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

Good morning, ladies and gentlemen, and welcome to MOL's Q2 2024 results conference call. My name is Marton Teremi, Head of Investor Relations. And as usual, we have a strong lineup of management for today's call. Dr. Gyorgy Bacsa, Executive Vice President, Group Strategic Operations and Corporate Development. Mr. Jozsef Simola, Group Chief Financial Officer; Mr. Zsombor Marton, Executive Vice President of Upstream; Mr. Gabriel Szabo, Executive Vice President of Downstream; Mr. Robert [Technical Difficulty] and Mr. Zsolt Petho Head of Circular Economy Services. We continue to use Microsoft Teams as a platform to support our conference call. The presentation can be downloaded from our website at molgroup.info and we will be sharing the slides in Teams too. After the presentation, we will move to the Q&A session, where you will have a chance to ask questions by using the Raise your Hand function. Please keep yourself muted throughout the call, except when asking your questions. Before we start, I would like to draw your attention to the cautionary statement on Slide #2. And now let me hand over to Mr. Gyorgy Bacsa, who will take us through the highlights of the second quarter.

Good morning, and welcome. Let me start now with how we performed in the first half 2024. On the slide, you can see a comparison to the annual guidance for the year before and also comparison to the first half results in 2023. In nutshell or a short summary, we are on track, we are slightly above the halfway as you would like to interpret it. But in any way, I think our main message is that we can -- after the first half of the year, we can reconfirm our 2024 guidance, irrespective or taking into consideration all the macro and external environment and the internal drivers. Just to summarize some of them, in the first half, the macro demand was stable in the region overall. There was a higher fuel consumption level, which is supported by the consumer services and fuel wholesale performance. However, there is a slowdown still in the industrial demand in respect of petrochemical businesses, and there after July, they are also sign of margin decrease in the Downstream segment as well. Hydrocarbon prices are also stable and relatively high -- elevated levels, both in our main product lines. Up until August, there hasn't been a notable change in the government take compared to what we planned in the beginning of the year. Sorry, can you mute your microphone and then you continue. So there were internal factors that impacted our first half results materially. In Downstream, there were several important planned turnarounds throughout 2024, which made a constraint on our production in both refining and petrochemicals. However, the sales figures are still at the planned level. Upstream succeeded in maintaining or even in some cases, raising production level, even though in certain foreign operations, we faced external environment -- unfavorable external environment, just to name Pakistan and the Kurdistan region of Iraq for operations. Consumer Services still high contribution or increase in the high contribution on non-fuel sales, and we will go into details later during the presentation. So going forward, as I just said, we reiterate over the 2024 guidance. But again, we note that there are downside drivers which are higher and higher. So based on 30th of July, margins is Downstream are trending down. There are still several turnarounds ahead of us, both in the refinery and the petrochemical trends. And of course, there are certain governmental sanctions like external circumstances that can still affect our future performance. So if we go to the next slide, so looking more closely on the second quarter results. We reported for the second quarter, $825 million EBITDA, CCS EBITDA and the profit before tax $534 million. In comparison particularly to the last quarter CCS EBITDA 16% higher. On year-to-date operating cash flow after working capital is at USD 790 million. What we can -- in terms of the segment, what we can here also emphasize, there is in Downstream EBITDA is about USD 400 million, which is a very good performance, even taking into consideration, as I mentioned, the turnarounds, which were scheduled for the first half of the year. In the Upstream, we have resilient production, and we have a stable hydrocarbon price. So our guidance above 90,000 barrels oil equivalents per day capture -- or even achieved higher than that one. So the management of major portfolio and the management of new development or new field both can be considered as a success. The Consumer Services team was able to further raise the nonfuel margins. And of course, you can see also the retail expansion effect on oil dealing on Consumer Services. In the Circular Economic services, depository refund system has been rolled out successfully. So on operational update. The polyol complex in Hungary was inaugurated in May. And in line with our transition strategy, we are also in the preparation of further chemical recycling plant. We also have to reinforce the message on the future downside is that we experienced during the summer or even recently, so there has been a change, of course, in the Brent-Ural taxation as it was published by the government, the threshold was lowered from $7.5 per barrel to $5 per barrel. Let me also highlight one of the most cited question in regard to the Ukrainian sanctions imposed on Lukoil, which has an impact on trading ability, which has an impact on our sourcing ability because it's affecting one of our core partners, but there was no material shortage on the Druzhba pipeline. Druzhba pipeline transmission still continues. However, we need a long and sustainable solution for the future, which enables definitely to secure crude supply and enables sustainable operation on site. So in all the cases, we take into consideration both the company and also long-term responsibilities in that respect. We are aware of the risk of single source of supply lines. We are also aware of the risk of having more long-term arrangements of supplying more refineries. So definitely we are working on it. And in the later sections, we can answer your specific questions. Regarding the ESG related performance, the total recordable incident rate, which is one of our main safety indicators in the group, was essentially flat over the year and still under the 1.3 guidance. The Sustainalytics updated MOL rating to medium, and now we are in the 14th percentile of oil and gas sector. So now let me give the floor to Jozsef Simola, Group CFO.

