MOL Magyar Olaj- és Gázipari Nyilvánosan Muködo Részvénytársaság (MOL) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and welcome to MOL's Second Quarter 2026 Results Conference Call. I am Marton Teremi, Head of Investor Relations. The speakers on today's call are Dr. Gyorgy Bacsa, Chief Operating Officer; Dr. Akos Szekely, Chief Financial Officer; Mr. Zsombor Marton, Executive Vice President of Upstream; Mr. Gabriel Szabo, Executive Vice President of Downstream; Mr. Peter Ratatics, Executive Vice President of Consumer Services; and Mr. Csaba Bozoki, Director of Institutional Waste Management at Circular Economy Services. Before giving the floor to the speakers, let me highlight some technical details. We will use Microsoft Teams as a platform to hold our conference call. The presentation is accessible at our website at molgroup.info, and slides will be shared in Teams during the call as well. [Operator Instructions] I would now like to draw your attention to the cautionary statement on Slide 2. And now we can start the content part with Dr. Gyorgy Bacsa, taking us through the highlights of the second quarter.

Good morning. Let's start with an overview of MOL Group's results. Broadly, we have seen increasing volatility in the environment, which eventually resulted in an outstanding market environment, especially for the Upstream and Downstream sectors in the oil and gas business generally, and in MOL's region specifically as well. The Group clean CCS EBITDA reached nearly $1.3 billion in this quarter. It was heavily supported by the elevated oil and gas prices, and it is reflected in the Upstream and Downstream results, also in the margins, which touched historical highs in several product lines. The results were also helped by the resumption of crude oil deliveries through the Druzhba pipeline system at the end of April. We, however, faced serious operational bottlenecks, mainly due to the AV3 fire from last year. The repair of the AV3 unit is still ongoing. It is on time according to schedule, and we expect to put it back into operation by late September. Also in this quarter, one of the Steam Crackers in the Hungarian Petrochemical unit was damaged. There was a very tragic accident, and as a result, Downstream production volumes are constrained. In respect of the retail segment, however, the region is shaped by price controls, governmental interventions, a constrained retail margin environment, and, of course, security of supply issues, which are driven not only by pricing but also by the summer temperatures and the low level of the rivers, creating logistical issues and security of supply concerns in many of the countries. The Consumer Services segment suffered a negative impact due to the price controls spreading around the region, and they posted a 23% decrease in EBITDA year-on-year. A few operational developments. I think one of the most interesting ones is how we stand with the transaction. We announced the latest developments. We not only extended the general license for negotiating and closing the deal, but we also concluded with the Serbian government the full package of our shareholders' agreement, which is practically a precondition to the transaction itself, formulating a joint venture with the state, with the host country. With the seller, we also reached a very close-to-final position. We submitted all the documents to OFAC, and now we are waiting for the execution license to be able to sign and conclude the transaction documents as well. Other developments: MOL also completed a landmark Polish Zloty Bond issuance, which was the first of its kind in the Group's history, and we extended the Hungary and Croatia revolving credit facilities. Regarding the fire incident that happened last year, we also reported that we received the first tranche of compensation from the insurance company in the amount of $100 million. Regarding the shareholder structure of MOL, two developments during the summer: MOL New Europe Foundation was dissolved, and the 10.5% shareholding will be returned to the founders, namely half of it to the state and half of it to MOL Treasury. The Mathias Corvinus Collegium Foundation shares will be transferred to the Hungarian state. The Corvinus University Foundation is still operating, and according to legislation effective from 27 September, the foundation model is kept for the universities. Finally, we just announced last week that we signed an SPA with Shell to acquire BG Cyprus Ltd., which holds a 35% non-operated interest in Cyprus Offshore Block 12, containing the Aphrodite gas field in the Eastern Mediterranean. In the Upstream part, Zsombor will tell you more details about the transaction, its rationale, and its strategic importance. Let me jump to the sustainability performance and the TRIR. MOL's safety ratio was 1.28 in the first half of the year, showing a minor improvement year-on-year. Despite this, as I mentioned, we experienced tragic events this quarter in the Petrochemical unit. Our expectation for the full-year figure is to be around 1.25, with continuous efforts to improve awareness. Let me share a few details about the Olefin-1 unit incident that happened on 22 May and resulted in one fatality and nine injuries. Preliminary results of the investigation suggest that the hot section piping was exposed to low temperatures, and that resulted in an explosion. We are undertaking actions to avoid such incidents from happening again. Procedures regarding start-up activities are being reviewed, and stronger and more reliable preventive measures are to be implemented. With that, let me pass the floor to Akos Szekely to discuss the financials.

