Good morning, ladies and gentlemen, and welcome to MOL's Q2 2024 results conference call. My name is Márton Teremi, Head of Investor Relations, and as usual, we have a strong lineup of management for today's call. Dr. György Bacsa, Executive Vice President, Group Strategy, Operations and Corporate Development; Dr. József Simola, Group Chief Financial Officer; Mr. Zsombor Marton, Executive Vice President, Exploration & Production; Mr. Gabriel Szabó, Executive Vice President, Downstream; Mr. Róbert Kézdi -
This meeting is being recorded.
Mr. György Patterman, Head of Circular Economy Services. We continue to use Microsoft Teams as a platform to hold 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 a Q&A session, where you will have the chance to ask questions by using the Raise Your Hand function. Please keep yourself muted throughout the call, except when asking a question. Before we start, I would like to draw your attention to the cautionary statement on slide number two. And now, let me hand over to Mr. György 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 that we published before, and also comparison to the first half results in 2023. In a nutshell or a short summary, we are on track, or 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 environments and the internal drivers. So 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 supported our consumer services and fuel wholesale performance. However, there is a slowdown still in the industrial demand in respect of petrochemical businesses, and there are, after July, there are also signs of margin decrease in the downstream segment as well. Hydrocarbon prices are also stable at a relatively high or elevated level, 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. There were internal-
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Sorry, can you, can you mute your microphone, and then we continue? Thank you. 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, the sales figures are still at the, at the planned level. Upstream succeeded in maintaining or even, in some cases, raising the production level, even though in certain foreign operations, we faced, external environment, unfavorable external environment, in, just to name, Pakistan and Kurdistan Region of Iraq for our operations. Consumer services still high contribution or increasingly high contribution on non-fuel sales, and we are going to detail later in the presentation.
So going forward, as I just said, we reiterate all the 2024 guidance, but again, we note that there are downside drivers which are higher and higher. So based on fresh dates of July, margins in downstream are trending down. There are still several turnarounds ahead of us, both in the refineries and the petrochemical plants. And of course, there are certain government, or 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 posted for the second quarter, $825 million EBITDA, CCS EBITDA, and the profit before tax, $534 million. In comparison, actually to the last quarter, our CCS EBITDA is 60% higher.
For year-to-date, operating cash flow after working capital is at $790 million. What we can, in terms of the segments, what we can here also emphasize, there is, in downstream, EBITDA is above $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 a resilient production, and we have a stable hydrocarbon price. So our guidance above 90,000 barrels oil equivalents per day are kept or even, basically achieved higher than that one. So the management of our mature portfolio and the management of our new development or new fields, both, can be considered as a success.
The consumer services team was able to further raise the non-fuel margin, and of course, you can see also the retail expansion effect on, already on our consumer services figure. In the circular economy services, the Deposit Refund System has been rolled out successfully. 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 plants. We also have to reinforce our message on the future downside risk that we experienced during the summer or even just recently. There has been a change of course in the windfall taxation, as it was published by the government, that the threshold was lowered from $7.5 per barrel- $5 per barrel.
Let me also highlight one of the most cited questions regarding the Ukrainian sanctions imposed on Lukoil, which has an impact on our 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 is still continuous. However, we need a long and sustainable solution for the future, which enables definitely the security of supply and enables the sustainable operation of site. So in all the cases, we take into consideration both the company interest and for our long-term responsibilities in that respect. We are aware of all the risk of a single source of supply line, and we are also aware of the risk of having no long-term arrangements for supplying our refineries.
So definitely we are working on it, and in the later sections, we can answer your specific questions as well. 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 1.3 guidance. MSCI upgraded our rating to medium, and now we are in the 14th percentile in the oil and gas sector. So now let me give the floor to József Simola, our Group CFO.
Thank you, George, and let's start the financial overview on page eight. The $810 million EBITDA shows a very impressive growth on Q-on-Q and year-on-year. But I think it's clear that 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 or shows actually, in terms of the lack of the EBITDA, in the comparison of $350 million revenue-based taxes and $99 million royalty levy. The first quarter of 2024 shows a negative impact of $110 million of special taxes.
