Moscow Nov 14, 2019 (Thomson StreetEvents) — Edited Transcript of NK Rosneft’ PAO earnings conference call or presentation Wednesday, November 6, 2019 at 1:00:00pm GMT
Public Joint Stock Company Rosneft Oil Company – VP of Refining, Petrochemical, Commerce & Logistics and Member of Management Board
Public Joint Stock Company Rosneft Oil Company – First VP of Production & Member of Management Board
Public Joint Stock Company Rosneft Oil Company – Chairman of Management Board, Deputy Chairman & CEO
Gazprombank (Joint Stock Company), Research Division – Director of Equity Research for Oil and Gas
BofA Merrill Lynch, Research Division – Head of EEMEA Energy Research & Head of the Russian Research Department
Hello, and welcome to the Rosneft Q3 2019 IFRS Results Presentation. (Operator Instructions)
I would now like to hand over to the management team to begin the conference call.
Good afternoon, dear colleagues. I would like to welcome you at this conference call dedicated to disclosure of financial results of Rosneft over the third quarter 2019. Today in attendance to this call, we have the senior management for the company, Mr. Eric Liron, who is the First Vice President of the company in charge of E&P; Mr. Didier Casimiro, who is overseeing the Commerce, Logistics and Refining Stream; and Alexander Romanov, the Head of Refining, the Vice President for Financial Planning and Operational Planning with the Company; and Mr. Prigoda; the Senior Geologist of the company; Andrey Lazarev (sic) [Pyotr Lazarev]; and many others.
Over the past quarter, the growth of the output in refining of the company fully compensated some of the price declines, which led to an increase in EBITDA of the company quarter-on-quarter by almost 8% and net profit by 16%. In many ways, these results have been achieved through the diminishing external limitations, specifically the elimination of the limitations of the intake into the Transneft trunk pipeline of crude. The free cash flow of Rosneft in the third quarter more than doubled compared to the previous period.
Over the past 12 months, it was USD 13.4 billion, with achieving the profitability almost about 20%, which brought about the planned mode of operation of the company to strengthen its financial positions, with a timely repayment of its credit obligations in full compliance with the payment schedule and stronger key credit and financial metrics. Today, we’re going to share with you the review of the most important financial performance of the third quarter and respond to your questions.
Please note that this presentation and the discussions do contain the information about future events and forecast with the respective limitation of our liability. So first of all, I would like to comment on the Rosneft operation of the socially responsible business, which is fully focused on the ESG agenda. In June 2019, the company signed the guiding principles of reducing the methane emissions in the production and supply chain. Joining the initiative of the leading international major oil and gas companies confirms the readiness of the Rosneft to move forward with reducing the emissions related to the problems about the climate changes, and our adherence to the principles of moving into the top quartile of the international companies in as far as ESG and HSE performance is concerned as well as the environmental, [and] social and governance within all of our businesses.
On a separate standing, we have a committee in the company to reduce our [carbon dioxide] impact. End of September this year, we held its first session, at which we began putting together our plans for further reducing the hydrocarbon footprint. And this plan is going to be submitted for the consideration of the senior executives of the company and the Board of Directors within the next few months.
Thanks to launching the system of gathering and purchasing hydrocarbons at the system in [Kosovo], we were able to reduce our emissions by 4 million tonnes of CO2 equivalent, which considerably exceeds similar strategic objectives set forth by our international peers.
In the key issue of environmental protection, which is availability of water resources, we were able over the past quarter to have — by recycling Bashneft, the facility — [in] Ufaneftekhim, reaching its full design capacity, which is the biggest operator, not only in Russia but also in the region en masse, which provides for a complete waste-free water recycling. (inaudible) portfolio (inaudible) 25 countries. The company developed the HSE and the environmental protection indicators and the high class of performance and in its overseas subsidiaries, adhering to the highest standards, which we provide on the platform of our Russian business.
In as far as the financial performance is concerned over the past quarter, within the reporting period, we have — partially have seen the external limitation go away, which really has affected our reporting in the second quarter. First of all, that is the kind of limitation as far as the intake of the crude volumes into the Transneft pipeline system. Nevertheless, we were able to see a certain iteration, whereby the external factors worsened, I specifically mean here the oil price declines. But the company, irrespective of it, was capable of improving its financial operational performance.