Thank you, Gyorgy, and let's start the financial review on Page 8. The $820 million EBITDA shows a very impressive growth on Q-on-Q and year-on-year. But I think it's clear that the -- both base periods are heavily distorted because they were actually the actual quarters last year and this year, and we had to book in special taxes. So the 2023 number includes were shown actually in terms of the record EBITDA in the comparison a $350 million revenue base taxes and $99 million royalty levy and the first quarter of '24 shows a negative impact of $110 million of special taxes. In terms of the individual performance, as always, the four business leaders will give you a detailed overview. Briefly on the gas midstream, $55 million quarterly EBITDA contribution, slightly lower than the $60 million year-on-year. Please keep in mind that last year was a very strong year in gas business. So I think this is overall a solid performance. And of course, with all the uncertainties, we expect a similar trend to continue a good but lower result than last year for the remaining part of the year. I will cover the C&O and intersegment later in detail. But before that, let's go Page 9, with the CapEx overview. Essentially no inorganic CapEx in a year with only $1 million spend in Croatia. On the organic side, a very significant 4% to 5% increase in the first half of the year compared to last year, driven by the increase in the sustaining CapEx and the execution of the Downstream turnaround programs. If we look at our guidance, $1.7 billion organic CapEx, which is the same as for last year, and/or last year actually almost $1.4 billion and the -- around $200 million higher CapEx spending in the first half of the year. I think that result puts us on track of reaching or a bit more yearly guidance in organic CapEx for the year. On the next page, looking at the below EBITDA waterfall chart. Most of the items are over on the upcoming pages, I'd just like to point out, too, that no special item in the EBITDA in Q1 or Q2 either. However, there is one special item of minus $111 million from discontinued operation. And this is connected to the sale of our U.K. assets where the buyer [indiscernible] went into bankruptcy in June this year. This is, of course, it's not a good news, but if you put into the context they actually received more than 3/4 of the amount they expected. And actually, we were able to tie the earnout to the crude price independent from the taxation situation and actually the other situation strongly connected to the very negative changes in the U.K. taxation. I think all over, we can see looking back that was good timing for this deal and with a good price. Now if you go sort of detail starting on Page 11, still going back to the details of the CCS EBITDA, in the C&O EBITDA of minus 77, you see the seasonality, the Q2 seasonality in this line, which is connected to the timing of CSR payments essentially connected to the timing of the annual meeting in Q2. In the intersegment EBITDA, minus $29 million for the year. Most of it is coming, I think, from Croatia, the increase of the own-produced crude due to reduced operation of the Rijeka refinery in Q2. And the CCS impact is $34 million. The usual suspect, the brand price does not play a role this time, Brent was essentially unchanged at the $7 closing price during the last 2 quarters. The reason for the CCS EBITDA $34 million lower than the total EBITDA is the quarterly release of the carbon credit across the CCS for this quarter. If you continue on Page 12 with the details. DD&A 8% increase on quarter-on-quarter and 30% increase on year-on-year. The year-on-year increase is higher because the assets and the depreciation from the Circular Economy Business showing up essentially in this number and the quarter-on-quarter and generally the other major source of increase, the activation of Upstream assets including sizable asset activations and so the depreciation in Azerbaijan. Total financial loss of $32 million. The two major impact is a $10 million FX loss. And here I'd like to point out that FX, the weakening dollar and euro FX was actually small decrease or essentially unchanged. The FX loss comes from the fact that there is a significant volatility during the period and we had higher or larger transactions during this period and the timing of this transaction actually caused this FX loss in the quarter. And the other, the larger impact $22 million coming from a line which is called unwinding of discounts on provision. Essentially, it doesn't mean that on a regular basis financial or the financial value provision is calculated -- and here, the increase in the interest rate for the calculation, reflecting market where the -- shows this increase in the provision and so a $32 million calculated financial loss. Income from the associates $23 million. I think usual kind of volatility and seasonality from the individual companies. I'd like to point out one important contribution. The Alteo share price increase which contributed $10 million to this number. And finally, here on the income tax expense, as usual, let's go into the individual line instead of the aggregated number. The local tax, $36 million, very much in line with the revenue development in the underlying with the previous quarter number. Industry taxes $2 million, essentially 0. So no major numbers expected here since we ceased the operation in Norway. CID, the decrease from $29 million. As usual, this is especially adding up all the real and this -- and improves a lot of seasonal and tactical factors. However, I'd like to point one kind of important driver beyond is that the profitability of the Hungarian subsidiaries in this tax base and the profitability of the Hungarian subsidiaries in Q2 because of the special taxation was very low and that's clearly a contribution to this number. And deferred tax, from an income, it went to $17 million expense in quarter 2. As again, it's very hard to predict at this time any yearly results or yearly expectation from these numbers at this point of time. If you go to the next page, Page 13, the operating cash flows. We already covered the discontinued operations and DD&A. In the income tax paid from the $365 million for the first half of the year, $281 million, i.e., more than 2/3 is coming from Q2, which is coming from the fact that usually the incurring 3 year taxes are actually paid in cash in Q2 in most of the countries. And in the other line, the total is $54 million, but that actually includes minus $54 million, that includes the minus $121 million for the quarter, That's, again, a seasonal decrease coming from the release of CO2 provisions at this point of time. And probably lastly, on this page, the change in working capital, overall, $275 million working capital increase i.e., reduced cash flows for the first half of the year. But Q2, as expected, is showing the changing trend because in Q2, we had a $74 million release, and as expected, using of the inventories during the turnaround. And let's go to the last page, Page 14, the overall balance sheet over through like if you look at the change in the net debt, probably 2 important factors is the we paid dividend in Q2 of $532 million increase in the net debt. And in the other items, there is a significant timing or technical impact. But as you may remember, the rollout of the [indiscernible] call transactions, we have a couple of weeks of break, and that included actually the Q2. So we expect -- because the input was, I don't know, again we expect this to reverse in Q3. So all in all, going ahead, we expect the continued free cash flow generation, including net debt EBITDA and clearly paying in below 1 range, which is very conservative and comfortable range. And with these highlights, I'd hand over to Gabriel to cover the Downstream business.

