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

So good morning, ladies and gentlemen, and welcome to MOL's Q2 2020 Results Conference Call. My name is Robert Rethy. I'm Head of Investor Relations and MOL. It's my pleasure to welcome our speakers today on this meeting. It's -- there are some well-known faces, but also we have some new faces or other voices for this call. So we have József Simola, the group Chief Financial Officer; Tom Quigley, the Chief Operating Officer of Upstream; Gabriel Szabó, who is the new Executive Vice President for Downstream. We also have Ferenc Horváth with us in his new position as a Special Envoy of the Chairman. And last but not least, we have Péter Ratatics, the Executive Vice President for Consumer Services and a much wider pool of managers also listening to the call, including our CEO Zsolt, and I hope and is happy to take questions in the Q&A session. We decided to continue to use Microsoft Teams as a platform to do this conference for it very, very well. [indiscernible] as well. The presentation is, as usual, downloaded from our website, molgroup.info. And as a benefit of Teams platform, we are also sharing the slides throughout the call today. And as usual, after the presentation, we're going to have the Q&A session. A slight difference compared to 3 months ago call that in Teams now we have a new functionality, the raise your hand functionality. So this you can use, if you want to ask a question in the Q&A session or as in the past, you can use the chat function as well to indicate an interest in asking questions. And therefore it's very important, please remember to stay muted throughout the call, except when you ask questions at the end. And before we start, just the usual disclaimer on Slide 2, the cautionary statement. And with that, I would hand it over to József Simola, who will give you a brief summary of Q2. Thanks very much.

Thank you, Robert, and good morning, ladies and gentlemen. And let's start on Page 5 with the overall summary. I mean, clearly, Q2 with the full and tough impact of the COVID was not an easy quarter for us. But for me, the most important highlight that even with this and with everything, we could remain positive in simplified free cash flow generation, all major businesses contributing positively for this. Previously, we already suspended the EBITDA guidance and changed our yearly CapEx guidance from around $2 billion to $1.5 billion. Given the first 6 months performance and I think the more certainty, what we see in the second half of the year, we give a new EBITDA guidance of $1.7 billion, $1.9 billion for the whole year. And with this and with the CapEx guidance, we see very much ourselves free cash flow positive operations for the second half of the year and for the whole year as well. And maybe I would point out one more important point for the quarter, which is an accounting issue, but I think an important one that we reviewed our long-term crude prices for the impairment calculation and changed it to the conservative $50 real from $60 we used previously. And that resulted in an overall less than $120 million impairment charges in the quarter. We believe that given the external developments, it's a conservative step to take but also the relatively small charge shows the robustness of our upstream portfolio. Now let's go to Page 8. On the HSE ESG overview. I mean, clearly, the pandemic situation and the HSE focus dominated the Q2. And I can say that we could keep the HSE part fully under control. And we want to -- and we also have to be prepared in the coming months because we don't expect any pandemic crisis in our operation. On the other side, the pandemic situation impact will remain us for a while. So we want to be fully prepared for this in all aspects. In terms of the HSE number, we actually have a significant increase in our kind of statistics, also the absolute numbers, which are mostly driven by the lower level of activities but clearly it was the relative numbers, which I think indicate a very high increase in the overall HSE awareness in the company. And on the ESG front, of course, the life went on and the life will go on, maybe the most important highlight is an external recognition [indiscernible] with the main part of the FTSE4Good index also for the coming year. Now with this, let's go to Page 10 on the EBITDA side. And the $353 million Q2 CCS number is 44% low year-on-year clearly shows the impact of the economic impact of the COVID situation. We had actually a very close call in terms of EBITDA competition among the division. The numbers $110 million, $111 million and $112 million from the major divisions and Upstream is the winner here. And actually, the divisional leaders will give you a detailed update on what's beyond and behind these numbers. We had a significant improvement year-on-year on the gas business. The main reason for this is the increase in capacity bookings, which are associated actually with the -- at the year-end [indiscernible] expected uncertainties in the Ukrainian transit but also the low gas prices had a positive impact because natural gas is the actual energy to run the compressors for the gas business. And on the C&O line, the overhead expense is very much in line with last year, and we see a more positive impact on the intersegment elimination coming from the decreasing Brent prices. If we go to Page 11, the CapEx spending. I mean the $1.5 billion HSE ESG number is dominating the total. Organic CapEx, as expected, decline in Q2 and H1. We spent $326 million in Q2, a 36% decrease and $619 million in H1, a 22% decrease, reflecting our financial response to the crisis but also some logistical and naturally in some projects. With this, we are fully on track on $1.5 billion guidance for the year. And I'd like to emphasize again that we had no funding delay in the strategic and transformational projects. So we continue spending both on the polyol project and on the Rijeka DCU. Now let's go to Page 12, the simplified free cash flow. As I mentioned in the beginning, all businesses were simplified free cash flow positive in H1. And I think with the external COVID situation, we actually -- also these are important milestone in a sense in our transformation story because the consumer services got only the second place in the EBITDA generation. But actually, consumer services was the largest free cash flow contribution, both in Q2 and H1 and I think, as I said, that's an important milestone for us showing the importance and the resilience of the Consumer Services business. On the next page, Page 13, the below EBITDA lines. CCS modification, actually a positive $31 million for Q2, but that clearly could not counterbalance the negative impact in Q1. So overall H1 number is $183 million negative adjustment, no special items. In the DD&A, you can see this $66 million upstream impairment charge in Q2 coming, as I said from the reviewed long-term crude price assumption from $60 to $50. The net financial line, there's no unusual items in Q2, the overall H1 number is still mostly determined by the Q1 FX loss, which was a noncash and unrealized. I think it was mostly coming from technical items. The associates line, here, you see actually the minus $50 million, which is the second impact from the crude price assumption chain and the usual positive per contribution. So the overall impairment charge was $116 million in the DD&A and on the associates line. Tax expenses is, as expected, lower cash expenses and the profitable subsidiaries and an increase in the deferred assets coming from the decreased expectation of the future utilization possibility, essentially as an impact of the weaker macro environment. Page 14, working capital, here the -- sorry, cash flows and operating cash flows and the major impact is the -- one of the major item is the working capital where we had $275 million net working capital buildup in Q2, a $525 million release in Q2. Overall, an impact of $250 million positive impact on H1, resulting in $771 million operating cash flow, which is actually very much in line with the IFRS EBITDA for the first half of the year, which was $792 million. Now page 15, the last financial page, balance sheet and net debt. We have a significant increase in the net debt and the net debt-to-EBITDA and the major impact of is the closing of the $1.5 billion ESG deal and as we indicated in this, we are still very much within our comfort zone. And please also know that there is another impact in the net debt per EBITDA what is calculated on a rolling 12-months basis. And that means that the decreasing EBITDA generation is also a show-up. This impact, you expect to continue in the next quarters to come. But even with this, we see very much net debt per EBITDA below or at 2, still a very comfortable number in this environment. And with this, please allow me to hand it over to my Downstream colleagues to discuss the Q2 development.