Now, 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, started slightly lower than the $60 million year-on-year. But 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 the similar trend to continue, a good but lower result than last year for the remaining part of the year. I will cover the CNO and intersegment later in detail, but before that, let's go page nine, the CapEx overview. Essentially, no inorganic CapEx in a year with only $1 million spent in Croatia.
On the organic side, a very significant 45% increase in the first half of the year compared to last year, driven by the increase in the sustained CapEx and the execution of the downstream turnaround programs. If you look at our guidance, which is $1.7 billion dollar organic CapEx, which is the same as for last year, and or last year actual performance of $1.4 billion dollar, and the around $200 million dollar higher CapEx spending on the first half of the year, I think that result puts us on track of reaching or before yearly guidance in organic CapEx for the year. On the next page, looking at the below EBITDA waterfall chart.
Most of the items I will cover on the upcoming pages. I'd just like to point out too, that I have no special item in the EBITDA in Q1 or Q2 either. However, there is one special item of - $111 million from discontinued operation. And this is connected to the sale of our U.K. LPG the buyer the Waldorf went into bankruptcy in June this year.
This is of course, itself, it's not a good news, but if you put into the context that we actually received more than three-fourths of the amount we expected, and actually we were able to tie the earn-out to the crude price, independent from the taxation situation, and that actually the older situation is strongly connected to the very negative changes in the U.K. taxation. I think all, all over we can say, looking back, that was a good timing for this deal and with a good price.
Now, if you go to the details starting on page 11, still going back to details of the CCS EBITDA, in the CNO EBITDA of -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, -$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 Brent price does not play a role this time.
Brent was essentially unchanged at $87 closing price during the last two quarters. The reason for this, the CCS EBITDA is $34 million lower than the reported EBITDA, is the quarterly release of the carbon credit cost in the CCS methodology for this quarter. If you continue on page 12 with the details, DD&A, 8% increase quarter-over-quarter and 20% increase year-over-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-over-quarter and generally the other major source of increase, the activation of upstream assets including sizable asset activations and so 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 closing at dollar and euro FX was actually small decrease or essentially unchanged. The FX loss comes from the fact that there was significant volatility during the period, and we had higher, 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, is coming from a line which is called unwinding of discount on provision. Essentially, that means that on a regular basis, financial or the financial value of provision is recalculated.
And here, an increase in the interest rate for the calculation, reflecting market severity, shows this increase in the provision and, so a $22 million calculated financial loss. Income from the associate, $23 million. I think the 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, $26 billion, very much in line with the revenue development and in line with the previous quarter number.
Industry tax is $2 million, essentially zero, so no major numbers expected here since we ceased the operation in Norway. CIT decreased from $29 million. As usual, this is essentially adding up all the legal entities and includes lots of seasonality and technical factors. However, I like to point out one kind of important driver beyond this, that the profitability of the Hungarian subsidiaries in this and the 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. Deferred tax from an income, it went to a $17 million expense in quarter two.
Again, it's very hard to predict at this time any kind of yearly result or yearly expectation from these numbers, and 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 EBITDA. In the income tax paid, from the $365 million for the first half of the year, $281 million, i.e., more than two-thirds is coming from Q2, which is coming from the fact that usually the current year taxes are actually paid in cash in Q2 in most of the countries.
And in the other line, the total is 54, but that actually includes minus 54, but that includes a minus 121 for the quarter. That's again, 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, a $275 million working capital increase, i.e., use cash flows for- cash flows for the first half of the year. But Q2, as expected, is showing a changing trend, because in Q2, we had a $74 million release, and that's expected, using up the inventories during the turnaround season.
Let's go to the last page, page 14, the overall balance sheet overview. Now, if you look at the change in the net debt, probably two important factors is the, we paid dividend in Q2, and that's the $532 million increase in the net debt. In the other items, there is a significant timing or technical impact that, as you may remember, in the rollout of the Polyol transactions, we had a couple of weeks of break, and that included actually the Q2. So we expect, because the Polyol costs are now again raised, we expect this to be reversed in Q3.