Thank you very much, Jozsef. So good morning, ladies and gentlemen. Let me comment the Downstream Q2 results. So in general, Downstream achieved very solid performance of $408 million for the last quarter. Commenting it, I would stress 3 most important points here. The first one is the crude intake, which decreased year-on-year by 14% as a result of the large-scale maintenance program. We have just finished the turnaround in Slovnaft and started the turnaround in Százhalombatta. The other very important point is that there is still a relatively healthy demand for the fuels there. And also what we see is an extraordinary good performance of our sales colleagues. And the third one is the petrochemical where we are happy to see that we are back in black again, even as production outage is constrained, the sales and we had to draw the inventories to meet the demand. On the next slide, you can see the three major macro indexes. We used to comment so. Regarding the refining margin, we averaged around $7 per barrel in the second quarter. This is higher than Q2 last year, but trend compared to the first quarter is definitely negative. We can also see a negative trend even as -- not as negative in Brent-Ural spread, so -- which is putting an extra pressure on our profitability. As we can see the DAP Euro's quotations, as I commented last quarter that this is what we believe the right benchmark. So we can see that they are weaker than a quarter before. And then the petchem margin broadly flat year-on-year, and energy and CO2 prices supported generally our petchem result. Regarding the outlook, so in all 3 indexes, what we see that they are deteriorate in July. And what we can see, this is the macro slowdown in the whole economy and especially in the region. And we believe that this trend will be the same in the second half of the year. In terms of the petrochemical sales, we remain rather cautious for the demand for the polyethylene and polypropylene products. So what we see there is a need-based buying. I mean, big demand and economic challenges, and we do not expect significant demand decrease in the second half of 2024. And my last waterfall slide. So from what we see there, a very similar pattern for the quarterly and half year comparison. We clearly see the contribution of price and margin effect, which is positive both in refining and petchem and is driven by lower energy prices. And also, I would like to mention here the very favorable price evolution of some chemical products, especially aromatics, and within aromatics, benzene, which are not fully captured in the model. Regarding volumes. So I mentioned the turnarounds. And it was mentioned also by my colleagues previously. So there is no surprise there that the volume impact is negative as own production was heavily constrained by the turnaround. Within the other category, we see the impact of the extraordinary taxation regimes and its changes. So all in all, I believe a very solid performance of Downstream even though the capacity utilization is lower from the nameplate capacity because of the turnaround, but offset by a very good performance of our sales colleagues. And with this, I would pass the word to Robert . And I checked the figures of the consumer services, so I believe that Robert can be very proud of the results of the Consumer Services. Thank you.