Thank you, Gyorgy, and good morning, everyone. Clean CCS EBITDA reached $1.297 billion in the second quarter, marking a material increase year-on-year and quarter-on-quarter as well. The segment EVPs are going to discuss the business performance in detail. As usual, let me have a few words on the three segments that fall outside their scope. Starting with Gas Midstream. EBITDA amounted to $37 million in the second quarter, slightly lower than last year. The reasons are as follows: transmission volume decreased by 4%, and the regulated tariff levels were also lower than last year. On the other hand, these negative impacts were partly offset by the favorable foreign exchange effect. Regarding the Corporate and Other segment, please note that last year's figure was impacted by the one-off accounting effect of the Technical University of Budapest transaction, amounting to almost $98 million. In the second quarter of 2026, central costs of $40 million were broadly in line with the quarterly average. Finally, the intersegment elimination had a positive effect of $41 million, mainly due to the lower oil price, resulting in a positive EBITDA inventory elimination, as expected. Organic CapEx amounted to $592 million in the first half of 2026. This translates to a 33% increase year-on-year, which rather reflects the low spending of 2025 than high spending in the current period. The increase was mainly due to higher growth and efficiency CapEx, which rose by over $100 million and amounted to $382 million in the first half of the year. The settlement of invoices related to the Rijeka refining investment finished in March, and other ongoing Downstream investments made up a significant portion of the spending. CapEx in Upstream also increased due to the ongoing field development works in Croatian offshore, and ACG CapEx also contributed significantly. Clean CCS EBITDA amounted to $1.923 billion in the first half of the year, resulting in net income of $908 million. Regarding the components of the bridge, let's see the details on the next slide. As usual, starting with Clean CCS effect. It showed a gain of $177 million in the second quarter with most of the positive effect came from operational commodity hedging results amounting to a higher-than-usual gain due to the declining commodity price environment, but we invested into the margining in Q1. We came back in Q2. The DD&A amounted to $472 million in the second quarter of 2026. This means an increase year-on-year and quarter-on-quarter, which is due to the asset impairment amounted to $47 million. The impairment happened due to the need to reflect the depreciation in the fleet management business we have. So it's reflected in the balance sheet, which currently records our interest in the fleet management business under the category of held for sale. While the Hungary and foreign parking massive appreciation during the quarter, the net expense on the financial line was rather moderate at $24 million. Income from associate was $22 million with income from interest in companies operating in Khor Mor field, the Azeri pipeline company, BTC and the Kazakh gas field counting to contribute the most. Tax expense reached $154 million, translating to an effective tax rate roughly 15%. This is due to two one-off items impacting the tax line positively, leading to a better profit after tax. The first is a revision of local tax in the circular economy services that had $23 million effect. And the second is the deferred tax. The deferred tax expense decreased substantially largely due to an accounting technical reason. Effective tax rate assumption used for the valuation of our Hungarian Upstream mainly Hung Upstream relevant deferred tax assets were revised after the transition to the new holding structure in April. This leads to a decrease of deferred tax assets by roughly $64 million. Adjusting for those one-off effects, tax expenses would be $87 million higher and the effective tax rate would have been around 24%, much closer to the long run average for the group. Let's move to the cash flow. The cash flows for the first half of the year reflect the favorable trends as well as the volatility of our operating environment. The operating cash flow before the working capital came in at a healthy $1.898 billion, almost $2 billion. Net working capital, however, marked a build over $1.5 billion. Let me remind you that the first quarter showed a working capital build of close to $1.4 billion. So the change in the second quarter was rather really positive in terms of cash flow to the tune of $242 million. Why was the release of Q2 small relative to the build in Q1? While although some of the one-off pressures leading to the working capital build in Q1, namely disruption, extreme high crude oil price environment eased in Q2, rigorous seasonality effects leading to the buildup receivables also had an effect. Looking at the net working capital from the first half of the year amounting to $1.5 billion, the inventory volume effect was broadly neutral, while elevated prices led roughly $700 million effect on working capital. Around $300 million, $400 million is due to the seasonal factor, as I said, especially reflecting the higher trade receivables. Overall, operating cash flow, including the working capital reached $763 million in the first half of the year. Let me proceed to my final slide with the balance sheet. The total net debt level deteriorated over the first half of the year only by $374 million, which fully reflects my earlier statement about the excellent operational performance resulting in the simplified free cash flow above $1.3 billion, part of which was offset by the net working capital build due to the volatile environment and also the seasonality. And finally, the acquisition closed in the beginning of the year as well as the tax payment. Considering the higher last 12 months EBITDA, the net debt-to-EBITDA ratio particularly stayed flat at a comfortable level of below 0.5 with the dividend payment, however, we expect to see an increase roughly 0.2. This is yet to come when the dividend is going to be paid out. Overall, the balance sheet of the group remains really robust. The indebtedness as well as the available liquidity level of around $5 billion provides ample financial headroom for the group to meet its dividend obligation first. And the second, also to have some firing power for further potential acquisitions. Well, after the financial summary, I would like to hand over to Gabriel to discuss the Downstream results.

