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Edited Transcript of AOILsdb.ST^L13 earnings conference call or presentation 28-Nov-19 1:00pm GMT

Nine Months 2019 Alliance Oil Company Ltd Earnings Call

HAMILTON Nov 30, 2019 (Thomson StreetEvents) -- Edited Transcript of Alliance Oil Company Ltd earnings conference call or presentation Thursday, November 28, 2019 at 1:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Dmitry Papyrin

Alliance Oil Company Limited - Head of Corporate Finance

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for standing by, and welcome to the VTB -- sorry, it's the Alliance Oil Company consolidated IFRS results on 9 months 2019 ended September 30, 2019.

(Operator Instructions) Also, I must advise that the call is being recorded today, Thursday, the 28th of November 2019.

And without any further delay, I would now like to hand over the call to your speaker today, Dmitry Papyrin. Thank you. Please go ahead.

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Dmitry Papyrin, Alliance Oil Company Limited - Head of Corporate Finance [2]

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Hi, everybody. Today is 28th of November 2019, and I welcome you to our Alliance Oil regular call for investors. Today, we are taking a look on our financial results for 9 months 2019. Thanks for your interest, and let's proceed.

Okay. So first of all, sanctions matters. No changes on to sanctions matters. We continue communication with OFAC. Still, there is no clarity on the matter resolution.

Okay. Moving forward. Slide #4, macroeconomic slides. Oil product prices are lower. Ruble is also lost about 6%. Oil products going up. Prices for oil products are going up. Benchmark prices for oil products also are generally lower, though the dynamics for different products was a bit different now.

So financial results, Slide #5. All right. Revenue is slightly less than a year ago, both for third quarter and 9-month period, 9-month results affected by ruble weakening, third quarter primarily by a lower oil and oil products prices. EBITDA for 9 months is lower than a year before due to lower crude prices and increased mineral extraction taxes in Upstream segment. Third quarter though is better than last year due to lower cost of purchased oil for refining in Downstream. Net result is positive, though largely driven by FX. Adjusted results in 9 months is slightly negative due to decreased profitability of Downstream segment.

Production is stable with slight increase. Refining, as discussed on our previous call, was lower in second quarter due to maintenance on the refinery, which drove 9-month figure down, though third quarter looks stable. Same with the throughput.

Okay, Slide #6. As usual, you can see production details for regions on the map here. No significant changes here.

So going forward to Slide #7. Group is committed to further investments in production. 33 wells interventions were made during third quarter, and 20 new wells were drilled. Capital commitment is equal to USD 79 million.

On crude oil sales slide, you can see increase in volumes of oil sold, mainly due to increase of both domestic produced and re-sold operations. The increase in production of -- on oil also helps the group.

Okay, Slide #9. You can see netbacks here, which are almost the same for exports and domestic market.

Slide #10. You can see the data on gas and gas liquids sales and prices. Gas production in the group is decreasing, though it does not have significant impact on the group results since its share in the group business is limited.

Slide #11. You can see revenue from sales of crude oil, gas and gas liquids in more detail. Main drivers of revenue increase during 9 months are the increase in production and the increase of oil resale volumes. In third quarter, results are lower than last year due to lower crude oil prices.

Downstream operations slide, Slide #12. Four new retail stations during third quarter were opened here. There's analysis, the same as a quarter ago.

Slide #13, no significant changes on refinery. Light products yield increased after the maintenance was finished and is back to normal. Here, you can see the effect of second quarter in the 9-month period figures, which is the final throughput is a bit lower. The volumes are also lower than the last year.

Same picture on Slide 14. 9-month results are lower than last year due to maintenance work on refinery.

Okay, Slide #15. When you look on this slide, you should note that figures for netback prices for each channel is a price for the whole oil product mix which is sold on the relevant market.

Slide #16. You can see U.S. dollars-denominated decrease in revenue from oil product sales, which is mainly driven by ruble weakening. Third quarter is also affected by lower prices for bunkering and export.

