Q3 2016 Novatek OAO Earnings Call (IFRS)

NVTK.MZ - Novatek PAO
Q3 2016 Novatek OAO Earnings Call (IFRS)
Oct 27, 2016 / 01:00PM GMT 

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Corporate Participants
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   *  Mark Gyetvay
      NOVATEK OAO - Deputy Chairman & CFO

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Conference Call Participants
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   *  Igor Kuzmin
      Morgan Stanley - Analyst
   *  Alexander Kornilov
      Alton - Analyst
   *  Evgeny Stroinov
      Renaissance Capital - Analyst
   *  Olga Danilenko
      Prosperity - Analyst
   *  Artem Konchin
      Otkritie Capital - Analyst
   *  ldar Khaziev
      HSBC - Analyst
   *  Ildar Davletshin
      Renaissance Capital - Analyst
   *  Karen Kostanian
      Bank of America - Analyst
   *  Pavel Kushnir
      Deutsche Bank - Analyst

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Presentation
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Operator   [1]
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 Good day and welcome to the NOVATEK's Third Quarter 2016 Financial Results Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Mark Gyetvay. Please go ahead, sir.



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 Mark Gyetvay,  NOVATEK OAO - Deputy Chairman & CFO   [2]
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 Thank you, Claire. Ladies and gentlemen, shareholders and colleagues, good evening and welcome to our third quarter and nine-months 2016's earnings conference call. It is a pleasure this evening to formally announce Alexander Nazarov as our new Head of Investor Relations for NOVATEK. Many of you may already be familiar with Alexander from his former role as an oil and gas analyst with Gazprombank. We welcome him as part of our team and I am sure you will have the opportunity to meet with him at investor meetings as we continue our ongoing efforts to provide timely and informative information to the investment community.

 Before we begin with the specific conference call details, I would like to refer you to our Disclaimer Statement as is our normal practice. During this conference call, we may make reference to forward-looking statements by using words such as our plans, objectives, goals, strategies, and other similar words, which are other than statements of historical facts. Actual results may differ materially from those implied by such forward-looking statements due to known and unknown risks and uncertainties and reflect our views as of the date of this presentation. We undertake no obligation to revise or publicly release the results of any revisions to these forward-looking statements in light of new information or future events. Please refer to our regulatory filings, including our Annual Review for the year ended December 31, 2015, as well as any of our earnings press releases and documents throughout the past year for more descriptions of the risk that may influence our results.

 For tonight's call, I will not discuss the macro environment, as I believe this topic has been exhaustively covered by the press and industry analysts following OPEC in their discussions. Instead, I will provide an update on Yamal LNG, as well as addressing questions raised on production declines. I believe these two points are more relevant for us this evening.

 Construction on the Yamal LNG project moves forward according to our proposed schedules. We made good progress on the project's construction phase and as of September 30, we were 69% complete with the total project construction, versus 60% at the conclusion of the second quarter, and we have now completed 84% of the LNG train Number 1 versus 76% in the second quarter. All of the main equipment for LNG train Number 1 is currently onsite, so we do not anticipate any impediments to reaching our target completion rate of over 90% by year-end.

 There are more than 22,000 construction workers currently working onsite versus 16,500 at Q2, with an additional 29,000 people involved in module fabrication at various construction yards around the world. As I have stated previously, Yamal LNG is a huge undertaking with more than 220 contractors involved in the project, as well as more than 3,600 construction vehicles presently on site.

 We began using two new cargo berths at the Sabetta seaport, so currently there were six cargo berths in operations as at the fourth quarter. The ability to utilize a full complement of cargo berths facilitates the landing and unloading of modules to the project site.

 On a prior conference call I stated that LNG train Number 1 consists of 78 individual modules. As of the beginning of October, 70 modules have been delivered and the remaining eight modules are in transit, of which three modules are expected to land this week. The high proportion of modules delivered account for the high project completion percentage for train Number 1 and we expect all remaining modules for LNG train 1 to be delivered by year-end. The liquefaction module with a weight of 5,800 tons was delivered in September and installed on its prepared foundation. With this key unit in place, we were able to install the main cryogenic heat exchanger delivered by Air Products inside of the liquefaction module by early October.

 In the third quarter, we completed the drilling of an additional eight production wells and presently have 65 production wells drilled, exceeding the required well stock of 58 production wells to operate LNG train Number 1. In addition, the construction of the gas gathering lines for LNG train Number 1 is being finalized and should be completed by the end of this quarter. There are a series of other ancillary construction activities going on at the project site at various stages of completion, but I don't want to spend too much time this evening on them, except to highlight that all three 50,000 cubic meter gas condensate tanks for the project were completed and passed their hydraulic tests and that substantial work progress has been made on the two kilometer SouthEastern ice barrier wall used to protect the harbor and loading operations.

 I've been asked many times recently at investor meetings about the production declines at our core legacy assets and that possibly NOVATEK is ex-growth in its operations. Related to this question, we have also seen more analysts convey this message to investors in their research reports, despite the fact that I mentioned on my last conference call that this was not the case in our estimation, based on our asset portfolio and the projects we are currently assessing. So, I would like to shift now my attention to this important topic before discussing the final results for the period.

 Natural declines in hydrocarbon reservoirs are a well-known fact once the field's production output reaches its planned plateau levels. So this fact should not come as a surprise to anyone following the oil and gas sector. In our specific case, we have reached our plateau levels on various fields at different times, based on the start of the particular field's operations and development planned. For example, our three core legacy fields, which are exhibiting natural declines, began commercial production in 1998 for the East Tarkosalinskoye field, 2002 for the Khancheyskoye field and 2003 for the Yurkharovskoye field. All three of these legacy fields have reached their plateau levels and are now experiencing varying decline rates due to natural declines in reservoir pressures, but let's not lose sight of the fact that we have achieved substantial cumulative production from these fields and will do so for many more years, consistent with their respective license terms.

 So, to answer everyone's concerns, yes, our production is in various stages of natural decline, but we are not alarmed by these recent developments. Instead, we seek efficient ways to optimize our fields' production output, new producing zones within our current license areas or pursue new exploration and development opportunities existing within our present asset portfolio. This high-grading process also extends to our review and potential acquisition of new licenses areas to complement our existing portfolio, as well as through potential property or corporate acquisitions, if we feel these opportunities are value accretive to our shareholders and fit our strategic objectives of maximizing our wet gas value chain.