For example, during the reporting period, the company was able to increase its average daily output by almost 1%. Over the 9 months of the current year, Rosneft was able to demonstrate a similar [decline of] its liquid hydrocarbons production dynamics. The growing output comes from continuing development of the major project as well as growing the production from these brownfield assets.
Let me tell you about the main drivers behind the growing production of oil and gas in the reporting period. First of all, after the limitations of the intake in the Transneft system, the biggest oil and gas asset of the company, which is Rosneft-Yuganskneftegaz, was able to implement its production potential by growing output. We were able to [relaunch] the active development of the hydrocarbon reserves with low-mobility reservoirs. As a result, in Q3, Yuganskneftegaz reached an absolutely historic daily output record. It’s probably as good as (inaudible) in excess of 198,000 tonnes.
I should note that this is the highest result over the whole of the history of the company’s operations since 1964. However, what is important for us to share with external analysts is this is far from being the limit. Let me repeat an important statement, which I mentioned over the previous calls, the considerable additional growth potential in the Priobskoye by Yuganskneftegaz can be reached a result of investment stimulus similar in the case with other brownfield assets like Samotlor that we have in the company. Currently, we are working at formalizing these incentive packages. As you have been able to see from the news flow, the respective [draft] act has been prepared by the Minister of Finance of Russia, and we are currently working of making sure that this particular incentive was being made available by the Russian authorities in some immediate future. We continue to actually invest into new asset, the total output from the major project which we have launched. Obviously, since [1960] , in this year, the company was [producing] 21,000 barrels of oil equivalent a day, or more than 7% from the total output of the liquid hydrocarbons.
After in June this year, the second field of [Ergin] cluster was launched in June. In the third quarter, Rosneft went about to production drilling at the third field in the [Erginskoye] cluster field. At the end of the year, we’re planning to drill 14 production wells all together in 2019 over the Ergin cluster. There will be 18 drilling rigs made operational. The application of the high tech equipment will make it possible to reduce the drilling time and the well construction as well as to grow oil production in a very effective way within this cluster.
At this point in time, we can see a very serious potential of additional limitation of the resource base that Rosneft has. For example, as you might have heard from the news, we’re actively working over preparing the development of the oil and gas basin at the north of the Krasnoyarsk region, specifically I mean the Vostok Oil project which, in our mind, combines a unique resource base where the total output potential exceeding more than 30 billion of oil equivalent and related to a new set of discoveries achieved in this territory. And undoubtedly, in case the necessary investment incentives are made available to develop this basin, Vostok Oil can become the breakthrough point for the future development of the company within the foreseeable 12 months.
In as far as the refining business is concerned, the refining of the company over the reporting period demonstrated the growth by more than 19% in total throughput, which is related to the end of the scheduled maintenance, the optimization of its load as well as the elimination of limitations in terms of the Transneft intake. For example the Transneft crude at our own refineries within the reporting period in Russia grew by more than 18% and the [international] refinery by almost 1/3. There was a very substantial increase of the share of the refined product from 38% up to 44% quarter-on-quarter in total sales. That provided a very positive effect [over] our revenue and profit, first of all, because the sales of the refined products in Russia demonstrated better dynamics as opposed to crude prices.
In terms of the financial performance, several comments. The growing production of oil and gas. And the growing refining volumes as well as certain changes in the structure of sales have enabled us to achieve the growing revenue within the reporting period despite the declining oil price by more than 10%.
Within the reporting period, the revenue went up to RUB 2.24 trillion, thanks to an effective control over the operational and G&A. The EBITDA grew by almost 8% up to RUB 154 billion (sic) [RUB 554 billion]. In third quarter, net profit attributable to shareholders grew 16% quarter-on-quarter to RUB 225 billion over the 9 months; this year by 25% year-on-year to RUB 550 billion. The capital expenditure of the company went down in the quarter, over the 9 months in 2019, which became as the [consequence of the] optimization of the production drilling program. And in many ways is related to growing share of the horizontal wells with a greater efficiency at the brownfield operations.