Thank you very much, Akos. So good morning, ladies and gentlemen. Before reporting the business performance, I would like to address the accidents we reported at Steam Cracker 1 , as Mr. Bacsa mentioned. So on May 22 this year, actually 8:36 in the morning, during the start-up of the Steam Cracker 1 unit, an unexpected operating condition appeared. So equipment to were exposed to the temperatures beyond their design limits. This led to the pipeline rupture, hydrocarbon release and resulting in exposure and fire. The incident resulted in facility as it was mentioned, and there were nine injured colleagues and also extensive damage to the process equipment was reported. The injured colleagues are safe at home and recovering. We provided for all the personnel to the injured colleagues and also to the indirectly impacted colleagues, mental and recovery support and also target actions took place on the production side to professionally manage this crisis situation. This major and sad incident has triggered serious investigation and revealed gaps in both asset and organizational operation. As a learning and response to it, a massive process safety program has been launched for gap closing, not just there at the Steam Cracker 1, but across more group. Process safety will be strengthened across the all Downstream, across the board by enhanced risk analysis, asset improvements where needed also design improvements training program, internal academia is going to be revitalized and internal protocols and technological instructions are being reviewed and strengthened. We are engaging also external professionals to support and accelerate the program execution. Also, of course, internal resources are dedicated solely for this. So let's discuss the economic impact. So based on the early assessment, the unit is unlikely to be started up this year. So expected start-up is either Q1 or Q2 next year. This is heavily depending on the long lead item deliveries. Financial effects are dependent on the macro environment, but as we learn in a few minutes, taking into expectation, taking into consideration, the current macro environment, the expectation is that it won't be material. But after the closure of Q3, then I will be able to share more because then we will have hopefully the AV3 unit in Szazhalombatta refinery up and running, and we'll see what kind of impact the Steam Cracker 1 shutdown will be. So now let me turn your attention to the first slide. So at the latest meeting, when we discussed the Q1, you might remember that I referred to the first quarter of the year as a perfect storm for Downstream with the most prolonged Druzhba disruption ever, almost half of the capacity in our Hungarian refinery down and the havoc in crude and product markets due to the both conflicts in the Middle East and Eastern Europe. So all those impacts our results unfavorably at the same time. Nothing reflects the current volatility in the oil and gas industry better than comparing it to the second quarter, where the impact of the operational and macro environment was totally different, and Downstream could reach a clean CCS EBITDA amounting to $679 million. These results were supported by better performance in both refining and petrochemicals. On the volume side, processed crude in Q2 was still below the levels seen last year due to the ongoing heavy outage, as it was mentioned. But thanks to the resumption of crude flows in the Druzhba pipeline, it was notably higher than in the first quarter. Petrochemicals volumes were affected by the continued low-demand environment and also the unfortunate incident I reported. Total product sales were correspondingly below last year by around 10%. Now let's look at the macro factors, which were the main triggers behind the development of our Q2 results. Looking at the refining margins, they were about $20 per barrel for the quarter, supported by bottlenecks in Europe due to the conflicts both in the Middle East and Russia, impacting product markets more intensively. Although Urals were traded at a premium, as you can see, compared to Brent in India in Q2, it was fully compensated by relatively high Brent-based refining margins. Petrochemical margins also reacted intensively to this crisis and more than doubled year-on-year to EUR 548 per tonne on average. Looking at July figures, it's apparent that the volatility continues. Crack spreads continue to widen, and our preliminary figures indicate that margins averaged close to $40 per barrel for the month. I can also share with you the first days of August, where the ref margin is still a bit above $30 per barrel. However, the Petrochemical markets we serve have seemingly adapted to the special circumstances already in July, and margins have returned to the sub-EUR 200 per tonne level. Now let's take a look at my last slide. The EBITDA change decomposition is clearly seen, and you can read it based on my comments. The margin environment was decisive in explaining the year-on-year increase, both on the refining and the Petrochemical side. Volumes contributed negatively, as you can see, by over $200 million, in line with the lower processing and sales activity during the quarter. With that, let me hand over to Peter to comment on the Consumer Services financials.

