Q3 2017 Novatek PAO Earnings Call (IFRS)

Oct 26, 2017 AM CEST
NVTK.MZ - Novatek PAO
Q3 2017 Novatek PAO Earnings Call (IFRS)
Oct 26, 2017 / 01:00PM GMT 

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Corporate Participants
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   *  Mark Anthony Gyetvay
      PAO NOVATEK - Deputy Chairman of the Management Board, CFO and Member of Management Board

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Conference Call Participants
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   *  Henri Jerome Dieudonne Marie Patricot
      UBS Investment Bank, Research Division - Associate Director and Equity Research Analyst
   *  Pavel Kushnir
      Deutsche Bank AG, Research Division - Research Analyst
   *  Ronald Paul Smith
      Citigroup Inc, Research Division - Director and Senior Russian Oil and Gas Analyst

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Presentation
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Operator   [1]
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 Good day and welcome to the NOVATEK Q3 2017 Financial Results Conference Call. Today's conference is being recorded.

 At this time, I would like to turn the conference over to Mark Gyetvay. Please go ahead.

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 Mark Anthony Gyetvay,  PAO NOVATEK - Deputy Chairman of the Management Board, CFO and Member of Management Board   [2]
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 Thank you very much. Ladies and gentlemen, shareholders and colleagues, good evening and welcome to our third quarter and 9 months 2017 earnings conference call.

 Before we begin with the specific conference call details, I would like to refer you to our disclaimer statement as is normal practice. During the conference call, we may make reference to forward-looking statements by using words such as 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 risk and uncertainties, and reflect our views at the date of this presentation.

 We undertake no obligation to revise or publicly release the result 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 the 31st of December 2016, 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.

 Previously, I mentioned that I will let the investment community know of our planned Corporate Strategy Day on tonight's conference call. But we decided to disclose this information on a press release on the 29th of September to allow investors ample time to plan this date in your calendars.

 We will hold our Corporate Strategy Day on the 12th of December in Moscow. And we would like to, again, extend our formal invitation this evening to attend as important date. If you plan to attend this event, please RSVP as per instructions on the press release by using our dedicated e-mail address, which is strategyday2017@novatek.ru. The press release can be found on our corporate website.

 For those investors who cannot physically attend the event in Moscow, we will webcast the event live with specific dial-in instructions on the 12th of December where you can access information at your own convenience.

 Commodity prices rebounded across our product range during the third quarter 2017 contributing to positive financial results despite declines on our legacy production and lower sales volumes largely due to seasonal injections into underground storage for natural gas and tankers and transit for liquids due to weather conditions at the port loading facility as well as the timing of the loading and transit to ported destinations.

 I previously outlined our specific projects and remedial steps we will undertake to stem the production decline in our legacy assets over several conference calls. So tonight I will limit my remarks on this point and we will address this important issue in more detail at our upcoming strategy day. However, I will provide a few updates.

 Our geologists and production specialists believe we will decelerate the declines with a series of new projects and initiatives that should begin yielding positive results as early as 2018. From a geological perspective, we completed exploration drilling at well #305 located on Kharbeyskoye field and discovered 2 productive zones at the Jurassic layers, which will add both gas and gas condensate resources and allow us to increase output at the North-Russkoye cluster.

 We also drilled well #306 and #307 and reached the Jurassic layers during the respective quarter. Total resources at the Kharbeyskoye field are already assessed at 120 billion cubic meters of natural gas and 19 million tons of liquids in addition to the crude oil program we had previously identified.

 The test results look extremely positive for additional production contributions on the deeper Jurassic formation. And based on the test results and commercial flow of natural gas, gas condensate and crude oil, we have revised upward our annual production outlook for the North-Russkoye cluster to approximately 14 billion cubic meters of natural gas, 1 to 1.5 million tons of gas condensate and 4 million tons of crude oil when the cluster reaches full production plateau.

 This essentially means we will model the field's production profile to the upper range of natural gas production and add another 1.5 million tons to the annual liquids output.

 During the quarter we also received formal governmental approval for increase in ABC1+2 reserves at the Utrenneye field to approximately 1.6 trillion cubic meters of natural gas and 65 million tons of liquids excluding the potential Jurassic resources at this field. We are presently drilling well #284, discovered 2 Jurassic layers, and estimate additional Jurassic resources of approximately 320 billion cubic meters of natural gas and 33 million tons of liquids.

