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Edited Transcript of GAZP.MZ earnings conference call or presentation 29-Aug-19 2:00pm GMT

Q2 2019 Gazprom PAO Earnings Call (IFRS)

Moscow V-420 Sep 4, 2019 (Thomson StreetEvents) -- Edited Transcript of Gazprom PAO earnings conference call or presentation Thursday, August 29, 2019 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Alexander Ivannikov;Head of Department

* Mikhail Malgin;Deputy Head, Gazprom Export

* Mikhail Nikolaevich Rosseev;Deputy Chief Accountant

* Roman Abdullin;Deputy Head of Department

* Sergey Komlev;Head of Contract Structuring and Price Formation Directorate for Gazprom Export

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Conference Call Participants

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* Alex Robert John Comer

JP Morgan Chase & Co, Research Division - Research Analyst

* Ekaterina Rodina

VTB Capital, Research Division - Senior Oil & Gas Analyst and Equities Analyst

* Evgenia Dyshlyuk

Gazprombank (Joint Stock Company), Research Division - Director of Equity Research for Oil and Gas

* Henri Jerome Dieudonne Marie Patricot

UBS Investment Bank, Research Division - Associate Director and Equity Research Analyst

* Igor Kuzmin

Morgan Stanley, Research Division - Equity Analyst

* Ildar Davletshin

Wood & Company Financial Services, a.s., Research Division - Equity Analyst

* Ildar Khaziev

HSBC, Research Division - Analyst

* Karen Kostanian

BofA Merrill Lynch, Research Division - Head of EEMEA Energy Research & Head of the Russian Research Department

* Timothy William Riminton

Barclays Bank PLC, Research Division - Research Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, I'd like to welcome you to the Gazprom Second Quarter 2019 Results Conference Call. My name is Brica, and I'll be the specialist operating today's call. (Operator Instructions)

I'll now hand over to the management team to begin.

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Alexander Ivannikov;Head of Department, [2]

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[Interpreted] Good afternoon, colleagues, I'm Alexander Ivannikov, Head of Department at PJSC Gazprom. Here at our conference call, we have Deputy Chief Accountant Mikhail Rosseev; representatives of key departments at PJSC Gazprom, Gazprom Export and Gazprom Neft. The presentation for the purposes of this call and webcast is available at Gazprom's website. Before we begin, I would like to direct the attention to the fact that we are going to, we may have forward-looking statements during this call and the full disclosure on that is represented on Page 3 of the presentation.

Flipping over to Page 4. I would like to start discussing our financial and operating performance for Gazprom Group in the second quarter of 2019 by describing the macro and market environment. In the second quarter 2019, we saw moderate decline in oil prices and a major slump in gas prices in European gas hubs. In Q2 2019, spot gas prices went down by 33%, while the overall deductions since the start of the year reached 54% and more. Despite this negative environment, Gazprom maintains high competitive position and leadership in this market. In Q2, export sales of gas to Europe and other countries and Gazprom Export contracts went up by 3% year-on-year even though 2018 was record high year for us. On top of that, thanks to its long-term contract portfolio, Gazprom's average realized prices to European offtakers has remained above spot prices available at European hubs. Considering the macro environment, we must also mention the strengthening of the ruble in Q2 2019, which resulted in an FX gain, while the average ruble FX rate in Q2 was still lower than the same rate in Q2 2018, which positively affected profitability of our exports.

Flipping over to Page 5 now. That's a slide dedicated to our key financials. Taking into account the unfavorable external macro environment, we regard the financial performance of Gazprom Group in Q2 2019 as positive. Despite a major slump in gas prices in Europe, our revenue in ruble terms went down by only 3%. Thanks to the additional revenue contributions from our oil business as well as heat and power generation and also gas sales in the domestic market of Russia and also the CIS market as well as the lower average FX rate for the ruble as of Q2 2018. The key metric of EBITDA went down by 13% in Q2 2019 year-on-year. Despite the negative developments in the European gas market, profit attributable to shareholders went up by 16% to reach RUB 301 billion. The material growth and profit is related to a great degree to the FX gain in the amount of RUB 35 billion in the second quarter of 2018 as compared to a net FX loss in the amount of RUB 125 billion in Q2 2018.