So all in all, going ahead, we expect a continued free cash flow generation, improving net debt viability, and clearly, staying in the below one range, which is very conservative and comfortable range. And with this, I'd like to hand over to Gabriel to cover the downstream business.
Thank you very much, Joska. Good morning, ladies and gentlemen. Let me comment the downstream Q2 results. In general, downstream achieved a very solid performance of $408 million for the last quarter. Commenting it, I would stress three 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, healthy demand for the fuels there, and also what we see is an extraordinarily 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 outages 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 use to comment. So regarding the refining margin, we have reached 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 the Brent-Ural spread, so which is putting an extra pressure on our profitability. As we can see, the Ural quotations, as I commented it 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, in all three 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 amid weak demand and economic challenges, and we do not expect significant demand decrease in the second half of 2024.
And my last waterfall slide. Thank you. So what we see there, 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 really 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, and there are several factors behind the performance. Firstly, the volumes showed an increase year-on-year, as the acquisitions in Poland and Slovenia and the remedy handovers resulted in the quality upgrade of, upgrade of the network overall. But a continuing drop in fuel unit margins did limit the positive effects to around $5 million in year-on-year comparison. On non-fuel margins, they continued to show strength, and they contributed $26 billion of EBITDA year-on-year, supported mostly by organic factors and previously mentioned, the quality upgrade.
Higher OpEx burdened the result growth to a magnitude of $20 million, as the cost of operating a larger network grows, and we also switched to an operating model in Romania, which allowed for a larger grab of the growth margin, but at the same time, increased the higher OpEx. One-off OpEx, so off-Off OpEx, I'm sorry, contributed $14 million to EBITDA growth and were predominantly driven by the remedy handover of fuel stations, related to the Polish acquisition. On the volumes, we can see that volumes increased by 4%, year-on-year, mostly due to throughput per site improving by the same rate. This improvement is mainly due to an effective retention initiatives and the quality upgrade of our network, as the acquisition and remedy transactions are now completed.
Overall, our estimates suggest 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 non-fuel, briefly, what we can say is that the dynamics remained similar to quarters before, with over 20% growth in non-fuel margin compared to the same period last year. Margin development was fueled by positive network effects and a compelling offer structure, raising average basket size by 11% year-over-year. Overall, the developments in the second quarter on the non-fuel margin share increased to 37.5%, which reinforces the strategic direction by which the consumer service segment is rethinking its profits more on non-fuel sales. And on that note, please let me hand over to Zsombor to discuss the upstream performance. Thank you.
Thank you, Robert. Good morning to everyone. Let me first start with the upstream division performance for the second quarter of 2024. It shows 8% growth compared to the previous quarter and stands at $283 billion. 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 of over 92,000 barrels of oil equivalent throughout the quarter, despite several force majeure events in many jurisdictions internationally, where we operate. Furthermore, there is a gradual development in these production figures, even without major acquisitions and even without the export line open between Iraq 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 $200 million profit for the second quarter, and for the first half of the year, it's close to $400 million.
If we move to the EBITDA generation, looking at the breakdowns, quarter-over-quarter and even year-over-year, there is stability in the results. For if you adjust for government takes and compared 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. Let me also note, comparisons with previous quarters are heavily affected by different levels of government take for upstream, especially the Q2 last year. Compared to the first quarter, this effect is amounting to $15 million. Just a side note, let me also highlight that we have been writing off the uncollectible receivables, which is amounting to approximately $10 million in the last three quarters combined.
And if you move to the production slide, you can see that on an Entitlement Basis, we have been able to maintain production over the 90,000-barrel 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 two months.
In April, we were able to maintain production and even continue construction, and already three wells operating, which resulted in 1,600 barrels 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 with Pearl in Kurdistan, where there has been a drone attack in April, which resulted in a fully shut down 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 increase the production. We are above 35,000 barrels in the second quarter of 2024. Despite this is an extremely mature territory, we are able to add new wells to the portfolio. The second well started production in May, and this is adding 1,000 barrels of oil to our Hungarian production. 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 with domestic sales.