Thank you, Gabriel. Good morning, everybody. So Q2 2024, the EBITDA amounted to $194 million, which is an 11% increase year-on-year, under several factors behind the performance. Firstly, the volumes show an increase year-on-year with the acquisitions in Poland and Slovenia and the remedy handovers resulted in the quality upgrade of the network overall. But a continuing drop in the fuel unit margins did limit the positive effects to around $5 million in year-on-year comparison. On the nonfuel margins, they continue to show strength, and they contributed $26 million of EBITDA year-on-year, supported mostly by the organic factors and previously mentioned the quality upgrade. Higher OpEx burdened, the results rose to magnitude of $20 million as the cost of operating, the value network rose, and we also switched to an operating model in Romania, which allows for a larger profit in the gross margin, but at the same time, increased the higher of OpEx. One-off OpEx -- I'm sorry, contributed $14 million to EBITDA growth and were doubly driven by the remedy handover of fuel stations related to MOL's acquisition. On the volumes, we can see that volumes increased by 4% year-on-year, mostly due to throughput precisely improving by the same rate. This improvement is driven mainly due to an effect of retention initiatives on the quality upgrade of our network. The acquisition and remedy transactions are now completed. Overall, our estimate suggests that our market share in the region has overall increased during the quarter. Regarding margins, however, we registered a 2% year-over-year decrease in unit fuel due to more competitive pricing in Hungary and Slovenia. On the nonfuel briefly, what we can say is that the dynamic is very similar to quarters before, with over 20% growth in nonfuel margin compared to the same period last year. Margin development was fueled by positive network effects and a compelling downward structure, raising average basket size by 11% year-over-year. Overall, the development in the second quarter on the nonfuel margin share increased to 27.5%, which reinforces the strategic direction by which the Consumer Service segment is respacing its profits more on nonfuel sales. And on that note, let me hand out to Zsombor to discuss the Upstream performance.

Thank you, Robert. So good morning to everyone. Let me first start with the E&P division performance for the second quarter of 2024. It shows 8% growth compared to the previous quarter and stands at $283 million. You can clearly see that the prices showed an increase compared to the first quarter of this year, which is especially visible on the evolution of gas prices. We also managed to maintain a production level over 92,000 barrels of oil equivalents throughout the quarter despite several force majeure events in many jurisdictions, international where we operate. Furthermore, there is a gradual development in the production figures even without major acquisitions. And even without the export line open between Europe and Turkey for now more than a year. So overall, we think that the second quarter results reflect a very strong profit generation ability of Upstream. And this resilience helps us to keep the production targets up and to overcome the challenges of the diverse and predominantly mature portfolio. So if we move to the unit profit, free cash flow generation, you can see that our $27 per barrel simplified free cash flow on the unit basis is a strong and growing trend, and it is above of our strategic guidance of $20 per barrel. It translates into the more than USD 200 million profit for the second quarter. And for the first half of the year, it's close to $400 million. If you move to the EBITDA generation, looking to breakdowns quarter-on-quarter and even year-on-year, there is a stability in the results for -- if you adjust to government takes and compare to the first quarter, the price effect is quite negligible, but there is a positive volume impact, the production is higher on a working interest basis. That we also know comparisons with previous quarters are heavily affected by different levels of government takes for upstream, especially the Q2 last year. And compared to the first quarter, this effect is amounting to $15 million. And just a side note, let me also highlight that we have been writing off the Shaikan receivables, which is amounting to approximately $10 million in the last 3 quarters combined. And if you move to the production slide, you can see that on entitlement basis, we have been able to maintain production over the 90,000 barrels strategic guidance and even growing. This is slightly below the level of the previous quarter on entitlement basis, but significantly higher than the second quarter last year. Regarding the associated companies, the ramp-up in Kazakhstan is going on. We started last year December the production, and despite even a flood-related force majeure and national emergency, which lasted for almost 2 months, in April, we were able to maintain production and even continuing construction and already 3 wells operating, which resulted 1,600 barrels of oil equivalent per day for the quarter, and even the current daily production is more than 4,000 barrels more share. Affecting the production in the joint venture in Pearl, in Kurdistan where there has been a drone attack in April, which resulted in full shutdown for a couple of days in the month, then the production was recovered, and we reached 5,900 barrels oil equivalent per day, which is slightly below the previous quarter despite -- resulted by the drone attack. Again, this is now fully recovered and the Pearl is also operating without disturbance. We also have been quite successful in arresting the decline in Hungary and even increased the production. We had above 35,000 barrels in the first -- in the second quarter of 2024. And despite this is an extremely mature territory, we are able to add new wells to the portfolio. The second well in Vecsés started production in May, and this is adding 1,000 barrel oil to our Hungarian production and the third well is currently under testing. In the Shaikan Field in Kurdistan, we are able to achieve better production figures than the last quarter or the previous quarter. And now this is averaging around 4,300 barrels per day, which is still currently capped on that level in domestic sales. And again, in Pakistan, lastly, there are two developments: first, that our production was decreased by around 1,000 barrels per day oil equivalent, and this is a result of a curtailment in the national grid because the national grid operator needed to restrict the takeover of the pipeline due to their own constraints, which we hope is going to be resolved soon. But on the more positive note, regarding the Razgir in Pakistan, which MOL discovered, we have had the first positive results from the Razgir-1 well, and the testing is still ongoing for the third layer, but the first 2 layers are very productive and reaching the gross production of around 3,500 to 4,000 barrels of oil equivalent. MOL has 8.4% out of that gross production. We plan to connect the well to the production facility in first quarter next year. So going forward, we see the July production estimates a further increase in production because of the Kazakhstan and the Pearl performance is restored as well, and we are confident that we are able to maintain or even exceed the production guidance of 90,000 barrels. And lastly, finally, the evolution of the unit OpEx and the CapEx for the division, you see that with regards to the CapEx, there is a 10% decrease compared to last year first half. And this is largely because of the expansion of the Shaikan spend and some timing effects on the drilling campaigns in Hungary, Croatia and Egypt. Again, we are heavily scrutinizing of the project portfolio. This is a continuous effort, and we are trying to prioritize the best and most profitable projects going forward as well. On the OpEx side, the unit OpEx was flat quarter-on-quarter, even with the high inflationary pressures, and energy prices, however, helped us to remain flat on the unit cost side and we are continuing to focus on this cost control. And again, a strong and stable performance for the division in the second quarter due to healthy production levels and strict cost control both on OpEx and CapEx side. With that, let me hand over the floor to Gyorgy to discuss the circular economy services financials.

