Q3 & 9M 2016 NK Lukoil PAO Earnings Call (IFRS)

LKOH.MZ - NK Lukoil PAO
Q3 & 9M 2016 NK Lukoil PAO Earnings Call (IFRS)
Nov 30, 2016 / 01:00PM GMT 

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Corporate Participants
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   *  Aleksandr Matytsyn
      NK Lukoil PAO - SVP for Finance
   *  Pavel Zhdanov
      NK Lukoil PAO - Director of Capital Markets, M&A
   *  Alexander Palivoda
      NK Lukoil PAO - Head of IR

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Conference Call Participants
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   *  Karen Kostanian
      Bank of America - Analyst

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Presentation
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 Alexander Palivoda,  NK Lukoil PAO - Head of IR   [1]
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 Good afternoon, ladies and gentlemen, and welcome to Lukoil's Third Quarter and Nine Months 2016 Financial Results Webcast and Conference Call. I would like to thank everyone for joining us today. On today's results discussion, we have our Senior Vice President for Finance Mr. Aleksandr Matytsyn; Head of Capital Markets & M&A, Mr. Pavel Zhdanov; as well as our colleagues from the accounting team, Mr. Igor Kozyrev and Mr. Sergei Epifanov.

 I would like to start today's call with introducing a new member of our Investor Relations team, (inaudible) who have recently joined us as Deputy Head of IR and we are very pleased with this new appointment as (inaudible) has solid Investor Relations experience and we expect her to contribute to our joint effort in making Lukoil more transparent for the investment community.

 As we are on the way to improve our disclosure, since the date of the release of our second quarter results, we've issued operational update press release for the third quarter and nine months of 2016; added further disclosure detail to our management's report; and posted online an excel data book with all the financial and operational data from all financial statements and management report. We plan to proceed with enhancing our disclosure in the future.

 The plan for today's call is as follows; Aleksandr Matytsyn will start the presentation with a general overview of our results. Then together with Pavel Zhdanov, will discuss our operational and financial performance in more detail, which will be followed by Q&A session. I kindly remind you that you have two options for asking a question, either by phone or using our webcast Q&A interface.

 As a routine procedure, I need to draw your attention to our cautionary statement. During today's presentation and Q&A session, we may make some statements regarding future of the Company, so called forward-looking statements. Actual results and outcomes could differ materially from such statements due to the factors listed on the second slide of our presentation. Please refer to our Annual Report and Stock Exchange filings for more detail. These documents are available on our website.

 Thank you, and now, I would like to pass over to Aleksandr Matytsyn.



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 Aleksandr Matytsyn,  NK Lukoil PAO - SVP for Finance   [2]
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 Thank you, Alexander. I will start with brief macro update. Over the last two quarters, the oil price was less volatile than before in which the average price of Brent remained practically flat quarter-on-quarter. However, profitability of the Russian upstream business deteriorated due to a 14% decrease in the after-tax price [both] in ruble terms, which was primarily driven by the export duty time lag effect.

 The macro environment for our domestic refining business improved substantially with benchmark refining margin returning back to the green zone. This was mainly due to significantly lower crude oil export netback and slightly higher wholesale product prices in Russia.

 We continued outperforming our Russian peers in terms of refining margins, due to higher refining debt and lower share of bad products, which is a result of our recently completed refinery upgrade program. The benchmark European refining margin was affected by a lower gasoline and diesel crack spreads due to higher supply volumes and stagnating demand. The financial results of our European refiners were also weaker quarter-on-quarter, due to a positive inventory effect in the second quarter as well as higher spreads for fuel oil, which we are using as a feedstock at some of our refineries.

 Our hydrocarbon production remained practically unchanged quarter-on-quarter. However, the third quarter was transformational for our future production dynamics for the two reasons. Firstly, pilot production started at our flagship project offshore Filanovsky and onshore Pyakyakhinskoe fields. These projects changed the dynamics of our liquids production profile, while the higher margin nature of the barrels produced at these fields will contribute substantially to our financial results.

 Secondly, during the third quarter of 2016, we have achieved deceleration in oil production decline rates at our Brownfields in West Siberia, which was driven by higher drilling activity in the region. The Board of Directors has recently approved our mid-term business plan that envisages a further ramp-up in drilling volumes in West Siberia and we consider this as a greater investment opportunity.