 The increase in size and quality of the resource base is important because the Utrenneye field is a primary feedstock for our Arctic LNG 2 project. And once again, these results confirm the enormous resource potential of the Gydan peninsula to provide long-lived, low-cost conventional natural gas to our future LNG projects. This enviable resource position is a huge competitive advantage to NOVATEK.

 We participated in 2 state auctions in late June and late August and were awarded 4 new license located in both the Yamal and Gydan peninsulas. The 4 new license significantly increased our resource potential in our primary geological zone of interest and will serve to substantially increase our LNG capabilities in the Arctic region.

 As we have stated many times already, NOVATEK's future strategic direction is focused on becoming one of the world's largest LNG producers utilizing a low-cost conventional natural gas resource base and designing and fabricating gravity based structures or GBS liquefaction platforms in the Kola Yard located in the Murmansk region to produce low-cost competitive LNG to the market. We will elaborate much more about our plans during our 12th of December Corporate Strategy Day.

 In addition to exploration drilling, we completed 3D seismic work on both the developed and undeveloped portion of the resource base in the Ob River at the Yurkharovskoye field to assess the potential Jurassic layers as well as other producing formations. It is estimated that the seismic interpretation and the preparation of a development plan will take between 12 and 18 months to complete, but the exploration work already completed on well 135 at the West-Yurkharovskoye field confirms commercial production at a lower producing depth.

 An effective exploration program is key to unlocking future development opportunities for the company. In this regard, we have increased our exploration efforts over the 9 months of 2017 by running and interpreting 1,200 square kilometers of 3D seismic at both our subsidiary companies and joint ventures representing an increase of 41% over the prior period.

 Moreover, we have also significantly increased our exploration drilling by approximately 23,000 meters, representing an increase of 133%. In the current reporting period, we were particularly active by drilling 7,500 meters or approximately 1/3 of the total activity for the year. We will fund ongoing exploration activities in an effort to move forward producing assets within our perspective portfolio of licenses.

 In respect to producing activities, we made a positive decision to drill 15 new wells in a Jurassic formation at our Yurkharovskoye field utilizing 3 well pads with potential production capacity of between 2 to 2.2 bcm by 2020. We anticipate that this new drilling program will begin yielding additional production in 2018 and offset some of the declining production at this key producing field.

 In 2018, we will drill our first well at the Nyakhartinskiy license area after completing and running and interpreting the 3D seismic. Our development plan calls for connecting this field to the primary infrastructure of the Yurkharovskoye field by completing a 90-kilometer pipeline with commercial production estimated to commence around 2020.

 We recently made an investment decision to build an additional gas separation unit at Arcticgas' Samburgskoye field to separate wet gas from high liquid components at the Samburgsky license areas for both the current production and future development of the Achimov-5 layers. I previously mentioned that the producing results of well 6,001 with horizontal length of 1,750 meters targeting the Achimov layer achieved an extraordinary high gas condensate factor of roughly 800 grams per cubic meters.

 I also mentioned that we were not certain if this high liquid concentration was sustainable. But tonight I can confirm that the core and logging results from well 6,001 and other wells being drilled in the northern section of the Samburgsky license area confirms this high concentration rate and supports our optimism to develop the deeper producing layers to sustain production plateaus.

 These results are fantastic news from an exploration and development perspective, and correspondingly extends the plateau level through 2030. The very positive liquid production dynamics at the field supports our investment decision to drill deeper into the producing horizons and as such we will expand the condensate preparation unit by 1 million tons per annum as a result of this production flow and expect this work to be completed in 2019.

 A decision was also made to drill an additional 42 wells at the East-Tarkosalinskoye field beginning in 2018 to increase the field's crude oil output. This additional drilling will be required to maintain production levels at this mature field.

 Moreover, in October, we commenced produce marketable gas for Yarudeyskoye field at daily flow rates of roughly 4.5 million cubic meters per day versus 4 million cubic meters per day, which essentially translates into equivalent of 1.6 bcm per annum.

 This summary was just a short, quick, snapshot of some of the exploration developments that we are presently doing to support production output in our legacy assets. We are also looking at potential M&A activities in this area such as the Severneft acquisition which is awaiting regulatory approval to conclude that either support or compliment our existing legacy production.