Thank you very much, Zsombor, and good morning, everyone. As you can see, circular economy EBITDA came in at minus $10 million, that is for the quarter. And I would like to highlight two main reasons for that. And the most important one is that we have a very conservative approach in posted income figures especially to the deposit refund system regarding the deposit refund system where the producers have the obligation from 1st of July to put on market refundable packaging. And what we see in the first quarter and also in the second quarter that they will fulfill the obligation in the last minute. So we saw very limited amount of refund of the materials, although all the machines were there and all the services like logistic, maintenance, customer service also already there as cost. On the other hand, as of now, we are in August, we see a very, very quick ramp-up of the volume. Now products are already on the shelves. And next week, we will reach $100 million total refunded. And we already reached daily more the $3 million refunds. So I think that in the second quarter or -- the third quarter and the fourth quarter that there should be already more benefits post from the deposit refund system fee, which will be paid by the producers and also from the recyclable materials. The second reason is that this was the first quarter when MOL Budapest as a joint venture company and the results were consolidated and absolutely coincidentally the first month was shut down, planned maintenance. By the way, it was planned maintenance in the waste-to-energy plant, which was a great loss of income in that once as we started the operation. On the other hand, I'm still absolutely positive about the future. You can see here we listed not only the deposit refund system, but other projects and programs which we already started, and I'm sure that there will be benefits on the recyclable material in coming future. Thank you very much.

Thank you very much. That completes the formal part of our presentation, and we'll now open the floor for the Q&A session.

[ Isal ], please go ahead.

I have three questions, if I may. The first one from the government legislation perspective, should we expect extra revenue base tax in the coming quarters? Or only minor negative impact from lowering crude oil differential cap?

Of course, you can never fully predict what the government may say through -- practically to subsidize or to stabilize its fiscal problems if they have. But all in all, in general, I think in the core countries, we assume that if we take into consideration the normalized industry profitability, I think there is no room for extra profit or no room for further levies imposed on oil and gas and energy companies, especially in the segments where we operate. And I think we also emphasized a couple of times that most of the temporary tax effects are not sustainable in the longer run because these are affecting investment ability and investment appetite of the company. So these investments are as such for the stability, security and also for the green transformation. So you can cover hiccups, you can cover the years that, that is export profits or extra circumstances, temporary measures. But all in all, the interim or temporary or extra taxes and provisionary regulation need to be phased out. As I said, there is a third line set for certain elements. And I think we clearly should go back to normal level of taxation. You can already see the sign of it. So this year, government take compared to last or the year before, so '22 or '23 is definitely lower, but still we are paying several extra taxes. We don't plan and we definitely emphasize there is no room for further expectation.

Understood. The second one, should we expect negative impact -- significant negative impact on EBITDA in the second half of this year due to sanctions on Lukoil?

If I may, Gabriel Szabo speaking. So I do not expect, as you mentioned, or as you called it a significant negative impact of it.