Now taking into account the actual capital investment over the 9 months of the current year. The existing production limitation, this is also the OPEC+. And the pricing environment the company expects, that [its program in] financing capital investments in 2019 to remain at the level of about RUB 1 trillion, which is less than the kind of guidance which we shared with you during the previous outcome. On September 30, the shareholder of the company registered the record dividend payment for almost — for the amount of RUB 163 billion, which is 50% of the net profit under the IFRS and conforms to the dividend policy of the company.
Now bearing in mind, very strong financial results over the third quarter and a stable — relatively stable current environment, the shareholders are entitled to expect the dividend to grow based on the results of 2019.
The core strategic objective of the company is to grow its cash flow and reduce its debt burden. We continue to work towards that end. In as far as the growing profit and the free cash flow in the third quarter, more than doubled, amounting to RUB 281 billion. Since the beginning of the year, the company has generated free cash flow in the amount of RUB 613 billion, and reduced the total amount of financial debt by almost 14%, which seems to look like the amount of RUB 820 billion net debt. And the trading obligations of the company, put together, went down by RUB 130 billion, not taking into account the payment of final dividends for 2018 in the amount of EUR 120 billion.
Now summarizing, I would like to say that the third quarter, overall, turned out to be very strong in terms of the operational and financial performance. We continue to sustain our efforts within the main time frame in as far as the core production business is concerned, our main focus is unchanged in spite of the development of the highly profitable projects, which in the future will help the company to continue taking a leading position in the industry in as far as the pace of profits and the cash flow is concerned and creating additional shareholder value.
Thank you very much. Let us now move over to the Q&A session. Thank you.
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Questions and Answers
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Operator [1]
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(Operator Instructions)
Our first question today comes from Karen Kostanian of Bank of America.
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Karen Kostanian, BofA Merrill Lynch, Research Division – Head of EEMEA Energy Research & Head of the Russian Research Department [2]
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Congratulations on good results. I got 2 questions. You see the tax exemptions, and you’re trying to get tax exemptions over your brownfield but at the same time, there is a great number of new projects within the foreseeable future. So my question is to Eric. In what way this particular strategy is going to come through considering the OPEC+ limitations, and what will be suspended in the first place if these limitations shall sustain?
My second question, about your capital spending. Is there any understanding in what kind of a level of capital investments is going to be in 2020?
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Eric Maurice Liron, Public Joint Stock Company Rosneft Oil Company – First VP of Production & Member of Management Board [3]
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Well, with your permission, Karen, let me answer in as far as the strategy is concerned of the amount of production and exemptions as you described them. We principally disagree with this premise which defines the kind of work that we are doing together with the Russian government. In our case, what’s important is the definition of fiscal contracts and investment stimuli, which will enable us to monetize our resource base. That is of principal significance. We don’t have exemptions. All of the decisions, which we propose on our side to the government and the other way around are aimed at resolving mutual problems, which certainly enable the company to be more effective in monetizing the resource base on the one hand, while on the other hand, for the Russian government to maximize its tax returns, even within the midterm outlook.
Now if we are to look at the Samotlor field that we mentioned here, in the course of 18 months, 18 months, mind you, the budget of Russia ended up being in a positive value, considering the additional volumes of crude which we produced (inaudible) because there was a 5% depression [dynamics] over the past 5 years. And as a result of respective agreements and the application of investment stimulus to Samotlor, we were able, based on actual, to achieve Samotlor in a stable output mode, even with the above-mentioned MET reduction, which completely went to increased capital investment in drilling. Within 18 months, in Samotlor, we were able to deliver positive net effect for the Russian budget.
The same kind of approach we entertained at the Priobskoye field, and similar approaches we propose to be applied to other projects. While aware that considering the level of off-takes from the industry, we don’t have an economically viable model. But wherever it can be found, and I shall repeat in a very obligatory way, that should be a win-win situation, whereby this solution is both beneficial for the company and for the budget. As long as there is such a situation, we will find and — I mean we’ll work to find them. We certainly do offer them and, wherever possible, we’re trying to stand by them. Like in the case of Samotlor and Priobskoye in the kind of work we’re doing [to create an attractive tax regime for the north of the Krasnoyarsk region,] this certainly is something that we see as a considerably useful thing for the development of the whole industry as well as for the budget of Russia.