 I would like now to focus my attention on Yamal LNG. Overall, the project is approximately 89% complete as of the 30th of September versus 85% complete at the end of the second quarter with the first LNG train 97% complete versus 94% complete in 2Q with various commissioning activities underway. 95 production wells have already been drilled, utilizing 10 of the 19 well pads, which means that we had exceeded the 93 production wells needed to supply natural gas feedstock for both LNG trains #1 and #2.

 Moreover, we have installed all modules comprising LNG train #1 as well as delivered and installed 51 modules of the remaining 64 modules for LNG trains #2 and #3. All modules and key components for the total project have been delivered to the Sabetta site.

 On the last conference call, I confirmed that we plan to expedite construction on LNG trains #2 and #3. With the rapid progress made to the overall project, we will expedite the launch of LNG train #2 by approximately 3 months in 2018 and LNG train #3 by roughly 6 months between the first and second quarters of 2019.

 By accelerating the launches of both LNG trains #2 and #3, we have the possibility to distribute cash earlier to service shareholder loans and reach total LNG output by almost 1 year ahead of schedule.

 We realized that everyone is waiting for us to provide an exact date for LNG train #1. But trying to guess the exact date is nearly impossible to predict at this moment. It is important for us tonight to inform everyone that the startup and commissioning process is currently proceeding as planned, and our primary objective is to ensure a smooth and successful launch to a very complex project.

 LNG train #1 gas-in to the unit commenced on the 10th of September. We have already received the first samples of gas condensate on the separation process. So things are moving forward. This essentially means we are pretty close to launching LNG train #1.

 This landmark event will mark an exceptional achievement and the start of LNG production from the Arctic zone of Russia. We are in the final stages of the commissioning process and we expect the first Arc 7 class tanker, the Christophe de Margerie, already at the Sabetta site to be ready to moor awaiting loading tanker.

 Another question many people are asking is the destination of the first tanker. This question is obviously a very symbolic point. Early LNG allocation to partners is based upon agreed volumes. But it is our view that the first LNG tanker should be offloaded by CNPC in recognition for their overall contribution to the project and the importance of the Asian-Pacific market represents as a key consuming region.

 The eventual contractual off-taking of LNG cargoes from Yamal LNG will be delivered to markets based on the global gas portfolios of the buyers. We estimate that the larger proportion of LNG from Yamal will be sold in Asia. But ultimately, cargoes will be sold to whichever market offers the highest netback to the respective sellers.

 I also think it's important tonight to comment on the news about the expected tanker shipments in 2017 based on information from the customs service. It is customary practice within the customs agency to prepare preliminary customs schedules, but this does not always correlate to actual commercial activities. So it is best to wait until we formally announce the loading and shipment of early volumes rather than focus on preliminary custom information.

 NOVATEK's strategic focus is now centered squarely on entering the global LNG markets to complement our traditional legacy domestic business in Russia. We have amassed an enviable resource base in the Yamal and Gydan and peninsulas and underscores our new strategic direction to become a preeminent global LNG player. The global gas market is rapidly shifting towards LNG and we believe we can offer consumers competitively priced LNG in key consuming regions.

 We have spoken before about Arctic LNG 2 and our decision to localize LNG technology and construction activities at the Kola Yard located in the Murmansk region. I don't want to spend much time on this topic this evening because we will provide deep insights into our global LNG ambitions at our Corporate Strategy Day in December.

 I would like to stress tonight that we have received very strong interest on our next project, Arctic LNG 2, from various sources confirming our belief that once the Yamal LNG project is launched we will be able to demonstrate the viability of the Arctic region as the next major hub for delivering cost competitive LNG to the market.

 To support our resource position, during the third quarter we acquired 3 new license areas in the Yamal and Gydan peninsulas. Our wholly owned subsidiaries Arctic LNG 2 and Yurkharovneftegas won state tenders to acquire licenses containing approximately 15 billion barrels of oil equivalent under the Russian reserve classification system for a one-time payment of RUB 14.4 billion.

 The new license areas are located in close proximity to the Utrenneye and South-Tambeyskoye fields, and will form the basis for future LNG projects. Periodic license acquisitions are an integral part of maintaining a successful exploration program and a pipeline for future projects. The license acquisitions completed in August combined with the acquisition of the Gydansky license area via a state tender in June provides NOVATEK with a low-cost resource base of approximately 20 billion barrels of oil equivalent.

