PJSC LUKOIL
Q3 2018 Earnings Call Transcript

Published: 29 Nov 2018

[Executives:]

Alexander Palivoda - Head of IR Alexander Matytsyn - CFO Pavel Zhdanov - VP for Corporate Development and IR Gennady Fedotov - VP for Economics and Planning Vyacheslav Verkhov - Chief Accountant

[Analysts:]

Alexander Burgansky - Renaissance Capital Henri Patricot - UBS Igor Kuzmin - Morgan Stanley Andrey Polischuk - Raiffeisen Bank

[Operator:]

Good afternoon, ladies and gentlemen, and welcome to the LUKOIL's Third Quarter and Nine-Month 2018 Financial Results Conference Call. My name is Rhona, and I will be your coordinator for today's event. For the duration of the call, you will be on listen-only. However, at the end of the presentation, you will have the opportunity to ask questions. [Operator Instructions] I would like to inform you that questions from the press will not be accepted. I will now hand you over to Alexander Palivoda, Head of Investor Relations, to begin today's conference. Thank you.

[Alexander Palivoda:]

Thank you, Rhona. Good afternoon, ladies and gentlemen, and it's our pleasure to welcome you today on LUKOIL's third quarter and nine-month 2018 financial results conference call and webcast. Thank you for joining us. On today's call, we have our Chief Financial Officer, Mr. Alexander Matytsyn; VP for Corporate Development and Investor Relations, Mr. Pavel Zhdanov; VP for Economics and Planning, Mr. Gennady Fedotov; Chief Accountant, Mr. Vyacheslav Verkhov; as well as our colleagues from the accounting team. Mr. Matytsyn will start today's call with a general overview of the results, followed by a more detailed discussion by Pavel Zhdanov and myself. We'll then have a Q&A session. I have to draw your attention to our cautionary statement before we start. Some of our comments during this call constitute forward-looking statements that involve risks, uncertainties, and other factors which may cause our actual results to be materially different from what's expressed or implied by such forward-looking statements. So now, I would like to hand over to Alexander Matytsyn.

[Alexander Matytsyn:]