 Our EBITDA declined by 12% quarter-on-quarter, due to a weaker upstream margins, which was partially offset by stronger refining margins in Russia. As a result, our bottom line declined by 12%. In dollar terms, the decline was less pronounced due to a stronger ruble. Our vertically integrated business model proved its efficiency again, as we achieved better dynamics of our financial results relative to our less integrated peers.

 Strict financial discipline allowed us to keep our capital expenditure flat quarter-on-quarter and 15% lower year-on-year. The combination of lower CapEx and higher operation cash flow resulted in industry-leading free cash flow generation. In the first nine months of 2016, we recorded almost RUB200 billion of free cash flow, including more than RUB100 billion in the third quarter. We continue to deliver on our core investment projects to increase our production and improve our financial results. These will further expand the base for dividend distribution and assures long-term sustainability of our new progressive dividend policy.

 With that, I would like to pass the floor to Pavel.

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 Pavel Zhdanov,  NK Lukoil PAO - Director of Capital Markets, M&A   [3]
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 Thank you. Good afternoon, ladies and gentlemen. I'm going to elaborate on our operating performance in the upstream segments in the past quarter and nine months. Dynamics of our total hydrocarbon production was impacted by two main factors; West Qurna project in Iraq and our Brownfields in West Siberia.

 In Iraq, we continued to stay in maintenance production nodes with total output of approximately 400,000 barrels per day in the third quarter. During the quarter, our overall spending on this project, including capital expenditures and operating expenses was around $150 million. The volume of compensation to [crude oil] booked that represents our share in the overall production of the field remain practically unchanged quarter-on-quarter, as it now reflects our current quarterly expenditures and remuneration fee only. This volume is three times lower year-on-year, because last year numbers included compensation of a substantial amount of past CapEx.

 In the third quarter, we received almost 18 million barrels of compensation crude oil worth around $700 million. This exceeds our share in the project's production volume and our expenditures for the quarter due to physical shipments lagging approval of invoices by the Iraqi government. In other words, in the past quarter, we continued receiving crude oil on the invoices approved in the previous period.

 As a result, we reduced our exposure in Iraq by further $547 million to approximately $400 million. We expect this exposure to remain at approximately this level, maybe slightly less in the future, as it represents the amount of CapEx and OpEx for a period of approximately two recurring quarters. This means that the project's impact on our future financial results including cash flows will most probably correlate with our current quarterly expenditures and remuneration fee, unless we start expanding production in [another] fields.

 As for our core West Siberian Brownfields, we continued ramping up drilling volumes in the region to decelerate crude oil production decline rates. In the third quarter, the number of meters drilled increased by 1.5 times year-on-year, and we are planning to keep these increased rates through the year-end. Our efforts are already paying off as the year-on-year declines at the Brownfields decelerated from practically 9% in the second quarter to approximately 7% today.

 Our mid-term plan envisages deceleration of decline rates at our West Siberian Brownfields to less than 2%. To achieve that, we are planning to increase our drilling volumes in West Siberia by approximately 10% year-on-year, with further growth in 2018 and 2019. We will also be implementing an increased number of enhanced oil recovery operations at our existing well stock.

 It is worth mentioning that the historical volatility in drilling volumes at our Brownfields was driven by investment budget optimization due to conservative business planning approach in the volatile oil price environments. So growth in drilling volumes is a great reinvestment opportunity for us as we have enough well reserves, drilling slots and available service capacity to implement our plan in an economically feasible way and achieve attractive rate of return on this incremental investments.

 Our liquids production trend in Russia has already reversed from decline to growth, driven by a combination of more intense drilling at our Brownfields and launches of our two major flagship Greenfield projects; Filanovsky field in the Caspian Sea and Pyakyakhinskoye field in West Siberia. In addition to enhanced production dynamics, these new fields will contribute substantially to our EBITDA and cash flow generation, as these new barrels are characterized by much higher margins due to high quality reserve base and tax concessions.

 The Filanovsky field in the Caspian Sea was officially launched at the end of October. Currently, three production wells are in operation at the field with impressive total flow rate of approximately 17,000 barrels of oil per day, which already represents more than half of the planned plateau level. As we collect additional data and build-up drilling expertise, we are steadily increasing the drilling efficiency of the field. A third well was drilled at 14% higher drilling speeds compared to the first one. Drilling and initial production results confirm geology and our plans to produce 120,000 barrels of oil from Filanovsky field at the plateau.