Thank you, Gabriel. Good morning to everyone. Consumer Services EBITDA amounted to $190 million in the second quarter, a 23% decrease year-on-year. Looking at the waterfall chart on the right-hand side, it's quite clear what was the main cause of this result. The fuel price environment drove the negative year-on-year change, contributing close to $60 million to the fall in the results. Our estimate shows that this full difference, or even more than this amount, is fully attributable to controls on retail fuel prices by the governments, which have been introduced across all markets without exception. While such losses are definitely no reason for celebration for us, we can take comfort in three developments at least. The first one is that we have been using this environment to acquire new customers by leveraging our brand and network size. Since the prices are equalized between the discount networks and the premium networks, more and more customers are turning to our shops and trying our services, and we really believe that some of them, or hopefully the majority of them, will stay with us in the longer term too. The second is the non-fuel part of the business, which is still expanding both sales and margins. And the third is that the simplified free cash flow level of Consumer Services is still very, very positive. Let's turn to the next page, where you can see in more detail the fuel margin and the components of the fuel margin. You can see that, all in all, our total volumes rose by 4% year-on-year, which is again the result of the mentioned price mechanism and the government interventions, which would be very hard to explain in one or two minutes since all countries introduced somewhat different interventions. Some of them decreased more than VATs or excise duties. Some of them are trying to calculate the applicable margin for retailers based on a formula. Some of them are trying to combine the refinery margin, the wholesale margin and the retail margin into a total allocated margin environment. So it's kind of a chaos. But obviously, the fuel unit margins are showing a different trend compared to the volume trends. I really hope that in the upcoming period it will somehow stabilize. Now we can turn to the next slide, to the non-fuel part, which is more stable and solid, more resilient to governmental interventions. On this part of the business, I think the fundamentals are quite solid and stable. The year-on-year dynamics of growth are also quite robust. We can see that sales turnover increased by 5%, while the margin outpaced this growth. Altogether, it's 6%. Thanks very much for your attention, and let me pass the floor to Zsombor.