Thank you, Alexander, and good afternoon, ladies and gentlemen. Third quarter results were outstanding for LUKOIL. The growth was driven by a supportive price environment and even stronger operational performance. Our daily hydrocarbon production increased by almost 5% compared to the third quarter of 2017, which translated into a solid 3.7% production growth year-on-year for the nine months of 2018. This is the highest growth rate for LUKOIL over the past decade. It presents a substantial outperformance [ph] on our additional production plants for the year as well as on our strategic targets. Key drivers for such strong dynamics were our international gas projects and crude oil product ramp-up following the easing of OPEC+ limitations from July. Importantly, the growth was achieved without compromising our production mix. The sale of high-margin barrels in our portfolio continued to increase, and reached 27% in the third quarter of 2018. As for the downstream, our refinery volumes were almost flat year-on-year, and we also kept light products yield at steady levels. At the same time, we posted strong volume growth in our retail business in premium marketing channels. The combination of higher oil price and weaker ruble further accelerated our financial performance, which was partially muted by the domestic prices lagging the export netbacks. Our EBITDA for the nine months of 2018 was almost RUB840 billion, which is 38% higher year-on-year. EBITDA for the third quarter of 2018, of more than RUB320 billion became an all-time high result. The growth was mainly driven by our upstream business, underpinned by the exceptional project execution and strong production dynamics. Financial performance of the downstream was also very robust considering weak benchmark refinery margins. We almost doubled our free cash flow in the first nine months of 2018, to more than 300 million, RUB40 billion or $5.6 billion. Almost half of it was generated in the third quarter. Apart from strong operation cash flow, our investment discipline was an important growth factor as our capital expenditures were below originally planned levels due to the cost savings. Overall, focus on cost efficiency across the value chain supported and will further support our cash flows. Third quarter results confirmed, again, our leadership position in terms of EBITDA, and free cash flow per barrel of oil equivalent among Russian peers, and even certain international majors. The leadership is based on our vertically integrated value chain, efficient production mix in the upstream, and the exceptional quality of our downstream asset portfolio. We continue to deliver upon our progressive dividend policy. In October, the Board of Directors recommended the interim dividend of RUB95 per share, which is 12% higher year-on-year. We consistently outperform on the minimum policy targets, setting the higher base for future dividend growth. I would like to reiterate that we are able to continue delivering on the progressive dividend policy on the long-term horizon in any environment. Among other important recent developments was the progress on the strategic initiatives announced in the beginning of this year. Earlier in November, we cancelled 100 million treasury shares, and reduced the share capital to 750 million shares. Taking into account complications related to the consolidation procedure, and the fact that the share consolidation is not commonly practiced in Russia, this action evidences our very strong commitment to the best corporate governance standards. To the benefit of our shareholders, the consolidation of treasury shares triggered the upward revision of our rate in the MSCI Indexes, resulting in an incremental inflow of funds into LUKOIL shares. In September, we launched the share buyback on the open market, and to date we have purchased more than $430 million worth of shares. This oil price correction proves the efficiency of our chosen strategy, which enables us to navigate the company through the periods of price volatility without compromise in business growth and distribution to shareholders. At LUKOIL, we're very focused on investment discipline. The conservative oil price scenario of $60 per barrel that we use to test all of our international projects is surely the right approach. We currently finalized our next-year budget whereby investment discipline is a top priority. Our key focus is on the Russian upstream, and every dollar of investment is properly evaluated before we decide on its allocation. Since the beginning of the year, we generated substantial incremental cash flows, and we actively work on preparing the existing and potential reinvestment opportunities. We invest sufficient time to evaluate compliance of projects with our key investment criteria, as well as to prepare documentation and securing necessary approvals. As we start reinvesting the incremental cash flows, our capital expenditures in 2019 will exceed 2018 level, and our production volumes will also be higher than the plans we presented in March. Given our actual free cash flow generation to date, we have the capacity to further increase shareholder distributions. [Technical difficulty] subject to the oil price dynamics, we might complete the announced $3 billion share buyback program already next year. With this, I would like to pass it over to Pavel who will elaborate on the upstream results.

[Pavel Zhdanov:]

