Ladies and gentlemen, thank you for standing by. I'm Poppy, your conference call operator. Welcome, and thank you for joining the Tüpraş conference call and live webcast to present and discuss the second quarter, 2023 financial results. At this time, I would like to turn the conference over to Mr. Doğan Korkmaz, CFO, and Mr. Levent Bayar, Head of Investor Relations. Mr. Bayar, you may now proceed.
Hi, everyone. Good evening to all from Tüpraş headquarters in Istanbul. Welcome to our teleconference. I'm Levent Bayar, Head of Investor Relations. I am here with Doğan Korkmaz, our CFO, and team members from Tüpraş Investor Relations and Supporting Department. Over the next hour, we will first go over our operational and financial results for the second quarter of 2023. We will continue with the Q&A session. I'll draw your attention to our cautionary statement. During today's presentation, we will make forward-looking statements that refer to our estimates, plans, and expectations. Actual results and outcomes could differ materially. Please refer to our financial reports and material disclosures for more details. These documents are available on our website. In the next two slides, we will provide you with a brief summary of the key highlights regarding the second quarter of 2023.
We will go into detail for each subject on the following slides. Now, let's take a look at Tüpraş highlights in detail for the second quarter of 2023. As you will see on the top chart, decrease in energy costs and wider differentials have created a lower cost base year-over-year and resulted in a strong EBITDA of $735 million in the second quarter. Despite [quarterly] weaker performance of the cracks, which remained above 5-year averages, Tüpraş experienced another strong quarter in terms of sales volume, which materially supported our second quarter profitability. On the mid row, we have the trend in second quarter domestic sales volumes. In the second quarter of 2023, we have recorded highest domestic sales since 2019, as demand in Turkey kept firm, especially on gasoline and jet fuel.
At the bottom chart, you will see that our existing zero-carbon electricity capacity has reached 345 MW. Our solar power plant in Kırıkkale Refinery started operations with 12.6 MW capacity in July. Preliminary license rights have also been granted by EMRA for the installation of five wind power plants and storage facilities of ENTEK, with a total capacity of 325.7 MW. Application for an additional 14 MW capacity increase and 20 MW hybrid license was approved as well, getting the total number of approved capacity to 408 MW. As you know, we cover this section in two main components, as developments in global oil market and developments in Turkish market. Let's start with the top left box. Brent price started the quarter above $80 per barrel levels with OPEC's surprise cut decision.
Due to continued oil supply, U.S. banking stress, and recessionary concerns, Brent prices fell in May and kept in sideways for the last 2 months. $80 per barrel levels have been back in July with China's economic stimulus and draw down United States oil stocks. Top right chart shows PMI and inventory levels of diesel and jet fuel in Europe. Starting second quarter, ample supply, combined with weak industrial activity, led to higher middle distilled product inventories compared to last year. Inventories started to come down by June with seasonal demand as well as unplanned outages in the region. Gasoline supply was tighter with better demand dynamics as services activity kept expanding. Now, taking a look at the bottom row, Turkish market. Based on five months' data, road fuel demand was 7% higher than last year, while jet fuel demand was 23% higher year-over-year.
Demand for all these major product types exceeded 2019 levels. The right chart shows U.S. dollars against Turkish lira in the second quarter, as lira depreciated materially, especially towards the end of the quarter, leading to FX losses on our operations, which were partly covered by inventory gains in June. Let's take a look at the cracks for the second quarter of 2023 in comparison to last year and last 5-year range on this page. Diesel cracks averaged at $17 per barrel in the second quarter, which were lower than last year, were materially higher due to supply concerns arisen by Russia-Ukraine war and increased natural gas prices. This was faded away with weaker industrial activity, alternative diesel supply to Europe, longer global diesel balance with rerouting of Russian supply, as well as lower energy costs.
