Earnings Call: Q2 2021

Jul 26, 2021

Good morning, ladies and gentlemen. Welcome to the Galp Second Quarter 2021 Results Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. I will now pass the floor to Mr. Otello Rievo, Head of Investor Relations. Good morning to you all, and welcome to Galp's 2nd Quarter and First Half twenty twenty-twenty one Results Presentation. I would like to thank you for joining us today, and we wish that you are all in good health. Today, Hendi will provide an overview of our operations as well as cover the recent developments and the short term outlook. Felipe will then take us through the quarterly and half year results. At the end, We will be happy to take your questions during the Q and A session when Tore will join us as well. If you want to participate, Please follow the operator's instructions at the end of the call. As usual, I would like to remind you that we will be making forward looking statements that refer to estimates, and actual results may differ to factors included on the cautionary statement at the beginning of the presentation, which we advise you to read. I now hand over to Eddie. Thank you, Otello, And good morning, everyone. It's a pleasure to be able to present the Q2 results in the first half for Galp. These are solid results With robust cash flows and now with a refreshed leadership team. Our first half Operating cash flows were €900,000,000 We've seen a recovery in the 2nd quarter in our bread prices, but also the Iberian market demand. But this business is not yet at its full potential. COVID is still constraining us, both in our Brazilian operations with other maintenance issues, But also in Iberia, with liquids demand still 25% below the equivalent quarter 2 in 2019. But we have still delivered robust cash. We have been disciplined in our investment. And with the proceeds that we've received from ggnd, we've delivered 700,000,000 euros of free cash flow in the first half. This has allowed us to decrease our net debt in the first half of the year. At the same time, improving our EBITDA, meaning that our net debt to EBITDA is now around 1. And this unlocks an opportunity with a sustained macro, which will allow us to Our upstream business has an implicit free cash flow around 0 point €5,000,000,000 736,000,000 of operating cash flow and €248,000,000 of CapEx. This is a business with a high cash margin and now relatively low CapEx, which yields strong free cash flows. We also see, even with this modest CapEx, a business that will grow 25% to 2025. But operational performance could have been better. We've seen lower availabilities. We've seen a slower execution pace and also an increase in the backlog of some of our maintenance activities. So although we've seen a 3% increase quarter on quarter, we still have ongoing maintenance, but also inspection activities. And as a result, we expect 2021 to be at the lower half of our range between 125,000 135,000 barrels a day. But we are working hard with our partners to continue to optimize production, but we still maintain safe operations as the top priority. That said, the growth funnel continues With Sepia not far off its start up, with Coral making great progress to start up next year And Bacalhau starting well after its FID in June. So in summary, this is a business with a strong free cash flow. Despite the increased maintenance, we see these cash flows continuing for the coming years with further significant growth in 2025. Moving to our commercial business. As I said, we've seen recovery in the quarter, 20% up quarter on quarter. And actually, We expect H2 to be about 20% higher than H1. But in the second quarter, Our volumes are still 25% below what they were in Q2 'nineteen, 10% below in our B2C business and 30% below in our B2B business, with Aviation being 65% below the run rate in 2019. But this is not all just We've been able to reposition this business and are starting to improve our known fuel contributions, which H1 versus last year are now 18% higher in absolute terms. And we do see the return of Aviation. We do see the return of Bunkers. And we do see growth in our GE, Gas and Power clients. But also we see new opportunities in the EV charging space. We have about 700 charging units today and will increase this to 10,000 by 2025. So but despite the headwinds in this business, it has delivered €136,000,000 of operating cash flows, with only about €26,000,000 of capital expenditure year to date. Moving to our Industrial and Energy Management business. We have seen for the first half of the year a positive EBITDA contribution from refining. The margins in the first half are around $2.1 per barrel in the 2nd quarter, 2.4 dollars per barrel. Demand has been low, and diesel cracks have suffered as a consequence. We've also had outages in our FCC that makes gasoline. This is now back up at full capacity, taking full benefit From somewhat higher margins already in July versus Q2, but we maintain our $2 to $3 a barrel guidance. We have included CO2 price in our margin and not anymore in our OpEx. Our Energy Management business has had headwinds because of the liquefaction costs, our LNG liquefaction costs. From Q4, we see an improvement situation here as we've renegotiated Given the ggnd sale, this business is showing very strong free cash flow. Going forward, with Fit for 55, we do see increasing CO2 costs in