 I would like to highlight a specific example of how we optimized one of our core development plans. If we consider our largest producing asset, the Yurkharovskoye field, we utilized a four phased approach to reach the field's production plateau, as well as making significant design changes to optimize production outflows. We reduced the number of wells needed to drill this prolific field from the initial well count of 88 production wells to 79, by significantly increasing the wellbore diameter from 114 millimeters to 168 millimeters, a deviation from 2,000 meters to an average of 3,500 meters, and horizontal runs from 500 meters to over 1,000 meters to extract more gas and gas condensate from the multiple producing zones within the Valanginian formation.

 As a result of these design changes, we managed to significantly increase our daily output from roughly 1.2 million cubic meters to about 5.5 million cubic meters; thus reducing the average drilling cost per mcm of cumulative production from approximately $2.72 per mcm cumulative production to $1.64 per mcm, representing a savings of about 40%. We also increased flow rates above the planned maximum output at the Yurkharovskoye field around 2013/2014 to maximize stable gas condensate production to help finance our proportion of the Yamal LNG costs pre-external financing, but subsequently reduced the field's outflow back to its current planned production levels to efficiently manage the field's plateau production. I previously highlighted this point on a prior conference call, but I wanted to reiterate this point again tonight, as this decision affected the future decline curve for the field. It was a decision that we felt was best suited to achieve another strategic goal of transforming our operations by investing capital into Yamal LNG.

 To offset the field's natural declines, we are currently drilling well number 135 on the West Yurkharovskoye field, which flanks the eastern portion of the Yurkharovskoye field as part of our exploration drilling to test the Jurassic formations at this licensed area. Well number 135 was drilled to a vertical depth of 4,400 meters with a planned horizontal run of 500 meters. We are now preparing the well for the horizontal section and will utilize a four stage hydro-fracing process to determine potential commercial flow rates. Well logging was already completed on the Valanginian formation as part of our planned work, but we still need time to assess the potential commercial production at the Jurassic formation, which is anticipated to be completed by the end of the first half of 2017.

 Our initial assessment at the vertical depths looks promising, but it is premature at this time to provide any concrete conclusions until we have concluded the horizontal section and the appropriate testing. A successful completion would provide us with additional geological subsurface information regarding the possible extension of the Jurassic formation across the Yurkharovskoye field, essentially meaning that we could potentially extend this field's production profile if deemed economically viable to justify the implementation of a new development plan. So, I will provide additional information on future conference calls and investor meetings.

 I would now like to discuss our Arcticgas assets, because we have fielded a series of questions on this joint venture, particularly concerning the field's oil development program, as well as other questions.

 The main goal of our development activities at Arcticgas, formerly known as SeverEnergia, was to maximize the field's various condensate production. We took this approach, because of the high concentration of liquid grams per mcm produced and this development approach allowed us to reach maximum load capacities at the field's gas and gas condensate de-ethanization treatment facilities, as well as fully loading our Purovsky Processing Plant and the Ust-Luga facility.

 If we specifically focus on the Urengoyskoye field, considered the main producing asset of the joint venture, the new wells drilled and completed in 2016 reached daily well flows of 1.3 million cubic meters of natural gas and up to 500 tons of gas condensate. These new wells were drilled in the northern part of the license area with low reservoir properties in the Achimov layers containing a very high gas condensate factor. The high flow rates that we have achieved, particularly pertaining to gas condensate, allowed us to reduce our drilling activity to a minimum, and presently we have only one drilling rig in operations.

 Overall, in the third quarter 2016, our production of gas condensate was relatively stable, but production of natural gas was slightly lower, primarily due to higher concentration levels of gas condensate. That was our planned development objective and fully anticipated.

 To give you a sense of how we maximized the Urengoyskoye field development, I would like to reiterate a [few] points I made on one of my earlier conference calls. In 2013, we changed the development program from primarily drilling vertical wells to drilling horizontal wells with horizontal sections averaging approximately 600 meters in length. The initial flow rates from the horizontal sections exceeded by two times the flow rates of vertical wells, depending on the length of the horizontal section, which led us to optimize our drilling program by reducing the number of wells drilled from 136 to 96. I stated at that time that the average horizontal well cost was approximately 20% to 30% more capital expenditure per well drilled, but the additional flow rates and the reduction in the total well stock easily justified this decision.

 We don't have analogies in Russia or globally to compare the results of our Achimov wells drilled at the Urengoyskoye field with horizontal sections ranging from 1,500 meters to 3,000 meters in abnormally high pressure, using multi-stage fracing. From our discussions with drilling companies and technical consultants, these wells are considered quite unique and we are proud of these technical accomplishments. The ability to achieve production results from these lower geological formations opened opportunities for us to consider other lower layer developments at the Termokarstoye and subsequently the North-Russkoye fields.

 I will like to now address the question on crude oil forecasts at SeverEnergia. Yes, we erred in our initial assessment of the joint venture's production profile between gas condensate and crude oil. In 2010, we originally assessed a higher level of crude oil production based on our initial geological and geophysical evaluation on fields within the joint venture. As we began drilling wells in the northern section of the license area, we encountered gas and gas condensate bearing layers rather than crude oil layers. The downgrade of crude oil production is solely connected to the reclassification of our reserves from crude oil to gas condensate, which, quite frankly, is positive because of better field economics.

 If we look at the present situation from this perspective, we were able to derive higher economic value for our shareholders than by solely producing crude oil. Creating shareholder value is our primary focus. We maximized value creation under this scenario by getting multiple streams of revenue from each wellbore, natural gas for sale, refined products for 100% export, as well as receiving additional margins for the processing of the unstable gas condensate at the Purovsky plant and a higher combined basket price for our refined products sold internationally. I have been somewhat surprised by the focus on us not reaching the initial estimates of crude oil production, when in fact we have significantly exceeded our initial forecasts of gas condensate production and have achieved better economics.

 We are currently developing plans to bring additional Arcticgas fields on-stream such as the East-Urengoyskoye and the North Estinskoye fields, but plateau production from these new fields will only be reached after the end of this decade. In addition, we have plans to begin the next stage of Achimov development at the Urengoskoye field, as well as targeting the Valanginian layers at the Samburgskoye field. Mr. Mikhelson recently stated at the Vladivostok Economic Forum that we plan to begin first phase of crude oil production of 1.1 million tons to 1.2 million tons at the YaroYakhinskoye field around late 2018, early 2019. We will continue to assess the crude oil potential at this joint venture, but as of today, I believe we have designed a development program that efficiently exploits the joint venture's resource base.

 We have begun producing and marketing associated petroleum gas from the Yarudeyskoye crude oil field in the fourth quarter 2016. This information has not been previously announced to the market, so here is a little upside surprise for your forecasts. We are currently producing about 9,800 tons of crude oil per day, or 3.5 million tons annually, and will begin producing about 3.5 million cubic meters to 3.8 million cubic meters per day of associated petroleum gas, or the equivalent of about 1.0 bcm to 1.1 bcm per annum.