Thank you. Good morning, everyone. Upstream EBITDA amounted to $375 million in the second quarter of 2026, marking an increase of 8% compared to the first quarter. Higher hydrocarbon prices had a positive effect on the results, as average crude oil and gas quotations rose by 28% and 13%, respectively, compared to the first quarter. On the other hand, one-off items had an overall negative impact on our results to the tune of $34 million, which I will discuss shortly in detail. With regard to the unit economics, that reflects the favorable price environment, which we were able to harvest, with average prices reaching $93 in the second quarter. Of the EBITDA, the change in volumes contributed negatively by $12 million. As mentioned to you on our latest call in May, the Iran conflict affected production in Iraq and was the main driving force behind the negative volume contribution. The other category had a higher-than-usual negative impact of $34 million quarter-on-quarter. There are two factors behind this. One is the claim on receivables on earlier royalty payments in 2023, for which impairment was recorded in line with our Group Accounting Policy. This had a pure $21 million effect. The rest of the change is the underperformance of the oilfield services unit, which is primarily due to different work program scheduling, and this is expected to be temporary as a timing effect. Year-on-year, the drivers of change were rather similar. Moving on to the evolution of production volumes, we managed to keep the production rate flat at Group level, above 95,000 barrels of oil equivalent per day in the second quarter. Again, let me reiterate that due to the Middle East conflict, the Shaikan field in Iraq was shut in for most of the second quarter, and the missing volumes amounted to 2,500 barrels of oil equivalent per day. This was made up by higher production in Hungary, Azerbaijan and Pakistan. In mid-July, the re-emergence of hostilities in the Middle East led again to a temporary shutdown of the Iraqi assets, and production decreased to 92,900 barrels of oil equivalent per day. While production at Pearl resumed on 28 July, the Shaikan field still remains shut in, weighing on August production figures as well. Let us move to the evolution of OpEx and our investments. The unit OpEx increased by 11% year-on-year at Group level. This is due to the weakening of the U.S. dollar, while the missing production from the Shaikan field also had a cost increase effect on a per-barrel basis in unit OpEx. Turning to CapEx, spending increased by $52 million year-on-year in the first half of 2026. The increase was driven primarily by ACG in Azerbaijan, as well as the continuation of the Croatian offshore development program. Finally, a few updates with regard to the inorganic expansion. In Central Europe, we have made moves in the past months to expand the portfolio, both in Croatia and Hungary. In Croatia, two exploration blocks were awarded to INA, and we also completed and closed the farming of Vermilion's remaining 60% share in the Sava-07 block. Furthermore, we also moved to expand our E&P portfolio in Hungary. Again, through a CEE transaction, we acquired a range of Upstream assets from O&GD at the end of April. This acquisition would add around 900 barrels of oil equivalent per day of production to the Group, and we see high potential to develop these fields and increase production further in the coming years, together with potential exploration acreage. As an update to our earlier announcement, we have signed the PSA with consortium partners Repsol and Turkish Petroleum in the Block 07 offshore Libya in mid-June. Finally, let me also discuss another key transaction in the Mediterranean that we signed just last week in a little bit more detail. As we informed you last week, we signed an SPA with Shell to farm into the Aphrodite gas field offshore Cyprus. Although the transaction is not closed yet, if it is finalized, we believe this is a major strategic step for MOL E&P. We have made several acquisitions in the past five years and have been successful in maintaining high success rates in some of the very mature fields we operate. However, our reserve base has been depleting nonetheless. Our 2P reserves decreased by around 15% in the last five years since the end of 2020, when we acquired ACG, and now stand at around 300 million barrels of oil equivalent. The best estimate of the total contingent resources at the Aphrodite field is around 640 million barrels of oil equivalent. Again, this is the gross total volume before the host country share is deducted because it is a production sharing contract. We just wanted to demonstrate the magnitude of the acquisition and the field, meaning that the 35% stake will be a material addition to the Group's reserves after FID. Again, this is fully in line with our strategic ambitions, as reserve replacement has been an explicit strategic goal for MOL Upstream. Our expectation is that the Aphrodite transaction is part of the solution to secure Upstream, and that we can still grow beyond 2030 as well. Again, the Aphrodite asset ticks a lot of boxes on our strategic agenda. We have always reported to you that we are looking selectively and with a very focused approach at opportunities, and this is one of those becoming a reality. Again, it is a giant deepwater offshore gas field, one of the largest discovered but undeveloped gas fields in the European Union, with a world-class operator, Chevron. We also see the Eastern Mediterranean becoming a gas hub not just for production but potentially for exports as well beyond 2030. Although the project is still in the pre-FID phase, the reservoir is well appraised, and the monetization negotiations are also well underway. Again, the Aphrodite transaction also fits well into MOL Group's financial headroom. Financial risk is moderated by the contingent payment structure of the transaction with Shell. Most of the agreed purchase price dependent on key project milestones coming together in the next five years. Together with the CapEx, our estimate is that the project will burden MOL's cash flow by around $2.2 billion over the course of the next five years, which is comfortable in light of the Group's current strong balance sheet. With this, let me pass the word to Szabo on the Circular Economy Services financials.