Alongside with that, speaking about the kind of work which is currently being done, it, without a doubt, doesn’t mean that in the course of another month or 2, we will principally change our output of crude. What we’re trying to talk about, about the new resource areas, which will demonstrate their potential within the next 10 to 15 years, thinking about (inaudible). So OPEC+ is certainly the binding agreement, but it has its own term. And of course, it is difficult for us to plan for the next 10 to 15 years, but we hold the opinion that the resource base should be monetized and we are putting our best effort to do this. No technical effect over the kind of liabilities or the obligations or Rosneft’s [products] , these decisions don’t produce. That is of a principal significance.
Now in terms of the capital investments, if I may offer a comment, we do see for the next year, a relatively stable level of capital spending compared to the current indicators within this year. As you might know, in December this year, we will put together our final business plan for the Board of Director’s endorsement. And based on the results of the second half of December, we’ll have updated guidance, but we don’t see any principal changes from the level of this year. Thank you.
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Operator [4]
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Next question today comes from Alexander Burgansky of Renaissance Capital.
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Alexander Burgansky, Renaissance Capital, Research Division – MD and Head of Oil & Gas Research [5]
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I’ve got 2 of them if I may. First of all, could you please describe the kind of an effect, if there was any in the third quarter, from the limitations being taken away for the Transneft’s intake and maybe certain reserves of crude, if there were any? What kind of financial effect has this produced? This is my first question.
My second question, in addition to what Karen asked about, if at all possible, could you classify within the OPEC+ conditions and bearing in mind the plans for launching into operation new fields next year and going out from the new fields, in what way are you going to manage the overall production level? And at which projects or subsidiaries you may reduce production so that the company could reach the kind of level which is called for by the OPEC+ agreement?
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Unidentified Company Representative, [6]
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Sorry, can I ask you to be more specific? Do I understand correctly when you asked the second part of your question about OPEC+ that what you mean is the current OPEC+ commitments which have been defined, as we understood correctly, until the first half of next year? Is that right?
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Alexander Burgansky, Renaissance Capital, Research Division – MD and Head of Oil & Gas Research [7]
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Well, yes, and in case those commitments are to be extended.
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Unidentified Company Representative, [8]
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Well, it seems to me that your question contains the answer to your question. In case the commitments are extended, we’ll be finding the kind of solutions which correspond to the profile of the company the best they can. By that point in time today, there are no solutions available. Today, we work for the benefit of our shareholders, for the purpose of maximizing the potential of our resource base. So respectively, we are targeting growth, targeting production growth and the cash flow growth because that is firmly written in our strategy. And within the midterm outlook, we undoubtedly are targeting the monetization of our resource base. In case there are any external limitations, we will work around them.
Now speaking about the first part of your question and the external limitations with respect to Transneft, you may recall that we quoted a figure until July 15, that it was in as far as unproduced crude volumes and undelivered crudes, that’s what you should bear in mind as kind of an indicator, which produced the effect in the third quarter, one may say, that this particular figure was (inaudible) and these volumes were produced, period.
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Operator [9]
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Our next question today comes from Igor Kuzmin of Morgan Stanley.
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Igor Kuzmin, Morgan Stanley, Research Division – Equity Analyst [10]
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Good afternoon. I’ve got a question with respect to downstream, if I may. Could you please give us a bit of a guidance in terms of the level of refining volumes that one should expect?
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Igor Ivanovich Sechin, Public Joint Stock Company Rosneft Oil Company – Chairman of Management Board, Deputy Chairman & CEO [11]
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In refining stream?
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Igor Kuzmin, Morgan Stanley, Research Division – Equity Analyst [12]
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From the refineries located in the Russian territory during the fourth quarter and the next year, 2020, please?
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Igor Ivanovich Sechin, Public Joint Stock Company Rosneft Oil Company – Chairman of Management Board, Deputy Chairman & CEO [13]
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Thank you very much for the question. Well, as you know, we are not giving away detailed operational financial guidance for the future periods simply because of a standard conventional practice. If I may, I shall pass the floor over to Alexander Romanov, who is heading the refining streams so as to just to share with you the overall trends of the fiscal dynamics in that business, but we’re not going to share with you any detailed guidance. Thank you.