Gazprom has done a lot to improve efficiency of its CapEx program and strive for better CapEx control. As a result, the total CapEx in Q2 2019 went down by 2% year-on-year. In the reporting period, we saw a significant reduction of short-term bank deposits, which are recorded in our accounts as current and as other current and noncurrent assets. The main deposits went down by RUB 280 billion. Further down in the presentation, I'm going to disclose more details on how this affects our financial metrics.

Having taken into account, these analytical adjustments, by the amount of deposits, the positive -- the free cash flow of Gazprom Group was negative at minus RUB 55 billion related to significant payments attributable to profit tax in the second quarter. Net debt of Gazprom Group remained pretty much flat in both dollar and ruble terms.

Over to Page 6 now. The key driver for the insignificant reduction in revenue in the second quarter 2019 was the lower average realized price in Europe and other countries despite the maintained volumes of gas exports. Average realized price for gas sales in the European market in Q2 2019 went down by 13% year-on-year or 20% quarter-on-quarter, which is related to a major slump in gas sales on the spot market in Europe -- in gas prices on the spot market in Europe, but thanks to the structure of our contract portfolio, the deduction of average realized price for Gazprom Groups was 2x more moderate than the spot or commodity exchange sales and resulted in just 9% revenue decrease as compared to the second quarter 2018. And the Russian market, however, saw an insignificant increase in average realized price in Q2 2018, reaching 5%, which is in line with adjusted regulated tariff, thus boosting our revenue by 7%. In the former Soviet Union countries, the average prices went up by 4%, thus boosting revenue by 12%.

Over to Page 7. The significant contribution and the strong financial performance comes from the oil business of Gazprom Group. In the second quarter 2019, sales of oil, gas condensate and refined products in ruble terms went up by 2% year-on-year. It must be noted, however, that there was a significant reduction in profitability for the refining segment year-on-year. Despite that fact, the oil business still generates significant free cash flow. The revenue from electric power and heat sales in Q2 2019 went up by 6%, also as explained by higher volume of electric power generated. The utilities business of Gazprom Group also keeps generating a positive free cash flow.

Page 8 now. I would like to direct the attention, as always, to the need of adjustments of our financial metrics by the amount of bank deposits. These adjustments is done for the purposes of correct analytical accounting. Page 8 explains the total sum of bank deposits as reflected as part of other current and noncurrent assets on the balance sheet of Gazprom Group. As at the end of Q2 2019, this number went down year-on-year by RUB 280 billion to reach RUB 487 billion or nearly USD 8 billion in absolute terms. The reduced volume of short-term deposits improved the cash flow statement, which is translated into the net change of working capital.

Page 9. Now as you can see in the charts, given the adjustment by the amount of short-term and long-term deposits there, net debt as at the end of Q2 2019 stood at nearly USD 33 billion, which is 2% higher than the net debt figure as at the end of the third quarter 2019. In ruble terms, however, the adjusted net debt has seen pretty much no change, which is explained by the FX change for the ruble, and positive contribution here comes from the associated companies, mostly dividends paid by Arcticgas and Sakhalin II. The net-debt-to-EBITDA ratio in dollar terms remains comfortable at 0.9 in Q2 2019. I would like to direct your attention as well to the fact that we have managed to improve the overall structure of the total debt for Gazprom Group through -- by extending the maturities, as you can see, a 2- to 5-year that dominates the portfolio.

Next page, please. Page 10 explains the CapEx expenditures of Gazprom Group. Even though the group has passed the peak in its capital expenditure projects with major transportation, gas transportation projects nearly completed, the CapEx in ruble terms for Q2 2019 went down by 2% to reach RUB 347 billion year-on-year. The growth is curtailed, thanks to the high level of financial discipline and also thanks to priority ranking and cost optimization for the ongoing projects. The CapEx annualized keeps coming down for 3 quarters running, and as at the end of Q2 2019, that stands at USD 24.9 billion.