Good morning. Ferenc Horváth speaking. Today, I will not tell you, and I will not explain the results for the second quarter and the outlook for downstream. But let me give a big thanks to all the representatives of the investors and the analyst community for the collaboration while I have enjoyed in the last 17 years. I have learned a lot from you, and I have enjoyed very much working with you. As I have enjoyed my professional work in the last 17 years in MOL Group Downstream, mainly consolidating the growing business, developing forward, more group Downstream, and also working continuously on our efficiency. 4 years ago, when we created our 2030 vision or strategy, we were preparing ourselves for less fossil world and as we emphasize many times, I'm very much confident that we were and we are in the right direction. On the other hand, in same of the new impact of COVID and also the new challenges coming mainly from the climate change issues and also from the decarbonization, what we see that these are challenging, which is coming from never seen environment and brings a very new necessity, a very new approach and very different things also in Downstream. These are great opportunities, but many new tasks, many new things to do in a new way, and that's why it needs also a new leadership. And formulating this 2050 vision, what we are working on now, I'm sure that we'll bring gradually new decisions and new solutions. And for that, we need the new leadership who would make that decision and who would work on a yearly execution of that strategic directions and also deliver the results to our investors in the next future years. And I'm very much confident that Szabó, Gabriel when we are together now has been working almost 10 years in Downstream we'll cope with that increasing challenges. And I'm very much confident that Downstream division and the business in the best hands for the future. As for me, as you've been informed, I will stay with the company, and I will work for the Chairman as special envoy. My main task would be stakeholder management and business contracts management, mainly in the areas from the former Soviet Union countries in Russia, crude oil deliveries in -- as very important focus point and many development issues like the recycling business in Germany. Besides that, I would like to reactivate the talent management and also to continue with the culture development program within the company. Generally, I would say that I will serve the Chairman as a special envoy, and I will serve the company giving all my experiences what I gained in MOL Group. So thank you very much once again for your collaboration. And now I give the floor to Gabriel with one of the most difficult times to explain, the second quarter results for Downstream. Thank you very much.