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Alexander Romanov, [14]
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Yes. Thank you for question. The 2019 was the year of maintenance. And so our refining was going to be a little bit less than in 2018. It will be a less — at the level of 100 million but a little bit above the business plan. That’s the way we are planning.
In as far as 2020 is concerned, this year is expected to be a little bit higher than 2019. So that’s the kind of comments that I can give you without any detail in as far as the business plan is concerned.
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Igor Kuzmin, Morgan Stanley, Research Division – Equity Analyst [15]
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Thank you very much. This is specifically the refined volumes if I understand correctly?
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Alexander Romanov, [16]
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Yes, exactly. That is the volume to be refined at the Russian refineries.
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Operator [17]
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Our next question today comes from Angelina Glazova of JPMorgan.
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Angelina Glazova, JP Morgan Chase & Co, Research Division – Research Analyst [18]
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Yes. Colleagues, thank you very much for your presentation. I would like to ask you a question about the gas market. [Would] you say that your sales in Asia is growing? So I would like to understand how do you see this trend developing in the future, how significant the Asian market could become for you. And I would like to also understand what do you think about it in as far as the Vostok Oil is concerned, I mean, longer term?
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Igor Ivanovich Sechin, Public Joint Stock Company Rosneft Oil Company – Chairman of Management Board, Deputy Chairman & CEO [19]
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Yes. Thank you very much. We will have the — Mr. Didier Casimiro, who’s the Head of Commerce Trading.
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Didier Casimiro, Public Joint Stock Company Rosneft Oil Company – VP of Refining, Petrochemical, Commerce & Logistics and Member of Management Board [20]
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I believe that this is not a new kind of a trend. This is the trend that we have been trying to move towards in terms of growing our eastward volumes. But it is tracking that Vostok Oil, I would say, is a unique situation because through Vostok Oil, we will be able to forward to the northern route different volumes, westward and eastward, together and we will have 2 benchmarks in — and so that means that in as far as the westward deliveries are concerned, we will benchmark that market to [Brent.] And the Eastward, we’ll benchmark it to Dubai. Again, considering where is the biggest volume growth can be, definitely to the east.
And I would say that it will be sufficient to state that in as far as the Indian market is concerned, looking over the next 10 years, in as far as the crude is concerned, that would be about 100 million tonnes. And you are familiar with our Vostok Oil projects, definitely. And that is exactly why we understand that, that’s where it will all flow.
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Operator [21]
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Our next question today comes from Evgenia Dyshlyuk.
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Evgenia Dyshlyuk, Gazprombank (Joint Stock Company), Research Division – Director of Equity Research for Oil and Gas [22]
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I’ve got 2 questions, if I may. My first question is about the Ministry of Finance position and their proposal to introduce the associated petroleum gas taxation. So what’s your attitude towards it? And what kind of an effect it may produce over the Priobskoye project?
And my second question is about the Arctic development. If at all possible, could you give us a general description of your production plans, your tax incentives that you plan to enjoy, the volumes and the infrastructure that you’re going to build? Or at least give us some sort of a guidance in terms of when this information may be made available to the market.
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Igor Ivanovich Sechin, Public Joint Stock Company Rosneft Oil Company – Chairman of Management Board, Deputy Chairman & CEO [23]
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Yes. Thank you very much for the question. Well, in as far as the [associated] petroleum gas is concerned, well, that — we deeply respect our colleagues from the Ministry of Finance. In our mind, we are enjoying an extremely constructive dialogue in as far as the majority of the issues are concerned.
But in as far the associated petroleum gas is concerned, we do believe that this initiative doesn’t correspond to the best industry interest and Rosneft’s interest. But we do understand that the company has invested considerable resources over — cumulative and over almost USD 2 billion in the general infrastructure of petroleum gas — associated petroleum gas utilization over the past 10 years.