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 Tal field 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 two layers are very productive and reaching the gross production both around 3,500-4,000 barrels of oil equivalent.
MOL has 8.4% out of that gross production. We plan to connect the well to the production facility first quarter next year. So, going forward, we see the July production estimate a further increase in production because of 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 suspension 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-over-quarter, even with the high inflationary pressures. Energy prices, however, helped us to remain flat on the unit cost side, and we are continuing to focus on this strict cost control. Again, a strong and stable performance for the division in the second quarter due to healthy production level and strict cost control, both on OpEx and CapEx side.
... With that, let me hand over the floor to Charles to discuss the circular economy services financials. Thank you.
Thank you very much, Zsombor, and good morning, everyone. As you can see, circular economy EBITDA came in at -$10 million for the quarter, and I would like to highlight two main reasons for that. And the most important one is that we had a very conservative approach in post and income accruals, especially to the deposit refund system. Regarding to the deposit refund system, where the producers had the obligation from first of July to put on market refundable packaging. And what we see in the first quarter and also in the second quarter, that they fulfill this obligation in the last minute. So we saw very limited amount of refunds and refundable, refundable materials.
Although all the machines were there and all the services like logistics, maintenance, customer service was already there as post. On the other hand, but now we are in August, we see very, very quick ramp up of the volumes. Now, products are already on the shelf, and next week, we will reach 100 million, the 100 million bottle refunded, and we already reached daily more than 3 million refunds. So I think that in the second quarter, well, the third quarter and the fourth quarter, there will, there should be already more benefit, also 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 MOHU Budapest, as a joint venture company and their result, were consolidated and absolutely, coincidentally, the first month was a shutdown plant maintenance. By the way, so it was a plant maintenance in the waste to energy plant, which was a great loss of income in that month 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 that which we already started, and I'm sure that there will be benefit on the recyclable materials income in the future. Thank you very much.
Thank you very much. That completes the formal part of our presentation, and we now open the floor for a Q&A session. So please indicate if you'd like to ask a question by using the Raise Your Hand function. Michelle, please go ahead.
Hi, this is Michał Kozak from Trigon. I have three questions, if I may. The first one, from the government legislation perspective, should we expect extra revenue-based 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 take to technically subsidize or to stabilize its fiscal problems, if they have. But all in all, generally, I think in the four 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 emphasize several times that most of the temporary extra taxes are not sustainable in the longer run because these are affecting investment ability and investment appetite of the companies. And these investments are essential for the stability, security, and also for the green transformation.
So you can, you can cover the hiccups, you can cover the, the years when there is, extra profits or there are extra circumstances, with, temporary measures. But all in all, the, the interim or temporary extra or extra taxes and, provisionally regulations need to be phased out, step by step. There is a deadline set for, certain elements, and I think, we, we clearly should go back to normal level of, taxation. You can already see the sign of it. So this year's government take is, compared to last or, or the, or the year before, so 2022 and 2023, it's, it's definitely lower level, but still we are paying several extra taxes.
... We don't plan, and we are definitely emphasizing 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 Ukraine?
Yeah, if I may, Gabriel Szabó speaking. So I do not expect, as you mentioned, or as you called it, a significant negative impact of it.
Okay, thanks. The last one, when should Polyol investments have significant impact on downstream results?
Yeah. So the Polyol plants were officially inaugurated with the proper coverage of the media. Currently, 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 chains.
Thank you very much.
Anna, please go ahead.
Hi. Thank you for the presentation. Congrats with the results. I have a 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 got into that? Thank you.
Yeah. Thank you very much. So I will try to answer your four, first question. So in terms of the local deliveries, there were 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 on Druzhba pipeline. And as it was mentioned by György 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'll learn it. Thank you.
The windfall taxes in Slovakia, I mean, at this point of time, it's hard to say. We have to see first what will be 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.
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 it's more seasonality.
Thank you very much. All clear regarding Slovakia, but for 2023, it's already clear that you are not subject to the tax, right?
Well, for 2023, I mean, as you see in our numbers, we analyze the situation, we prepared our financial statement in line with this. We paid all the appropriate taxes in line with this, and the auditor accepted this.