Thank you. Good morning, everyone. Circular Economy Services delivered EBITDA of $16 million in the second quarter, representing a notable improvement compared to the same period last year. The performance was mainly supported by three factors. First, the regulatory framework has become more balanced. As discussed on previous calls, the changes to the Extended Producer Responsibility (EPR) fee structure now better reflect the full scope of waste management activities performed under the concession model. Second, the efficiency program launched last year is continuing to deliver tangible results through improved operational performance and cost control. Third, it is important to note the seasonality of the business. The first half of the year is typically characterized by a more favorable earnings profile than the second half. Turning to investments, capital expenditure was lower year-on-year. The comparison is largely explained by last year's intensive spending related to the rollout of the DRS system. In contrast, current-year CapEx has primarily reflected normal business operations. Looking ahead, our main strategic investment remains the planned waste-to-energy facility. Project preparation is progressing according to schedule, and the final investment decision may be taken later this year. With that, let me hand over to Marton.

Thank you very much. That completes the formal part of our presentation. I'd now like to open the floor for the Q&A session.

[Operator Instructions] Yes Anna, please go ahead.

A couple of questions from my side. Starting with the Danube water levels, can you please let us know what impact you would expect on the financials, both from the lower water levels, but also because you are cutting electricity consumption during the peak hours? My second question would be around the Aphrodite gas field. You mentioned that the deal payment structure is contingent on achieving milestones. Can you quantify what drag on cash flow you expect next year? What would be the portion paid next year compared to the remainder? The final one would be around the guidance. You did not include the guidance slide this time. I assume that's because of the volatility, but maybe you can comment on the second half outlook and what your estimates are there.