Thank you very much, Ferenc. Thank you very much for all your support and being my role model for 8 years. So frankly speaking, I can imagine much different debut than commenting the Q2 Downstream results as the oil be it in general took a severe punch. But before commenting the details, I would like to introduce myself shortly. So I started a bit more in 2001. I start as a resource allocation analyst financially evaluating major CapEx project. Then I went through different functional positions, procurement, maintenance, investments in different countries of Slovakia, Croatia and Hungary. And from 2012, I joined Downstream business. Firstly, as in charge of Downstream in Slovnaft, one of our subsidiaries and sites in Slovakia, then being CEO of Slovnaft; and then from 15th of July nominated to the position of the Executive Vice President of Downstream. So now let's have a look to our financial performance. On Slide 17, please. Thank you very much. So as I mentioned, the oil business in general took several punches in the last quarter. So while in April, we were frightened by the demand choke, and we put a lot of effort to keep the operation safe and our employees healthy. From May on, we saw steady growth in demand, but we also realized the free fall of margins. All in all, all those volumes and volatility of the crack spreads in general were resulted in a rather weak refining segment performance, which is also reflected in the Downstream performance of USD 110 million EBITDA. On the other side, petchem segment remains resilient, both in volumes and prices. And for me, it was another proof that the integrated business model even in Downstream, the refining and petchem like has it benefits. The year-on-year throughput increase mainly because of the very weak base last year when we had major turnarounds, but also because of the severe cutback of third-party purchase and sale of fuels almost 1 million tons. I believe that we have to also mention the other key transformational investment projects. So we did not suffer any significant delays. And in both projects, our key projects, polyol or DCU, we achieved significant performance milestones. Now I would like to comment shortly the macro environment. So Slide 18, please. Here, we can see the really high volatility of the -- of our refinery margin. So what we experienced in April was almost $10 per barrel margin, mainly due to the significant drop of crude oil price. But then on because of the weak demand, the markets kept us oversupplied, which was reflected in the free fall of crack spreads and resulted in an even negative margin. In terms of the integrated petchem margin, so it remained very stable between EUR 300 and EUR 400 per ton. And mainly it was mainly thanks to the very healthy demand generated by the health care and packaging segment. In terms of the Brent-Urals spreads, so frankly, did not really help our performance as euro scored even a premium, which at the end of June and nowadays seem to be developed to the positive direction together with crack spreads. So -- but the crack spreads or the Brent-Urals spread is much better than it was but still not reaching the levels we are used to. On the next slide, we can see the waterfall charts of the gap between our performance. There should be a disclaimer before commenting it that the high volatility of spreads, high volatility volumes makes it a bit difficult to reconcile the profitability, but there is probably one most important message that the refinery margins caused the major gap between our year-on-year performance. It's probably worth to mention that just in crack spread in gasoline and diesel, we suffered $160 million loss, which was partly compensated by high inland premiums and positive development in special products sale. Looking at the figures from the half year perspective, we can see that the Downstream delivered a very solid performance. There was a very strong Q1 delivery. On the other side, rather a weak Q2. But in general, it proved the integrated model and proved that we have still a very strong refinery like. Now I would ask Péter to comment the consumer segment to -- Consumer Services segment.