Now the utilization issue is a regulated issue. The subject of petroleum gas, i.e. the product coming from other operational processes are based on the fact we are trying to say that there is a sudden new taxation [take] that comes our way. So considering this [was ago] introducing a separate entity for associated petroleum gas, we’ll principally disagree. But as I’ve said, in the quarter, we’re very constructive and very open on this dialogue with the Ministry of Finance as well as other regulators. We hope that this issue will be resolved in this or that way to a mutually beneficial acceptance, which will reflect the rationale of the oil and gas industry as well as the common understanding that the solutions applied to the Priobskoye oilfield tax are not exemptions. They are not investment stimulus. The company received this kind of reduction, which effectively 100% transforms into the investment commitments in terms of a drilling plan at the Priobskoye development field.
So we believe this is a very serious commitment, which amongst other things, produces a very positive outcome for the Russian budget within the midterm as well as the short-term perspective. So respectively, we deem this particular associated petroleum gas initiative as superfluous and unnecessary in terms of the taxation policy philosophy not fully correctly [worth it] .
In as far as the Arctic terms are concerned, I believe we are able to mistake it as a key strategic priority. At the same time, we’re specifically talking about the development in the north of the Krasnoyarsk region. It seems to me that, that is exactly the way that it makes sense to define the area of our geographic interest.
And the ambitions in as far as the new production basin of Vostok Oil is concerned, something that we previously mentioned in our presentation, we do have a preliminary indicating as far as the resource base is concerned. We believe that this particular basin is of a global scale. This is an extremely attractive opportunity in terms of its size and with a relative technological simplicity of entering into this region.
At the same time, we do understand that, that is going to be related to a whole number of infrastructural challenges that will be related, of course, with some very harsh climate conditions and for our operations in that region. And specifically because of that, this conversation about it specifically is focused upon developing the concept and the legislative support for a set of incentives that will enable us to develop this province. As soon as a solution is reached, I believe that we will be able to come out with a much more detailed story for the investment community about the way it will work. But today, because of the lack of a straightforward legislative framework, we don’t see there being a subject matter of presentation during this call. We are actually working for the benefit of our shareholders in order to achieve this necessary incentive. And as soon as they are formalized with our data, we will present to you all the necessary details. Thank you very much.
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Operator [24]
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Our next question today comes from Ildar Khaziev of HSBC.
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Ildar Khaziev, HSBC, Research Division – Analyst [25]
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I’ve got this question. One of your big competitors has considerably raised prices for the light crudes in November and December specifically. Crude keeps coming. And as far as the risk is concerned, do you have any specific quotation for the premium on the [bank] side?
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Igor Ivanovich Sechin, Public Joint Stock Company Rosneft Oil Company – Chairman of Management Board, Deputy Chairman & CEO [26]
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Well, Mr. Casimiro, will ask to answer this question. I believe this is quite a narrow market [in commitment] . Nevertheless, well, it definitely means that you are very well aware that all the company are selling [SBO] according to the same kind of system. This is an auction or a tendering kind of system. So this is the information that you are able to easily find in [Rosneft’s] publications or in the plot statistics.
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Operator [27]
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Our next question today comes from Olga Danilenko of Prosperity.
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Olga Danilenko, Prosperity Capital Management Ltd – Director of Oil and Gas [28]
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Thank you very much for the presentation. I’ve got 3 questions. Could you please tell me the 2022 strategy that you are currently working under? What do you think? To what extent — for the current point in time, for the next few years, it is fully [comfortable] for the company. If it doesn’t fully meet its goals and the vision [or] in some near future, you may reconsider it?
And if so when? My second question is related to the level of your debt. Is it possible — sorry if I missed out. What kind of a target level of debt burden that you are trying to achieve for which, again, you somehow may review your financial policy, short term and long term?
And my last question is related to the write-offs that you did in the first quarter within the downstream sector. Could you please hit on it, now taking into account the results of the third quarter within downstream and certain decisions that you have come to with the regulator? Do you believe it is necessary for a partial reconsideration of the write-offs that were made during the third quarter?
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Igor Ivanovich Sechin, Public Joint Stock Company Rosneft Oil Company – Chairman of Management Board, Deputy Chairman & CEO [29]
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Yes. Thank you very much for your [solid] questions with the operation. I would like to answer them inasmuch as I can.
So in as far as 2022 strategy is concerned. As you may know, the key priority in the strategy is our focus upon the organic growth and the monetization of the resource base. This is an organic strategy focus, first and foremost, upon monetization of the unique competitive advantage of Rosneft has as far as resources are concerned.