 We have amassed an enormous resource capabilities in both the Yamal and Gydan peninsulas to support our LNG ambitions, and we will further participate in upcoming new state tenders when they are announced to support our legacy production portfolio and build our LNG platform. We spent approximately RUB 5.7 billion on our capital program on a cash basis versus RUB 7.2 billion in the corresponding year, representing a decrease of 27% period-on-period. For the 9 months 2017, we allocated total capital of RUB 34 billion inclusive of RUB 9.3 billion for acquisition of the mineral licenses and RUB 4.8 billion for right-of-use assets for time charting of marine tankers.

 This represents an increase in capital allocation of RUB 11.7 billion or 52% year-on-year, but the delta mostly represents increased spend in our license acquisitions and the commencement of the right-of-use assets.

 Our focus of capital expenditures has shifted towards new future LNG projects such as the Arctic 2 LNG project, North Obskiy license area, the Kola Yard and future new developments like the North-Russkoye cluster as well as some remedial work at East Tarkosalinskoye and Yarudeyskoye fields and capital spent on the West Yurkharovskoye's development activities.

 Our capital program in 2017 is estimated at approximately RUB 40 billion with funds being allocated between legacy assets, new development activities and infrastructure work for new LNG projects.

 Total oil and gas revenues in the third quarter of 2017 were RUB 130 billion representing an increase year-on-year of 3.3% and quarter-on-quarter of 3.2%.

 Our oil and gas revenues continue to be impacted negatively or positively by fluctuating benchmark commodity prices and the translation of our export liquid volumes by movement in foreign currency exchange rates.

 This reporting period, we benefited from positive price dynamics. Our natural gas and liquid volumes were affected by seasonal changes in inventories and in sales.

 As of the 30th of September 2017, our natural gas inventory balance in the GTS, the underground storage facility, and our own pipeline infrastructure aggregated approximately 1.4 billion cubic meters and increased by 808 million cubic meters during the quarter as compared to an increase of 801 million cubic meters in the corresponding period in 2016.

 Our liquid inventory balances increased by 270,000 tons to a record level of 969,000 tons as of the 30th of September 2017, as compared to a decrease in inventory balances by 44,000 tons to 626,000 tons in the corresponding period of 2016.

 Our natural gas sales volumes and corresponding revenues were also impacted by seasonal fluctuations in demand between the third and second quarters 2017. Our natural gas sales volumes decreased quarter-on-quarter by roughly 0.5 bcm or by 3.4% on a volume basis, but were broadly flat in revenues supported by the increase in regulated natural gas tariffs of 3.9% effective the 1st of July 1, 2017.

 It is important to note that decline in sales volumes and hence the increasing corresponding inventory injections were completely in line with our customers' contractual offtakes for the particular period and corresponded to our quarterly sales plan.

 Our year-on-year natural gas sale volumes increased by 3.9% while our natural gas revenues increased by RUB 2.8 billion or by 5.4% reflecting higher netback prices in the reporting period and a positive shift in our sales mix towards end customers by 3.4%.

 Our natural gas sales volumes are up 1.6% for the 9-month period of 2017, and we are confident that we will show positive volumetric results for the full year 2017 as we enter the traditional peak winter season.

 Average natural gas prices to end customers increased by 8% year-on-year due to the increase in regulatory tariffs and the geographical mix of our sales and more distant locations which also increased our average transport tariff by 6.6% resulting in an overall increase in our average netbacks by 8.9% year-on-year.

 Our average netbacks also increased quarter-on-quarter by 5.9%. Our total liquid revenues increased quarter-on-quarter and year-on-year by 2.7% and 1.9% respectively driven by a number of factors such as an increase in commodity prices, changes in the Russian ruble versus U.S. dollar which were offset by lower sales volumes due to an increase in tankers in transit.

 Our liquid volumes sold declined by 11% year-on-year and 8.6% quarter-on-quarter largely due to the decreased gas condensate and gas condensate refined product sales as well as the decline in crude oil volumes recognized in the current period due to weather delays at the port of loading at the end of the third quarter.

 It is important to highlight that all liquids in transit, including gas condensate refined products and crude oil, were sold at the beginning of the fourth quarter at strong commodity prices.