Gabriel speaking. Let me address the first part of your question regarding the Danube water level. I would also like to address the whole heatwave situation and its impact on our operations. As you might know, the drought in Hungary has caused the level of the Danube to decrease to a level at which the country's nuclear operation is very much limited. The operation had to be reduced drastically. For this reason, we were asked by the government to revisit our power usage. As was also mentioned at the press conference on 1 July, when Prime Minister Peter Magyar visited our refinery in Szazhalombatta, but we can contribute up to 65 megawatts by reducing consumption. The total impact will be 65 megawatts. This can be done in two ways. One is to reduce electricity consumption. This is done on units that are not affecting our fuel production, so I do not assume there will be any material impact from it. The other is that we are also able to run our own gas turbine and, with this, help the electricity supply to the market. All in all, once triggered, the impact can be more than 60 megawatts. Regarding the heatwave and operations, it is definitely impacting all our personnel and assets. Of course, we would like to keep our personnel safe, protected, but also engaged. There are plenty of measures being implemented. Regarding the effect of heatwaves, our Downstream production operations in extreme ambient temperatures are being continuously reviewed. The good news is that we have a robust water intake system at our production sites, which provides stable operation even at these lower water levels. In particular, at the Danube Refinery, which is the most vulnerable, we have installed mobile pumps to the Danube River. With this improvement, all production sites can now tolerate a further 1.5 to 2 meters of water level decrease. Generally, the high temperatures do not have any major negative impact on the technologies. Actually, specific energy consumption is lower. Of course, there are instruments and electronics where a higher frequency of small malfunctions is experienced. The negative impact is mainly on condensers or heat exchangers, where flow and quality parameters have to be carefully observed. I believe we can manage the situation without a material effect, to answer your question. Of course, we have to be very cautious, and we are monitoring the situation carefully. Thank you for the question.

With regard to the Aphrodite payment structure, that's a detail I cannot fully share with you. What I can share is that the majority of the agreed maximum EUR 720 million purchase price is contingent on key project milestones. We see a realistic Final Investment Decision in mid-2027 and first gas in 2031. We see that this payment structure will evolve in line with the project de-risking, so it will help us as we see the project progressing while the transaction is being closed. Thank you.

Finally, regarding the guidance, yes, this time at midyear we didn't provide management guidance. I think it's obvious that the highly volatile external environment and the highly active governmental actions at the European, regional and country levels all affect the outlook. Of course, it is also affected by the change in the consensus as to whether we have to calculate with prolonged conflicts, because now there are multiple global conflicts that have become prolonged. The short-, mid- and long-term effects of these prolonged conflicts are significant. The ceasefire could not last long enough to solve the Middle East situation, and the situation is now also spreading to the Red Sea area, affecting Red Sea cargoes as well. That's why we see constraints in jet fuel and gasoline, etc. I wouldn't go now into the supply and demand effects, but practically all businesses are heavily affected by these Macro KPIs. Regarding government actions, they are trying counterbalancing, first of all to secure energy and fuel for their economies and countries, while also trying to minimize price increases or counterbalance them. That is definitely political logic, but it has economic effects. We experienced it during COVID. We experienced it in 2022. It can also have a major impact on our performance. Based on that, I think the main question is that if we have to calculate with prolonged conflicts in the second half and supply disruptions, these factors will work against each other and will leave our business, the oil and gas sector and the energy sector, in a very fragile situation, with a lot of unpredictability and a lot of volatility. Otherwise, as you could see, supply security is now a primary target for every country, and it has a lot of costs that will slow down economies. How fast economies will slow down and how they will be affected is, of course, also difficult to predict.

Oleg Galbur, Please go ahead.

Congratulations on the results. I have three questions. The first revise to Consumer Services. You mentioned that the segment's results were impacted by price and margin caps in various countries. Could you please help us quantify the impact in Hungary and other markets with a material impact? Also, please update us on which countries the price and margin caps are still in place in the third quarter. The second question relates to refining, and more specifically to the shutdown and repair of the AV3 unit. Could you help us quantify the lost earnings due to the unit closure since the beginning of this year, or at least provide a hint as to how we could estimate the magnitude of the compensation that MOL could receive from the insurance? Lastly, I'd like to hear your opinion about hedging gasoline and diesel crack spreads. Do you have any hedges in place? If not, would you consider hedging at least part of the production in general? What's your view on this topic? Thank you.

Let me start with the Consumer Services-related question, mainly around regulation. At the moment, regulation is in place in Serbia, Romania, Croatia, Slovenia, Bosnia and Montenegro. As far as the magnitude or the impact, I think you saw on the slide, and I mentioned that the drop in fuel margins mainly came from this. I can estimate the value at around $60 million. I hope this answered your question, but please follow up if not.