 With this output, we expect to add 500 million to 600 million cubic meters of gas to our production profile in 2016. Our geologists are assessing the field's potential gas resources, so it's too premature to make any further comments at this point, but either way this is positive for us.

 I would like to now spend a few minutes to talk about our exploration activities at various fields. At the North-Russkiy license area, we completed the testing of well number 305 and discovered the Kharbeyskoye gas condensate and crude oil field with preliminary reserve estimates of 45 billion cubic meters of natural gas, 4 million tons of gas condensate and 7 million tons of crude oil under Russian reserve classification C1 + C2. We are currently planning further exploration work for the remainder of 2016 and 2017, which may yield additional hydrocarbon reserves on this newly discovered field.

 Well 305 confirmed commercial condensate production at the Jurassic deposits with a high concentration factor in the natural gas stream of 270 grams per million cubic meters. The Kharbeyskoye field is already the third field discovered on the North-Russkiy license area, with earlier discoveries at the North-Russkoye and Dorogovskoye fields. Combined with the East-Tazovsky license area acquired in 2013, the North-Russkiy cluster should contribute meaningful production growth post 2020 when these fields are expected to reach their respective production plateaus. Production from the North-Russkoye field is expected commence towards the end of this decade.

 A new gas condensate deposit, BU12, was discovered on Arcticgas' YevoYakhinskoye field, with the successful testing of exploration well number 83. Gas condensate flowed from both the Achimov and the Valaginian layers with a high concentration levels of up to 400 grams per million cubic meters. This new exploration discovery increases the field's asset value and will definitely have a positive impact on the impending decision to start the field's development activities.

 We also completed the running and processing of three-dimensional seismic surveys at the North Obskiy and Nyakhartinskiy license areas with both areas yielding positive initial results. We will provide more information later on the development plans for the Nyakhartinskiy license area, as this field is in close proximity to our Yukharovskoye field and would benefit from joint development synergies. It is too early to discuss potential development at the North-Obskiy license area.

 In September, we announced the acquisition of the Syadorskiy license area on the Yamal peninsula via a tender auction for a one-time payment of RUB404 million. The geological, exploration and production license has a term of 25 years and expands our resource position in the northern part of the Yamal peninsula. As of the January 1 2016, the license held approximately 25 bcm of C1 natural gas reserves and recoverable resources totaling 63 bcm of natural gas and 18.6 million tons of liquid hydrocarbons.

 We recently announced that together with the Italian oil and gas company Eni, we signed a concession contract with the government of Montenegro for the exploration and production rights on four offshore blocks in Montenegro. The concession agreement covers offshore blocks 4, 5, 9 and 10 in section 4118, comprising a total area of approximately 1,200 square kilometers located in the territorial waters of Montenegro. Eni was appointed the operator of the concession and has extensive exploration and production experience in the Adriatic Sea. We will each hold a 50% share in the concession agreement. The concession agreement envisages a mandatory work program comprising the running and processing of 3D seismic, and the drilling of two exploration wells targeting specific geological zones over the exploration phase period of seven years.

 When you combine the diverse exploration and development activities that we are currently working on with the present construction activities at the Yamal LNG project, you can easily understand why we believe NOVATEK is not ex-growth, but instead at the very beginning of the next growth phase for the company. I would also like to point out that my discussions this evening on exploration and development activities did not even address the huge upside that our Gydan peninsula fields offers us in terms of future production growth, as well as LNG projects.

 Our production profile for 2016 and 2017 will remain relatively flat or slightly decline for natural gas at our core fields until we bring on-stream the first LNG train at Yamal LNG and new production, mainly from the North-Russkoye cluster and possibly lower producing formations like the Jurassic. As Mr. Mikhelson stated in his recent interview with Kommersant, as well as what I have reiterated this evening, we are not too concerned by these developments, as we have the substantial hydrocarbon resources to maintain our overall production plateau. It's essentially a matter of priority in developing our asset portfolio rather than a lack of opportunities.

 As you know, the third quarter is generally a transitional season period in terms of natural gas sales, as we finalize inventory build-ups heading into the traditional winter periods, comprising the fourth and first quarters. Therefore, our results tend to fluctuate in this period, based on various seasonal factors, but overall, we are reasonably pleased with both our operational and financial results.

 We drilled 53 production wells in the first nine months of 2016 versus 77 wells drilled in corresponding 2015 period. Our reduced drilling reflects the maturity of our present development plans and corresponds with our move towards more maintenance capital as reflected in our capital spend throughout the current period and the first nine months of 2016. Our reduced drilling activities and capital spend by no means represent our inability to grow our operations, as I already outlined, but rather a period to focus on launching Yamal LNG and for preparing for the next phase of production growth.

 We spent approximately RUB7.7 billion in capital expenditures during the third quarter 2016 on a cash basis, with approximately 41% of the funds spent on crude oil developments at the Yarudeyskoye and East Tarkosalinskoye fields, as well as some preliminary capital spent on the exploration drilling at the West Yurkharovskoye field, amongst other activities.

 Our capital expenditure on a cash basis declined by roughly 37% year-on-year, but slightly increased by 6% quarter-on-quarter. The absolute reduction in capital spend demonstrates the lower capital intensity inherent in our existing capital programs and our move towards maintenance capital in our current investment cycle. For the nine months ended September 30, we spent approximately RUB24 billion on a cash basis towards our 2016 capital program. We originally guided capital expending of approximately RUB35 billion for the full year 2016, but it does not look like we will be able to spend this complete amount in the fourth quarter due to some changes in our decision to make prepayments to contractors. We remain committed to this overall guidance as part of our capital plans, but will more likely shift some of these amounts spent in the 2017 capital program. As of today, it appears that our 2017 capital program will further decline to about RUB28 billion to RUB30 billion, but I will reconfirm this amount later in the year once budgets are formally approved.

 Total oil and gas revenues in the third quarter 2016 was RUB126 billion, representing an increase of 8% year-on-year and consistent with the revenues we achieved in the second quarter. As we had experienced throughout 2016, our oil and gas revenues fluctuate period-on-period largely driven by increases in our liquid revenues, volatility in benchmark commodity prices and the corresponding translation of those foreign earnings into Russian rubles.