 The loading and release of tankers towards quarter end will always influence sales period-on-period. But this does not represent a weakness in our revenues or sales volumes. It is mainly a timing question on recognition of sales in the current financial period with destination ex-ship or DES terms.

 Both of our processing units, the Purovsky Plant and the Ust-Luga Complex, operated at over 100% of their respective nameplate capacities on an annualized basis which is key for maintaining strong risk-adjusted margins.

 Unfortunately, product demand fluctuates period-on-period and this fluctuation obviously impacts revenues in a given period. Naphtha sales volumes were lower in both respective reporting periods by 12% and 17% although the higher average contractual price somewhat mitigated the negative effect on revenues.

 Overall, in the third quarter of 2017, we realized stronger commodity prices across our whole product range in highlighting a favorable macro environment. And this trend has continued into the early part of the fourth quarter aided by strong underlying benchmark prices.

 Our operating expenses reflected the dynamics of our business and were relatively in line with our expectations. Purchases of hydrocarbons from our joint ventures and third parties represented the single largest change in monetary terms quarter-on-quarter and year-on-year reflecting our ability to offset legacy production declines with purchases to meet our contractual sales requirements, but with relatively higher in the current reporting period due to stronger benchmark commodity prices and a domestic tariff increase of 3.9% effective on the 1st of July.

 Our combined purchases, natural gas and liquids, increased year-on-year and quarter-on-quarter by 16% and 20% respectively. Other major cost trends were relatively similar on a comparative basis with a large change in inventory balances between periods with the injection of natural gas into storage ahead of the peak winter season and the increase in liquids in transit. There were really no other major surprises or concerns with our operating expenses during the reporting period.

 Our balance sheet and liquidity position remained very strong at the end of the third quarter 2017. We continued the positive trend in improving in all of our credit metrics for the 9 months of 2017 as compared to our year-end credit metrics. And this reflects strongly on NOVATEK's credit worthiness and non-capped credit rating.

 We generated over 29 billion of free cash flow although we had lower operating cash in the period which were offset by reduction in the capital expenditures on a cash basis. Free cash flow for the 9 months of 2017 totaled RUB 109 billion versus RUB 93 billion during the corresponding period.

 These are strong cash flow results for the company and reflect the cash generating capabilities of our current producing assets. We have sufficient cash flow to fund our operations and pay our obligations and debt service as they become due.

 Our net debt position was RUB 92 billion at the end of this reporting period representing a decrease of 54% from the year-end balances as we paid debt according to repayment schedules or before maturity.

 In conclusion, we produced another set of good, seasonally adjusted financial and operational results consistent with our expectations for the period although we had lower sales volumes for both natural gas and liquids mitigated by stronger commodity prices. We maintained our focus on cost control and project execution, and we believe we are poised to deliver solid results in the upcoming winter peak season.

 More importantly, we're a step closer to formally launching our Yamal LNG project and transforming NOVATEK into a global gas player. We have waited a very long time to be recognized internationally as a major gas producer and move beyond our traditional Russian domestic market. LNG will be our bridge to key consumer markets and our transformation to a major global gas player.

 With the imminent launch of the Yamal LNG, we now look towards introducing our next wave of LNG projects based on the prolific resources of the Yamal and Gydan peninsulas and the monetization of our world-class hydrocarbon resource base through the use of leading edge technology and innovative solutions like the GBS platforms to reduce LNG liquefaction cost. Even though LNG will play an enormous role in our future vision, we have not lost sight of our responsibilities to deliver natural gas to the Russian domestic market.

 We have said many times that growth in the Russian domestic market is limited, but nonetheless it is an important part of our business model and we will continue to maintain our market share and focus on offsetting some of the clients in our current legacy production profile by bringing on-stream new producing assets and drilling deeper into the Achimov and Jurassic layers across our portfolio where applicable.

 We have also stated many times that we are confident in decelerating our declining natural gas and liquid production. And we believe that the success outlined tonight as well as our focus on developing the lower producing horizons at the Achimov and Jurassic layers will achieve this aim.

 We have new producing fields such as the North-Russkoye cluster that will add 14 billion cubic meters of natural gas and 5.5 million tons of liquid as well as additional production from developing the deeper horizons at the Yurkharovskoye field and the Achimov joint venture. This is no longer a question of if production is producible from these lower formations, but rather a question of time to develop these horizons.