Thank you, Alexander, and good afternoon, ladies and gentlemen. The macro environment in the third quarter and nine months of 2018 was very favorable for our upstream business. The increase on oil prices was accompanied by a weakening of the ruble, which resulted in a 9% oil price growth in ruble terms quarter-on-quarter. The average oil price net of taxes hit a record high level of more than RUB1,700 per barrel. Our total daily hydrocarbon production for the nine months of 2018, excluding West Qurna project, increased year-on-year by a significant 3.7%, or by 83,000 barrels per day. This is well ahead of our strategic targets, and results in acceleration of our cash flows. Most of the growth was represented by high-margin barrels, the share of which in our total hydrocarbon production increased by six percentage points year-on-year, to 27%. In absolute terms, high-margin production volumes increased by an impressive 34% primarily driven by the Caspian crude oil, heavy crude oil, and international gas. As OPEC+ agreed to raise production limits from the first of July, we rapidly increased our daily crude oil production in Russia by more than 30,000 barrels per day. Most of the ramp up occurred in July, much faster than we initially anticipated. As a result, our production in West Siberia increased by 1.3% quarter-on-quarter, and we fully utilized the spare capacity we built up when we were cutting our production in the beginning of 2017. Further production growth is therefore subject to incremental drilling and investments. Supportive macro production growth, increase share of high-margin barrels, and stringent cost control underpinned record EBITDA in our upstream business. In the nine months of 2018, it increased by 72% year-on-year to RUB680 billion, with 40% of it generated in the third quarter. In absolute terms, most of EBITDA growth was driven by our assets in Russia. However, the contribution of our international upstream was also substantial on the back of higher oil and gas prices, as well as growing volumes at our gas projects in Uzbekistan. I would like to specially highlight the results of our cost control initiatives, as we were able to reduce our per unit lifting costs in ruble terms in Russia and internationally quarter-on-quarter and year-on-year. This is a great result relative to industry trends, and we continue to put effort into raising cost efficiency as a way to unlock the incremental potential of our vast resource base in Russia. Let me now move to the detailed project discussion. At Filanovsky field, we launched the fifth well and the second development stage in October. It is a production well with bilateral horizontal smart design and completion. Its initial daily flow rate is 3,300 tons or 25,000 barrels of oil. Further development of the field aims at sustaining the production plateau at 6 million tons of crude oil per year. In 2019, we plan to complete the drilling program at the second development stage and proceed with drilling in the third stage. We recently installed the substructure of the wellhead platform for the third stage in the sea and the top side of the platform is currently 70% complete. At Korchagin field, we proceed with the drilling program. During the third quarter, we drilled one well from the fields wellhead platform. We also drilled a sidetrack at the field's further development stage. As a result, production in the field increased by 6% quarter-on-quarter. In October, we completed the second well at the wellhead platform. For the first time, we used the electrohydraulic intelligent completion that allows control to control the horizontal well bore in the real time mode providing for an optimized oil influx and higher operational safety. Now moving to our onshore fields; our mature fields contributed most of the production growth post the easing of OPEC+ production limitations from July. Our West Siberian production increased as we launched the wells that were shutdown in 2017 to cut production. Production growth from the low base is obviously a temporary trend. But I would like to reiterate that the acceleration of production decline rates and cost efficiency are the key focus areas for us at our mature fields. Our preliminary plan for 2019 envisages the acceleration of production decline in West Siberia to 2%, which is ahead of our strategic targets. We also achieved very good progress on the cost side. For example, our average per-meter drilling cost for deviation of well in the region were reduced by solid 5% year-on-year while lifting cost remains stable in nominal terms in rubles for the last 18 months. The recently introduced changes to the profit based tax regime enable us to include two more West Siberian fields into the list. This will result in higher share of our production covered by this new tax regime. The launch of profit based tax creates an additional upside potential cost strategic targets in respect to the share of high margin barrels. This is a great new reinvestment opportunity for us, and we will accelerate spending into these projects. Our heavy crude oil production in Timan-Pechora for the nine months of this year increased by 29% year-on-year. The growth at the Yaregskoye field was even more impressive. The field produced 60% more heavy crude oil year-on-year. New steam generation facilities were launched both at the Yaregskoye and Usinskoye fields which will facilitate further production growth. The development of the fields progresses in line with our plans. Our crude oil production from reservoirs were low permeability continues to grow. At Vinogradov field during the first nine months of this year, we successfully drilled 13 horizontal production wells which resulted in production growth by 12% year-on-year. The new wells that we drilled yield higher flows and are cheaper as compared to the wells we drilled a year ago. One of the reasons is the new approach to multi-stage hydrofracing like using less proppents for port frac as well as optimized frac fluids. The development of the field continues in the pilot mode. And we plan to move to the commercial development stage next year. We also continue with production drilling at Imilorskoe field in order to ramp up production to a plateau level of approximately 5000 barrels per day. We launched 50 oil production wells in the field since the beginning of the year. In the third quarter, we achieved a significant 14% quarter-on-quarter production growth while the year-on-year the growth was 23%, which puts us right on track fields production plateau level. Now moving to our gas projects in Uzbekistan; our gas production from the region increased by impressive 84% year-on-year driven by the early launch of all of the gas treatment and processing facilities at Kandym and Gissar projects as well as accelerated drilling. As of now production is already at its designed daily level equivalent to 1.35 billion cubic meters of marketable gas per year in our share. We are very pleased with the outperformance in Uzbekistan as it represents a substantial contribution to our production profile and financial results. Now, few words on other international projects; in Iraq, the development of West Qurna-2 goes on track, and our financial exposure was further reduced to approximately $350 million. In addition, we were reimbursed for the low remuneration fee in the second and third quarters of last year due to the applications of the performance factor. We get ready to start the next phase of the project to double production by 2025. This expansion will be financed from the current production. At Block 10, we started drilling another appraisal well and plan to further accelerate the project. We achieved good progress in Mexico by expanding our exploration assets portfolio in the area and diversifying risks by cooperating with Eni. Start of drilling for the first exploration well is scheduled for the end of next year. With that, I would like to pass the floor to Alexander Palivoda.

