HELLENiQ ENERGY Holdings SA
ATHEX:ELPE
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Earnings Call Analysis
Q4-2023 Analysis
HELLENiQ ENERGY Holdings SA
The company is navigating a complex environment, striving for operational excellence and strategic reorientation. Positive signs were noted in the pursuit of enhancing controllability and predictability in operations. This includes efforts to mitigate the reliance on strong but unpredictable refinery margins by implementing initiatives for consistent benefits.
The company has reiterated its commitment to achieving a 30% carbon footprint reduction by 2030. This goal is to be pursued via advancements in blue and green hydrogen initiatives, as well as the development of other projects aligned with the company's value-driven approach.
With a keen eye on market dynamics such as interest rate changes and investor demand, the company is poised to continue its acquisitions opportunistically. A strategic shift toward developing most of the new capacity from its internal pipeline is emphasized to retain development profits.
In the upstream segment, the company is carefully interpreting seismic data to decide on exploration drilling. The timeline for any action here is deliberately cautious, with drilling decisions requiring meticulous capital planning, as no reserve-based lending is available at this early stage.
It was hinted that in downstream operations for 2024, the company is aiming for a net debt to adjusted EBITDA ratio of up to 2x, suggesting a conservative approach to leverage. This would potentially undershoot given the current outlook, while renewable operations might follow a different financial model with higher leverage targets.
The management reflected on the necessity of hydrocarbons in the near-term energy mix, welcoming recent realism shifts in this debate. This stance equips the company with clearer visibility for future projects that could simultaneously enhance its core business and decrease its carbon footprint.
Recognizing the favorable refining environment and its positive financial results, the company proposes a relatively high dividend to the AGM. This reflects a belief in meaningful distribution to shareholders, acknowledging both longstanding and new investors' contributions.
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Ladies and gentlemen, thank you for standing by. I'm Costantino, your Chorus Call operator. Welcome, and thank you for joining the HELLENiQ ENERGY Holdings conference call and live webcast to present and discuss the fourth quarter and full year 2023 financial results.
At this time, I would like to turn the conference over to Mr. Andreas Shiamishis, CEO; Mr. Georgios Alexopoulos, Deputy CEO, General Manager, Group Strategic Planning and New Activities; Mr. Vasileios Tsaitas, Group CFO; Mr. Dinos Panas, General Manager, Oil Supply and Sales; and Mr. Nikos Katsenos, Head of Investor Relations. Gentlemen, you may now proceed.
Thank you very much. Good afternoon to everybody who is listening into this call. We are effectively going to try and deliver the key points for 2023, and some ideas about what we have in mind for the future in the next 0.5 hour to 40 minutes.
So without further ado, let's go to Page 4, which is the introduction of our presentation. And we try to give you the key highlights in the summarized form for the main areas that we will be talking about. Clearly, a very good year. It's our second best ever year following an unprecedented performance in 2023. And might I say, very difficult to repeat, and I hope we don't repeat it for the same reasons. We'd like to repeat it in terms of numbers, but not for the same reasons.
So 2023, a very good year at the part of positive refining environment. But not only that, we have a good operating performance, and we have been able to deliver on a number of fronts on the strategic transformation, which is actually being translated into financial performance, not just strategy and plans, but it's actually delivering in terms of our performance as well.
So on the market front, we've seen a gradual normalization on the crude oil pricing and a little bit on the commodities pricing. Clearly, the events, the geopolitical events of 2022 are leaving it -- they're leaving their mark in the market for 2023 as well. But at least, we've seen the escalation from the very high, especially on the natural gas pricing and the electricity, which sort of follows that directly. And we've seen a relatively strong, but not at the same levels benchmark refining margin.
I would say that in terms of how we read the environment is that we are moving gradually to a new norm, which we expect to see prevailing over the next 3 to 5 years. We're not reverting back to the old mid-cycle definition of refining margins. So we're going to be seeing a new level of refining margins. We don't expect them to be at the same level as 2023. But we are not expecting a collapse of that market either.
So overall, a good year for our business in terms of the market and a bit of an optimism going into the next 2 to 3 years. We see the domestic demand improving, especially in auto fuels, heating and oil is a very seasonal product. by a lower margin product. And it is affected by weather and by promotional efforts which might lead to volume transfer between 1 year to another or 1 quarter to another.
The underlying demand, though, is very good. And it is not only on the ground fields business, but also on Aviation and bankers. In terms of operations, it's very important to be able to take advantage of a good environment, and this has been the case for us in 2023, with increased availability of the refineries.
Clearly, the main concern is to be able to deliver the highest mechanical availability and flexibility so that the supply and trading team can take advantage of the prevailing market conditions, and it is actually the case for 2023.