 The partners of Yamal LNG have decided to construct the fourth LNG train of 1 million tons to supplement the existing 3 LNG trains at 16.5 million tons per annum. Many people are probably wondering why we did not decide to build a larger LNG train, but we felt that this was the most economically feasible alternative that did not require us to make additional infrastructure investments in the project.

 We will utilize Russian LNG technology developed by NOVATEK as well as mostly Russian equipment for the fourth LNG train. And we believe we can reduce the overall combined average cost of LNG produced by 3% to 4%.

 We also announced this week that we are considering building a transshipment facility in the Kamchatka region in the far Russian east as a way of optimizing our logistics to the key Asian-Pacific consumer region, provide natural gas to the local region and develop a Russian LNG pricing hub to support future trading activities. This will allow us to utilize lower cost conventional LNG tankers to ultimately deliver LNG to the Asian markets.

 We are presently at the early stages of project development. But we view this project as one of the key elements to reducing overall LNG cost and providing competitively priced LNG to the market.

 Global LNG demand remains strong and is up 12% year-to-date and remained relatively robust for the foreseeable future led by strong demand from the Chinese markets and other emerging Asian-Pacific consumers as well as the pending conversion of bunker fuels and large scale motor transport to LNG. The most important factor for LNG producers today is the ultimate cost of producing LNG to price sensitive consumers as well as flexibility and contractual terms.

 Price will be one of the main factors in future demand stimulation and the conversion from coal to natural gas. Climate change initiatives will also play a role in the conversion process where price will become a determining factor.

 On the 12th of December, we will hold our long awaited Corporate Strategy Day here in Moscow that will outline in detail our next wave of LNG projects and our plan to bring new production to our core business. It's a comprehensive strategy covering the period up to 2030, and we will highlight our views of the global markets and how we believe NOVATEK can play a key role in delivering clean-burning, affordable energy to the market. We again like to extend our invitation to attend this important event.

 I would like to thank everyone for your continued support of NOVATEK and your time to attend tonight's conference call. I would now like to open up tonight's call for questions and answers. Thank you.

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Questions and Answers
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Operator   [1]
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 (Operator Instructions) We'll now take our first question from Pavel Kushnir from Deutsche Bank.

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 Pavel Kushnir,  Deutsche Bank AG, Research Division - Research Analyst   [2]
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 I have 2 questions, first is easy one. Can you please repeat how much gas you expect to produce at North-Russkoye, it was the 14 billion cubic meters or 13 billion cubic meters per annum? And the second question is about your CapEx guidance. I understand it remains at RUB 40 billion. Still if I look at your cash flow statement, only about RUB 16 billion were expensed in the first 9 months. If I look at your MD&A, the number is about RUB 20 billion. Can you please explain why do you expect such a significant increase in your investments spending in the last quarter of the year?

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 Mark Anthony Gyetvay,  PAO NOVATEK - Deputy Chairman of the Management Board, CFO and Member of Management Board   [3]
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 Yes, it's RUB 14 billion cubic meters at the North-Russkoye cluster. As I mentioned before, capital expenditures are done on a plan basis, allocated basis and a cash basis. And what I gave you, I gave you 2 numbers. I gave you what we spend on a cash basis for the particular quarter, which you can find in the cash flow statements. But I also told you that we spent so far about RUB 34 billion -- expenditures are allocated, excuse me, RUB 34 billion to various projects. So if we look at that specifically for capital expenditures, capital expenditures that would primarily be in the traditional sense of the word for field development, et cetera, it's RUB 20 billion. I allocated an additional RUB 9.3 billion to mineral license acquisitions and another RUB 5 billion through the right-of-use assets, which are the chartering of marine tankers. So that's where we stand now at the end of the 9-month period. We stick by the number of RUB 40 billion as I told you before. And we'll see what happens by the time we get to the end of the year.

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Operator   [4]
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 We will now take our next question from Ronald Smith from Citi.

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 Ronald Paul Smith,  Citigroup Inc, Research Division - Director and Senior Russian Oil and Gas Analyst   [5]
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 Quick question, let's go back to the North-Russkoye cluster. You may've mentioned in the course of your comments, but could you touch again on the launch date for that and then remind us how far is the North-Russkoye field from your nearest established infrastructure?

