, as low prices of oil play a vital role for in the earnings of companies dealing with upstream business of fossil fuels.

2. Strong assets with high waste utilization scale: Surgutneftegas is the leading oil company in Russia in terms of development drilling as well as exploratory drilling. Development drilling includes oil and gas drilling in areas where fossil fuel reserves are proven and exploratory drilling involves drilling in new areas. Chances of getting dry wells are higher in exploratory drilling. Among Russian companies, Surgutneftegas executes 21.1% (0.24M m~) of exploratory drilling, which is highest among its peers, and 18.1% (5M m~) of development of development drilling, which is 2nd highest among peers after Roseneft. Percentage of idle wells is lowest among peers, which is 6.8%, whereas industry standard is 14%. Oil fields emanate combustible gas along with crude oil, which is known as associated petroleum gases (APG). They could be used as natural gases or released into the atmosphere after flaring. In conventional contexts, it is a waste for oil industry but in economical and ecological contexts, it is quite useful and could be harmful if wasted. Flaring reduces APG utilization and also reduces long-term profitability of companies. It could be used as natural gas after refining for various purposes, from cooking to running power plants. Surgutneftegas has the highest APG utilization scale among peers. The company utilizes 99% of APG, whereas industry standard was 81% in 2019 in Russia. Surnutneftegas is well on its way to become the topmost oil company in Russia in the near future as it has secured largest number of deliverable assets and follows effective methods to maximize the utility of byproducts

The remaining section of “Strength” is available only in the 'Complete Report' on purchase.

Weakness

This section is available only in the 'Complete Report' on purchase.

Opportunity

This section is available only in the 'Complete Report' on purchase.

Threats

This section is available only in the 'Complete Report' on purchase.

Political

This section is available only in the 'Complete Report' on purchase.

Economic

1. Poor oil prices since 2014: The oil prices have been highly volatile in the 2nd half of the decade ending in 2020. The oil hovered above $100 to $125a barrel between 2010 and 2014. Mainly the reasons had been high demand of oil from developing China and India coupled with low interest in the US after the recession of 2008. Lower bond rates in the US weakens dollar. As international transaction takes place in US dollars, so weaker dollar strengthens currencies of oil exporting countries in high demand. In 2014, US came with the technology of fracking of shale gas. America and Canada started exploring its vast reserves of oil and turned self sufficient in oil and gas production. Post this oil prices dropped to half. There has been a lack of coordination among OPEC nations in controlling production, which further dragged the oil price down. Oil producing nations were agreeing to lower oil prices as shale gas is drawn using expensive technology and lower oil prices decreases profitability of shale gas explorers. Oil price hovered between $50 and $75 a barrel post 2014. Further in 2020, oil prices tested sub $10 a barrel values due to collapse in demand as a gripping global lockdown after the spread of Covid 19 battered the travel industry. Although oil prices recovered shortly but considerably lower compared to previous lows. Low oil prices hurt the profitability of oil exploration and drilling. Surgutneftegas is mainly dependent on oil exploration and drilling in Siberia. It has registered a low profit in FY2019 and the forecast is low for 2020 too.

2.. Slowdown in Russian economy hurts consumption: Post the collapse of the Soviet Union, economy has been highly dependent on energy exports. It had shown an overall growth trajectory with soaring oil prices till 2013. Russia has a sufficient trade surplus even today. Russia exported worth $527 billion goods in 2011, which was at its peak. Good export induced higher consumption in Russia, and it imported worth $341 billion in Russia. Russian imports include mainly food, domestic and road transport goods. However, with collapse in global oil prices in 2014, the reeling effect was immediately seen on its consumption matrix. Russian economy was crippled in 2014-2015, which saw its longest recession in almost 20 years. Exports shrinked to a feeble $25 billion against import of $16.5 billion only, decline in consumption was starkly visible. Low demand in oil and trade sanctions due to political tensions of Russia led to extremely high inflation of 11% in 2014 and Rubble (Russian currency) depreciated by 46%. Russia controlled it by increasing interest rates as high as 17% in 2014-15. By 2017, inflation was brought to 4% and interest rates were lowered to 10%. Oil prices were again battered in 2020 due to the outbreak of the Novel Corona virus. It again pushed Rubble to 72 a dollar, a four year low levels. As Russia depends on imports for domestic goods, further fall in oil price would hit the Russian consumption badly. Surgutneftegas is highly dependent on Russian consumption as reports of exports are not visible in its annual reports. Whenever, Russian consumption would fall it would be reflected in its results. As Russian consumption fell to 2.5% in 2019, so the profitability of Surgutneftegas also did slipped. The growth in revenue was only 2 percent and EBIT slipped by 4% in FY 2019. A considerably good correlation could be found in the growth of revenue of Surgutneftegas. In 2015 and 2016, consumption rates were negative and annual revenue of Surgutneftegas was RUB 978M and RUB 993M respectively. Consumption in 2017, 2018, 2019 was 3.7%, 3.3% and 2.5 % and revenue growth of Surgutneftegas was 15%, 33% and 2% respectively. As the consumption dropped, growth of Surgutneftegas was also inhibited.

The remaining section of “Economic” is available only in the 'Complete Report' on purchase.

Social

This section is available only in the 'Complete Report' on purchase.

Technological

This section is available only in the 'Complete Report' on purchase.

Legal

This section is available only in the 'Complete Report' on purchase.

Environmental

This section is available only in the 'Complete Report' on purchase.