 The field is a multi-stage developments involving construction of additional platforms in order to fully drill the reservoir, which guarantees long duration of the production plateau. We are progressing well with the construction works under the second phase of field three developments and are planning to finalize the second production platform by the end of 2017/beginning of 2018. And then proceed with drilling from this new location, which will enable us to achieve sustainable production plateau.

 So far, we have invested approximately RUB150 billion into the field development, transportation, infrastructure and integration with our petrochemical and power generation facilities at Stavrolen. Our efforts and investments into this integrated chain and transportation infrastructure pay off in the form of incremental margins as well as synergies for our existing Korchagin project and our new future projects in the Caspian.

 We are already using the Filanovsky infrastructure to supply Korchagin crude oil into the Caspian Pipeline System which enables us to benefit from higher netbacks compared to the previous transportation arrangements. We've also started to supply gas produced at Korchagin field to our Stavrolen plant.

 I would like to draw attention to the higher margin nature of the Filanovsky fields, which is due to combination of special tax regime and several other factors. First, highly prolific flow rates result in lower than average lifting costs, which is equally beneficial for the economics of the fields and future dynamics of the weighted average lifting cost of Lukoil.

 Second, production from the field is supplied to exports via the CPC system where the average tariff is lower compared to the pipeline transportation cost from West Siberia to Europe. Third, crude oil produced at Filanovsky field is a light-sweet grade and CPC system has a quality bank, which enables us to sell our crude oil at a premium to euros, according to its original quality. We expect the field to contribute substantially to our financial results in 2017 and beyond.

 Moving to our Pyakyakhinskoye field, which was officially launched at the end of October, the field launch was a subject to commissioning of Zapolyarye-Purpe trunk pipeline system by Transneft. So we had enough time to drill more than hundred oil and gas wells. This front-loaded drilling enabled us to rapidly ramp-up production at the field. Today, we have 43 oil wells in production with a total flow rate of 22,000 barrels per day, as well as 12 injectors for pressure maintenance.

 Our plan for 2017 is to produce 30,000 barrels per day on average. We also plan to launch gas production in the field at the beginning of 2017 to produce around 3 bcm of gas during the year. All necessary gas infrastructure has already been installed, which will enable us to utilize more than 95% of associated petroleum gas and also treat the natural gas with further injection into the trunk pipeline system.

 At the Pyakyakhinskoye field, we are applying new advanced drilling techniques, including multi bore wells, which enable us to achieve higher flow rates, better economics and eliminate existing geological risks. This new expertise and technology is a promising solution for enhancing our results at other fields in our portfolio. The Pyakyakhinskoye field is subject to mineral extraction tax concession and also benefits from lower-than-average lifting costs due to higher flow rates. That makes the field more cash generative on a per-well basis compared to our West Siberian Brownfields.

 We continued to ramp-up production of the Imilorskoye fields in West Siberia, where we drilled 31 production wells during nine months of 2016 and achieved 38% production growth year-on-year. We are testing new completion techniques in the field to achieve higher productivity of the wells and further enhance efficiency.

 We also demonstrated oil production growth in Timan-Pechora driven by development of the Yaregskoye fields and fields of the Denisovskaya Depression. At the Yaregskoye field, we launched 10 new production wells, 48 steam injectors and three steam generating units during nine months of 2016. We are now actively working on implementing the second stage of the field developments, which will enable us to continue increasing production at this higher margin project with plateau level of more than 3.5 million tons per year, which is five times higher than last year's production.

 We also continued increasing gas production in Uzbekistan on the back of infrastructure launched in 2015 as part of the GISSAR projects. We're also finalizing construction works at Stage 2 of the GISSAR project, which will enable us to further increase our production volumes in 2017.

 Our Kandym project in Uzbekistan is also progressing quite rapidly, even ahead of schedule. We started active construction works on the Kandym gas processing complex in the first quarter of 2016, and we currently have most of the equipment already on site and construction work's progress is in the range of 40%. So, we confidently move towards completion of the first train of the complex in 2018, which will lead to further gas production ramp-up.

 With that, I will pass over the call to Aleksandr.



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 Aleksandr Matytsyn,  NK Lukoil PAO - SVP for Finance   [4]
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 Thank you, Pavel. I'll continue with our downstream operations. As refining margins in Russia recovered in the third quarter of 2016, profitability of crude oil supplies to our refineries increased substantially. As a result, we maximized all throughput volumes and they increased by 12% quarter-on-quarter. We would like to reiterate again that strong refining margins that we achieve in Russia are primarily the result of timely launch of new conversion facilities in the last 18 months, which enables to significantly improve our product slate by reducing output of bad products. This is one of Lukoil's key competitive advantages today and in the longer run.