 Volume growth in crude oil sales was the main factor contributing to our increased revenues, as we realized mixed commodity prices for our liquids products year-on-year and quarter-on-quarter, consistent with the movement in the underlying benchmark reference prices. The most notable change quarter-on-quarter was the strengthening LPG price on the Russian domestic market, but we generally realized lower prices across our product range, as well as lower realized netback prices for natural gas during both reporting seasons. This reflects a supply demand imbalance in the marketplace for products sold internationally, but also takes into consideration the seasonality impact on domestic gas sales as well as increasing volumes sold on the commodity exchanges and some impact from geographical shifts in sales.

 Our liquid revenues now account for over 50% of our total revenues and we expect this trend to continue for the foreseeable period, accounting for approximately 59% of our total revenues in the third quarter. This trend is positive, as increased foreign earnings better match our predominately US dollar-denominated debt portfolio, as well as positively impacting our revenues in the reporting periods due to the favorable movements in the US dollar Russian ruble exchange rates.

 Our volumes of natural gas sold increased as compared to the respective reporting periods. We increased our gas sales volumes by 1.3% year-on-year and 2.8% quarter-on-quarter, but we also injected natural gas into the underground storage facilities, reflecting seasonal consumption patterns on the domestic market. We continue to optimize our domestic gas trading operations by utilizing the St. Petersburg Commodity Exchange, purchases from third parties and the injection/withdrawal of gas from storage to meet our end-customer demand requirements. We sold 93% of gas volumes to end-consumers and 7% to wholesale-traders.

 For the nine month period, we sold a total of 46.3 billion cubic meters of natural gas versus 44.8 bcm in the corresponding period of 2015, of which we sold slightly more than 3 billion cubic meters on the commodity exchange, representing a more than tenfold increase in exchange sales over the prior year. We sold 14.6 bcm of natural gas in the third quarter, achieving consistent volumes within these low seasonal periods.

 Throughout 2016, we rebalanced and tweaked our gas portfolio with some shifts in regional sales to reflect changes in our customer base, as well as increased volumes sold on the St. Petersburg Mercantile Exchange. With these changes, our average natural gas prices decreased by about 4.4% year-on-year and by less than 1% quarter-on-quarter. The decrease in our average realized prices led to declining average netbacks for end-customers year-on-year and quarter-on-quarter as we sold more volumes closer to our production facilities and realized weaker seasonal pricing on the exchange related trades, which was somewhat mitigated by lower transport and storage costs.

 For the nine months period ended, we increased our end-customer average netbacks by 4.4% or by RUB96 per million cubic meters over the corresponding 2015 period. More importantly, we have already achieved higher commodity traded prices exceeding the regulated FTS price for our recent trades as we enter the winter period.

 We sold 4.2 million tons of liquids, representing a 21% increase over the volumes sold in the prior year and slightly higher than the second quarter by 1.1%. The average prices we received in dollar terms were generally mixed across our complete product range because of the continued volatility in international benchmark reference prices. This effect is somewhat offset either positively or negatively by movements in the foreign exchange currency rates, as well as corresponding changes in liquids export duties.

 There was a lot of variability in our liquids sales in the third quarter due to seasonal changes, commodity prices, export duties and geographical mix. Since we sell our liquid prices at spot prices, we try to maximize our revenues and netbacks based on our assessment of market conditions in different geographic zones. Overall, during the third quarter, we increased our net liquid sales by 711,000 tons, largely driven by crude oil production from the Yarudeyskoye and East-Tarkosalinskoye fields by 906,000 tons, which were partially offset by declining gas condensate sales of 258,000 tons to the export markets and increase in sales of LPG and other refined products as compared to 2015.

 We had declines in our Naphtha sales over the comparative periods, largely due largely to volume movements, price changes and increases in export duties. We shifted both gas condensate and Naphtha sales more towards the European and US markets this quarter as fewer volumes were sold to the Asian-Pacific region, which meant lower realized prices, but also lower transport costs. The combined effect of these changes for stable gas condensate and refined product sales resulted in a higher weighted average netback as compared to the prior year by 7.5%, but lower against our second quarter by 8.2%, largely driven by lower commodity prices. We also realized seasonal strong domestic LPG prices between the second and third quarters 2016, although the volumes sold this quarter were slightly lower.

 There were no major surprises to our operating expenses in the third quarter. Our operating expenses were in line to the growth in our business, representing an increase of roughly 10% year-on-year and 4% quarter-on-quarter. Purchases represented the largest cost category this quarter and accounted for 26% of our total operating cost as a percentage of revenues, again exceeding that of our transportation expenses. Our natural gas transport cost was reduced by 5% year-on-year due to changes in our average tariff rate per [1,000] cubic meters, which was slightly offset by an increase in volumes sold.

 General and administrative expenses increased mainly for the same historical reasons, indexation of salaries effective the July 1, increased hiring due to expansion of operations, accrual of bonus payments and other social benefits. On a year-on-year basis, G&A expenses increased by 30%, but represented only 3% of our total cost relative to revenues. Overall, we increased our total headcount by 301 individuals to 7,188 employees across the NOVATEK Group.

 Our depreciation, depletion and amortization, or DDA, expenses increased year-on-year and quarter-on-quarter, representing the largest percent change relative to revenues. The increase is mainly attributable to crude oil production at both the East Tarkosalinskoye and Yarudeyskoye fields during the reporting periods, as the unit rate charged is higher for crude oil than natural gas. Our total operating expenses are also impacted by movements in change in inventory between reporting periods due to fluctuations in our inventory balances over the course of the year.

 Our balance sheet and liquidity position strengthened in the third quarter 2016 and for the nine months period, which was obviously supported by the receipt of funds from the Silk Road Fund on the sale of the 9.9% equity stake in Yamal LNG in the first quarter, as well as generating strong operating cash flows, reduced capital intensity and the repayment of both short- and long-term debt.

 I would like to highlight to our fixed income investors and credit rating analysts that all of our liquidity and credit rating metrics improved throughout the nine months ended September 30, and we reduced our net debt from RUB330 billion to RUB200 billion, or by 39%. I raise this specific point, because periodically we field questions concerning our ability to service our short-term debt as they mature, so I wanted to make it absolutely clear that we generate sufficient operating cash flow to service our debt as they become due, settle our liabilities, internally fund our capital program and pay dividends to our shareholders.

 Free cash flows were strong in the third quarter 2016. We generated RUB35 billion of free cash flow during the quarter and this amount was one of the highest levels we achieved in a traditional weak seasonal period. Free cash flow generation remains strong in 2016, although there are seasonal fluctuations and one-off adjustments, and I believe it will remain strong for the next several quarters.

 In summary, we achieved another solid set of seasonally adjusted financial and operational results in the third quarter 2016, and we are positioned to enter the upcoming peak winter season and conclude the year in a strong manner. We have consistently outperformed our peer groups over the past several quarters despite volatile commodity prices and a relatively weak macro-environment. In this past quarter, we sustained our revenues and margins and generated very high free cash flow, despite quarter-on-quarter decreases in oil and oil product prices and no escalation in the domestic gas tariff as was originally forecasted.