Jet fuel cracks averaged at $14 per barrel in the second quarter, which were lower year-over-year and moved in line with Middle Distillate pool. Demand dynamics were better compared to last year, as flight numbers in Europe were at 92% of June 2019 levels, according to Eurocontrol data. Number of international flights from China also improved. Middle distillate inventories started to decline with controlled refining runs as a result of lower crude supply and better demand starting the third quarter. Middle distillate cracks continued their strong trend in July. Gasoline cracks averaged at $23 per barrel in the second quarter, which started the year with strong demand due to warmer season. They advanced more in the second quarter with seasonality, switching into summer grade and increased gasoline blending costs. As of July end, favorable demand conditions continued in gasoline market amid tight supply environment.
High sulfur fuel oil cracks averaged around at minus $14.5 per barrel in the second quarter, improved year-over-year. Feedstock demand, especially from Chinese and U.S. refineries, was firm in the second quarter, supporting high sulfur fuel oil demand. After OPEC's cut decision, high sulfur fuel oil balance became tighter with the decrease in heavy grade supply that combines with lower Russian production. As of July end, aforementioned trend continues to weigh on HSFO cracks. Moving over to the crude price differentials. Heavy crude differentials, which substantially widened between the second half of last year, started to narrow in the second quarter as a result of lower crude supply after OPEC's cut decision. Tüpraş also recorded wider differentials in this quarter compared to last year's same period, as discount offered by Basrah Medium and heavy continued to be supportive.
Heavy differential outlook for the rest of the year point out to further narrowing with the controlled crude supply conditions. Still, potential developments regarding oil producers, macro indicators, and their influence on demand outlook will play a crucial role in determining the market conditions. Now let's take a look at Tüpraş operations, starting with production volume. On the left-hand side, you can see our production volumes. Our total production in the second quarter of 2023 was 5.9 million tons, stemming from maintenances. We completed a heavy maintenance check on our refineries ahead of next year's through maintenance. Our total crude distillation capacity utilization was 71%, and other feedstock capacity utilization was at 12%, reaching 83 for the whole system in the second quarter of 2023. Moving over to the sales. Let's start with the chart on the left-hand side.
In the second quarter, our domestic sales and international sales reached to 5.9 and 1.4 million tons respectively, summing up to 7.3 million tons in total. We prioritized our domestic sales over international as we operated with lower capacity utilization due to maintenances. Our domestic sales were up by 4% year-over-year, with strong demand environment, and we were able to meet the demand, part of it imported products. Our domestic diesel sales slightly contracted, while domestic gasoline sales posted +7% growth. Reaching over 1 million tons of gasoline sales in the second quarter is a historic record for Tüpraş. Our jet fuel sales continued to improve, posting 10% growth compared to last year's same quarter, as improving trend in aviation continues. Our domestic bitumen sales increased by 44% as a result of improving local demand.
Let's move to the electricity operations. This slide summarizes electricity production and sales activities of ENTEK in the second quarter of 2023. ENTEK produced a total of 318 GWh of electricity in the second quarter of 2023. Due to very dry winter season, which led to poor hydrology and low production, this level was 18% below last year's same quarter. In the second quarter, 61% of the electricity generated was from hydropower, 15% was from wind, and the rest was from gas turbines. Out of that 242 GWh zero carbon electricity produced, almost 32% was sold to feed-in tariff, which is $73 per MWh. The rest was sold to spot market. Let's move to the financials.
Let's take a look at the P&L items in detail for the second quarter of 2023. Revenues came in at TRY 104 billion, equivalent to almost $5 billion in the second quarter of 2023. The year-on-year change in revenues is driven by a sizable decrease in Brent and product cracks compared to last year's second quarter. Plus, 1% depreciation in Turkish lira covered some portion of the decrease in lira terms. Cost of goods sold decreased by 27% in parallel with year-over-year decrease in Brent prices, wider differentials, and lower energy costs. Natural gas tariff price for Tüpraş in the second quarter of 2023 is 17% lower than last year's same quarter tariff after the discounts.