 Throughout our integrated chain, we have witnessed lower retail margins at our fueling stations in Russia, as retail prices will lag in wholesale markets. However, this was compensated by seasonally higher sales volumes, which increased by 15% quarter-on-quarter.

 Throughput volumes at our Nizhny Novgorod and Ukhta refineries increased quarter-on-quarter, mainly due to scheduled maintenance works in the second quarter of 2016. In the third quarter, we have maintenance works at the delayed coking facility of our Perm refinery, which resulted in lower throughput volumes at this refinery, as well as quarter-on-quarter decrease in refining depth and light product yields at the refinery and on average for our Russian refining business.

 Despite these effects, we were able to improve our product slate with refining depths growing by more than 3 percentage points to more than 85% year-on-year. As we've launched a number of new facilities in the last 18 months, and it takes time to achieve optimal operating mode at such facilities, we expect further enhancement of our product basket in 2017.

 I would like to stress again that in the second quarter of 2016, unlike many of our Russian peers, we generally completed the major upgrade program at our Russian refineries. Lukoil refining segment today is one of the most advanced in Russia and it demonstrate a significant reduction in capital expenditures in this segment over the last two quarters, and this transformed this business into a major contributor to our free cash flow generation.

 Throughput volumes at our European refineries decreased by 8% quarter-on-quarter, which was driven by a combination of factors, including maintenance works at the Zeeland refinery and lower fuel oil throughput at ISAB and Zeeland due to higher spreads of fuel oil which we're using as feedstock at these two refineries and mainly sourcing these feedstock from third-party suppliers.

 Reduction in fuel oil throughput resulted in enhanced output structure at these plants. It is also worth mentioning, our Burgas refinery that enhanced its refining depths substantially, following the launch of the hydrocracking complex in May, 2015.

 Now, moving to our marketing business; in the environment of weak domestic market for motor fuel, we managed to increase our retail sales by 3% year-on-year, which is a result of our active marketing and advertising campaign, as well as, an active loyalty program. The increase in sales volumes enabled us to offset, to some extent, lower retail margins in Russia, which was due to retail prices lag in the wholesale market.

 Our international retail sales volumes decreased by 12% year-on-year due to divestment of our retail stations in the Baltic countries and Poland as part of our strategy for enhancing the level of integration of our retail channels with our refineries. Despite lower sales volumes, our financial results in the international retail was supported by higher retail margins.

 We continued expanding some of our priority sales channels. For example, sales volumes of our premium EKTO branded fuel in Russia increased by 37% year-on-year and sales of our premium motor oils posted a growth rate of approximately 24%. Non-fuel sales at our retail stations continued growing rapidly in Russia and abroad with the revenue increasing by approximately 20% and 10% year-on-year respectively.

 We have also increased bunker fuel sales, thanks to expanding our market share on the Baltic and Black Seas and launching new products following completion of upgrades at our refineries. In addition, we significantly raised jet fuel sales volumes in the airports of Bulgaria and began airplane refueling in two new locations in Russia.

 We continued demonstrating sustainable positive results from our international trading operations. Due to relatively low hydrocarbon price volatility over the last six months, we posted a negative hedging result of only RUB3 billion during the third quarter of 2016 and this was fully offset by gains from change in prices for physical supplies.

 Now some additional detail on our financial performance; as oil price was relatively flat quarter-on-quarter and the average ruble-dollar exchange rate only changed by 2%, dynamics of oil sales revenues was mainly impacted by volume and mix factors. Due to better net-backs and our contractual obligations would slightly change the mix between domestic and international crude oil sales in favor of domestic volumes.

 Our refined product sales volumes on the domestic market increased by 22% quarter-on-quarter, which was mainly driven by seasonality factor and higher throughput at our refineries. The volume of refined products sold internationally decreased by 10%, primarily due to lower trading volumes as well as a decrease in fuel oil throughput at our international refineries.

 The quarter-on-quarter EBITDA dynamics was primarily impacted by the oil export duty time lag effect, and among other factors were the SG&A expenses that increased substantially in the third quarter due to the accrual of employee compensation under the share-based program in the amount of approximately RUB6 billion. The compensation under the program is directly linked to the dynamics of our share price and the share price, as you know, increased considerably during the quarter.