To conclude my presentation, I would like to mark that even though the overall market situation has started challenging, Gazprom maintains leadership in its key markets and also demonstrates positive financial performance, which leads to prove the high degree of competitive position -- the high degree of competitiveness and our strong fundamentals, including largest gas reserves, low production cash cost, well-developed transportation infrastructure and a portfolio of long-term contracts. Major investment projects, which we are currently implementing are going to strengthen our strategic position even further, and thus have a positive effect on the financial performance of Gazprom Group, which cannot but reflect on the dividend payout.

Thank you for your attention, we are ready to proceed with the Q&A.

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Questions and Answers

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Operator [1]

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(Operator Instructions)

First question from the phone line comes from Karen Kostanian from Bank of America.

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Karen Kostanian, BofA Merrill Lynch, Research Division - Head of EEMEA Energy Research & Head of the Russian Research Department [2]

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[Interpreted] Mr. Ivannikov, I have a couple of question, if I may. My first question relates to the new dividend policy. On numerous occasions, it has been stated that the new dividend policy is to be approved by the year-end. Can you confirm this time frame or make it a more precise target? And my other question relates to Nord Stream 2 project. Is there any understanding as to the final permits that is still pending, when those are to be obtained, and also as to the overall completion date for the project?

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Alexander Ivannikov;Head of Department, [3]

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[Interpreted] Karen, thank you for your questions. As per the dividend policy, it has been mentioned on numerous occasions indeed, if you would like to know any precise date, then I can provide that. The 28th of November is the date when our management committee is to consider that matter according to it's agenda, and that's the only specific details that I can add. All of the other parameters remain unchanged.

And the second question is going to be handled by Mr. (inaudible), Head of Section at the Foreign Economic Activity Department.

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Unidentified Company Representative, [4]

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[Interpreted] At this point, we cannot comment on the potential delay that could be caused by deferred payments -- by deferred permits that are pending. However, I would like to assure you that everything that is possible is being done at this moment to ensure that potential permitting delays do not affect the overall schedule of the project.

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Alexander Ivannikov;Head of Department, [5]

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[Interpreted] And as a quick follow-up from Mr. Ivannikov, Mr. Miller, Chairman of the Management Committee, has taken today dedicated to the presence meeting, dedicated to celebrate the day of oil and gas industry worker. And he mentioned to the team of Gazprom that 75% of Nord Stream 2 project has already been completed. So we are commencing to complete the final quarter of the overall project. As to the particular time frame when Denmark is to respond to the permitting application business, this has been mentioned on numerous occasions, and we're still within that particular time frame.

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Operator [6]

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The next question comes from Alex Comer from JPMorgan.

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Alex Robert John Comer, JP Morgan Chase & Co, Research Division - Research Analyst [7]

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Yes, couple of questions. Just regarding pricing and volumes. Obviously, the pricing is coming under a lot of pressure in recent months. I wondered if you'd like to reconfirm or change your pricing guidance for the year, which I think was USD 235 per bucket tonne. It appears that you're sort of chasing or trying to protect volumes. Is that the strategy to protect market share and give up price? And then just a couple of other questions. One is any further news on cost savings going forward? And then I wondered whether you could tell us who the 2.9% placing of shares went to in the recent placing.

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Alexander Ivannikov;Head of Department, [8]

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[Interpreted] The first question is going to be handled by Mr. Mikhail Malgin, Deputy Head of Department at Gazprom Export.

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Mikhail Malgin;Deputy Head, Gazprom Export, [9]

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[Interpreted] Good afternoon, and thank you for your question. As to the volumes and the cost of 2018, we are going to be back to where we stood. As at the end of 2017, we have 192 billion cubic meters of gas exports to Europe. That's a reduction vis-à-vis 2018 by 4% or maybe 4.5%. As to the pricing element, as at the end of the year, the average realized price is going to compare to that in 2017 as 8% higher. At the same time, the same average realized price for 2019 is going to compare as 13% lower to the same metric of 2018. It must be noted, however, that 2018 was a very successful year for us thus representing a very fine base to compare against. So 2019 would fairly be compared to 2017 results. Considering our target and strategy in this market, first of all, we are committed to meeting our obligations under existing gas sales contracts. On top of that, we're pursuing new sales where possible using new tools, such as our commodity exchange trading platform. Thus this results in gaining, Gazprom gaining, the market share. So I wouldn't say market share per se is the target of our strategy, it is the product of our activity rather. Thank you.