Gross profit slightly decreased from 18 billion Turkish liras to 17 billion Turkish lira, due to lower cracks and capacity utilization rate, while wider differentials and lower energy costs kept the decrease limited. Increase in operational expenses were due to maintenance activities and G&A expenses, of which increased by personnel expenses, which is less than change in inflation and Turkish lira devaluation and provision for donations related to the earthquake. Sharp depreciation in dollar versus lira, which led to TRY 6.3 billion of FX impact on trade payables, resulted in 81% higher losses from other operations. TRY 272 million income was recorded from equity investments, i.e. OPEC. In the second quarter, TRY 2.2 billion net financial expenses were recorded, including TRY 4.4 billion of negative FX impact, increased from TRY 1.5 billion last year.
As a reminder, net FX impact will be covered in the upcoming quarter with the FX-based pricing mechanism. As a conclusion of this, we have recorded TRY 6.5 billion of profit before tax in the second quarter of 2023. Below profit before tax, we have recorded TRY 793 million tax income after evaluation of incentives, and as a result, we have recorded TRY 7.2 billion of net income in the second quarter of 2023. Now for the EBITDA, our EBITDA CCS materialized at TRY 10.6 billion. Year-over-year decrease was mainly driven by weaker crack margins. TRY 301 million of this EBITDA was recorded from our electricity production company, ENTEK.
While our hedging methodology helped us to mitigate the Brent pricing risk for approximately two-thirds of our crude oil inventory, we recorded TRY 4.7 billion of positive inventory effect, mainly due to sharp depreciation in Turkish lira. Consequently, our reported EBITDA materialized at TRY 15.2 billion, which is slightly lower to last year's same period. Now let us take a look at the profit before tax page. As you can see from the waterfall chart, TRY 7 billion negative impact came from weaker cracks, of which still remained above our five-year averages. Last year, cracks were materially higher compared to historic levels due to severe concerns around energy security with Russia-Ukraine war. Wider heavy crude differentials were the most supportive factor on our PBT, with TRY 2.3 billion contribution.
Natural gas costs were an important factor, positively impacting profitability year-over-year, with the third discount applied this year. Total positive impact was TRY 962 million. Contribution from inventory impact was also positive, with TRY 1.7 billion, due to sharp depreciation in Turkish lira, helping covering losses from FX. Net interest effect was positive with TRY 1.3 billion, as we maintained our net cash position in this quarter, too. FX loss on working capital and financing activities increased due to Turkish lira depreciation towards the end of the quarter. All in all, second quarter of 2023 profit before taxes materialized at TRY 6.5 billion. Let us take a look at the financial highlights.
In the second quarter of 2023, we have recorded TRY 15.2 billion of EBITDA, almost in line with last year's same quarter. Accordingly, we recorded TRY 7.2 billion of net profit in the second quarter of 2023, lower by 33% year-over-year. We maintained our net cash position with strong EBITDA generation and disciplined funding management, and our net debt to EBITDA materialized at negative 0.2 times as of the end of second quarter of 2023. With strong cash generation, our current ratio remained at same as 1.5 times. On the bottom right panel, we have the return on equity. As you can see, our return on equity continues to remain at a very high level with 89% as of the end of the second quarter.
Let's continue with the details of our balance sheet. Cash and cash equivalents and financial liabilities at the end of the second quarter was TRY 46 billion and TRY 36 billion, respectively. We ended the quarter with TRY 10.1 billion of net cash, with the help of strong operational cash generation. On working capital side, while changes in crude oil and volatility in Brent prices caused a temporary challenge, we reduced working capital requirement compared to previous quarter. While near-term debt looks elevated, we have around $2 billion of cash, almost double of the amount required for next 2 years' debt service. Looking at the maintenance calendar for 2023, we operated with 83% capacity utilization rate in the second quarter, with some of the periodic maintenances designated for the first quarter have slipped into the second quarter.