Thank you very much, Gabriel and Ferenc. And I just would like to wish you both the very best from the bottom of my heart. Good morning to everyone, and let me then just retrace somehow the past couple of months results of the Consumer Services. Although the Q2 was at least as challenging in our business as in any other part of the oil value chain, I'm happy to report that the Consumer Services proved to be remarkably resilient in this period. I'm happy about the fact that the EBITDA remained almost flat despite this unprecedented crisis situation. And more importantly, the free cash flow generation capability even improved compared to the last year same period. I'm particularly happy as this period was a clear proof what we've been doing during the past couple of years, those were the right things and the right initiatives. And that gives me the confidence and the confirmation that this strategic transformation should be continued. And practically, we are on track to deliver even better results in the upcoming future. Well, the highlights of the main building blocks from these segments. First, probably we can start with the fuel. That was significantly impacted at the beginning of this quarter. So end of March, probably you remember that since mid of March, the crisis started, many lockdowns and [indiscernible] were in operational live in this region, country by country, it was a bit different. But certainly, beginning of April, beginning of this quarter, we hit the bottom of the fuel sales, in fact, every market of us. And from the minus roughly 40% -- 30%, 40% decline. During the quarter, actually steadily -- slowly but steadily, we started to climb back. And by the end of the quarter we reached roughly minus 10% compared to the last year period. So altogether in this period, actually, it was a 20% decline; however, the trend is improving and increasing. What was the good kind of development on the market an opportunity and we try to benefit, I think, successfully that the low crude price gave us maneuvering possibility on the total price management. With that, actually, we improved significantly in the entire region, the unit margin. And that practically compensated in the fuel margin generation, the loss on the volume sales. As far as the non-fuel part of the business is concerned, obviously, the major hit was on our gastro sales. That came practically from the transaction number, the lower transaction number that -- that one, I mean, the lower transaction number and the different strict regulation towards to the gastro product sales hit our sales performance. However, from the beginning of the crisis with the agile and data-driven management philosophy, we immediately reacted, and we try to bring in new products into the assortment into the sales portfolio. And we improved significantly the grocery sales performance, and that's somehow compensated the lower number of gastro products sold. All in all, in that sense, both the nonfuel sales and the nonfuel margin practically remained stable, and we were roughly on the same level as it was on last year same period. But beyond that, actually, from the very beginning, we started a very strict OpEx control, cost control. We try to optimize significantly the operational costs decreased and cut everywhere where that was possible. And obviously, beyond that, we also revised significantly and thoroughly the CapEx spendings. Actually, we did not really cancel anything, but we rescheduled and postponed in order to manage and focus on the free cash flow generation of the segment. That's why you can see that practically, not just in the quarter, but in the entire first half of this year, from free cash flow generation point of view, we overperformed the last year same period. And that will be, by the way, the philosophy for the upcoming period as well that alongside of the improving EBITDA numbers and improving sales numbers, gradually, we release the CapEx project as well. But throughout the entire period, a very consistent and strict free cash flow focus will be held. Probably just a few words before I will hand over the word to Upstream, a few words about the current period and the outlook. In the retail segment's retail operation, the summer season is the main season. This is where we are generating the highest EBITDA. That's why this July, August period a bit of the September as well is very important. I can confirm that each and every store -- stores of us is open. We can very stable -- we can have a very stable operation. We fully loaded the stores with products. We are very much focusing on the sanitization and the cleanliness of the stores. And I can say that the July practically seems to be very strong. And I think during the upcoming few weeks, we can have also relatively high hopes that the summer season will be also fine from Consumer Services perspective. And with that, actually, I will then hand over the word to Tom, who will then present the Upstream segment's developments. Thank you very much.