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Alexander Ivannikov;Head of Department, [10]

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[Interpreted] The second question is going to be handled by Mr. Roman Abdullin, Deputy Head of the Finance and Economic Department.

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Roman Abdullin;Deputy Head of Department, [11]

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[Interpreted] Good afternoon, colleagues. Gazprom operates within the dedicated cost limits as set forth by the Board of Directors for the current year. And based on the results of the first half of 2019, we see pretty much no deviations from the originally prebudget. Cost optimization exercise is dedicated to curtail the expenditure and is carried out fully in line with regulatory documentation as available in Gazprom. In terms of our results in this regard, I can tell you that the operating costs inflation is materially below the official inflation target as disclosed by the Ministry of Economic Development. Cost analysis is reported annually to the Board of Directors, which happened last time in February this year. 2019 full year performance will have been annualized and presented to the Board as well, most probably, in the third quarter of 2020.

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Alexander Ivannikov;Head of Department, [12]

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[Interpreted] As to the third question of yours, on the use of proceeds from the 2.9% quasi-treasury stake sale, well, as we put it, the proceeds are used for general corporate purposes. As you maybe aware, we don't run any project-specific accounting. So I cannot give you any more specificity on where the proceeds will end up, maybe we're going to have some lower debt end of year. I don't think I can carve out any particular project in this regard for you.

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Operator [13]

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The next question from the phone line comes 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 [14]

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I've got 2 questions for you. The first one is on the CapEx guidance. You realize that your -- it's quite successful in keeping these costs under control. Do you have any update on the guidance for CapEx for the next couple of years in particular? And secondly, if you can give us an update on the progress on the Baltic LNG project?

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Alexander Ivannikov;Head of Department, [15]

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Sorry, can you repeat the second question, please?

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Henri Jerome Dieudonne Marie Patricot, UBS Investment Bank, Research Division - Associate Director and Equity Research Analyst [16]

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The second question was an update on the Baltic LNG project?

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Alexander Ivannikov;Head of Department, [17]

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[Interpreted] Considering our 3-year CapEx guidance, on numerous occasions we have provided that one, and I don't think we see any change here. The share of major projects that are due to be completed in the course of 2019 only represent 15% to 20% of our total CapEx program as indeed follows the guidance that we provided. So let's make sure we are on the same page when consider the degree of materiality for those projects that are due to be completed in 2019. That's only 15% to 20% of the total CapEx plan for those projects that are being completed and that are no longer going to be in the CapEx plan. However, their place is going to be taken by new projects. You are aware of those projects and their potential valuation. For example, the Ust-Luga project is estimated at RUB 750 billion in total with the project's financing to be enrolled, as we explained on numerous occasion as well. That translates into 30% equity financing and 70% project financing for which we have 50%. So overall this project would be about RUB 100 billion for us spread across 5 years in total. So the level of our CapEx program remains as is and the budgeting cycle is going to be completed in November this year. The Ministry of Economic Development has already provided their assumption for the upcoming 3 years that we use as inputs for our budget. They remain pretty much flat year-on-year. So in terms of any update related to the CapEx program, I think, this could be coming in November.

Interpreted So can I repeat the numbers for 3 years coming? So for 2019 that's RUB 1.36 trillion, then for 2020 that's RUB 1.065 trillion. And for the following year of 2021, that's RUB 1.25 trillion.

Interpreted And the second question of yours is going to be handled by Mr. Sergey Komlev, Head of Division at Gazprom Export.

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Sergey Komlev;Head of Contract Structuring and Price Formation Directorate for Gazprom Export, [18]

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[Interpreted] Regarding the Ust-Luga liquefaction plant of the project, as you are aware, LNG is what they nicknamed flexible pipeline. So it's going to depend really a lot on the market environment, which we're going to see in Europe, Asia and also elsewhere by the time the project has been completed. There is one feature of the Ust-Luga project though, we are targeting the bunkering market in Europe which has been developing very actively in recent years and which we regard as a strong growth point looking forward.