In the third quarter, we aim to operate with peak capacity utilization. We have postponed two maintenances in Izmir from the fourth quarter to 2024 in order to be prepared for upcoming group maintenance. On this slide, we have our expectations for 2023. With lower utilization and weaker second quarter cracks, we are revising down our net refining margin estimate from $11-$12 per barrel to $10-$11 per barrel. Regarding production and capacity utilization figures, there are no change in our expectations. With stronger than expected domestic demand and strong trading operations, we are increasing our sales expectation from 28 million-29 million tons to 29 million-30 million tons. Our consolidated CapEx target for 2023 is not changed as well and is $350 million.
This remains in line with our previously announced strategic transition plan. We will spend 60% of this CapEx on sustainability-focused energy efficiency and environmental projects. On this slide, we would like to sum up some of our key figures for first half and compare them with our 2023 guidance. We had a net refining margin of $9.6 per barrel in the first half of 2023, which is slightly below our full year revised guidance range of $10-$11 per BBL. Lower than expected capacity utilization is part of the reason of this low-end performance. We expect an improvement in the second half.
Capacity utilization was at 77% in the first half of 2023, which is lower than our guidance range of 85%-90%, but as explained earlier, with higher utilization in the second half, we expect to remain within the guidance range. In the first half of 2023, we have produced 11 million tons and sold 13.5 million tons. We have spent $156 million in the first half of 2023. We had about 43% of our CapEx in sustainability-focused investment in the first half, lower than our target of 60% for the whole year, due to tanker investment made by [GTACH] in the first quarter. Since we will focus on transition-related investments in the second half, we expect to meet our 60% ESG-focused investment guidance for the whole year.
Before opening to the session to the Q&A on the next slide, I would like to give you a recent updates on our strategic transition plan. The first half of 2023 was where we are materially accelerated our zero carbon electricity business line. We have now a total of 408 MW approved capacity in our zero carbon electricity portfolio, and currently have 22 MW under construction. With 345 MW online capacity and the 408 MW approved applications together, we have three quarters of our 2030 1 gigawatt installed capacity targets within reach now. On the biofuel side, we continue to work on engineering phase of the project, and we will update the market once we reach important states in development. We can take the questions.
The first question comes from the line of Kishmariya, Anna with UBS. Please go ahead.
Good day. Thank you very much for the presentation. I hope you can hear me. Hello?
Yes, we do.
Oh, perfect. I have 3 questions, if I may. First of all, regarding the differentials, it looks like your 2nd quarter realized differential per barrel is higher than in 1st quarter. Given that we saw that spread, for example, in Brent Urals were shrinking, could you please explain where this higher differential is coming from? On this regard, regarding your higher sales volumes, can you give a rough geographical suite of products you are purchasing for sales on domestic market on top of your own productions? That's my 1st question. The second question would be, could you please kindly repeat the number of Antarctic EBITDA? I didn't catch that.
Finally, on the special dividend, which you said you might consider in second half of the year, we see a very strong result in first half. Is it give a solid ground for the special dividend? If so, can we expect that it will be that remaining part which was not paid to your target level of 80% of net profit for the previous year? Can you give some guidance on that side? Thank you very much.
Regarding the first question, there are no material changes in our crude intake breakdown, and we do not provide geographical breakdown of our imports. Regarding your second question, ENTEK EBITDA was TRY 301 million for the second quarter.
Let me move on with the dividend question, but before that, a little contribution to the differentials. Yeah, differentials were mostly on Urals last year, but o- other providers of heavy grades have been contributing by discounts on their sales prices since then. Therefore, it's an overall contribution from different sources of heavy grades other than only from Urals. For the d- dividend distribution, second possible distribution, you're completely right. In our announcement before the dividend distribution this year, we said we're going to assess the market with the cash position of the company, and, and, and we make our suggestions as the management of the company, if we are able to distribute any, any, further dividends during the rest of the year.