this business. But at the same time, we see a very favorable environment For our biofuels investment, particularly HVO, but also in green hydrogen. And today, we're co leading a consortium of 100 Megawatt electrolyzer, which has recently received a €30,000,000 grant. In our renewables business, in Q2, we saw higher radiation and very strong solar capture prices of around €70 per megawatt hour. This has allowed us on a pro form a operating cash flow basis to deliver about €19,000,000 But we also see strong growth with 200 megawatts still to be connected up this year and another 100 megawatts in our funnel so that we have 4 gigawatts of firm projects under development today. This is ahead of potential expansions that we may have outside Iberia, and we've already put together a strong team Latin America. So this business grows from strength to strength with a very strong outlook. So in summary, Galp is delivering against its guidance. Its free cash flow in the first half Of €700,000,000 is 75% of the guidance for the year. It's actually 10% of our current market capitalization. We are maintaining our discipline. We spent around €400,000,000 year on CapEx, which is almost completely compensated by the proceeds from the gTND sale. Going forward, we are going to maintain our guidance. This is remains a volatile market. But our net debt to EBITDA is now at 1. And with the current macro, we see it coming below 1 through the rest of the year. Given our remuneration framework we laid out in our Capital Markets Day, We should see this coming below 1, which will allow us to pay a variable component. We can't promise this. We still have 6 months to go. But assuming a favorable macro, We should be able to deliver that variable component up to a maximum of base and variable of a third of our CFFO. But in the first instance, we pay half of the base of $0.25 in September. And then depending on the macro, we will evaluate how much of that third of CFFO we would be able to contribute towards So in summary, this is a distinctive investment opportunity. It has growth, growth and yield, growth from existing businesses and upstream that will grow 25% to 2025, growing our commercial sales in electricity and EVs, but also growing exciting new renewable businesses. Our renewable capacity will increase fourfold to 2025, at the same time, building hydrogen and biofuels businesses, and through the agility of Galp, able to offer 40% decarbonization by 2,030. This is also a business with a competitive yield. Our base dividend is now 6% On top of that would be any variable component So to finalize, On Friday, we announced some management changes. I have now assembled a team that I believe has the capacity, the teamwork and agility to take Galp forward. This is a smaller team, tight knit. Galp aims to regenerate its future and to thrive through the energy transition. We have in Toure, who will be now running our production operations unit, someone with a broad base of upstream and downstream experience that we'll be able to take that business into the future. We are discussing with some exciting candidates with global experience the opportunity to take our renewables and new business into the future. We have in Theresa a candidate that has both consulting, but deep marketing and commercial experience I have an energy management reporting to me now. A reinforced team that touches all of our business, oil products, We have a refreshed team. We have a distinctive investment opportunity. It is now about I'm going to hand over to Philippe. Thank you, Andy. Good morning, guys. I will start on Slide 14. You see our EBITDA of €571,000,000 This is coming predominantly from Upstream, as you would expect, given the current macro. And more so as the mobility restrictions were still impacting our Iberian businesses during Q2. The downstream segments are gradually recovering on a quarter on quarter basis, but of course not as quickly as upstream. Upstream production of 100 and 28,000 barrels per day reflects the lower restrictions. The EBITDA growth To EUR 467,000,000 was really driven by rising brand prices. Do bear in mind That what we produced but have not yet sold is booked at cost of production, not at market prices. So in a fast rising price environment, you only capture the EBITDA, the full benefit of the higher brands during the following period. Commercial EBITDA was €73,000,000 In the quarter, this reflects the higher demand in Iberia, even if we're still way below 2019 volumes, but it's picking up. Industrial and Energy Management EBITDA was €50,000,000 Now with Energy Management Helped by derivative gains in EBITDA. Some of our gas derivative hedges Expiry during Q2, so we needed to book the gains in EBITDA even if some are related to H2 deliveries to clients. This gain was about EUR 30,000,000 and should partially Having said this, the fundamentals of the gas trading business are improving. On refining, the Sinesh refining margin was $2.4 per barrel, And this was impacted by the operational constraints in the FCC, which are now fully behind us. As you know, renewables is not consolidated. We the JV results are presented under associates. So the EBITDA that you see of minus €6,000,000 refers mostly to overheads and development costs related with our renewables and new businesses areas. Now renewables pro form a EBITDA, If our assets were consolidated