Yes. What I'd like to understand better is what level of impact we should expect in the third quarter. My understanding is that some countries have changed the regulation. Or if the main impact comes primarily from Hungary, would you say it is fair to expect a comparable level of impact on third-quarter results for the segment?

Look, I understand your question, but I don't have a crystal ball. If you could make an assumption for me about what the Brent, diesel and gasoline prices will be over the upcoming two months, then I could probably make a better judgment about what politicians might think they need to intervene in. So it's very hard to answer this question. Still, if I were to give you some guidance, I would rather say that after the summer season, demand for petroleum products, maintenance issues and hopefully the logistical issues on the rivers because of the low water levels will somehow ease the situation. Then we can get back to somewhat more normal price levels. If price levels become a bit lower compared to the very high levels seen in recent days, then I think the need for political intervention would also decrease. All in all, my expectation, or educated guess if you wish, would be that the impact will be lower in the third quarter than it was in the second quarter.

Yes, Alex. Let me answer the second part of your question regarding the AV3. We are following our initial reconstruction . So far, there has been no delay reported. The planned completion and start-up remain at the end of September this year. All the major equipment has already been installed. The technological piping, instrumentation and installation works are currently ongoing. So they are in progress. And upon completion of the installation works, we will start the system checkups or the testing with the nitrogen and then hopefully, we will start the unit up in September. Regarding the financial impact, so you might know that the AV3 capacity is 10,500 tonnes per day. So of course, you can multiply it by a factor. I would, as you might learn before that the first EUR 100 million from the insurance company were transferred to our accounts in July. So it will affect in the third quarter. To judge the whole amount, so this is still the close analysis and discussion with the insurance company. But of course, that there are two periods. So first is when we were affected by Druzhba interruption. So the feed intake was limited on our side. And of course, that this is now in the second quarter, the situation is a bit different when we are fully supplied. Yes. So I don't know, Akos, would you like to add something to this?

Thank you, Gabriel. Yes, as we already discussed several times, there are basically two type of damages. One is the physical damage, another one is the opportunity loss. And also according to our contract, while the first two months should be fully covered by MOl. This has already happened, and this is already in our balance sheet and P&L of 2025. And as Gabriel mentioned, yes, the good news is that the first EUR 100 million already received, this is already with us. You cannot see it in the first half of the result because it happened in July. But Well, this covers the first quarter lost opportunity. And looking at the refinery margins development, you can easily calculate that the second quarter was much favorable than the first one. So the assumption is that for the first, for the second and the third quarter, we are going to have a higher figure. I think this is reasonable. And also with regards to the hedging, well, we have our hedging policy in place. And I think it definitely worked very well, and this is already partially, we already covered that in the first quarter, yes, we saw really high cost of margining. But in the second one, we were in the sunny side of the story. We are looking at the hedging policy as a good tool for the stability. So this is actually targeting stabilizing the activity. And at the moment, we just don't really see why to change it. And well I think that's what I can disclose with you.

So should I understand that currently, you have some hedges in place or not? I'm referring to the product cracks.

Very limited. So as Akos mentioned, we look at the stability rather than any speculation. So we do not open the position. Just because of the highs and lows of the market. So we keep our hedging policy rather conservative or we have our hedging policy is aiming the stability and is rather conservative.

Jonathan, please go ahead.

You answered my question on insurance. I hadn't realized it was in July. There's one thing bugging me about the Upstream results. We had much higher oil and gas prices, but the Upstream EBITDA didn't actually grow very much. And I'm not quite sure why it didn't grow in line with the higher prices. Can you give us any more color on that?

The two one-off items amounting to HUF 38 million, that is actually the reason of the potential growth in the Upstream, which you could have assumed. And with that the Upstream would be above HUF 400 million for the quarter.