And okay. Then financial slide, Slide #17. Macroeconomics, as earlier said, ruble was weaker in 9-month period. Oil prices are lower. Revenue has slightly decreased. EBITDA is slightly lower, though margins are pretty stable. Third quarter adjusted results is positive. Still, the figure is lower than the last year.

Slide #18. Upstream segment revenue is increasing in the 9-month period, driven by retail operation and increase of own production. Third quarter crude oil prices led to decrease in revenue. Downstream is affected by ruble weakening in the 9 months period and lower export and bunkering prices during third quarter.

Okay, Slide #19, the segment performance slide, and I need to provide you some comments here. And those tax maneuvers starting from 1st January 2019 led to decrease in duties for oil. At the same time, it led to increase of mineral extraction tax as well as to be received by the company of the so-called reverse excise tax, which basically balance the decrease of oil and export product prices. In other words, tax maneuver led to EBITDA redistribution between Upstream and Downstream segments in favor of Downstream, of course. And the EBITDA should here be seen in aggregate. That's for the segments.

Upstream, 9 months. Mineral extraction tax increased. Prices were lower. Also, group makes reselling operations, which decreased margins for the segment. Also, in third quarter, you should note that crude oil prices were lower than the year ago. Downstream. For both 9 months and the third quarter, reverse excise tax and lower cost of oil to be refined were the main drivers of EBITDA increase.

Okay, Slide #20, upstream economics in detail. You can see high taxation which, together with the revenue slight decrease, led to EBITDA decrease. Resale margins are lower than a year ago, though still positive. Decrease in gas production as well as higher costs and tax are driving EBITDA for gas, and gas liquids production down as well.

Downstream economics. Cost of crude oil is lower for both periods. Reverse excise tax is also strongly helping the segment. So EBITDA goes up.

Okay. So debt portfolio, Slide #22. Net debt-to-EBITDA is 5.11. A significant amount is in short term. Also debt is in short term. We are working on rolling up short-term debt. No major changes since the last quarter here.

Okay. Capital expenditures, the final slide. We continue to invest in drilling to sustain the production.

And thank you for your time. Let's proceed to Q&A session if we have.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Okay. Our first question is from the line of [Bianca Beurer] from [REORD].

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Unidentified Analyst, [2]

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I just wanted to ask for further details on the you said you're working on rolling on some short-term debt. My second question is about the CapEx. Do you have any forecast going forward for the -- for year-end?

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Dmitry Papyrin, Alliance Oil Company Limited - Head of Corporate Finance [3]

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[Bianca], basically, we do not provide a forecast here. We are mainly talking about the financial results. So we are not in a position at the moment because the budgets are being fixed at this period of time. A lot of discussion goes inside. So we are not basically in a position at the moment to talk about it.

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Unidentified Analyst, [4]

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And on the rolling of the short-term debt, can I get some more color on that?

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Dmitry Papyrin, Alliance Oil Company Limited - Head of Corporate Finance [5]

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Yes. This is the regular work. This is the regular work which we basically do. We have revolver facilities from banks which have a short-term duration, but they are being rolled twice a year. So this is the regular work for us, yes.

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Unidentified Analyst, [6]

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And have they been drawn?

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Dmitry Papyrin, Alliance Oil Company Limited - Head of Corporate Finance [7]

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Yes. Everything is in process, everything fine, yes.

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Operator [8]

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(Operator Instructions) There are no further questions at this moment, sir. Please continue.

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Dmitry Papyrin, Alliance Oil Company Limited - Head of Corporate Finance [9]

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Okay. So if anyone will have a question -- I think we will end up the call at this point if there are no question. If you will come up with questions, please e-mail us. We will review the questions and maybe get back to you. Okay. So if no questions, thank you, everybody, and see you next year, and happy Christmas coming.

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Operator [10]

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So that does conclude our conference for today. Thank you all for participating. You may all disconnect. Speakers, please stand by.