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Operator [19]

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The next question comes from Evgenia Dyshlyuk from Gazprombank.

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Evgenia Dyshlyuk, Gazprombank (Joint Stock Company), Research Division - Director of Equity Research for Oil and Gas [20]

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[Interpreted] Good afternoon, and I have a couple of questions. My first question relates to your further plans regarding the quasi-treasury shares still outstanding. Any plan to have replacement before the year-end? My other question relates to the Power of Siberia projects. Is everything going well into plan? And what's the expectation for total gas production in the Power of Siberia related field in the course of 2019?

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Alexander Ivannikov;Head of Department, [21]

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[Interpreted] As to your first question, on our plans related to the quasi-treasury shares still outstanding, that matter is currently under consideration. We don't have any specific plan as of today.

And the second question is going to be handled by Mr. Vladimir [Piken], Head of Division within the production block.

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Unidentified Company Representative, [22]

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[Interpreted] Thank you for your question. We did however celebrate a remote participation meeting for the whole Gazprom team to commemorate the day of oil and gas industry worker, as Mr. Ivannikov has explained earlier. And the Chairman of -- and the General Director of Gazprom, (inaudible) speaking during the event, mentioned that the gas is already in production at the collective field. So it has reached the point between the metering station and valve number 2, which means that the gas is in the pipe already. The plan for 2019 full year is 860 million cubic meters, we are currently operating in the commissioning mode with 3 pads running. So the daily flow stands at 3 million cubic meters a day. Now it's going to be 5 million cubic meters looking forward, and in the last 2 months of the year they're going to be producing 10 million cubic meters daily.

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Alexander Ivannikov;Head of Department, [23]

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[Interpreted] And please be reminded, on the 1st of December this year, Russian gas is going to cross the border of China unconditionally. So please be reminded December 1 is the launch date for the Power of Siberia project.

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Operator [24]

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The next question from the phone line comes from Timothy Riminton from Barclays.

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Timothy William Riminton, Barclays Bank PLC, Research Division - Research Analyst [25]

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We noticed in press reports that Gazprom is considering moving its issuer jurisdiction for Eurobonds to the U.K. instead of Luxembourg, perhaps following events related to the Naftogaz case. Could you give us an update on this at all and the decision? And essentially why you're looking at doing this?

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Unidentified Company Representative, [26]

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[Interpreted] Thank you for the question. Indeed, we always try to overcome artificial hurdles to our operations. Since there are 2 jurisdictions possible for Eurobond operations, that is Luxembourg and the United Kingdom, and in the U.K., court decisions do not clearly bend or prevents further operations with the same legal entity. We are changing the jurisdiction for legal entity towards the United Kingdom.

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Operator [27]

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Your next question comes from Igor Kuzmin from Morgan Stanley.

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Igor Kuzmin, Morgan Stanley, Research Division - Equity Analyst [28]

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[Interpreted] I'd like to clarify one thing. According to your guidance, nust on this call, the average realized price for Europe and other countries, in the course of 2019, is going to be 13% lower than that in 2018. So you had $246 per thousand cubic meters. That was the average realized price for 2018. And when reduced by 13%, this translates into $215 per thousand cubic meter. Can you confirm my calculations? So is the average realized price for 2019 going to be $215. My extra question relates to the organizational changes that you already commented on. Would you consider further divestments or sales of stakes or divestment from non-core assets, or the other way, acquisition of oilfield services companies and the likes? So it would be very nice to hear the comments?

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Alexander Ivannikov;Head of Department, [29]

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[Interpreted] The first question is going to be handled by Mr. Mikhail Malgin, Deputy Head of Department at Gazprom Export.

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Mikhail Malgin;Deputy Head, Gazprom Export, [30]

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[Interpreted] Yes, I can confirm your calculation is correct. That's the price -- average realized price level we expect for the full year of 2019. Thank you.

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Alexander Ivannikov;Head of Department, [31]

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[Interpreted] Well, the answer to your other question is going to be rather concise. I can hardly add anything on top of what the chairman of our management committee, Mr. Miller, has already produced as his comment. Regarding changes that have already taken place, well, his comments are available. There is nothing further to add. And as to the changes that could potentially occur, well, there is nothing to comment here.