in proportion to our equity stakes, it was EUR 17,000,000 in Q2. This is a very strong number, and it has benefited from the goods captured prices during the quarter. You also see that still in EBITDA under the others line were €13,000,000 negative. This includes EUR 18,000,000 in Brent's price hedging costs, which Before, we used to book under financial costs. So it's now in EBITDA. EBIT was EUR 305,000,000 supported by the stronger operational performance, and this already includes €50,000,000 in impairments from exploration assets, mostly in the Pote d'Ivoire basin. Associates are in line year on year considering the contribution from the international pipelines and the solar ventures. GT and T, of course, is no longer a relevant contributor to the associates line. Financial results, negative by €4,000,000 only. This includes a positive FX effect as well as the reclassification to EBITDA of the Brent price hedging costs I've just mentioned. RCA net income was €140,000,000 and IFRS net income was €71,000,000 Now IFRS net income was positively impacted by €68,000,000 of inventory effects. This comes from the rising commodity prices, of course, and it was impacted by negative EUR137 1,000,000 of special items. And here we include the discontinued Matos Ingres operations and the mark to market swings On the gas derivatives to hedge client exposures. On Slide 15, Just a reminder that we started last quarter to provide an adjusted operating cash flow, The OCF indicator as a proxy of our clean CFFO performance, and that is excluding volatile inventory effects, working capital variations and special items. So OCF was €470,000,000 in the quarter, a strong number considering that downstream is still picking up. You can see Upstream continues to be a strong cash contributor with over EUR 200,000,000 in cash generated after covering all CapEx in the period. And all the non E and P units have delivered positive contribution despite the macro, in total EUR 125,000,000 from downstream and renewables, renewables pro form a. During the quarter, CapEx was €186,000,000 With most of the investments directed to growth in upstream projects such as to Pirasema and Baqylao and to our solar projects pipeline. The quarter also collected the final €25,000,000 from the GGND Slide 16 shows our cash generation during the first half. So this removes a bit the quarter on quarter differences. For the first half, euros 900,000,000 of OCF, euros 800,000,000 of CFFO, and this considers a working capital build with higher commodity prices. Net CapEx close to 0 given the proceeds from GG and D and €35,000,000 related to the ongoing sale of FPSO P71 to Petrobras. With this, free cash flow was very strong at €746,000,000 during the first half, which after distributions Leads to net debt reduction of €354,000,000 net debt to EBITDA at around one time, which Effectively has reached our target leverage ratio and will support our capital allocation framework. So that's all from me. I will Now pass on to Q and A. Thank you. Thank you. Your first question comes from the line of Mehdi Anabati from Bank of America. Please go ahead. Your line is open. Hello, can you hear me? Yes, we can. Mehdi, go ahead. Hi, hello. Hi, everyone. So the line was pretty bad on my side. So Excuse me if I ask questions which have already been answered During the call. But please, just one question regarding the production. So your production averaged roughly 127 kilobytes OED in the first half. It seems That in the second half, there might be some maintenance impact, a little bit higher than in the first half. However, we can see that the COVID-nineteen situation is improving in Brazil. So in that kind of context, should we expect that the operator Petrobras Might decide to ease a little bit the constraints on the FPSOs? Or do you think we are still at a very early stage You know of the COVID-nineteen situation improvement and it will take much more time for the situation to improve on the FPSOs. Thank you. Maybe I'll answer that. Thank you for the question. In our plans And the way we are guiding you, we do not dare at this stage to factor in any positive upside at this stage. I would like to see that, that could happen. But in our guiding, we still try to continue with prudence. What we like is that we see that we're actually having more maintenance On the plan of what was originally expected, that's good for the longer term. It will hurt us a little bit in the shorter term. But for the longevity of the assets, this is good. So our encouragement to Petrobras is that we now are Catching up with the backlog, doing the maintenance that is planned for, and that will have some impact on production in the second half. But going forward, this will be good for the life of the assets. Thank you. Thanks very much, And I have a question now on the refining side, please. With the closure of Matosinos, you are lowering your jet fuel production, also your middle distillate production. And it seems According to me that the Portuguese market will be much more balanced, thanks to that. Should we expect or did you notice that you are now benefiting from an increasing premium On your petroleum products in Portugal due to a better balanced market or no because imports remain high from Iberia Hi, Mehdi. Can you hear me well? Yes, I can. Yes, I can. Super. Hi. Yes. So we exported close to 50% of