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Edited Transcript of AOILsdb.ST^L13 earnings conference call or presentation 13-Sep-19 1:00pm GMT

Half Year 2019 Alliance Oil Company Ltd Earnings Call

HAMILTON Sep 21, 2019 (Thomson StreetEvents) -- Edited Transcript of Alliance Oil Company Ltd earnings conference call or presentation Friday, September 13, 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 Alliance Oil Company consolidated IFRS results on the 6 months 2019 ended till the 30th of June 2019. (Operator Instructions)

I would now like to hand the conference over to your speaker today, Dmitry Papyrin, Head of Corporate Finance. Thank you. Sir, please go ahead.

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

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Hi, everybody, and welcome to our Alliance Oil regular call for Eurobonds investors. Today, we are taking a look on our financial results for second quarter and first half 2019. Thanks a lot for your interest, and let's start.

First of all, OFAC slide. Work with OFAC is going on. No significant update here, so I think we can skip it and move forward. Okay.

Macroeconomic slide. As you can see, oil price was a bit lower during first half 2019 compared to what we saw a year before that. At the same time, ruble was weaker against U.S. dollar. The benchmarks prices for oil products also were generally lower, though dynamics for different products was [dividend].

Okay. Moving forward. Highlights. Revenue showed different dynamics in second quarter and 6 months if you look on dollars. Though, if you will look in ruble-denominated dynamics first half, we saw 11% increase and stable figures for second quarter. So EBITDA decreased in both periods due to higher mineral extraction taxes for Upstream segment and maintenance work on Khabarovsk refinery as well as cost of oil purchased for refining in rubles.

First half net results is positive, though it is mainly driven by FX gains. You can note that, if you look on the adjusted results -- the operational results, oil production is rising due to higher levels of CapEx in previous periods. Refining volumes and throughput are lower due to refinery maintenance during second quarter.

Okay. Slide #6. As usual, you can see production details per regions on the map. As already said, oil production has increased in all regions at present.

Okay. So next slide, crude oil and gas production. Group is committed to further investments in production, and we have drilled -- we have made 28 well interventions during the second quarter and 19 new drills -- new wells were drilled during the same second quarter. And capital commitments are equal to USD 103 million.

Okay. Crude oil sales, next slide, Slide #8. You can see here increasing volumes of oil sold mainly due to increase of domestic reselling operation. Increase in production of our own oil also helps here.

On Slide 9 we can see netbacks, which are almost the same for both export and domestic market.

Slide #10 shows the data on gas and gas liquids sales and prices. Gas liquids prices fluctuated in line with crude oil base fee. Gas production in the group is decreasing, though it doesn't have significant impact on the group results since its share in the group business is actually small.

On Slide 11, you can see revenue increase from sales of crude oil, gas and gas liquids in more detail. Main driver of revenue increase is oil resale business here.

Moving forward, Slide #12, downstream operations. One new retail gas station during second quarter. As already said, refining volumes and throughput is lower due to refinery maintenance works during the second quarter.

Moving forward, Slide #13. No significant changes on refinery. Maintenance work, of course, affected the basket while product yield went a bit down. Diesel and gasoline production is lower in the basket. This is, of course, a temporary effect, and we will see improvement in further quarters.

Oil product sales. You can see an increase of sales volumes, in physical volumes. Return of bunkering in the group business.

Okay. So moving forward, Slide #15. While you look on it, you should note that the figures for netback prices for each channel is the price for the oil product mix, which is sold on that relevant market. So maybe the figures sometimes may look like a bit misleading here.

So Slide #16. You can see in U.S. dollars-denominated decrease in revenue from oil product sales, which is mainly driven by ruble weakening. If we take a look on ruble-denominated figures, we will see a slight increase in there. Again, refinery maintenance affected results of second quarter.

Slide #17, financials. Macroeconomics, ruble is weaker, oil prices are lower, revenue is stable in U.S. dollars with a slight decrease in quarter 2. EBITDA and margins are lower due to Downstream performance in quarter 2. We also had significant FX gains, and you can see that for adjusted results are slightly negative. Negative total cash used for operations activities is a result of a decrease in the volume of advances received during the period in comparison to the previous periods.

So Slide #18. Upstream segment revenue is increasing driven by resale operations and increase in the group production of own oil. Downstream is affected by refinery maintenance works, which were made in the second quarter.

Okay. So Slide #19, segment performance. As you can see on this slide and this was already earlier said, Downstream performance was under pressure in the second quarter due to refinery maintenance, though strong results of first quarter was a great support for 6 months result to stay pretty stable. Upstream performance has lower results due to mineral extraction tax increase and increase the share of reselling operation with the lower margins, of course.

Slide #20, the upstream economics, where you can see here higher taxation, which together with revenue slight decrease, lead to EBITDA decrease. Resale margins lower than a year ago, though still positive. Decrease in gas production is driving EBITDA a bit down. But again, these figures are not that important because of the small share in the business.

Okay. Downstream economics, Slide #21. Again, refinery maintenance drove downstream economy down. You can see significant volumes of purchased oil products for resale, which actually drove EBITDA to around 0 figures in quarter 2, though strong first quarter results helped segment performance during 6 months to be equal to those we had in last year. Again, this is a temporary effect, and we expect future performance back to what we have seen in quarter 1.

Okay. Slide #22, net debt-EBITDA is 5.338 (sic) [5.38], which was quite big taking into account the previous decrease of this metric. The increase is driven by EBITDA decrease. Thus, we expect this effect is again temporary as we have earlier discussed.

Okay. So the last slide, the CapEx slide. We maintain high level of CapEx mainly in Upstream to keep production volumes stable. So indeed, you can see very -- detail on the slide.

Okay. Rose, so I think I'm quite done with the presentation and we can proceed to the Q&A.

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Operator [3]

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(Operator Instructions) There appear to be no questions at this time. Sir, please continue.

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Dmitry Papyrin, Alliance Oil Company Limited - Head of Corporate Finance [4]

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Okay. So if no questions are again in the room, you can always address them to me by e-mail. And so thanks, everybody. And if you have questions, please write me an e-mail. Okay.

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Operator [5]

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Thank you. Ladies and gentlemen, that does conclude the conference for today. Thank you for participating. You may now disconnect. Would the speakers please stand by.