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Operator [32]

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The next question comes from Ildar Khaziev from HSBC.

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Ildar Khaziev, HSBC, Research Division - Analyst [33]

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[Interpreted] I have a couple of questions. One relates to the South corridor, which according to (inaudible), you have decided to complete. So Phase II of the project is going to be constructed, and to my knowledge, some tenders have already been run. Why would you need this project? And why would it require any extra capacity? Also, whether you have included CapEx required into full year CapEx guidance and for the following years as well? My other question relates to your payables that's dedicated line in your financial accounts. Could you please explain the breakdown as of the end of Q2, because otherwise, it's rather challenging to understand how this matches the working capital net change?

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Alexander Ivannikov;Head of Department, [34]

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[Interpreted] The first question is going to be handled by Mr. [Sergey Ritsholt], Deputy Head of Division.

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Unidentified Company Representative, [35]

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[Interpreted] Well, we are not considering any fully fledged completion of Phase II for the South corridor. Indeed, we are considering construction of smaller loopings which are required to better offset the balance of gas in different regions within the Russian south. As you are aware, our CapEx program is going to be considered by the management committee in November. That's for the year as of 2020 through 2022. So potential comments are going to be available by then. So far no final decision has been made. And just to reiterate, no fully fledged completion is under consideration.

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Alexander Ivannikov;Head of Department, [36]

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[Interpreted] The second question of yours is going to be handled by Mr. Mikhail Rosseev, Deputy Chief Accountant.

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Mikhail Nikolaevich Rosseev;Deputy Chief Accountant, [37]

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[Interpreted] Thank you for your question. On our financial accounts, which we have disclosed today, the payables line is comprised of the following: Our liabilities to contractors and suppliers. Also, advanced payments received fixed assets acquired, dividend to be paid, full year bonuses and other personal expenses. So actually the dividend subline contributed most of the nearly RUB 374 billion change. So -- sorry, the dividend line went up by RUB 374 billion because the payments have already been made in the third quarter of the year. But this was offset by reduced amounts due to contractors and also reduced amounts due for construction.

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Operator [38]

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We now have a question from Ildar Davletshin from Wood & Company.

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Ildar Davletshin, Wood & Company Financial Services, a.s., Research Division - Equity Analyst [39]

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[Interpreted] I have 3 questions, if I may. First of all, I would like to follow up on the previous question regarding the net change in your working capital. For 2 quarters running, we have observed positive development. That is an improvement of your working capital; that is the reduced amount of working capital required. Is that cyclical or seasonal feature? Is it going to be the reversed or not? Is it explained by the reduction in your deposits? Or does it reflect efforts by the company to improve payment discipline? My other question is rather concise and relates to CapEx plan. In the first half of the year, your actual CapEx was lower than in the previous year first half, in ruble terms, while the original guidance suggested somewhat of a growth for the full year. I assure that the CapEx plan for the full year of 2019 in ruble terms is going to grow? Or is there a chance that there will be a year-on-year reduction for the full year results, given that it was somewhat down in the first half already? Now my third question relates to your prices. And there is a significant downward development as compared to the previous guidance. So $215 per thousand cubic meters, how is that defined? Is that coming mostly because of the lower spot prices in the European market? Or is there also a contribution from the change in the basket of your sales? That means, have you started selling more gas, based on the spot price contracts?

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Alexander Ivannikov;Head of Department, [40]

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[Interpreted] Colleagues, we are going to answer this question and then take just one more before we wrap up. So the first couple of questions will be handled by Mr. Mikhail Rossev, Deputy Chief Accountant; and the third question will be handled by Mr. Mikhail Malgin, Deputy Head of Department of Gazprom Export.

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Mikhail Nikolaevich Rosseev;Deputy Chief Accountant, [41]

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[Interpreted] Regarding your first question, the working capital, as in the recent periods, has mostly been affected by deposits, those placement of deposits and also withdrawal of those deposits, and also, the maturities and the terms. So this is not always evenly spread and that factor is going to play a role looking forward in the future periods. Also, FX has played its role on top with receivables rebased, based on the FX change, given that have receivables for export sales denominating in foreign currency. The company is working to optimize the overall structure, but again, 3 factors play here that is: one, deposits; two, market environment; and three, FX.