what we were refining. So the premium is captured within the Sines refinery only. Also a reminder that Matozinho's main product was VGO, Which is now trading at, I think, 37 to 40 discount, so negative crack. So in a way, Sinesh was the prime offtaker of the Matos Ingos VGO. It is now buying from the outside market at a hefty discount. So yes, it's a much more balanced market and the mix is a lot more tuned to what the domestic market requires. All right. Thank you. But you don't expect with the demand on petroleum products, Now every time we can place the molecules in the hinterland, we capture the import severity difference. So yes, we will benefit from growing demand in Iberia and in Portugal in particular. Where we are Capturing a big premium is on RBOB, which you did not see much in Q2 because of the SEC constraints. Now this is now operating fully, and we are sending cargoes to the U. S. At a good premium. Thank you. Thank you very much. Thank you. And your next question comes from the line of Alessandro Pozzi from Mediobanca. I have two questions. And the first one is on the discount of the realized price versus Brent. I think this quarter was slightly wider. Can you give us maybe a bit more color about what's going on? And also, what would you Thanks for that to evolve in the next few quarters. And that's the first question. And the second one, in order to better understand the potential variable payment, can you give us any sense of the potential difference between the adjusted cash flow and the operating cash flow for 2021, I guess. Thank you, Alessandro. I'll take the first part regarding the discount to Brent. Yes, you are correct. We had somewhat higher discount Brent, for the Q2, 8.9 percent in totality, when you're combining both what we realized on oil and on gas. And this has two main factors. 1, we have seen some softness in the Chinese market that has been one of the primary destinations for our crude cargo. So the differential have therefore increased. And secondly, we have also an impact on the fact that This is a combined realized price that the gas prices, we are not able to fully to capture the upside because we have a cap On our gas price at $55 that gives us a cap and that means that there is in totality somewhat weaker price. Thank you. Philippe? Thank you, Thor. Alessandro, we So moving if you look at the first half, OCF 914, CFFO 817, Given the magnitude of the increase in prices over the last few months, we would expect going forward If the current macro stays that we want to see more consumption of working capital, So the inventories are fully valued, and we have more money out standing with our clients because the molecules are more expensive. No, at current levels, this should be as high as it gets, the gap between Okay. Thank you. And just going back on the discount, should we So then Alessandro, the way we see the market now, yes, I think you have to expect that it would be in that ballpark, somewhere above $8 per barrel as a discount. Your next question comes from the line of Joshua Stone from Barclays. Please go ahead. Your line is open. Thank you. Hi, and good afternoon. Two questions, please. First is, I hope you could give us a bit more specific on the maintenance in Brazil. You mentioned the backlog. Maybe how large is the backlog or how much production will be offline this year because of that? And when do you think you'll be able to get through this So that we'll be back to more normal conditions. And then second question on refining. You mentioned the impact of rising CO2 costs or at least you're including that in the margin now. So maybe just talk about what is that impact today? And Where could it get to if carbon prices continue to increase? Thank you. Thank you, Joshua. We have there is more maintenance in Brazil now, And that is needed because we actually, as we are speaking, have 14 producer 14 wells out of production, 11 of which are producers, the 3 others are injectors. So this is important for us in order to keep up the issues. 50% of the wells that are out Are out due to the fact that we have an issue that is called stress corrosion due to CO2. This is preventive maintenance. So we are taking them off just in order to inspect them to make sure that they are full well integrity still is being Security still is being preserved. These inspections take some time and they're so far going quite well, But the wells are out of production. And it will be speculating on me to say then what would be the production impact because as you know, there's a balance There depending on also what sort of injection capacity you have versus what is the capacity also for gas injection. But I think it's safe to say that we are at least in the area of around 10,000 barrels that is out of production due to this. Thanks. If I can address the CO2 cost, Joshua. Yes, at the moment, we have high CO2 prices. So in the second quarter, the effect is About $0.30 so $0.03 a barrel. I think this is potential to go up to more like $0.50 Clearly, we at the moment, we've got 65% to 70% of our COs, too, are covered by free allowances. But with the fit for 55, those allowances will decrease over time. I mean, our challenge is obviously to put in The efficiency projects and the hydrogen projects in order to reduce our CO2 footprint, but we can see those allowances The decrease of the allowances moving