That is why looking at the way the company has been operating over the past few years, we do see success in the results that has been achieved. You can see how active we are in launching new projects. You can note how active we are working over developing the future resource base in order to have it in line with our new launches. And you see how active we are working around costs and the efficiency of our capital investments with a great focus on the upstream business, which today, it produces the majority in our financial performance results.
So we believe that the past few years have been able to improve the success of the chosen approach. In a clear way, no strategy is a dogma, and every strategy in the first place is something of a framework. Philosophic point of [pivoting] so that the company could develop, so the principles that have been written into it and that will be are successful. Apart from everything, they not only call for the delivery and maximizing the yield from our currently existing portfolios and maximizing our growth so that the whole number of [cultural and differential] are changing in our business, which is something that actively happens.
So looking at the future, we do believe that the kind of an approach which has proven its worth will be factors for the company in the next few years to come (inaudible). And nevertheless, that doesn’t negate the existence of the strategic cycle inside of our business.
On an annual basis, as any other company, we review and update some qualitative estimations that apply to the external environment, which apply to the performance by the streams in order to produce this feedback in this look back, trying to test the resilience of our beliefs. We adjust them, but that doesn’t apply to the quality of what we do. That applies to the key quantitative and analytical assessments of our future expectation, logistical limitations and so on and so forth. So it is an absolutely normal approach. It’s a very dynamic [search] but its key principles for the future is something that we believe to be successfully implemented.
Now the second question in as far as the company debt is concerned. Today, the debt-to-EBITDA is approximately 1.4, yes. We think this is a comfortable level which testifies to a high financial stability of ours as a business. But at the same time, I should say that we are not managing the operation of this company only based upon the principle of debt-to-EBITDA yardstick. The kind of the performance results that you see are the derivative of our efforts aimed at maximizing our cash flow and maximizing the additional value in as far as the future perspective, potential assets of the company are concerned. And [whenever we see] an interesting project, we are actively pursuing those. And we accept them because we’re deeply convinced in the kind of the project that we have in our investment plans.
Now as far as the issue is concerned, I believe that the debt-to-EBITDA of the company is going to be sustained in the level or will go down. But again, that will depend upon many external factors. And you also have that today, at least during this call, we [haven’t even rated] many of them like their fiscal regime, like external macroeconomic environment, like the OPEC+ limitations and a number of others which are going to produce a [fact up] on our debt-to-EBITDA indicator.
But bearing in mind the very high organic cash flow, without doubt, [we think that] the company is going to continue to work over reducing its overall debt because that will eventually create better opportunities for the business. But at the same time, there is no threshold in terms of debt-to-EBITDA whereby beyond which we will principally be very different in the way we are managing the operation of this company.
Now the third question as far as the write-off is concerned and the refining business of the company, with your permission, I would answer it in the following way.
We deeply believe that the refining business and management approach generally in Russia requires additional attention in order to provide for different investments into it. The kind of an approach that we really see as a conventional one, it guarantees stable pricing. It has produced certain launches for the future. It has set forth very precise price.
But at the same time, there are issues in as far as the regulatory environment is concerned so as to make sure that the investment flows into Russian refining. These are the issues which we’re actively pursuing together with the executive authorities of this country because I believe that the Russian refining should be actively developing specifically in as far as upgrading of its capacity is concerned, creating new capacities in the regions where the availability of refined products deserves to be stronger. At the same time, the existing capacities that we have, as you know, we have performed a whole set of measures in modernizing them, being 100% true to the commitments that we previously have taken.
And so the question about the forthcoming capital investment remains open today and it requires additional regulatory clarity. The decision was made in the beginning of this year to change the regulatory environment [led to] write-offs. And those were quite objective decisions which we had to go for as passed by the auditors, but these decisions have been fully justified within the current market environment and are not subject to any review. Thank you.
Colleagues, I understand that, that was the last question from our Q&A line. Thank you very much for your active participation in today’s conference call. As always, we’ll be glad to answer any additional questions. Andrey Baranov and Pavel Kushnir are always at your beck and call in order to provide you with additional information. And we will talk to you again in the future. Thank you very much.