Interpreted Regarding the second question of yours, while it has historically been so that most of the CapEx is actually incurred in the fourth quarter of the year because we're thankful that we have delivered most of the cash CapEx spend exactly there and then. So it is not evenly spread across the year and the first half year results are not quite telling for the full year performance. So whether our estimates based on the results of the first quarter were much on target or not? Frankly, given that PJSC Gazprom is a major organization and some of its subsidiaries may change their budgets and the PJSC itself as well as it's managerial bodies may revise the CapEx. Their numbers are changing somewhat but not significantly. So I wouldn't say there is going to be any material change for the full year CapEx guidance.

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Mikhail Malgin;Deputy Head, Gazprom Export, [42]

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[Interpreted] As to the price, well, we always disclose the average realized price as the fact based on the average basket of our sales, which encompasses contracts with an oil link formula, spot-based contracts, forward contracts as well as contracts with a fixed price. So it's an overall metric. Thank you.

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Alexander Ivannikov;Head of Department, [43]

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[Interpreted] And one final question that we can take at this point. Please go ahead.

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Operator [44]

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The final question comes from Bekzod Sarikov from VTB Capital.

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Ekaterina Rodina, VTB Capital, Research Division - Senior Oil & Gas Analyst and Equities Analyst [45]

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[Interpreted] Frankly, speaking I have a rather lengthy question and maybe it's worth discussing at length with your IR team. Well, I'd be very happy to get some operating metrics for you regarding the Ust-Luga project substantiating the RUB 750 billion CapEx. What kind of facility it's going to be, LNG and also gas processing or anything extra? Any compressor stations required for the purposes of this plant? Any new pipelines or connections to be constructed? Do you assume that your partner is going to finance the other 50% -- the remaining 50% of the project? Does this also mean that you're going to finance the processing part, the petrochemical part of this facility as well? Is that petrochemical part factored into the RUB 750 billion of total CapEx? So that's an overarching question, and I'd be happy to get some more insight into that?

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Alexander Ivannikov;Head of Department, [46]

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[Interpreted] Thank you, Katerina for your question, which we are going to take 1 extra hour to respond or 2. Well, frankly, half of the answers to your question are contained in the press release disclosed at our website immediately after the project was presented. That happened on the 29th of March. So I would refer you to the press release of the 29 March available at Gazprom's website. The other half of answers would be coming later because we currently as early as the design phase of the project, just to get it on the record, let's put it straight, we have 2 elements in the project: the chemical gas processing part and the LNG part. We are only taking participation in the second, which is LNG part of the project, and we are only contributing 50%; let's make it clear. Now we are going to be in direct contact, and as the design phase progresses, we'll be happy to disclose further specific numbers, and Mr. Mikhail Malgin would like to follow up.

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Mikhail Malgin;Deputy Head, Gazprom Export, [47]

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[Interpreted] Just a quick follow-up to one of the previous questions regarding our sales target for the full year, I guess, exports to Europe. We said 192 billion cubic meters is our target, but that's the worst case. Actually, we remain optimistic, and we believe that the base case rather than the worst-case scenario is going to be implemented in the course of the year. So we're rather looking up to the number of 194 billion to 198 billion cubic meters for the full year gas exports to Europe. Thank you.

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Alexander Ivannikov;Head of Department, [48]

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[Interpreted] Ladies and gentlemen, I would like to thank you for taking part and echo, and I would like to use this opportunity to congratulate you. In connection with the Oil and Gas Industry Worker Day, which we celebrate on the first Sunday of September, 1st of September in this case. And I would like to congratulate you on behalf of Gazprom and the whole team, since you are related, of course, to the oil and gas industry. And I would like to thank [Constantine Golato], our interpreter today, for his great effort. Thanks, again.

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Operator [49]

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Ladies and gentlemen, that does conclude today's call. Thank you for joining. You may now disconnect your lines.

[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]