Okay. And the last one, when should polyol investments have significant impact on downstream results?

Yes. So the polyol plants were officially inaugurated with the proper coverage of the media. Currently, the -- all the plants or the assets are taken over by our colleagues. We are starting up the plant. We are learning how to operate it and there is a ramp-up plan. Well, it definitely will take months to get on all the parameters. So I believe next year, we will see a visible impact of having the polyol within our value chain.

Anna, please go ahead.

Congrats with the results. I have follow-up on oil and windfall taxes actually. So first one regarding the Lukoil. How do you currently purchase crude? Do you operate on spot contracts with other Russian producers? And what type of long-term solution are you looking for? And on the revenue -- on the windfall tax, I wanted to double check. Do I understand correctly that MOL Group is not subject to a windfall tax in Slovakia this year as well? And finally, one question. On the cash flow, we saw this quarter a higher cash tax payment, can you please tell what we get into that?

Yes. Thank you very much. So I will try to answer your first question. So in terms of the local deliveries, there are no deliveries from Lukoil in July, and we do not plan with any deliveries in August as well. Currently, we contacted other partners and we are trying to get higher volumes from there under the pipeline. And as it was mentioned by George at the very beginning, this is not a long-term solution, and we are in touch with all the stakeholders, and we are working on the long-term solution. Because of the sensitivity of the issue and quite high political exposure, I don't want to go to details of it. So once we solve it, you learn it. Thank you.

The windfall tax in Slovakia and at this point of time, it's hard to see. We have to see first the legal situation at the end of the year, and also whether at that point of time looking back for the year, we have fulfilled or not fulfilled the condition of being the subject of this tax. So we can look back at the year and answer this question. The higher tax payments, we're referring to the income taxes paid, what I mentioned in Q2, that's a normal seasonality. So the overall number is not unusual, but essentially, the yearly income taxes are usually in most countries have to be paid in cash in Q2 and that's why there is no seasonality.

Clear regarding Slovakia. But for 2023, it's already clear that you are not subject to the tax, right?

Well, for '23, I mean, as you see in our numbers, we analyze the situation. We prepared our financial statements in line with this. We did all the appropriate taxes in line with this -- all the taxes with this.

Tamas Pletser, please go ahead.

I got three questions. First of all, on your crude diversification investment. I wonder how are you proceeding with these investments? How much money you have already spent? And what is your expectation to spend? And when do you expect that you can be fully decouple from the Russian crude based on these investments in the future? So anything what you can tell on this, I would be very happy to hear. And the second issue is your special taxes and special taxation. Can you tell us how much special tax do you expect to pay this year, including this 1st of August change of the system, the threshold for the Brent-Ural differential has changed? And finally, one follow-up on the Waste Management. What do you -- when do you expect this business to be EBITDA positive in the future?

Thank you, Tamas, Gabriel speaking. So regarding your first question, the crew diversification projects. So all of them are on track. So -- we do not see any delay so far. The total magnitude of this plan is just about $500 million CapEx need. And there is no change compared to what I said when I got the similar question last time. So we believe that we achieve mechanical completion of all the projects in 2026. So I see that from '27 on we are ready to process alternative crude.

So Tamas first in respective second of the first question. We also emphasized that what you are asking us that decoupling from sourcing and pushing. But in the beginning, not to forget that we will also ask for support. For the time being, there is no support, no public funds, no EU subsidies, nothing, so there is no support. So whatever we are doing, we are doing on our own. And I think -- that's why I think that I understand the pressure, I understand the desire and I the understand the direction. But without help, we also have to take into consideration all constraints or limited resources as well. And unfortunately I also mentioned there is only demanding and there's no public support behind all these ideas, which makes this task even more difficult for us. In segmental, I ask your understanding and I ask your acknowledgment all that was that we already made. Regarding the second one, I think that there was a specific question about the threshold changes, the threshold change is, of course, to certain extent, the Brent-Ural taxation is dependent on the spread instead. The threshold change was mainly arguably defended by the fact that some of the cost elements, which are justifying such a threshold between the Brent-Ural differentiation. Lower the [indiscernible], I could say that simple threshold change, despite all visible to threshold, that's roughly $40 million to $50 million difference in terms of payment, but of course, the absolute payment because 95% tax rate is impossible to threshold. It's always depending on the Brent-Ural spread it is -- but I think that our plan of extra government taxes or special taxes for 2024 is around $350 million, $360 million. We don't change that assumption for the time being for the entire year.