 Another major driver for SG&A was accrual of bad debt allowance on one of our international projects. Net of these one-off factors, our SG&A increased only slightly, well below inflation. I would like to note that due to the higher level of vertical integration of our business model, dynamics of our results in the third quarter was better than for our less integrated peers. We maintained and enhanced our leadership in Russia in terms of EBITDA per barrel of production and we expect this competitive advantage to strengthen further, as in the future we'll achieve bigger share of high margin barrels in our overall hydrocarbons production and even better product slate at our refineries.

 Now on our operating expenses; our operating expenses decreased both year-on-year and quarter-on-quarter, mainly due to shift to maintenance production phase at the West Qurna project and lower expenses at our refineries. The latter was driven by cost optimization efforts and the positive impact from refinery upgrades as we started utilizing our own additives instead of procured products. Our per barrel lifting cost in Russia increased by 11% year-on-year, which is a deceleration from the 14% year-on-year increase in the second quarter.

 Besides standard cost inflation, main drivers behind the dynamics of our lifting costs over the last quarters were increase in the share of high-cost projects with tax benefits and lower number of new well drilled at our Brownfields and this should enhance, going forward, as we are ramping up drilling volumes in West Siberia and we have just launched two large Greenfields with lower than average lifting costs.

 Below EBITDA line, the quarter-on-quarter dynamics of our profit was impacted by a combination of four factors; DD&A, profit from associates, foreign exchange effect, and income tax. Our DD&A increased by 4% quarter-on-quarter, driven by launches of new facilities, primarily in the Caspian Sea. Despite low absolute production volumes during the quarter at the Filanovsky field, the DD&A increase was substantial and this is because, for the pipeline infrastructure, which was built as part of the Filanovsky project as well as for gas treatment and petrochemical facilities at Stavrolen via [applying] straight line amortization.

 The decrease in profits from associates was due to a one-off royalty accrual at one of our international projects due to the PSA accounting specifics. So we expect this line of our P&L to get back to normal levels in the fourth quarter. Three times lower foreign exchange loss was due to lower magnitude of ruble appreciation against the dollar during the third quarter compared to the second quarter and relatively stable positive net monetary position in foreign currency.

 It's worth mentioning that foreign exchange effect had a pronounced negative impact on the dynamics of our profit for the nine months 2016. This was due to the depreciation of the ruble during the nine months 2015 that resulted in forEx gain, as opposed to ruble appreciation during the nine months 2016 that resulted in forEx loss. So the combined impact before tax was RUB145 billion which explains most of the difference in profit between the periods.

 The higher effective income tax rate in the third quarter of 2016 was the result of one-off taxes accrued at one of our international subsidiaries. Our operating cash flow was supported by working capital release, which was due to two main factors. First factor was a decrease in accounts receivable related to the West Qurna project. These receivables represent obligations of Iraq to ship crude oil according to the previously approved invoices for cost reimbursement and service fee.

 As discussed earlier, the value of actual shipments during the third quarter was significantly higher than the value of the new invoices approved, which resulted in a decrease in accounts receivable. The second factor was a decline in other product inventory, primarily within our international trading business, which is purely driven by market dynamics.

 I would like to draw your special attention and emphasize that net proceeds received from the West Qurna project are part of the overall working capital decline in the third quarter. So, please avoid double counting when you calculate our normalized free cash flow.

 Our capital expenditures remained approximately flat quarter-on-quarter, but decreased by 15% year-on-year. Structurally, we reduced spending on international upstream by 30% on the back of lower spending in Iraq and on our exploration projects. Our capital spending in the Russian upstream was relatively flat, but more focused on our Greenfields.

 Refining CapEx declined by 28% due to completion of a major refinery upgrade program and we also reduced our corporate and other spending almost by three times. A combination of higher operating cash flow and low CapEx resulted in a substantial free cash flow generation for the quarter of more than RUB100 billion.

 I would like to draw your attention to the fact that our absolute and per barrel free cash flow generation is one of the highest in the global oil and gas universe, which supports our strong financial position and our progressive dividend policy. We posted this great set of results in the environment when many of our peers are struggling with CapEx coverage by operating cash flow, raising debt, divesting assets, reducing dividends or paying out scrip dividend.

 Thank you. And I will now pass over back to Pavel.



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 Pavel Zhdanov,  NK Lukoil PAO - Director of Capital Markets, M&A   [5]
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 Thank you. A couple of words now about our financial policy and dividends; last month, as you know, we issued $1 billion of euro bonds, which was fully in line with our strategy of tapping into the market, just in time at low rates. We'll use the proceeds for general corporate purposes, primarily for refinancing some of our existing bank debt.