towards from 2026 to 2.5% a year decrease from the 1.6% we've seen. Your next question comes from the line of Sathikanth Chilukuru from Morgan Stanley. Please go ahead. Your line is open. Hi. Thanks for taking my questions. I had 2, please. The first was related to the dividend and the variable component for 2021. Can you provide more color on how we should be thinking about the level of the variable component, Assuming second half CFFO is similar to that of the first half, the base level of €0.5 per share Would go on to represent around 25% of the overall CFFO. So there is room for the variable component to be up to 8% of the CFFO. If this were to play out, what additional criteria would you be looking at before declaring the variable component? What would it take for this variable component to reach this 8% of CFFO? The second question was related to the production cost in the upstream segment. It seems like there's another dip In the cost of $1.2 per BOER, down from $1.8 in 1Q and $2.8 in 2Q last year. Lower personnel on the FPSOs had been highlighted as one of the key reasons for the decrease in 1Q. Just wondering What are the reasons for this further increase in production costs? What's the guidance for the remainder of 2021? And what would you highlight as the normalized cost of production Thank you for your questions, Safdie. I'll take the first one and I'll ask Torrey to take the second. So essentially, the variable component, this is not the considerations is just going to be a calculation. As I say, with net debt to EBITDA of 1 now, we will see The rest of the year, we can expect the current macro, obviously, we will be generating operational cash flows similar to the ones that we had in the first half with the same macro. This should allow us to deleverage further. And then at the end of the year, We will see what our net debt to EBITDA is, and we'll make up with a variable component up to a third of CFFO as long as there's space Up to the one net debt to EBITDA level. In order to obviously serve the space, if we deleverage a lot And that's based, we pay the full onethree of CFFO being the variable plus the base. And obviously, that's Contingent on what that CFFO is. But at the current CFFO rate, that then obviously delivers a substantial amount of variable component. So I think it's not This is not contingent on our expectations of future macro or anything. This will just be a calculation At the end of the year, that we will then approve through the AGM to distribute to the shareholders. And, Sassi, to your question regarding due to restrictions that COVID has put. Secondly, less number of well intervention that we had in our plants. When it comes to guidance, we will still remain that, that you should expect it to be normalizing between $2 $3 per barrel. That is Your next question comes from the line of John Rigby, UBS. Please go ahead. Your line is open. Thank you. Yes. Two questions, if I can. The first is, Andy, can you just sort of revisit What took place on Friday was the changes in the executive committee and the drivers behind those changes. I mean, I'm struck by the fact People have left their roles without you identifying replacements. So what was The driver behind the timing and the reasons you obviously sort of 6 or 8 weeks from a big strategy event, which they all attended. So I'm just sort of struck by that. And in fact, actually, in overall terms, the sort of context or lack of context that we've seen by with any of the changes on the at the executive level since your predecessor left in January. So I wonder whether you could just talk a little bit more about that. The second question is, I'm struck by the share price performance this year, which has been weak for any number of reasons. But you've just talked about variable dividend Have you thought more about whether actually using That variable element as a share buyback as opposed to a bonus dividend would make some sense at this point. Thanks. Thank you, John, and thanks for your questions. So yes, what's behind the leadership changes? Well, if I go through this almost 6 months now, I inherited the team. They had some their own strengths, their own weaknesses. I thought if I looked at my task list, I had first clarify the strategy, clarify the capital allocation, make sure we understand where we're going, what we're doing. And we leverage the whole Sort of top 50 people in order to come up with that strategy, which we then presented at the Capital Markets Day. Over this period of time, I've obviously observed The performance of the team as well as the individuals. And for me, clearly, this is a challenging agenda we have with the energy transition. I need absolutely the best team to go forward. And I talk about a team that has the right capacity, so strategic capacity, very much to for us to work into that future, teamwork, our ability to work together as a team across all our businesses, which integrate quite a lot in a number of areas, but also that agility, the ability to make decisions quickly and tighter, much more aligned team. And then the third thing on my task list is just to execute, is then to get after this business with The teams that I have absolute confidence in their ability to do it. Now you say, well, you haven't got a full team yet. You've got a blank box here. Well, I have to say what I wanted to do is be clear