[Alexander Palivoda:]

Thank you, Pavel. I will continue with our downstream operations. Benchmark European refining margins moderately improved quarter-on-quarter driven by the seasonal factors. In Russia, benchmark refining margins recovered more significantly underpinned by higher -- differentials and lower excise tax while product prices were relatively flat. Our better than average product slate resulted in a more substantial increase in our actual results compared to benchmark. In Russia, our daily refinery throughput volumes increased by 1.4% quarter-on-quarter while light product yield decreased slightly due to maintenance work hydrocracking unit at Perm Refinery and catalytic cracking units at Nizhny Novgorod refinery. The decrease was partially offset by improved utilization of a secondary processing unit at our unit in refinery at Volgograd. On a year-on-year basis, our light product yield continued to grow on the back of maximizing utilization of the conversion facilities built as part of a major refinery upgrade program completed in 2016. We maintained the volume of cross supplies of semi-finished products between our refineries during the nine months of 2018 at the level of corresponding period of last year. To remind you, this is a very efficient mechanism that we rely on to incrementally enhance our consolidated product baskets. At our refineries in Europe, throughput volumes increased by solid 6.4% quarter-on-quarter. And this was backed by seasonal demand growth from motor fuels as well as high utilization of refinery in Bulgaria plus maintenance works in the first-half of 2018. The significant increase in light product yield was also driven by completion of maintenance works at secondary processing units at our refineries in Bulgaria and the Netherlands. Regarding our new projects in downstream, in September, we started piling works for the delayed coker complex at Nizhny Novgorod refinery. As we discussed at the previous call, all of the long lead items for the complex are already under construction at the contractor's yard. To remind you, this project will be the main contributor to a reduction in fuel oil output and the increase in light product yield in 2021, which will further support our already strong positions for the upcoming IMO regulation. Our fuel oil yield already stands at as low as 10% while mid distillate yield is a solid 46%. Our competitive advantage is further strengthened by significant production of oil and bunker fuel, which is already in full compliance with the IMO requirements. Our priority market and channels continue to expand really not only by the seasonal factors but also by our premium quality product offering. We delivered 6% growth in retail sales volumes of our motor fuels year-on-year and achieved a much faster growth in profits from non-field goods and services which increased by 21% in Russia and 15% internationally. The later represents a great progress in our strategy aimed at increasing the coverage of operating expenses of our retail network by profits from non-fuel sales. We also continue growing in the premium sales channels. Our bunker fuel sales volumes increased by solid 8% year-on-year, and this was driven by expansion into new ports and also market growth at the Port of Novorossiysk. In July, our new aircraft refueling facility started to operate at the Sheremetyevo airport in Moscow. And it was a key factor behind double digit growth in the end customer sales of jet fuel. Our integrated margin from processing crude oil at the refineries in Russia and distributing the products through our marketing channels improved quarter-on-quarter. And this was driven by slightly lower crude oil export netbacks, lower domestic exercise taxes and also seasonally higher sales volumes through the premium channels. As a result, the Russian downstream became the largest contributor to the quarter-on-quarter increase in overall downstream EBITDA, which grew by 15% to RUB82 billion. Internationally, our downstream EBITDA amounted to RUB23 billion increasing by 21% quarter-on-quarter. This growth was driven by better performance of our trading and retail businesses. At the same time, the positive effect of higher European benchmark refining margins was muted by lower positive inventory effect. Year-on-year EBITDA dynamics in the downstream was mainly driven by the international part of the business due to accounting specifics of hedging as part of our international trading operations, which resulted in substantial gains in the first nine months of 2017. Trading margin was also weaker than last year. Year-on-year EBITDA of our downstream in Russia was almost flat as significantly lower benchmark refining margins were offset by positive inventory effect and our premium quality product slate. Now, briefly on the dynamics of our financial results; the quarter-on-quarter increase in revenue was driven by both price and volume factors. In addition to all production growth, we also released more than half a million tons of crude oil from inventory and increased international crude oil trading volumes. However, overall crude oil sales volumes increased quarter-on-quarter by only 0.5 million tons and this was due to substantial inventory release in the second quarter. Petroleum product sales volumes increased by two million tons