 For us, this was a great opportunity to optimize further our debt portfolio by increasing the share of fixed rate long-term debt. We have also secured the syndicated loan for $500 million at very attractive terms to finance construction works at our GISSAR project, which will enable us to further increase gas production volumes in Uzbekistan.

 Our strong balance sheet supports our advantageous position relative to our peers. This gives us flexibility to potentially pursue new attractive investment opportunities without compromising on our financial stability and dividend distribution policy.

 Last month, the Board of Directors formally approved our new progressive dividend policy. The same Board meeting recommended the interim dividends for 2016 of RUB75 per ordinary share which is 15% higher year-on-year, and represents approximately 2.5% yield at the current share price level.

 I would like to emphasize, once again, that progressive nature of our dividend policy, envisages annual dividend growth by at least below inflation rates. This means that the ultimate growth maybe higher than the official inflation and also provides our investors with an exposure to even higher growth in dividends in dollar terms, assuming strong correlation between oil price, the Russian inflation and ruble/dollar exchange rates.

 Our primary target is to achieve sustainable dividend growth in future. As we have proven many times in the past, our conservative financial policy and higher level of flexibility as well as a balanced portfolio ensure our stability in almost any market environment and I believe our recent results and future prospects prove that our dividends are properly covered by our cash flows.

 We believe that this, among other important factors, differentiates us from our Russian and international peers and deserves better credit from the investment community. On that note, I'd like to open the Q&A session. For those who are listening to us via conference call, please follow instructions of the operator and for those who are with us via webcast, please type your question shortly, so we have some time to process them.

 Thank you very much.



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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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 Thank you very much. Team Lukoil, congratulations on great results and (inaudible) welcome to the IR team. This is a great addition. I have two questions, first of all, in an hour, we're probably going to hear from OPEC that, OPEC is preparing to cut production and Russia is going to be joining with a cut or a freeze. I have a question and we had a good conference call with the Ministry of Energy, they said that the Russian companies are ready to implement either a cut or a freeze if this was going to be decided. Just wanted to ask you, whether you have already worked out the procedures on how to implement the cut or a freeze and from your perspective what did cut or a freeze is going like and at what level you are prepared to hold your production?

 And my second question is, for a long time, you already said that you're going to be focusing on the domestic Russian Greenfields, but yet again we do find out from news that you would potentially consider bidding for -- in the Mexican rounds for fields. Could you please comment on that as well? Thank you.



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 Pavel Zhdanov,  NK Lukoil PAO - Director of Capital Markets, M&A   [3]
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 Yes, thank you Karen. It's Pavel here. Well, first of all, the news is already out. OPEC apparently agreed to cut production by 1.2 million barrels a day, okay. This is a breaking news from Bloomberg now, I understand.

 So I guess, it's early to say how it's going to work, how it's going to look and whether and how Russia will join this. But in general, the company supports the kind of common initiative of all major oil producers to do certain steps to stabilize the oil market. So let's wait and see what the ultimate structure will look like, okay.

 Your second question regarding Mexico, I guess we have announced that Mexico is general is of potential interest. However as you know, we have not done any significant investment so far there. I guess, with what we are considering now, we are receiving proposals from the majors, which have interest in Mexico to join them on minority basis with a non-operating stake. So, I guess these are the potential opportunities that we're considering at the moment.



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Operator   [4]
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 Thank you. We currently have no further questions on the telephone lines (Operator Instruction).



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 Pavel Zhdanov,  NK Lukoil PAO - Director of Capital Markets, M&A   [5]
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 Okay. If there are no further questions and I'll say it's an unusually short Q&A session this time. But before we conclude this call, I'd like to summarize our key messages for today. First, we continue generating industry-leading free cash flow. Second, we have recently reversed our production profile from decline to growth by launching our flagship Greenfield projects and intensifying drilling at our Brownfields. Third, the structure of our production continues transformational change towards bigger share of higher margin borrows.

 Fourth, our advanced refining portfolio generates free cash flow, as we finalize major investments and benefit from above-average refining margins. And last but not the least, our estimated cash flow is a solid base for our commitment to continue increasing dividends on a sustainable basis. So we believe that Lukoil today is a unique investment proposition that deserves high evaluation.

 Thank you for listening and goodbye.




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