Thank you.
Tamás 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 them? When do you expect that you can be fully, you know, decoupled 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. The second issue is your special taxes and the special taxation. Can you tell us how much special tax do you expect to pay this year, including this first of August change of the system? You know, that the threshold for the Urals brand differential has changed. And finally, one follow-up on the waste management.
When do you expect this business to be EBITDA positive in the future? Thank you very much.
Thank you, Tamás. Gabriel speaking. So regarding your first question, the crude diversification project, 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. There is no change compared to what I said when I got the similar question last time. So we believe that we achieve a mechanical completion of all the projects in 2026. So I see that from 2027 on, we are ready to process alternative route. Thank you.
So I should first, in respect to the first question, we also emphasize that, as 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 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's only demanding and there's no public EU support behind all these ideas, which makes this task even more difficult for our segment.
So I ask your understanding and ask your acknowledgement of all the efforts that we already made. Regarding the second one, I think that there was a specific question about the threshold changes. The threshold changes, of course, to a certain extent, the windfall taxation is dependent on the spread itself. The threshold change was mainly argued or defended by the fact that some of the cost elements which justifying that such a threshold between the Brent-Ural spread differentiation lower than that. But I could tell you that that simple threshold change, the spread is always above the threshold. That's roughly a $40 million-$50 million difference in terms of payment.
But of course, the absolute payment, because the 95% tax rate is imposed above the threshold, it's always depending on the on the Brent or spread itself as well. But I think that our plan of extra government takes or special takes for 2024 is around $350 million-$360 million. We don't change that assumption for the time being. That's for the entire year. Okay. And regarding waste management, I think, and what we see that, it's still a volatile market. We are sort of in a startup mode.
But I can tell you immediately that the operation is not efficient, which means that as right now, we have contracts with the old participants, we see that they don't operate efficiently. So we started to work on how to make it more efficient, either their operation to make more efficient or their... Our intention is to, in some cases, take over the operation from them. This will take time, but as 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, so the organization and the management is there. We started to work on all these efficiency improvements, but I cannot tell you a complete timeline.
I'm very, very positive about the future, but it takes a lot of effort and work.
Great. Great, thank you very much. Just one follow-up on the special taxation, if I may. I remember at the time last year when we talked, 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 or to that level, what we saw before August last year?
Okay, so the agreement will expire at the end of the year. That agreement is if we meet production level in the contract, then we are able to pay royalty as per the original levels in the mining law. Not only the contract will expire, but the actual taxation decree 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, you know, set up a new framework for the next year. Am I correct with this assumption?
Yes.
Okay, great. Great. Thank you very much for your help. Thank you.
Thank you so much, Riccardo, go ahead.
Hi, thanks, thanks for taking my question. The first one, just going back to the oil supply. 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 Druzhba 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 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? Thank you.
Yes, so 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.
Thank you.
So on the questions regarding the throughput and the consumer services growth. On the throughput, well, we think we've improved the quality of the network, with the remedies which the stations went out, and the two acquisitions we have, we have a 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 on non-fuel margin and non-fuel revenue, we believe that we have a very good concept. We're concentrating on the right categories within non-fuel. We're expanding Fresh Corner, and the Fresh Corners that we've opened are maturing as well.
We don't see any reason to be less confident in terms of the business that we have at the moment, and we think we continue along the same path that we're on at the moment.
Okay. Thank you.
Okay, thank you. Oleg, please go ahead.
Yes, good morning, and thank you for the presentation. 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 or is the supplier? And then going to questions. The first one refers to the upstream segment production, which stood at 92 kboe per day in the first half, and it was even higher in July. While you maintain your full year guidance of 90 kboe per day, does it mean that we should expect that below 90 kboe 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 result, 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, 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.
More color here would be helpful, especially looking forward, when we see that the petchem margins is going, or is weakening again. Thank you.
Yes. Regarding your first question, so far there have not been any disruption to the oil supply, so we are getting the oil via the 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 LDPE 4 plant in Slovnaft, where we have a problem with electromotor there. So there was an unplanned shutdown there, and for this reason, we cut back the processing or the production of our steam crackers as well.