quarter-on-quarter due to high refinery throughput as well as inventory release of 0.7 million tons compared to inventory accumulation in the previous quarter. We continue delivering great results on our midterm cost optimization targets and executing stringent control over our cost base. Our listing cost in Russia in the third quarter decreased by 2% and this was achieved both on a quarter-on-quarter and year-on-year basis as a result of cost optimization measures saying that higher energy efficiency, better management of field infrastructure and maintenance works enhancing secondary oil recovery methods and technologies in general. This is an outstanding dynamics considering the industry trends and gradual depletion of our reserve base. Costs and processes optimization is a clear strategic target for us as it enables us to unlock incremental production potential at our fields. Our lifting costs outside Russia, in dollar terms, decreased even faster by impressive 10% quarter-on-quarter and 30% year-on-year. This was driven by the rapidly growing share of gas production. The increase in our refining expenses in Russia by 17% quarter-on-quarter was mainly driven by one-off effect of maintenance works at own additives production unit at the Nizhny Novgorod refinery. Temporary suspension of own additives production resulted in high utilization of purchased additives for guzzling and so this was driving the costs up. In Europe, our per unit refinery expenses decreased by 7% in euro terms and by 4% in ruble terms and this was a result of high expenses in the second quarter of 2018 and due to scheduled maintenance works at Burgas refinery. Growth in refining expenses at third party refineries was driven by the specifics of our contracts and due to higher refining margins in Canada. Among other substantial factors which impacted our quarter-on-quarter EBITDA dynamics were a lot of positive effects, but due to lag effect in the upstream and substantial effect from releasing crude oil and products inventory. On the cost side a moderate increase in transportation expenses was mainly due to ruble devaluation and an increase in crude oil expected volumes. And I would like to spend a bit more time on the SG&A cost line. The substantial quarter-on-quarter increase was driven by the beginning of accounting for the new long-term incentive plan for management and key employees. The plan is for the period from 2018 to 2022 and it is based on 40 million shares. The plan was approved at the end of 2017 and implemented in July this year. And according to the IFRS Rules for share based plans the fair value of the plan was estimated at RUB157 million and a discharge to SG&A by equal installments of RUB7.18 billion per quarter. As part of the plan covers the period from the beginning of the year, in the third quarter, we charged expenses for nine months. So for the first three quarters of 2018, in the overall amount of RUB23.5 billion, next quarter this sum will decline to RUB7.8 billion and importantly as far as the plan is based on real shares, these are non-cash expenses. One of the main factors affecting quarter on quarter profit dynamics was a decrease in foreign exchange gain by RUB11 billion as a result of lower volatility of the exchange rates. Our DD&A line increased by RUB8 billion quarter-on-quarter and the increase was mainly due to the launch of new production facilities in Uzbekistan in the second quarter as well as ruble devaluation and an increase in crude oil production in Russia in the third quarter. Another factor behind profit dynamics was net impairment loss in the second quarter of RUB5 billion as well as settlement in the third quarter of 2018 of a RUB4 billion claim won in a legal case related to one of our international assets. Our capital expenditures in the nine months of 2018 decreased by 10% year-on-year to RUB338 billion and this was due to completion of construction works at the main production facilities in Uzbekistan. The decline was partially offset by higher CapEx in the Russian downstream due to the beginning of construction works at the new facilities in Nizhny Novgorod and other refineries. The quarter-on-quarter increase in our CapEx was also driven by the Russian downstream. Our free cash flow generation was very strong in the third quarter on the back of growing operating cash flow and relatively flat CapEx. Before working buildup the number is approximately RUB200 billion. The increase in working capital of RUB40 billion was driven by higher hydrocarbon prices, ruble devaluation and growth in trading volumes. Net of working capital, the free cash flow was RUB160 billion and this is 16% up quarter-on-quarter and we directed RUB104 billion to pay out dividends and buyback LUKOIL shares and we also paid back RUB22 billion of debt on a net basis and our cash position increased to RUB372 billion as at the end of quarter. Our balance sheet remains very strong with net debt to EBITDA of only 0.2 as at the end of the third quarter. And in the third quarter, we extended a lease agreement for railroad tankers in Russia on new terms, and as a result, under IFRS Rules we classified it as financial reasons. This was added as like RUB23 billion of incremental total debt position for us. So, I'd like to stop here and so we'd like to pass the word back to Pavel