 I also want to unequivocally state that we understand your concerns about the declines in our core production profiles and, hopefully, I have addressed some of these points in my update tonight. Each and every one of you this evening should be assured that we are appropriately addressing this operational question. We have a sizeable asset base at various stages of exploration and development and we are beginning to target projects for future production growth and cash flow generation. There are many exciting projects ahead for us within our existing opportunity set and some that I am unable to talk about tonight as we currently are in negotiations. So, I am confident that you will eventually draw the same conclusions that we are not ex-growth.

 Our primary focus over the past couple of years was to successfully launch the liquid projects at our joint ventures and to make significant progress in bringing forth our flagship Yamal LNG project, and this meant making some conscientious decisions on delaying capital spent on certain exploration and development activities. Now, that we have concluded the external financing package for the Yamal LNG project and have finalized our commitments to finance this project, we can refocus our efforts on new opportunities as they material as funds have been unlocked.

 I was hoping to provide you this evening with a date for our strategy day, but we are currently evaluating a few opportunities that have not been finalized as of tonight's conference call, which will ultimately impact our divestment decisions and forthcoming strategy. We believe it is prudent to finalize this process first, discuss these opportunities with our partners, and then incorporate them into our strategic update. We have historically provided the investment community with a relatively concrete roadmap to achieve our strategic growth objectives. Our goal is continue this track record.

 I want to strongly stress that we are not ex-growth as some would like to portray us today, but rather at a new infliction point in our future strategic development with positive dynamics. We have delivered exceptional production growth considering our size and scale of operations, and this growth was delivered at some of the lowest cost metrics in the global oil and gas industry. We did not leverage up our balance sheet with debt-driven production growth as many of our peers, but rather stayed within our core competencies of capital discipline, cost control and project execution.

 We are now a year away from launching the first LNG train at Yamal LNG and enormous efforts have been expended to get to this stage of the project, and the closing of the main external financing package unlocks funds to be spent on other development activities. We plan to commission and start the first LNG train during the first half of 2017 and the scheduled delivery of the first LNG cargo in the second half of 2017 is still valid. Our goal is to become a major player in the global gas markets, and 2017 begins our journey. I would like to thank everyone for attending tonight's conference call and now open up tonight's session to question and answers. Thank you.



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Questions and Answers
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Operator   [1]
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 (Operator Instructions) Karen Kostanian, Bank of America.





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 Karen Kostanian,  Bank of America - Analyst   [2]
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 Just a couple of questions. The first question is thanks for providing the status on the percentage completion on Yamal LNG. I was wondering if you could also disclose whether you are guys on budget at this stage, how much money was spent on the project at this stage and are there potential cost savings from the initially announced $28 billion that was going to be spent on the project? And second question, thanks for an update on the potential growth opportunities. Do we understand correctly that now you're going to be focusing more on liquids and LNG growth opportunities, and with your current partners and potential LNG [glut] hitting the market until 2020, do those growth opportunities in LNG find support within your international partner base? Thanks.



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 Mark Gyetvay,  NOVATEK OAO - Deputy Chairman & CFO   [3]
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 To answer your first question, yes, we are on schedule and we are on budget. And I don't believe we'll see any changes at this point in time to the budget, so we keep it at the $27 billion. Currently, we invested approximately $19 billion, it's broken up between shareholders invested about $13.1 billion and external financing about $6.5 billion.

 In your other part of the question, yes, I believe we are seeing support for further LNG developments, so I don't believe it's a question of not having partner support at this particular time. I think it from our perspective is just getting the initial feasibility work done and then continue our discussions with partners. I believe so far we've had reasonably strong interests on subsequent projects coming out, so I think it's just best to wait until we make some announcements. And I think that I answered fully your question. I think if you want to know about are we focusing more on liquids and LNG and I would say that traditionally our business has always been focused on wet gas and then in the future I think we will be focusing more on LNG developments.



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Operator   [4]
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 Ildar Davletshin, Rencap.





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 Ildar Davletshin,  Renaissance Capital - Analyst   [5]
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 And one question I have is on the dividend distribution. I mean, they have historically been around 30%. Do you anticipate any change in the near term? That's my main question. Thank you.



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 Mark Gyetvay,  NOVATEK OAO - Deputy Chairman & CFO   [6]
------------------------------
 No, I don't think we are going to -- we haven't made any changes to the dividend. We have a dividend policy that basically says we are going to pay out 30% of adjusted IFRS net income and that adjustment usually takes into consideration the one-off or non-cash items, so that we feel that our investors are not harmed either way by a positive or negative movements. So, no, there are no changes in our dividend policy as of tonight.



------------------------------
 Ildar Davletshin,  Renaissance Capital - Analyst   [7]
------------------------------
 And just the second question on the potential auction for the, I think, Urengoyskoye field, which was mentioned in the press several times, it was supposed to take place this year. I think NOVATEK was mentioned as an interested party. Do you have any comment on that? I mean at least do you expect this auction to take place this year, or is it going to be postponed, any color would be great? Thank you.



------------------------------
 Mark Gyetvay,  NOVATEK OAO - Deputy Chairman & CFO   [8]
------------------------------
 I think at this point in time, I don't have any additional comments right now. And usually we'll assess these opportunities and if we participate in and when the auction, we'll let you know, but I don't have any answer right now to give you.



------------------------------
Operator   [9]
------------------------------
 Igor Kuzmin, Morgan Stanley.



------------------------------
 Igor Kuzmin,  Morgan Stanley - Analyst   [10]
------------------------------
 I like to just to clarify something, so if I understand correctly with potentially the funding for Yamal LNG now, not any more sort of a question mark and that's been resolved successfully. And with the attention shifting to the upstream operations, the key subsidiaries and JVs, I was wondering if that implies that the investment allocations for the 2017, 2018 might be increasing. And if so, then what sort of CapEx commitments shall I be thinking about for this year as compared to, let's say, 2016, which you mentioned potentially might be in the range of [$28 billion] on a realized basis? Thank you.