Thank you very much, Péter, and good day, ladies and gentlemen. If we could turn to Slide 25, please. So as was already been mentioned by my colleagues, the second quarter was somewhat trying for business and not least of which in the Upstream, where we faced very low oil and gas prices at $29 a barrel average for quarter 2. We also faced restrictions on access to refineries in the second quarter as demand for refined products collapsed. And we have to keep our workforce safe from the COVID virus, particularly those workers who had to go to the oilfield oil and gas fields, and that necessitates a complete change in our shift working pattern where people worked longer shifts, and we separated the shifts to avoid any cross contamination. So quite a trying quarter. We did react to that by looking again at our costs. We have had good cost discipline over the last 3 or 4 years, and we set quite tough budgets, but we sharpened our pencils again for the second quarter, and we took out some Capex, some OpEx and G&A. So you can see the results in our earnings. We are definitely in positive territory, so in quarter 2, $112 million. And also, free cash flow was positive, even at this $29 a barrel stage. We've actually reduced our cost down to $25 a barrel, as we said we were at the last quarter. So we are now cash neutral at $25 a barrel. I think I also mentioned that we did do some write-downs of $116 million as we lowered our long-term assumptions from this $60 a barrel to $50 a barrel. But just to put that into perspective, that's only 4% of our pre impairment book values. So it demonstrates the strength of our portfolio even in that period by the oil prices. Can we go to the next slide, please? So let's just take a look in a bit more detail at our earnings and cash flow on a dollar per barrel basis, both for quarter-on-quarter and year-on-year. You can see on the right-hand side there, in the upper diagram, it is $5 a barrel of positive cash and $11 a barrel of earnings. Let's go to the next slide, please. If we look at our earnings on a quarter-by-quarter basis and on a year-to-date basis, the main part of this story, as you can see, is just declining prices. So from quarter 1, $185 million to quarter 2, $112 million, most of the reduction, as you can see, is in the category of prices. We did have some help from additional volumes, $27 million. And this was largely from the ACG, our Azerbaijan acquisition, which closed in April. Next slide, please. In a bit more detail now our production. So the production rose to 117,000 barrels a day in quarter 2, largely because of the addition of ACG. ACG added 16,300 barrels a day to our production in that quarter. We did lose some production, as I've already said due to COVID, particularly in Hungary, Pakistan, Kurdistan and Russia, as I say, largely down to the refinery allocations that we have for our crude, but also in some of those countries, operations proved rather difficult for a short period of time and we're not able to get crews, for example, out to do well workovers. And a small amount of production we actually shut in when the oil prices got down to below $20 a barrel because they were not that economic. The situation wasn't helped by an unplanned shutdown of 20 days from our normal operator Catcher facility in the U.K., where we lost 4,800 barrels a day. And if we look at July, you can see that we're now forecasting about 130,000 barrels a day. This is the highest production, I think MOL actually has had since 2012, again largely as a result of ACG acquisition. And because of the way the production sharing agreement works, the lower the oil price, the more actual entitlement production we get, and so that's why you're seeing that boost there from 117 million to 130 million. And I think finally, on Slide 29, our costs. As I say, we've always had good cost discipline. And with the acquisition of ACG, our total unit costs have gone down to below $6 a barrel, $5.7 a barrel in quarter 2. Without ACG, the unit costs are roughly flat despite lower production. And on Capex, as I say, we've rephased some CapEx to bring our CapEx spend down this year. But you can see in the first half, we spent just under $150 million primarily on exploration in Hungary and Norway and on development activity in Hungary and of course, Azerbaijan. So I think that's all from the Upstream. We're now going to have the Q&A session. So I'll hand back to Robert.

Yes. Thanks very much, Tom. Thanks very much for everyone. So now the Q&A session. [Operator Instructions] So the first question goes to Ekaterina Smyk from Bank of America.

Do you hear me?

Yes, we can.

Wonderful. First, Ferenc, congratulations on everything you have achieved as a leader of Downstream at MOL. And all the best in the future. It was a pleasure to work with you. And Gabriel, all the best to you as well with your new role. Look forward to future cooperation. So I have 2 questions. The first one is on the dividends. Given much better clarity over 2020 expected performance and your overall confidence in the reduced CapEx guidance and positive free cash flow generation, what is your thinking around dividends at the moment? Is 2019 dividend still a possibility this year? Or you would come to the dividend discussion next year only? And the second question on the refining side. I sort of can get my math around your results for refining this quarter in a sense that the refining performance looks quite weak-ish even after taking into account all the negative developments in crack spreads and crude differentials. Appreciate this is a challenging quarter with overall low base and easily distorted. So I just want to make sure that there were no particular negative factors that can impact the refining performance in the future.

I will start with the dividend question. And thank you for the question. I wanted to mention is that the plan is unchanged from the process point of view. So we indicated that the Board of Directors will come back to this question, and that's going to happen actually in September. So the 2019 dividend will be on the agenda of the Board, whereas you mentioned clearly on the positive side, I think the overall 2019 performance and also the kind of overall financial performance up-to-date is there. But clearly, in terms of the positive free cash flow generation in the first half of the year, we could reach with postponement of maintenance and CapEx activities. And also they are, as you mentioned, on the refining side, especially, there are still uncertainties [indiscernible]. So the Board will look at those and essentially make a proposal or decision for about 2019 dividend in September.

