Financial Data and Key Metrics Changes - In Q2 2021, LUKOIL achieved an all-time high EBITDA of RUB 340 billion, reflecting a strong recovery in production volumes and market conditions, with a 8% increase quarter-on-quarter [7][53] - Free cash flow decreased quarter-on-quarter to RUB 112 billion due to a significant increase in working capital, but free cash flow before changes in working capital reached a record high of RUB 212 billion, up 13% quarter-on-quarter [8][55] - Net profit for Q2 2021 was RUB 190 billion, an increase of over 20% quarter-on-quarter, primarily driven by stronger EBITDA [54] Business Line Data and Key Metrics Changes - Hydrocarbon production increased by 4.2% year-on-year, totaling 2.1 million barrels of oil equivalent per day, with a 3% quarter-on-quarter increase in average daily oil production in Russia [16][5] - EBITDA in the Russian Upstream segment rose by 3% quarter-on-quarter to RUB 193 billion, while EBITDA in the International segment also grew due to higher oil prices and recovery in gas production [19][20] - Downstream EBITDA rose by 6% quarter-on-quarter to RUB 127 billion, driven by higher refining margins and throughput volumes [46] Market Data and Key Metrics Changes - The average Urals oil price increased by 12% quarter-on-quarter, maintaining an all-time high at RUB 1,840 per barrel [15] - Refining margins improved significantly, with European benchmark margins growing more than 1.5 times quarter-on-quarter, although still below pre-pandemic levels [36][37] - Retail sales of motor fuels saw a strong recovery, with volumes exceeding pre-pandemic levels in July [43] Company Strategy and Development Direction - LUKOIL plans to ramp up production volumes in response to the recovering global oil demand and market environment, while maintaining a focus on cost control and climate risk management [13][57] - The company is committed to enhancing its sustainability practices and has released a Sustainability Report for 2020, aiming for better disclosure and management of sustainability issues [11][12] - Investment plans for 2021 have been updated to a range of RUB 470 billion to RUB 490 billion, reflecting a strong investment story and commitment to maximizing shareholder returns [57][58] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the recovery of global oil demand and the downstream market environment, indicating plans to fully unlock existing production potential [13] - The company expects hydrocarbon production to grow by about 4% in 2021, excluding the West Qurna-2 project, and remains flexible in managing refining fleet utilization [57] - Management highlighted that LUKOIL's market capitalization is lagging behind its financial performance, suggesting that shares are undervalued [58] Other Important Information - LUKOIL is progressing with high-priority projects, including the D33 field in the Baltic Sea, which is expected to start production in 2024 [24][26] - The company is also focusing on modernization projects at its refineries, which are expected to enhance product output and efficiency [49][50] Q&A Session Summary Question: Breakdown of working capital increase - Management indicated that about 25% of the working capital increase was due to higher prices for oil and petroleum products, while 75% was attributed to short-term trading strategies, with expectations for some working capital to be released in the upcoming quarters [61][62] Question: CapEx plans for next year - Management stated it is too early to provide specific targets for 2022 CapEx, but indicated a potential increase to around RUB 500 billion [67][69] Question: Climate strategy update - The mid-term strategy update, which includes climate targets, is expected to be finalized by the end of the year, with a presentation likely in spring 2022 [73][74] Question: M&A strategy - Management confirmed no changes to the buyback approach and emphasized an opportunistic M&A strategy focused on high-quality undervalued assets [78][79] Question: Upstream project ramp-up - Management provided details on the ramp-up plans for projects in Iraq and Mexico, with expectations for significant production increases in the coming years [82][83]
PJSC LUKOIL(LUKOY) - 2021 Q2 - Earnings Call Transcript