------------------------------
 Mark Gyetvay,  NOVATEK OAO - Deputy Chairman & CFO   [11]
------------------------------
 I mean, this is a troubling question for me in a lot of ways, because the only way to maintain growth is to invest capital. And we get this kind of conflicting messages from both the analytic community and investors about increasing or what are our plans to increase capital and in the same time they want dividend payouts, et cetera. And they're complaining about that some of the fields are in various declines. I mean, we've focused the principal amount of our operations over the last couple of years has essentially been funding Yamal LNG, as well as bringing the liquids on stream and we have done that. So I think we've done a really good job in managing our capital expenditure program to grow our short, mid-term strategy. And now we are towards the beginning of the end for the long-term strategy. So I think it's a little premature at this point to give you specific guidance as we talk about 2018 and beyond, but I believe that the plan right now, subject to the budgeting process being finalized, which you see, it will be towards the end of November beginning of December and then its approval by the management board and Board of Directors. I am being told that it looks like it's going to be less than we already expended in 2016, and the number ranges, like I gave you, between RUB20 million to RUB28 million to RUB30 million. So I would just wait at this point right now to let us finalize this process and then we will come out with the number that we expect to happen towards the end of the year for the next year. But when we give the update on the strategy, because these things are still -- a lot of moving parts that ultimately may change the amount of capital that we spend, given whether or not we are successful with some of the things we're looking at today. So I think it's a little premature and that's really the reason why I think it's hard for us to come out with the strategy within this -- I assume, before the end of this year, because of those reasons. But we will get those numbers to you in the near term, but I think we just need to come to some clarity on some of these moving parts right now.



------------------------------
 Igor Kuzmin,  Morgan Stanley - Analyst   [12]
------------------------------
 Can I just confirm that the new strategy -- a little bit more color on what kind of direction might be followed going forward? Into the public you might release this, you say end of November, early December or it's more of an internal sort of target. If so, then when potentially it might become public? And did you say your first hunch is that potentially in the next couple of years the realized CapEx might be the low [2016] levels or did I misunderstand you?



------------------------------
 Mark Gyetvay,  NOVATEK OAO - Deputy Chairman & CFO   [13]
------------------------------
 No, what I am saying Igor is that right now we don't have the date for this strategy. We are working -- I can assure everybody tonight, we are working diligently on preparing a strategy for the next update, but there is many parts that are moving right now. And we're looking and assessing certain things that are not complete as we speak today. And I think this is an important step that needs to be done for us to be able to provide the investors, as well as the analysts some roadmap of where we look forward in the next couple of years. So that's the reason why the strategy is not complete as we speak today. It doesn't mean that we're going to -- November-December going to give you an update. We are going to do it internal, but when we finish we'll make that announcement out to the marketplace.

 What I said on the capital expenditure program and all get this clear. Right now it's preliminary. I'm just trying to provide you folks tonight with some kind of direction, because people are asking does it increase and decrease. So right now, as of tonight's conference call, we are looking at about RUB27 billion to RUB30 billion for 2017 capital expenditure program, which is less then what we spent in 2016. That's really all I can say at this point. It needs to be approved by the budgeting process and the Board of Directors and when that is done, I will announce the final number. But right now it appears to be less than what we've spent in 2016.



------------------------------
Operator   [14]
------------------------------
 Alexander Kornilov, Alton.



------------------------------
 Alexander Kornilov,  Alton - Analyst   [15]
------------------------------
 I have a couple of questions, if I may. First of all, I remember that last year you received around RUB2 billion of dividends from your JVs, but this year we didn't see a number yet. Does it mean that you do not expect any dividends from your JVs for this year, i.e., for the fourth quarter of this year, and if you could share with us some sort of opinion or outlook on what you expect next year, would be great? And my second question is related to the MET for tax -- mineral extraction tax for -- I'll stay on gas condensate. We have seen yesterday in the media and press that the government is seriously discussing the application of zero MET for the condensate volumes that are earmarked for NGL production, natural gas liquids. Could you please share with us your opinion on that and if you could quantify the impact for NOVATEK that would be also great?



------------------------------
 Mark Gyetvay,  NOVATEK OAO - Deputy Chairman & CFO   [16]
------------------------------
 In terms of dividends, we don't expect any dividends coming through the remainder of this year from our joint ventures. So, I think that's -- already if we look at through the first nine months and to the fourth quarter, there is no dividends coming out in the fourth quarter for our joint ventures. It picks up again in 2017 onward. And as time goes on, it obviously increases. But for 2016, we are not forecasting any dividends from our joint ventures.

 In terms of your other question, I mean, obviously, this is brand new information. So as you rightly said, it just came out yesterday, but we all know that Prime Minister, Dmitry Medvedev signed a task to (inaudible) Ministry of Energy, Ministry of Natural Resources, Ministry of Economic Development, as well as the Regulator to consider zero MET tax rate for unstable gas condensate, which is essentially the raw material for the LPGs or natural gas liquids. The idea is --- I think the general idea and the discussions is that NGLs from the associated gas is not taxed, okay? And so, we are open to position is whether or not we can get this exemption, based on NGLs being produced from the gas condensate. So it's kind of premature to give any expectations as this issue is now being considered by the relevant authorities. But we hope to see -- we hope that this issue will resolve positively for us, but right now I think it's obviously premature.



------------------------------
 Alexander Kornilov,  Alton - Analyst   [17]
------------------------------
 May I ask you one more question, could you please quantify the share of your gas condensate sales that is earmarked for NGL production that would give us some help?



------------------------------
 Mark Gyetvay,  NOVATEK OAO - Deputy Chairman & CFO   [18]
------------------------------
 Gas condensate sales, -- let me just see if I understand your question just downright. Are you asking me what is the expected volume of NGLs from our gas condensate being processed that we are trying to achieve?



------------------------------
 Alexander Kornilov,  Alton - Analyst   [19]
------------------------------
 No. My question is actually what kind of percentage of your gas condensate sales is earmarked for NGL production? I am just trying to understand what kind of impact on your earnings could be if in case if the government decides to introduce the zero MET tax.



------------------------------
 Mark Gyetvay,  NOVATEK OAO - Deputy Chairman & CFO   [20]
------------------------------
 I would say preliminary -- again this is very preliminary, subject to this question on the tax rate, it could be about 20%.



------------------------------
Operator   [21]
------------------------------
 (Operator Instructions) Evgeny Stroinov, Renaissance Capital.



------------------------------
 Evgeny Stroinov,  Renaissance Capital - Analyst   [22]
------------------------------
 My question is regarding the contribution you made to the capital of Yamal development, about RUB15 billion, and as a result of a couple of transactions your interest in (inaudible) decreased to 53.3%. As I understand, you're currently planning to decrease this share to 50% and my question is, when you expect this to happen? And a second question. Will this decrease require any additional contributions to the capital of Yamal development? Thank you.