Yes. Gabriel speaking. Thank you very much for the question. So yes, very good question. So the effect behind the kind of not really transparent performance on the waterfall chart is that while the demand was collapsing and we suffered 30% of the loss, the margins were really skyrocketing, so it was almost $10 per barrel. And then with the steady growth of the demand at the end of June, we even achieved a single digit -- single digit gap between the base and the June, the refining margins were pretty low. But I can assure that you said that there was nothing negative. There were no one-off costs. I mean, the refinery were running smoothly. You can even ask that why the throughput was higher than the base, and it comes from the -- what I mentioned, the very weak base and also the severe cut of the third-party [indiscernible] sale of fuel. On the other hand, the refinery arm is coming from the optimization model and taking into account the very high inland premiums and taking into account a very decent performance in petchem we were running the refinery quite high. So thank you very much for your questions. I hope I answered.

Yes.

Ekaterina, we can also continue off-line, basically discussing the very details. I think there was one number that Gabriel mentioned, which is very important to understand the extent of the hits to our earnings in Q2, and that's the $160 million, which we lost in the quarter compared to last year just on diesel and gasoline cracks. So the headline margin is not we're just not working. It's not -- has lost its predictive power for this particular quarter due to this turbulence and turmoil on the market. It's just not working for properly modeling our performance. So I suggest we continue this if you need more details. And then the next question is from Alex Burgansky. Go ahead, Alex.

I have 2 questions. One, I just wanted to follow-up on this previous question on the Downstream and in particular, the utilization rates. You did explain a little bit about why utilization rates were higher than the base in the second quarter. But also what I was interested in how your views may have changed from our last conference call. Because remember, we had a discussion about utilization rates at our first quarter conference call. And at least my conclusion from that call was that you expected utilization rates to decline quarter-on-quarter. And it appears from the results that the utilization rates were actually strongly up quarter-on-quarter. So if you could maybe threw a little bit more details on what has changed in this period between our last conference call and the actual second quarter? And then the second question is on the current fuel consumption patterns. If you maybe can provide a little bit more details on various markets on where you see the current consumption after the lockdown, what are the expectations for the third quarter? And what were the actuals for July?

Yes. Thank you very much for the question. So the -- we had the turnaround. It was not a major about the minor turnaround, mainly in Slovnaft. So probably this is causing also kind of misunderstanding regarding the ramps of our refineries. But the forecast was that, that we will achieve really high availability of the assets. And I'm really proud that we are doing it. So thanks to the very high discipline of our employees, even during this very stressed period. And we were able to out of the optimization, it came that we are really able to cover not just the very able part of the cost but fixed part of the cost. So you can, of course, ask that while the margins are negative, why are we running refineries so high. This is what I mentioned that the very solid performance of the petchem where we need a decent feed to our crackers, but also the high inlet premiums, which will be somehow already explained that suffering $160 million loss was partly compensated by the inland premiums. So that would be my answer. I hope I was answering that fully.

Sorry, can I just follow-up? So what will be your capacity utilization target for the third quarter? Do you expect to process the same volume of fuel?

Once again, please?

Just think -- the question was about your target for the third quarter in terms of processing volumes and utilization. Can you maybe just update us and your thinking for the third closer?

Yes. So what we see that there is a solid demand growth. So in current weeks, we are around 5% below the base. We would like to keep our market share with premiums I mentioned, and we see still a very solid performance in petchem. So we are doing the optimization quite frequently. So whilst we will see that there is this demand from result point of view it is vote of running the refinery high, then we will do that. Of course, that we will take further steps to cut back the third-party sales in case we will see then our outlet market, the demand is not developed similarly as the demand on our core markets.

All right. I think -- I think this last comment was very important, Alex, that we -- typically, we do a lot of significant third-party trading so we're buying product selling products to supply our customers and our network. And this is where value cut first, and that's what we did in Q2 as well almost cut back 1 million tons of third-party trading. And I think going forward, we're obviously going to prioritize on production and running our refineries as much as we can just to utilize the scale and cutting back on the trading first. So I think you can expect this continue going forward. And the next question is from Oleg Galbur from Raiffeisen.