Yes, we are still in a strong position in cash. Although the cash, the liquidity environment and the credit environment in the country did not, let me say, perform better than our expectations. Recently, the CDS levels came down, so the cost of funding is expected to decrease. By having this much access, or enough liquidity in our hands at the moment, we are in a privileged position to reconsider and suggest additional dividend payments for the rest of the year. We didn't decide on that yet, but if we were to decide on a suggestion to an extraordinary AGM, it definitely consider what we were lacking from our long-term targets in terms of dividend distribution, payout ratio.
Thank you.
The next question comes from the line of Lamb, Jonathan w ith Wood & Co. Please go ahead.
Hi, can you hear me?
Yes, we can.
There's been some quite impressive growth in, in demand in the first few months of this year, but as I understand, there's been a big increase in, in retail fuel prices. Do you expect that to negatively impact demand in the second half?
Let me take this, Jonathan. It's [Do] speaking. Yeah, there has been quite a price hike in fuel prices, but mind you, during the course of last year, although not at the same retail price level, there has been quite a hike in, in retail fuel prices because of crude prices last year. We're probably going through the same dynamic at the moment. Yes, demand is, is somewhat influenced for a couple of days, but then, then it recovers, I must say. Mind you, we're in the middle of the peak season, so travels are quite frequent. Tourism is, is, is on the rise. Therefore, from, from our daily sales, we're not feeling any big downturn in, in demand, say, for diesel, say for gasoline or jet.
Bitumen sales is, is somewhat seasonal and depends on very much elections in the case of Turkey, obviously. It was on the rise before the election, but I wouldn't say the same for Bitumen. For retail products, including Jet, I, I can easily say it's quite holding on at the moment. One needs to see what happens after the summer peak season, obviously.
Okay, thank you.
The next question comes from the line of Nikhil Bhat with JP Morgan. Please go ahead.
Thank you. Good evening, and thank you for the presentation. I just have one question, I'm sure you were expecting this. Could you give us your latest thoughts on your outstanding Eurobond that you have maturing in 2024? It will go current in a matter of few months, so just curious to hear your thoughts in terms of what you're thinking about refinancing it, or are you thinking paying it off with your cash balance? Thank you.
Thank you for the opportunity. I mean, yes, we preserved our cash position in this quarter as well, so we don't have to take any impulsive actions in terms of borrowing. Our Eurobond is, is maturing towards the end of next year, so we have couple of quarters until the maturity. As a rule of thumb, we would definitely have at least one Eurobond in the market and keep that liquidity for our investors. Therefore, I mean, latest, by the third quarter of next year, we would definitely like to have a Eurobond issuance in the market. We would definitely look for windows of opportunity, opportunities until then to come out, come out with a Eurobond to replace the outstanding Eurobond in, in, in a favorable way.
We keep ourselves ready, in case that window of opportunity opens up in the following quarters. Again, the first, obviously, or the basic case would be to replace it when it matures at the end of October next year. It will definitely depend on the opportunities in the market, the CDS levels, i.e., how much spread are we going to pay over, over the mid-swap? We will evaluate that until the maturity next year.
Thank you.
Ladies and gentlemen, there are no further questions at this time. I will now turn the conference over to management for any closing comments. Thank you.
Thank you once again for joining us this evening for the second quarterly call of 2023. Let me make a few closing remarks before we conclude. Today, as you saw in the financial results, our core profitability in second quarter remains strong, with the help of low operational cost base and very firm demand environment in the country. Despite relatively weak crack environment, especially on mid distillates. On the other hand, cracks recovered materially in June and remained strong in July as well. As we have completed majority of the maintenance activities, we are now operating with higher capacity utilization. While closely tracking the performance of our existing assets for optimal operational profitability, we continue to take solid steps for our strategic transition plan by expanding our zero carbon electricity portfolio.
We have achieved concrete progress on our capacity applications of ENTEK and were granted pre licenses for 326 MW. Our solar power plant in Kırıkkale Refinery started operations with 12.6 MW capacity as recent as July. Last but not least, we continue to preserve our net cash position in the second quarter as well. That's all we're going to share with you for today. Thank you all for listening to us, and I wish you a very good evening.