------------------------------
 Mark Gyetvay,  NOVATEK OAO - Deputy Chairman & CFO   [23]
------------------------------
 On your question on the contributions, I mean, we did make a contribution to Yamal, based on the contractual commitment of the sale, so we did that right. But now you're talking about the parity, I guess -- you're really concerned about the parity in SeverEnergia and we believe -- and we stated in our financials -- I don't think we have a definitive date, but we will eventually get down to 50 parity basis sometime in the foreseeable future. And I think that is the only thing we really can say at this point right now. I don't have a specific -- I'm looking at my team over here and none of them are giving me any kind of specific deadlines, so I think this is an ongoing process and we just need to wait till we finish it, okay?



------------------------------
Operator   [24]
------------------------------


 (inaudible)



------------------------------
Unidentified Participant   [25]
------------------------------
 Congratulations on the results and thank you for the opportunity to ask the question. Mr. Mickelson in his recent interview mentioned your plans for further gas processing or (inaudible) and then journalists tried to guess whether it would be LPG or ethanol and on its possible export routes. So I wonder whether you can maybe shed some light on the issue and provide us some more details.



------------------------------
 Mark Gyetvay,  NOVATEK OAO - Deputy Chairman & CFO   [26]
------------------------------
 I wish I could do that, but unfortunately we're just now in the process of assessing additional opportunities for further monetization of the different streams in our gas -- gas condensate production. So I think it's -- again it's a little too premature. As Mr. Michelson just mentioned that the other day we're assessing these opportunities. So I would just -- again this is a question -- please bear with us on this point, we'll update you in the future once we have some definitive plans. But, yes, that is our intent to look at this particular further margin enhancements in our operations.





------------------------------
Operator   [27]
------------------------------
 Olga Danilenko, Prosperity.



------------------------------
 Olga Danilenko,  Prosperity - Analyst   [28]
------------------------------
 I have two questions. The first one is, can I possibly follow up on this zero MET for gas condensate. My understanding was that all of your gas condensate is being processed and part of the product mix is exactly the NGLs. So the question is whether this zero MET is proposed to be for all of gas condensate processing or only for the share of gas condensate, which are exactly the NGLs? And my second question is on what is your expectation on the gas price increases through end of this year? Shall we expect some and maybe if you can detail, it will be much appreciated?



------------------------------
 Mark Gyetvay,  NOVATEK OAO - Deputy Chairman & CFO   [29]
------------------------------
 I think you're right on the question, it's only for the share. So it's not for total. So I think that will answer that first question pretty straightforward. Our position -- let's take our position. Mr. Mikhelson addressed this in his interview the other day with Kommersant again. He basically said we were expecting something in September, but now he doubts it. So I guess we don't really have a definitive position, but our -- in terms of timing that is. But our position as a whole has been, we want to look at this thing between the need to address gas tariffs, as well as the transportation tariffs and we have been working closely. I mean this is one thing we've working groups that have been working with the regulators to take these into considerations. We don't think there is going to be a tariff increase this year, but it may occur again starting on the January 1, 2017. Go back to that period, because I don't know if you remember, we had the period from January to January and then subsequently they changed it to July to July. And so, we're thinking that they may go back to this January. But we will hope at a minimum it grows in line with CPI inflation. So I mean that's really the best we can really say at this particular point in time. We are working with them on these discussions. Our voices are heard, but I think we want to take it -- we want to take this discussion, not just only on gas tariffs, but also the transportation question too.





------------------------------
Operator   [30]
------------------------------
 Pavel Kushnir, Deutsche Bank.





------------------------------
 Pavel Kushnir,  Deutsche Bank - Analyst   [31]
------------------------------
 Mark, I have questions about your production and dividends. I'd appreciate that NOVATEK has projects, which may potentially offset products declines at your traditional fields. But clearly we don't have any details, at least not enough details to make our conclusions. We'd understand that next year and maybe in 2018 production will be flat to slightly lower, excluding Yamal LNG. Maybe you can provide production growth or decline outlook for all your proprietary [additions] towards the end of this decade. Maybe you can say whether we should expect resumption of growth and at what rate, whether it's going to be 1% or 3%. And in the same respect or in the same context, you did mention that the company has not made any changes to its dividend policy, still 30% payout on adjusted basis. And still you mention that people ask for dividends, because there is an equation, maintaining growth means committing capital. If you maintain growth then probably investors would not expect such increasing dividends, but indicate production declines or does not increase at any substantial rate. I think that calls for dividend distribution and (inaudible) distribution will follow. So what is your view on medium-term growth after 2018 and how this may change the dividend distribution by the company, if indeed we don't see any sufficient growth in the company's volumes? Thank you.



------------------------------
 Mark Gyetvay,  NOVATEK OAO - Deputy Chairman & CFO   [32]
------------------------------
 I Pavel, I just spent about 30 minutes of this presentation tonight to try to answer your question and now you are challenging me on this point that we don't have growth. I kind of find that ridiculous that we are sitting inside the office here with our geologists, with our operations people looking at these opportunities. I specifically said and I have told people time and time again in our meetings that we are now assessing the lower formations. I just told you tonight that we drilled 135 at the West Yurkharovskoye license area, which is specifically targeting the Jurassic level and that that level will not be confirmed until we complete the testing in the well in the first half of 2017. So now you are asking me to give you forecast et cetera, which I don't have that information and that's what we are trying to do. So we're absolutely confident that we are not ex-growth. We are actually confident that we have an asset base, projects to work on et cetera that will continue delivering growth. So I'm sorry to say, you're just going to have to wait until we get this information finalized and then we'll publically tell everybody. But we're doing testing, I just gave you a series of examples. I gave you examples of testing the Valanginian layer at the Samburgskoye. I told you about well 83 at our [Urengoyskoye] field. I mean these are all things that are coming on stream in the next couple of years and we have to invest capital. So, yes, dividend policy will not change at this point in time. We will be making additional capital contributions to further growing our output. We believe that gas market will stay reasonably stable. We are looking to maintain our level of market share. So that's what I think you need to understand. We are not going to make investments into projects and deliver production growth that we cannot sell. So we're going to maintain a certain level of production profile on the Russian domestic market. We have the projects to do that and that was a point of tonight. We are now looking at expanding our capabilities of the LNG. You know, as well as I know and as well as I've told other investors many, many times before, we have the Gydan fields. We're at advanced stages of exploration at the (inaudible) field. We are studying opportunities now on how best to monetize those fields in the LNG world. Again, Mr. Mikhelson was asked this question by Kommersant. He was asked about what we're doing in terms of his LNG process, and he explained. No, I'm going to tell you anything different, than he just told two days ago. We are looking at these particular areas. We feel that we have good opportunity. We feel that we spent a lot of time and effort with Yamal LNG, building out all this infrastructure. We put down about 35,000 piles, that was an excessive amount of infrastructure work. Now we've been assessing from the lessons that we learned from our project Yamal LNG to move forward with Gydan. These are not done yet. These assessments need to be completed. Once they are completed, we'll go out to the market. So I'm not going to tell you what specific decline rates are happening on this field. All I said to everybody before is that we have the capabilities to arrest all the declines and that's what we will do.