about that team, the ones that I have already in the company I want to take forward. But I'm not going to wait for a long, long time as we recruit the very best person to run our renewables business But it changes the way we lead in Galp. And so this is a big change for the company. I now have the leadership team, I believe, or the executive committee, I believe, that can take that forward. And I have to say, the people that we discussed today will also The CEO that I'm going to put in that 6 slot, I think, will have a real capability to build a global world scale profitable Renewable business. So it's exciting for me. I now actually look around the table, and I have absolute confidence in the people around me We'll be able to deliver this challenging strategy. Okay. Thank you. On your second point, John, we've had A lot of discussions with a lot of shareholders since Capital Markets Day. And this issue of buybacks versus cash dividends has come up. And I have to say that the jury is split on this. Some liking cash, some preferring us to use the buybacks. We will continue to study this. We will continue to consider whether a buyback versus cash dividend is the best way to reward shareholders on the variable components. And we will continue to talk to all of our shareholders about that. So At the moment, it's cash dividends, but we will continue to review the option of using buybacks. And you are right, the share price has It's gone down more than I would have hoped, but that's where we are today. But I think and I hope The people will recognize we have got a really differentiated investment case here. And I think we've got to make sure that we get our message out clearly, And we now have the team that can execute and deliver what we say we're going to do. Thanks, John. Thanks a lot. Your next question comes from the line of Biraj Borkhataria from RBC. Please go ahead. Your line is open. Hi, Dave. Thanks for taking the question. I've got a couple of quick ones. The first one is just on taxes. Could you As I'm thinking about the second half of the year, do you expect any meaningful differences between cash taxes and P and L? And then the second question is something you mentioned about underlift. Are you able to quantify the underlift position as of the second quarter? Thank you. [SPEAKER PIERRE ANDRE DE CHALENDAR:] Hi, Biraj. If you look at H1 and not quarter 1 and quarter 2 this year. H1 gives you a good view of what the P and L Tax looks like in an environment where it's really all about upstream. So we have some bit over 60% Taxation. We do expect as downstream and refining and commercial Starts to contribute much more meaningfully as we get into Q3, Q4. So we should expect to see the tax rate growing the P and L tax rate to close to 50%. On a cash basis, and if you look at the cash flow statement, you'll see the numbers are below that. On the under left positions, So we hence my comment on you don't see in the upstream EBITDA all the benefit of the rising Brent prices. So for So we had one full cargo of priced At about cost of production was $40 when Brent was in the 70s. So if you take, say, 1,000,000 barrels times $30,000,000 say $30 difference, you have about $30,000,000 that will be recognized during Q3. Thank you. Thanks for the color. Thank you. Your next question comes from the line of Matt Lofting from JPMorgan. Please go ahead. Your line is open. Great. Thanks, gents, for taking the questions. Two quick ones, please. First, Andy, I sort of noticed during the call that you You referenced several times the focus and the importance around execution from here. When we sort of take stock sort of post the CMD and maybe taking a time horizon to year end. Could you be a bit more specific around what you see as the key issues and Key deliverables for the rest of the year? And then secondly, just following up on the sort of the previous comments and questions around the renewed Exec management structure. One of the things that struck me was the consolidation of the industrial units Alongside upstream under TORA. So could you expand on how that signals an intent or shift around The day to day running of Galp's businesses and mindful that the upstream is largely non operated today to what extent that could Thanks, Matt. Thanks for those questions. So firstly, about execution. And I largely talk about execution around the strategy, but I also want to talk about execution on a day to day basis. So look, in the Q2, Yes. I know it's a non operated position, but we're still seeing some softness in our production numbers. I think we need to stay on top of Our partners to make sure that we are getting the production that we need. We've had problems with the FCC. We need to make sure that all our units are firing and going forward. So there's something in my mind still about delivery that we need to get deep in the organization. And for me, it's also about performance management. It's also about understanding where we are today as a business. What is the best business in our industry or even outside our industry. And what's our gap? What is our gap that we can close if we get the right culture through the organization? This comes with everything from how we performance manage, how do we reward people, How do we motivate people? So this is a very kind of deep delivery and execution strategy that we're going to go into