[Pavel Zhdanov:]

Thank you, Alexander. Before opening the line for questions, I would like to update our 2018 guidance and provide some color on 2019. We now expect our total hydrocarbon production to grow by 3.5% this year, which is 3x faster than our initial plan. A substantial part of this growth results from an earlier launch of facilities at Kandym and Gissar projects in Uzbekistan. This has a certain impact on our production growth plans for next year. However, since we start reinvesting incremental cash flows into upstream, we will continue growing our production next year by approximately 1% subject to OPEC plus decisions in December. Taking into account the higher growth rate this year, the cumulative production growth for the first two years of the new strategy implementation exceeds 4.5%, which is twice faster than our initial guidance. As we explained at our strategy presentation, the incremental production growth is primarily the function of incremental investments. We had a plan to spend approximately $8 billion or RUB500 billion of CapEx this year. We made a lot of effort during the year to achieve structural cost savings and now expect 5% to 10% lower capital expenditures for this year compared to our plan. The effect of these savings will be carried over to next year. This means that despite spending more to accelerate the production growth, we don't expect our next-year CapEx, excluding service contracts, to exceed our base level of $8 billion, which at the current exchange rate is slightly more than RUB500 billion. We are very optimistic about the future. Our business model is very sustainable, and our strategy is designed for pretty much any oil price environment, whereby we can comfortably deliver both business growth and progressive dividend policy. We continue to be focused on continuous delivery of shareholder values through diligent project execution, investment discipline, and a very clear capital distribution policy, which makes LUKOIL a unique investment proposition among the peers. With that, I would like to open the floor for questions and answers, please.

[Operator:]

[Operator Instructions] We do have some questions coming through. This first question comes from Alexander from Renaissance Capital. You're now un-muted.

[Alexander Burgansky:]

Yes, good afternoon, and thank you very much for the presentation. I have two questions, if I may. So, first of all, you gave the guidance for the total hydrocarbon production growth next year, in 2019, of 1%. I was wondering if you could split out of this figure your expected production of oil in Russia next year. And the second question, I was wondering if you could provide your estimates of how much free cash flow you have generated this year above the $50 per barrel threshold? Thank you very much.

[Pavel Zhdanov:]

Yes, thank you, Alexander. It's Pavel here. The answer to your first question with regard to the liquids in Russia, the plans for next year, we plan to stay flat on that one. And the answer to your second question, the incremental free cash flow for the first three quarters of this year is approximately $3 billion.

[Alexander Burgansky:]

Okay. And if I can just follow-up on that estimate of $3 billion, when you have presented here a program for the buyback in the first place, there was an understanding that there would be some alignment of the timing between the time in which this extra free cash flow is generated, and when you actually spend this money on the buyback. So I don't know, maybe perhaps you could update us on what your views are with regards to the timing of the buyback. You did mention that you would expect to complete the program fully next year. But it appears you are generating quite a significant amount of excess free cash flow, and I was just wondering what your views are on the timing of that spend.