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 Mark Anthony Gyetvay,  PAO NOVATEK - Deputy Chairman of the Management Board, CFO and Member of Management Board   [6]
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 Ron, I mentioned that we're in the process of drilling. We have done some series of drilling, as I said the 305, the 306, the 307 wells. We have now 4 licenses that essentially comprise the North-Russkoye cluster area. I would say that at this particular point, it will be ramped up about 2019, maybe slightly early 2018, but probably most likely 2019, and then we expect to ramp that up to about 2021, 2022. In terms of its connection, well, it's pretty much gone into the [Zappaloni] line and we'll use that to bring it to market.

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Operator   [7]
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 (Operator Instructions) So we'll now take our next question from Henri Patricot from UBS.

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 Henri Jerome Dieudonne Marie Patricot,  UBS Investment Bank, Research Division - Associate Director and Equity Research Analyst   [8]
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 Thank you, Mark, for the presentation, 2 question from me, the first one on the fourth train at Yamal LNG, I was wondering if you can give us an indication at this stage on the timing for startup and any CapEx associated with this train? And the second question on the dividends from associates, you mentioned Yamal you could get some cash retail here. But I wanted to ask about the (inaudible) associates and (inaudible) in particular what we would expect in terms of dividend payments for the next few years?

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 Mark Anthony Gyetvay,  PAO NOVATEK - Deputy Chairman of the Management Board, CFO and Member of Management Board   [9]
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 On the fourth train, we're looking essentially -- this is a pilot train. And as I mentioned, we will utilize technology, LNG liquefaction technology, developed by NOVATEK and mostly Russian equipment, right. We're expecting that this will be on-stream around 2019 roughly and maybe slightly after. But it's expectedly about 2019 to come on-stream, right. In terms of Arcticgas, we're -- as I mentioned, we're looking today, and as I talked about we're still drilling. We're looking today to fund additional projects to extend the plateaus. So obviously, we have to balance between investments into these particular fields to sustain production levels and dividend payments to shareholders. So I would just say we'll discuss that a little bit more in detail on the strategy day when we go through the timing of some of these big core projects and when we actually plan to do the drilling, et cetera, and when we expect some cash coming in. But essentially, we're now at a point of considering additional investments into Arcticgas, as I mentioned, at the Samburgskoye field because of the results that we have achieved so far on the northern side of the license area is extremely encouraging for us from a geological and productive capabilities.

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Operator   [10]
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 (Operator Instructions) There appear to be no further questions at this time. I'd like to turn back to our host for any additional closing remarks.

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 Mark Anthony Gyetvay,  PAO NOVATEK - Deputy Chairman of the Management Board, CFO and Member of Management Board   [11]
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 Okay, thank you. Again, I just want to remind everybody that if you plan to come to Moscow, please look at the press release that we issued in terms of the Corporate Strategy Day and give us ample notice. We have booked a series of hotel rooms and we need to have a proper headcount so that if we need to either get more rooms or release some of the existing rooms we have. But we look forward -- it's been a long awaited time and everybody is interested in understanding what we plan to do from a corporate strategy perspective. But I can assure you that it is in fairly extensive detail that I believe that everybody will walk away with a clear understanding of what we're doing in our domestic side of business in terms of new fields, new projects and arresting the declines, as well as what our ambitions are in terms of LNG, including what I talked about today, the Kamchatka transshipment facility, Arctic LNG 2, the GBS, Kola Yard, et cetera. So we're extremely excited about that. And also I just want to reiterate again because I notice that there's been some comments and write-ups from some of the reviews, we're absolutely confident. And I don't want to underrate that, but we're absolutely confident that there's an enormous interest expressed to us today from all additional potential partners to join this particular project. It's crucial that us as a producer realize that the market is shifting towards low-cost LNG. And we believe, given where we are, the projects that we're looking at, the ability to reduce capital cost by at least 1/3 of what we spent on Yamal LNG by the removal of all this infrastructure, we'll be able to deliver cost competitive LNG to any market we want to deliver. And that's going to be underscore or underlie really our global LNG ambitions. So we hope to see you in Moscow on the 12th and if not, like I said, we'll have the live web call which -- we'll also have the recording if you can attend that. But that's coming up in another month or so. So we look forward to seeing you and addressing you on our corporate strategy to the year 2030. And again, thank you very much for your support and we look forward to that important day. Thank you.

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Operator   [12]
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 This concludes today's call. Thank you for your participation. You may now disconnect.




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