Yes. I have several questions, and I will start with your price assumption revision. So I wonder what has triggered the downward revision of the long-term oil price assumption, especially when the oil price continues to strengthen, and some of your regional peers have even higher oil price assumption in the long-term and try to defend those levels. My second question is the -- as I said, the oil price continues to strengthen in the third quarter. While the demand for motor fuels is improving at a slower pace. And I would like to ask what is your expectations for the refining and petchem margins in the second half of this year? And whether you might be forced to again revise your view on the level of utilization of your refining capacity if the market -- if the refining margins remain weak or even weaken go to lower levels? And thirdly, as you well know, PKN from Poland is looking for partners to swap assets in both retail segment but also in refinery. While I don't expect you to give us a direct answer regarding your potential interest in PKN's assets, could you share with us your thoughts regarding how much sense would it make for MOL to look for expansion of the consumer service segment, but also refining into new markets? And would an asset swap be more attractive than a cash-based transaction in the current environment?

I would start with the crude prices. And I mean, we started these 3 view process, probably everybody else in the industry and I mean you saw, I think, major announcement in this respect. We went through this process in Q2, and we felt that $50 long-term real is a conservative view and conservative judgment. You mentioned that some companies have higher, I think, pretty much everybody else has higher expectation or kind of parameter for the impairment assessment. Again, we think that the $50 really is a conservative number. And you have to be aware that the real means that if you look in a 10-year perspective, the numbers are actually higher. So I think it's an accounting judgment. We feel it's conservative and overall impact was actually not a major financial impact on the accounts, which I think also shows the quality of the portfolio.

Yes. Regarding the -- what is the outlook for the margin? So I can just say that it's getting better. Of course, that it is still far from what we projected or what we are used to. But I -- what we see that the demand in our core market rising gradually. So I believe that using that momentum, will trigger the inland premium together with the high demand will deliver our better results to the future. In terms of the refinery runs and the processing value you have. So we are not operating our Sisak refinery in Croatia. The Rijeka refineries running in average at 60% while our flagship refineries in [indiscernible] are about 90%. This is still coming out of the optimization, and it's proving that this is the right direction. On the other side, of course, that we do not take it as granted to the future as well. So once we see that there will be another, let's say, shaken the markets, we are able to take down the processing there as well. But still, today, it's not delivering any benefits.

József, do you want to cover the [indiscernible] question.

In the meantime, I also can say because if I understood well, then one of the question was about the consumer service expansion or any other new prospect question, whether we would be interested for any acquisition. And obviously, in respect of the PKN deal, as you mentioned, you do not expect from us any precise answer. Obviously, any ongoing activity is subject of business confidentially, so we cannot comment this. But from my end, from the consumer service point of view, from retail expansion point of view, I mentioned it several times, and that's also part of the strategy that during the upcoming 2, 3 years, I still see possibility for us to investigate and potentially acquire networks and assets in the region. Obviously, given the market share and the regional country presence of the MOL Group. Actually, 2 countries would be on the top of my list, one is Austria from captive market point of view and also from very matured consumer portfolio point of view as well. The second market is Poland, which is the biggest consumer market and country in the region with 40 million citizens and consumers. So from that point of view to penetrate to Poland would be a very interesting question for me to be investigated. And the third prospect or region, what I still believe would be a good target for us is the southern part of the Central European region, mainly Serbia and a bit of Romania. I think that would be those countries where the consumer services will be interested to see asset deals.

Gabriel Szabó speaking. So from my perspective, Downstream perspective, of course, that we are watching the news coming from Poland very closely. We see Poland with 40 million population as a big market with really high demand. But so far, we need more details to understand the market there.

Thank you. And then the next in line is Jonathan Lamb from Wood & Company. Go ahead, Jonathan.

One of the biggest problems in refineries margins that I can see is the differentials. But what is your expectation in the second half about euros differentials? Where do you think they're going to go and why?

Yes. Thank you very much for the question. But we see what really is a bit not regular, that the euro -- from beginning of May score the premium. It is, of course, the result of the OPEC -- of the agreement of OPEC countries to cut back the crude oil supply. What we see currently that the euro is developing positively. It means that there is around the premium is not there anymore and the Brent-Urals gap is around 0 currently. But we believe that the situation will stabilize, and we'll also get to the positive Brent-Urals spread. Thank you very much for your question.

All right. So the next one then from Tamas Pletser from Erste. Tamas, are you online? I think we may have lost him. So as far as I can see, I see no more questions, ladies and gents. So I think and already we already spent an hour on this call. Thanks very much for everyone for dialing in or joining the meeting or call. If there is any more question left unanswered then, as usual, please reach out to Investor Relations. Otherwise, have a nice day. Have a great summer, and talk in 3 months' time. Thank you very much. Bye-bye.