today. It's an absolutely crucial part of this is that we get a team around us that have that focus, and we create that context going forward. So it's about operational delivery, but it's also about performance management. And when I touch Then on why do you bring Upstream and Industrial together? If I think about the business, if I think about what do I have as a business challenge I think very clearly of three things we've got to be really good at. We've got to be good at managing Oil and Gas, operations, investments in big projects, so project management, operational excellence, What you get in a refinery in terms of the equipment and the pumps and the compressors and the bad actors and The cost per barrel operating performance is not so dissimilar from managing an FPSO with the units you have on top of So that's our first, and we'll come back to that. That's the first most important thing to do, manage operations, manage our projects, getting the most for the capital we put into those things. Secondly is, how do we manage our sales to our businesses, to our customers? How do we give that whole ability to sell at a premium our products into the market? And how do we think about How we cross sell, how we digitalize, how we exercise that interface and delight our customers, A completely different mindset from the oil and gas operations. And then thirdly, how do I build a new 0 CO2 Business, a renewable business, a business that is global, growing, Focused on renewable energy, looking also things at battery value chain, but a completely entirely new business with different Ways of thinking about how you maximize value. And that's the 3rd big area of our business. And those are the 3 big businesses. And I have in Torrey someone who has actually some downstream experience before and some marketing trading experience, able in my mind to look at that whole base of upstream and that industrial business and optimizing that, getting the lowest cost delivery, but also Strategically placing that industrial business and the green energy part going forward. So this is very much in my mind about What are the key skill sets that will unlock superior performance? And also, I know Tore, he's a great safety leader. So making sure in the way we manage our assets, we're keeping people safe day in, day out. So that's the fundamental thinking behind the new structure and between why we've given this additional challenge to take on. Great. Thanks, Andy. Thank you. Your next question comes from Rafael Dubois from Societe Generale. Please go ahead. Your line is open. Hello. Thank you very much for taking my question. I have only one left. It's about the renewables business And the solar generation sale price that you could obtain in Q2, as much as It must be enjoyable to see such an increase in your earnings generation. I'm a bit surprised That you could obtain such a nice increase and I would have expected that you will transact in this division in a way that you will be Immune from such volatility. So could you please remind us of your of the weight of your PPA Contracts and how much volatility should we expect from this division going forward? For the moment, it does not matter too much because it's still quite a small division. But as you deploy further gigawatts, It will obviously have an impact on your overall earnings. It would be great if you could give us more visibility on how variable this sale price could get with your contract. Thank you. Thank you, Rafael. So indeed, so if I just talk about the portfolio we have today, This is a legacy portfolio that actually enjoys a floor in the Spanish market that gives us a base return on the downside, but it's completely exposed to the upside. So this is as you would really like it. So protected on the downside, but exposed So that clearly is the position we're in today. So that's where we can enjoy the increase. Going forward, we're not going to enjoy that. So going forward, we're going to have to consider how we are managing the balance between merchant market And PPAs, because obviously, in time, as we grow that portfolio, we're going to have to consider how much we risk cover And what's our view on that market? Clearly, as we go overseas, we're probably going to be because we expose some other risks, we'll probably be Sort of return, but also enjoying some of the upside. I don't know, Philippe, you want to add anything more to that? Rafael, the what you see in Iberia as we speak is quite a number of, I would say almost distressed situation, people that have projects, they're trying to build, trying to get finance, trying to get PPAs at very distressed price. So these it's not at levels that we would want to lock in our margins for 100% of our production for the next 10 or 15 years. At Galp and in Iberia, we have an integrated model, So we can manage some of those risks. Outside Iberia, yes, we want to protect At inception or very close to inception, a lot of the volatility. Thank you. Great. Thank you very much. Thank you. The final question comes from Jorge Guimaraes from JB Capital, please go ahead. Your line is open. Hi, good morning. I have two questions. The first one is related to renewables. I have a feeling that the installation of the portfolio is running behind schedule. If I'm not mistaken, we should be close to 1.9 gigawatts by the end of 2021 and we'll be at 1.1. So in