No. Okay. And regarding case management, I think and what we see that -- it's still a volatile market. We are sort of in a start-up mode. But I can tell you immediately that the operation is not efficient, which means that right now, we contracts with the old participants. We see that they don't operate efficiently. So we started to learn on how to make it more efficient as there their operation to make more efficient or better, our intention is to, in some cases, takeover the operation from them. This will take time. But it's not very efficient and effective. It means that there is a lot of room for improvement. Now I have a team of roughly 300 people for the organization and the management is there. We started to work on all these efficiency improvements. But I can't tell you a concrete time line. I'm very, very positive about the future, but it takes a lot of effort and work.

Great. Just one follow-up on the special taxation, if I may. I remember at the time last year when we told, you mentioned the disagreement with the Hungarian government that the Hungarian government was willing to lower the domestic royalty in exchange for you to keep the Hungarian production. And I think you mentioned that this agreement expires by the end of this year. I mean, will you sit down again with the government to extend this agreement? Or is it automatically increases back to that level what we saw before August last year.

Okay. So the agreement will expire on the -- at the end of the year, and that agreement is if it meet production level in the contract, then we are able to pay royalty as the original levels in the mining pool. And this another contracts will only expire, but the extra taxation will also expire at the year-end. What will happen after it's not clear yet. But we are doing our best this year to meet production target, not to pay either penalty or higher royalty rate.

So this means, basically, we want to sit down again and set up a new framework for the next year. Am I correct with this assumption?

Yes.

Ricardo, please go ahead.

The first one, just going back through the oil supply. If we look at more on the shorter-term solutions and you're able to offset some of the lower volumes coming from Russia with the Adriatic pipeline? How much higher would logistics costs be, just so we have an idea? And then two questions, if I may, on the Consumer Service segment. The first one is how do you see the average throughput on a normalized basis going forward? And the second one, you had a quite a strong performance on the average basket growth. Should we see this growth normalizing in the short term? Or do you still think that close to double digits should be the norm for a while?

Yes. So for the first part of your question regarding the outage of the Lukoil deliveries, they were so far compensated with other suppliers who are on Druzhba. In terms of the long-term solution, this will be the set of legal, financial and technical conditions, which we would like to agree with all the partners. And once we do it, then we can share with you the impacts of it.

So on the questions regarding the throughput on the Consumer Services growth, on the throughput, what we think, we improved the quality of the network with the remedies, which the stations went out and the two acquisitions we have because of better chain of stations. So we'd expect throughput to continue as they are, and we think we can continue to win market share. So that's our view on that. Regarding the Consumer Services growth of nonfuel margin and nonfuel revenue, we believe that we have a very good concept. We're concentrating in the right categories within nonfuel. We're expanding fresh corners that we've opened and maturing as well. So we don't see any reason to be less confident in terms of the business that we have at the moment, and we think it continue...

Oleg, go ahead.

I have one follow-up question and then two questions. Starting with the follow-up, it's about, again, the oil supply from Russia, just to make sure that we have the correct picture. The question is, does MOL continue to receive crude oil from Russia? And if yes, which volumes and who are -- is the supplier? And then going to questions. The first one refers to the Upstream segment production, which stood at 92,000 BOE per day in the first half and it was even higher in July. While you maintained your full year guidance of 90,000 BOE per day, does it mean that we should expect that below 90,000 BOE production in the second half, or just trying to understand the reason for not upgrading your production for the full year due to the, again, bright picture in the first half? And secondly, on the petchem business results, again, the results of the segment have been quite volatile from quarter-to-quarter and somehow it's difficult to reconcile the evolution with the -- evolution of the fundamentals. So could you explain maybe in more details what helped improve the results in the second quarter versus the first quarter because when I look just at the volumes, okay, volume increased by 10%, but the petchem margin was only 3% stronger. So it's probably not the only reason for this improvement in the second quarter of the results. So more color here would be helpful, especially looking forward when we see that the petchem margins is going or is weakening again.

Yes. Regarding your first question, so far, there have not been any disruption to the oil supply. So we are getting the oil via Druzhba pipeline. And we compensated the outage of Lukoil volumes from other partners we have contract with. So this would be the first question. And the last regarding the petchem. Yes, so you are right. On the other side, this 10% can really mean a lot. As you may remember, during the first quarter of this year, I mentioned that there were unplanned shutdown in our LDP 4 plant in Slovnaft, where we have a problem with electromotor there. So there was an unplanned shutdown there. And for this reason, we got back the processing or the production of our steam crackers as well. And this 10% on a quarterly level can really mean a lot whether you are utilizing the assets above the breakeven. So this, I would call the major trigger between the different financial performance between two quarters. I hope I answered your question.

Yes. But going back to the follow-up. So does it mean that currently MOL is getting the same volume of crude oil from Russia as, let's say, in June before the sanctions were introduced against Lukoil?