This, this 10% on quarterly level can really mean a lot, whether you are utilizing the assets about the break-even. So this, I would call the major trigger between the different financial performance between two quarters. I hope I answered your question.
Yes, thank you. 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 tens 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 two months.
Okay, but still, on the supply, what is the volume that you are currently getting from Russia, if, if I may ask?
The volume is more or less matching our need.
Okay. Thank you.
Thank you.
Okay, so on the upstream production level, so we are currently very comfortable with the 90,000 guidance. That was a circa guidance, which we gave, in our strategy on the long-term basis. For now, we think it might be too early to adjust that. You could also see that there are a lot of things came, especially in the international portfolio, regarding force majeure events on Kazakhstan, and the flood on the barrel effect with Pearl export pipeline is still shut down in Shaikan, and Pakistan grid constraints. So a lot of things which are out of our own control, and that combined with the mature assets, we believe that we've used the right risking. So for that, although production performance is strong, we believe the 90 is the right guidance still.
Okay, maybe just a short follow-up. Do you plan any major maintenance at your fields in the second half of the year?
Not this year.
Thank you.
Okay, thank you, Oleg. Piotr, please.
Hi, yes, sorry, I had to unmute myself. Thank you very much for the presentation. It's Piotr Dzieciołowski 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 bit of a negative surprise, typically, that these two positions run at -50, now they are more like a -100. So can you please explain that? And second, I wanted 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 , three years from now, when you eventually switch to the non-Russian crude?
How much more expensive is the $ per barrel, as a proxy, you can keep it in the wide bracket, would 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 the inland premiums because you source the more expensive crude? So let's maybe start with these two.
So just on the first one, but, I think about the intersegment EBITDA results.
No, I've seen the results, but when you look at the divisional breakdown, typically the corporate, you know, corporate is minus 30. This time was, if I, just give me a second, I just tell you exactly. This, you know, EBITDA, this time on the corporate was minus 73, and then intersegment was minus 29. Typically, these two are not that high, and therefore, you know, that had a bit of a negative effect on the result.
Yeah.
I just wanted to understand-
Yeah.
The corporate line.
Yes, thank you. So corporate was $77, actually, but I think I tried to explain that the first, it didn't have nothing to do with each other. And on the intersegment, the -$29 is our usual seasonal items, and from the -$29, actually the major item, and very much depending on the, inventory levels, as own inventory levels, which produced by upstream and used by downstream. And in this quarter, essentially, one of the major events which happened, that the Croatian production went on, but wasn't utilized in Rijeka, and that's why, a negative amount. But, but in the intersegment, and the numbers are like a year ago, sometimes much higher, there is a general seasonality, and the end result is essentially, over a cycle, it's, close to, zero.
In C&O EBITDA, there is actually -$77, is a larger than usual negative number, because of the seasonality, as you see in Q2. Similarly, essentially, certain CSR expenses, paid actually to shareholder foundations, are recorded as cost accounting-wise, and that's why the seasonality connected to the dividend payment and the annual meeting is showing up here.
... Yeah, 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 the commercial terms for the seaborne routes, 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, then you will see what will be the final impact of it. Thank you.
Do you think you can pass it on to customers or that's, you know, 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 from me, if I may: do you plan to buy the rest of ALTEO? As you have this minorities, but do you ... Like, not minorities, but, how, how, what's your position on this company?
The answer simply is no. For the time being, the answer is no.
Okay. Thank you very much.
Thank you very much. Anna, do you have anything to follow up?
Yes, I have a very quick follow-up, if I may. Regarding the extra government take for full year 2024, you said that it's $350 million-$600 million, if I heard that correctly, and this includes revenue-based tax, CO2 tax, and Brent-Ural spread, or there is something else?
I think the listing was correct. These are the actual taxes that we consider.
Okay, and 350, 360, it's, I heard correctly, right?
Yes, 360.
Yeah. Thank you.
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, and bye-bye, and bye-bye.
Thank you. Bye.