your view, what was the main reason behind this delay in installations, which given the current environment is causing some loss of opportunity or opportunity cost. But anyway, what is the main reason for the delay? And can it be can that be should be tackled? This will be the first one. And the second one is, is it possible to provide us with an estimate for the full closure cost of the Matuszynasz Refinery? And if so, how much of that is already provisioned and how much is not? And what do you plan to do with the trains where the refinery was located? Thank you very much. Thank you, George. Yes, so look, on the renewables, yes, we are seeing some delays. Those delays are Actually quite predictable. They're COVID related. They're supply chain related. They're also licensing Issues that we have some delays. This is not this is really just a timing issue. This is not We don't believe this leads to any reduction in the volume going forward. But In our deal with ACF, because we're actually only paying at milestones as things come online, it doesn't mean we've sort of paid money upfront and Are not enjoying the benefits. The cash flows go backwards as well as or the capital injections go backwards as well as when the projects go backwards with those sort of supply chain and licensing delays. So it's obviously a little bit Disappointing that we're seeing some delay, but it doesn't actually affect the economics of what we've been doing. I think perhaps I'll ask Philippe to talk about Magcinos. Magcinos, obviously, is a difficult closure for us. It's Now we've completely closed down operations apart from Cogen. We're engaging with The local authorities there and talking about what we can do with the future of that great bit of real estate in the heart of a really vibrant city. Clearly, we're going to have our logistics park, which and we have a lubricants blending plant there as well. So we have a number of activities. But we're working quite closely with the authorities on what we can do there. But I think Philippe has some of the numbers On provisioning, that he can give you an update on. Hi, George. So the provisioning Was when we announced was close to EUR 200,000,000. This includes decontamination. It includes the decommissioning per se. So we have, of course, gone through the difficult discussions with people and the redundancy packages, so that is part of that. We have not considered any value of the land because that is Open for discussion what will be used and for what purpose. This may still take A while to figure out, but we have no changes. The activity is going well. It is A delicate exercise to decommission a refinery, so safety is Paramount, and it's all going according to plan. Thank you. Thank you. We will move to the CaixaBank question from Pedro Alves. Please go ahead. Your line is open. Hi, everyone. Just a final one. I'm not sure probably it's not easy for you to understand right now, but Whether or not if you could comment or at least give any additional color on your side on the news that the Portuguese government It's proposing to introduce a cap on fuel retail margin. Thank you. Thank you, Pedro, yes, it's an interesting moment to be in Portugal. And clearly, it's for us, we don't know What this legislation is going to look like, we're waiting to see the proposal. They talk about potential for short term interventions in stream margin cases. So we're going to have to see if that actually impacts us. I guess if we look at the NC Report. What I think we've been disappointed is that there were actually a lot of errors in how they calculate their margin. We would actually argue about 80% of the that margin increase they talk about is actually errors in their calculation. So To be honest, we haven't been very vocal on this, but it's that's really disappointing. And just to give you a sense, If you look at the price at the pump today in Portugal, 12% goes on that whole Sort of distribution costs, that's 700 fuel stations to manage, 900 direct staff, 2,500 individuals indirect also working So an enormous number of people that kind of hasn't been addressed anywhere. And actually, if I look at that business, so I look at that commercial business, it's only generating about 7% of our total EBITDA in Q2. If I look at refining, 1% of EBITDA in Q2, so 8% in total And 40% of our employees in Galp. So this idea that somehow this is where we make all our money is we have to get this news into the public in Portugal because it's really sad. We have 60% tax, 1 of the top 5 highest tax bases in Europe. And I think this is I think we're barking up the wrong tree here. And I just want to make sure that everyone on the call knows that we will make sure that our position is made very clear to the Portuguese government. Any type of regulation is very negative for any kind of country. And we're really keen to get the truth out there so people can make up their own minds. So thank you for your question, Pedro. Thank you. Thank you. That concludes the Q and A. I will hand The floor back to Mr. Talo Rovere. Please go ahead. Yes. Thank you. So this ends our Q and A session. We hope it was a helpful one for you. In case you may have some follow ups, the Investor Relations teams will be here for you as always. So reach out if that's the case. Thank you for participating. I wish you can enjoy some good break during the summer at