[Pavel Zhdanov:]

Alexander, we specifically explained that there is no exact formula and there's no perfect alignment of when we generate incremental free cash flow and when we spend the money either for CapEx or buyback, okay. We will follow the formula over the horizon of the strategy, that's what we said earlier. But considering the actual performance, the actual cash flow the company has generated, as Mr. Matytsyn has mentioned, we decided -- we made a decision to accelerate the pace of the buyback, so you can expect to see higher purchases than which have been done previously -- in previous weeks.

[Alexander Burgansky:]

Thank you very much.

[Operator:]

Okay, this next question comes from Henri Patricot from UBS. You're now un-muted.

[Henri Patricot:]

I want to thank you for the presentation. I have a couple of question on the upstream on Filanovsky. I was wondering if you can give us an update, your latest expectations on how long you can maintain this plateau of production level given recent performance, and whether there is any upside to the plateau production. And secondly, I wanted to follow-up on the comments you made around your fuel oil production. So if I understood correctly, you're already producing some fuel oil [indiscernible], which is compliant with IMO 2020. Can you give us a sense of how much of your fuel oil yield will be compliant by 2020, and how much of it will be high sulfur fuel oil? Thank you.

[Pavel Zhdanov:]

Yes, hi, Henri. Thank you for your question. We currently plan to stay at the plateau level of six million tons at Filanovsky for at least five years, that's the current plan. And with regard to your second question, I understand you were asking about the high sulfur fuel oil. After the delayed coker facility in Nizhny Novgorod will be completed in 2021, we will have less than one million tons of high sulfur fuel oil, which is less than 3% of overall production. I hope this answers your question.

[Henri Patricot:]

Okay, thank you. Yes, also wondering [indiscernible] yield, how much of that is the ultra-low sulfur, so below 0.5% currently, how much will it be next year, and in 2020 in particular, before the coker starts up?

[Alexander Matytsyn:]

So, it's Alexander here. Actually most of the current fuel oil production is high sulfur fuel. But again, we'll be reducing that substantially when we launch the new unit at the Nizhniy Novgorod refinery. And actually 10% is already quite a low yield. And assuming the high yield we have for mid-distillates of 46%.

[Henri Patricot:]

Okay, understood. Thank you.

[Operator:]

The next question comes from the line of Igor from Morgan Stanley. You're now un-muted.

[Igor Kuzmin:]

Good afternoon. I just wanted to maybe get some color if it's possible to comment on the remaining free cash flow which is not going to be utilized for the purpose of the buyback, what sort of projects you are contemplating, and if not, when potentially we will be able to maybe hear from you guys on directionally where this money may potentially be utilized and deployed [ph]? Thanks.

[Pavel Zhdanov:]

Yes, Igor, the plan, as we have consistently said, to reinvest into the business ideally and primarily organically into our existing projects, mainly in Russian upstream. But we're also considering various projects in downstream, but at the moment we have not made any investment decisions, so we will update you as soon as we have further information.

[Igor Kuzmin:]

Okay, thank you.

[Operator:]

The next question comes from Andrey from Raiffeisen Bank. Andrey, you're now un-muted.

[Andrey Polischuk:]

Yes, hello. Thank you very much for the presentation. I have one question on Uzbekistan assets [ph], could you give us your estimate how much you're going to receive from Uzbeki assets next year or maybe just some estimation of your expected price for the project? Thank you.

[Pavel Zhdanov:]

Yes, the number I can give you is the EBITDA for the nine months of the year, which was around $1 billion. And you can expect this to grow because the production will still be growing next year.

[Andrey Polischuk:]

Okay, thank you for that.

[Operator:]

There are no further questions. [Operator Instructions]

[Alexander Matytsyn:]

In case if there are no further questions, we would like -- do you have any questions? Okay, if there are no further questions, we would like to thank everybody to be on this call, and we would like to conclude the call, and see you next time. Bye-bye.

[Operator:]

Ladies and gentlemen, thank you for joining today's conference. You may now replace your handsets. Thank you.