Well, so there was not a significant outage. There were few tonnes of KTs, which were missing. But taking into consideration the major turnaround in Slovnaft and now we have a turnaround in Százhalombatta. So it helped the situation in general. So there is no such a high need for crude during these 2 months.

Okay. But still on the supply, what is the volume that you're currently getting from Russia, if I may ask?

The volume is more or less matching our need.

Okay. So on the upstream production level, so we are currently very comfortable with 90,000 guidance. That was a quick guidance, which we gave in our strategy on the long-term basis. For now, we think it probably too early to adjust that. You could also see that there are a lot of things that came especially in the international portfolio. We have force majeure events on Kazakhstan in the flood on [indiscernible] export pipeline is still shutdown in Shaikan, Pakistan lead constraints. So a lot of things which are out of our control. And that combined with mature assets, we believe that we will use the right risking. So for that, although production performance is strong, we believe the 90,000 is the right guidance still.

Okay. Maybe just a short follow-up. Do you plan any major maintenance at your field in the second half of the year?

Not this year.

Piotr, your turn please.

It's Piotr Dzieciolowski from Citi. I have a few questions. So first of all, can you please explain us what happened in the other intersegment lines in your P&L because, yes, you have a beat on the downstream, but at the same time, part of it is you have a big bit of a negative surprise typically that these two positions, one of minus 50, now they are more like minus 100. So can you please explain that? And second, I want to come back on this crude oil deliveries more in the medium term. I know you don't want to say anything. But how would you assess your position or generally the cost of it in 2 or 3 years from now when you eventually switch to the non-Russian crude, how much more expensive is dollar per barrel as a proxy, you can keep that in the wide bracket, will be the route via the Adriatic pipe. And there was a headline recently that Croatia quadrupled the fee for the transit route. So just wanted to understand what's the real cost effect of it even in the broad assessment? And then do you have any pricing power that you could maybe lift inland premiums because you source more expensive crude. So let's maybe start with these two.

So just on the first one, I think about the intersegment EBITDA results.

No, I've seen the result. But when you look at the divisional breakdown, typically, the corporate is minus 30 this time was -- if I -- just give me a second, I just tell you exactly. So this -- EBITDA this time on the corporate was minus 73, and then intersegment was minus 29. Typically, these 2 are not that high and therefore, that had a bit of a negative. I just want to...

Yes, it's a corporate concern actually. But I think I'll try to explain the first. I think they have nothing to do with each other. And on the intersegment the minus 29. These are unusual seasonal items and from the minus 29 actually the major item and very much depending on the inventory level. As I said all inventory levels, which produced by upstream and used by downstream. And in this quarter, essentially one of the major reasons which happened at the Croatian production went on, but wasn't utilized in the [indiscernible] and that's why a negative amount. But in the intersegment, the numbers are like a year ago, sometimes much higher. There is a general seasonality and the end result is essentially over the cycle is close to 0. And in C&O EBITDA, there is actually minus 77 is larger than usual negative number because of the seasonality, as you see in Q2, similarly -- essentially certain CSR expenses paid actually to the shareholder foundations are recorded at cost accounting-wise, and that's why the seasonality connected to the dividend payment and the [indiscernible] showing up here.

Yes, Piotr, so answering the second part of your question. So thank you very much for respecting the sensitivity of the whole issue around the Druzhba pipeline deliveries. In terms of the Janaf deliveries, so you are right that this sourcing would be more expensive. It will be triggered by two factors. First one is on the commercial terms for the seaborne crudes and the other, which you rightly stressed is the logistics cost for the Janaf pipeline. I am not in the position to share with you the commercial terms, but I believe as Janaf claimed high level of transparency and clarity, probably you can ask them and then to get some benchmarks and you will see what will be the final impact of it.

And do you think you can pass it on to customers or that's not your price like you won't increase the inland premium if that was to happen?

Well, definitely, once we will face this situation, we have to cope with it in some way.

Okay. Understand. And then the final question for me, if I may. Do you plan to buy the rest of Alteo as you have these minorities, but do you -- like not minorities, but what's your position on this company?

The answer simply is no. For the time being, definitely no.

Anna, do you have anything to follow-up.

Yes, I have a very quick followup. Regarding the extra government take for full year '24, you said that it's USD 350 million, USD 360 million, but that correctly. And this includes revenue-based tax, CO2 tax and Brent-Ural spread? Or there is something else?

So I think that was correct. We had extra cost.

Okay. And USD 350 million, USD 360 million, is I heard correctly, right?

Yes, USD 360 million.

Okay. With that, I'd like to thank you for participating, and please do reach out to Investor Relations if you have anything to follow-up with. Thank you very much. Bye-bye.

Thank you. Bye.