------------------------------
Operator   [33]
------------------------------
 Artem Konchin, Otkritie Capital.



------------------------------
 Artem Konchin,  Otkritie Capital - Analyst   [34]
------------------------------
 It's actually about your EBITDA margin methodology. I'm noticing that you report the margin including your portion of the JVs and my question is whether this is an appropriate approach to this metric, which is actually an indicator of business' profitability, right, because you don't really include the revenues from JVs and it appears that your profitability is actually expanding. So, for example, when Yamal starts operating, suddenly you get this huge EBITDA contribution, what your margin is going to look like. So really if you could clarify the underlying margin dynamics for the core business that will be great. Thank you.



------------------------------
 Mark Gyetvay,  NOVATEK OAO - Deputy Chairman & CFO   [35]
------------------------------
 We have made a decision, based on request that we received by many investors and analysts alike to show us what the contributions from our joint ventures are to our numbers. Only one joint venture that we have, which is the [RBA] joint venture that we consolidate. I am fielding questions on people asking for more details about the joint venture operations, which we are presently assessing to provide to the marketplace. We do provide a level of disclosure on our annual reports that we don't include in the quarterlies. So we are going to assess whether or not we think it makes sense to include that portion, but I don't believe that -- we show in our MD&A, we show share of profits from operations, share of income expenses from the operations and any tax benefits. So we're trying to balance out what best we can provide from the joint venture operations. And now I am going to (inaudible) that it sounds like you don't want us to include that in there (multiple speakers).



------------------------------
 Artem Konchin,  Otkritie Capital - Analyst   [36]
------------------------------
 No, Mark, it's more than appreciated that you are giving us a chance to look at your core EBITDA versus JV EBITDA, it's totally useful and it's not what I'm really pointing to. I'm just saying that you calculate your margin based on your core margin plus your JV margin, but you don't show the revenue part of that JV contribution. It inflates the number. It's not really that you're at fault or anything.



------------------------------
 Mark Gyetvay,  NOVATEK OAO - Deputy Chairman & CFO   [37]
------------------------------
 I understand, but I don't think our margins are deviating dramatically. But if you want to see a number in a margin without the joint ventures, we will provide that. We will provide number.



------------------------------
 Artem Konchin,  Otkritie Capital - Analyst   [38]
------------------------------
 We can really calculate it ourselves. I'm just making a small note that consider yourself three years down the road, where your EBITDA (multiple speakers).



------------------------------
 Mark Gyetvay,  NOVATEK OAO - Deputy Chairman & CFO   [39]
------------------------------
 Of course I understand. I mean I can completely understand that what we're going to be doing is as time moves on, obviously the joint venture side of our business is going to be much bigger than the core operations. And then (multiple speakers) future with projects at good dynamics. This trend is going to continue,



------------------------------
 Artem Konchin,  Otkritie Capital - Analyst   [40]
------------------------------
 (Multiple speakers) over 100%.



------------------------------
 Mark Gyetvay,  NOVATEK OAO - Deputy Chairman & CFO   [41]
------------------------------
 Well, may be, but we have to come to some understanding between the need to disclose this type of information in the marketplace.



------------------------------
 Artem Konchin,  Otkritie Capital - Analyst   [42]
------------------------------
 Maybe normalized EBITDA margin could actually include normalized revenue versus normalized EBITDA ratio, rather than just your core revenue versus --



------------------------------
 Mark Gyetvay,  NOVATEK OAO - Deputy Chairman & CFO   [43]
------------------------------
 Yeah. I understand your point. I mean and I appreciate your point. It's a valid one.



------------------------------
Operator   [44]
------------------------------
 ldar Khaziev, HSBC.



------------------------------
 ldar Khaziev,  HSBC - Analyst   [45]
------------------------------
 One question about Gydan LNG. In his interview Mr. Mikhelson mentioned that NOVATEK is considering use of a different approach to installation of equipment. He mentioned the ground-based platform I think and he said this would allow to cut on delivery cost, logistics and CapEx. I was just wondering if apart from CapEx there are some differences also on the operational side if I compare this to your mark. Thanks.



------------------------------
 Mark Gyetvay,  NOVATEK OAO - Deputy Chairman & CFO   [46]
------------------------------
 I mean it's a completely different process, it's a gravity based structure. It's going to be completely different and I think we need to wait. I think it's best to wait till we get the -- we have a series of engineering firms that are working with us right now, coming up with the feasibility and we just need to finalize that. But I can tell you conceptually, it's a lot different than what we achieved at the Yamal project. So I think it's basically too early on that. To be honest, that's why really can't go too much into Gydan tonight, because there's really nothing to report than what we've already discussed about in terms of the drilling and exploration work that we've done on (inaudible) field. But just, if we want to just say what we're doing, let's just say our plans for Gydan is we're going to continue, like I said, of doing the exploration at (inaudible) fields. I mean that's ongoing. In this presentation I did tonight, we started with the 3D seismic at the North-Urengoyskoye license area. So what we need to do is obviously collect and finalize the resource base, because from that perspective then it determines how the size of the LNG complexes that we can consider and it's clearly tied into the resource base. We're talking to partners as I mentioned, and then I think the most important element of this whole process is that we have gained enormous working experience from Yamal LNG. And I think that alone is going to be able to help us reassess how we're going to consider looking out to Gydan LNG projects. So again, I just want to say that outside of the work we're doing in terms of determining the resource base of these particular fields, I think it's best to wait -- let us complete this exercise with the engineering firms and then we'll provide much more data on this particular one, on this particular plan, where we did the strategy update, because obviously this is the next big LNG complex that we're looking at.



------------------------------
Operator   [47]
------------------------------
 (Operator Instructions) We have no further questions at this time, sir. I'll turn back over to you for any closing remarks. Thank you.



------------------------------
 Mark Gyetvay,  NOVATEK OAO - Deputy Chairman & CFO   [48]
------------------------------
 Again, thank you very much for attending tonight's call and we look forward to seeing investors on the upcoming investor trips we've coming up for London and New York and I believe also one in Boston. So we look forward to seeing you in the future and thank you again for attending tonight's call.



------------------------------
Operator   [49]
------------------------------
 That will conclude today's conference call. Thank you for your participation. Ladies and gentlemen, you may now disconnect.






------------------------------
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