This allowed us to have a much higher realization on a per barrel basis. As you will see later on, the overperformance, which is the delta between the realized and the benchmark margin has come down. But clearly, one would not expect to see a repetition of 2022 because of the abnormalities that we saw.
Having said that, in terms of our own performance, the improvement has not been only on the wholesale business, but also on the commercial and retail business, where we have increased our premium products sales in the portfolio. The end of our contribution is growing, not only in Greece but also in international. And we are trying to get a better return on our retail investment.
Now there are 2 issues there. First of all, it will not be material enough to cause for a big swing in the results of the group given the very high performance of the Refining, Supply & Trading. And so Greek Retail is still troubled by a regulatory margin cap which has been prolonged. I'm not sure how effective this is, but it is in place, and we expect and hope that it will not being placed for the duration of the year.
Finally, as I said earlier, the strategic initiatives in terms of the business portfolio, beginning to show in more a more noticeable numbers in our results with renewables production and profitability increasing, both on the back of the annualization impact of new projects as well as the actual inclusion in the portfolio of new capacity and operating capacity within 2023.
So a good environment, even better than 2022 operations in the group, and the performance of our strategic initiatives leads to an adjusted EBITDA of just over EUR 1.2 billion and a very healthy adjusted net income, EUR 0.6 billion. This translates to a very good cash flow, even taking into consideration the investments in transformation projects.
Our cash flow has been very strong. which leads to a better balance sheet and a better maturity profile given that we have gone through a refinancing process for a material part of the credit lines. This allows us to sort of approve at both levels, a final dividend per share of EUR 0.60, which will be proposed to the upcoming AGM in June. And taking into consideration the interim dividend of EUR 0.30. It gives a total dividend of just under EUR 1 per share, with a very healthy dividend yield, which should be 1 of the highest available in the market.
Clearly, this is a reflection of 2 very good years. Last year, we had the one-off dividend as a result of divestments. So the $0.90 is compared to the EUR 0.75 if you strip out the exceptional dividend from by Infra. And it's an indication of our commitment to deliver the increased profitability or part of the increased profitability to the shareholders.
However, it's not all about numbers. Clearly, there is a very big weight on how well we perform in terms of financials. But on the front as well. We have good news. The company is doing better. We are taking our social responsibility very seriously. So we have improved on pretty much every front that we measure ourselves in. And this is actually shown in the detailed reports.
If we go to Page 5, we are repeating our strategy in a slightly more condensed way. We believe that it is important to strengthen and decarbonize our downstream. In fact, if we sort of go back to COP 28 earlier a few months ago, we see that there is a change in the direction of the discussions, and a gradual but growing appreciation that hydrocarbons are not are not something that needs to go our way in the next 5 years. It is part of the solution to improve the environmental footprint of the energy value chain.
And if we do not see enough support and indications that it is seen as such, the impact is actually going to be adverse because our industry needs medium- to long-term investments. If there is no clear signaling as to the sustainability of this sector, then companies like us will effectively decide not to invest in medium- to long-term projects, which means that the actual environmental footprint of our sector is going to get worse.
So we believe that this is not going to be the case, which is why we are investing in the strengthening of our downstream business with an upper of press. I'm not going to go through all of these in detail. But as you can see, we have achieved a number of things in 2023. Clearly, the nature of this project means that it takes between 2 to 5 years before they actually come to market because of the permitting and the construction period required, but we're moving in that direction.
And as you can see, we have a number of projects in mind that we will proceed. We are actually maturing this project, and we will proceed only if it's a very strong statement, if they make sense from a value-added point of view.
So we're not after big announcements. We're not after a single agenda, which is the climate. We're after a balanced agenda, which says that we need to protect the deterioration of the environment. But at the same time, we need to be able to stay in business as a company.
We're growing in adjacent areas with HBO coprocessing in Cesarone, increasing the e-mobility that is coming at a faster pace than in the previous years, but still it's not a big part of the mobility overall of the value chain. At the same time, we need to keep our focus to the future so that we do not find ourselves out of the business in the next 10 to 20 years.
The green energy agenda has been supported adequately. We've proven that we mean what we say by having a very visible path to the 1 gigawatt installed capacity by 2025. And this is against a lot of adversities. We have to do with primarily permitting processes as well as asset valuation challenges because going to 1 gigawatt can be made very easy and very fast as a process.
But the question is, will it be a value-adding process as well or will be a value destructive process for the shareholders? So again, it's a balancing game trying to achieve the strategic objective in the shortest period of time, but without burning too much capital.
And finally, irrespective of the business initiatives that we have of the strategy and the sectors that we engage in, there is a number of initiatives which have to do with how we achieve operational excellence in our activities. We have a couple of examples here, which have to do with the digital transformation with the capital structure that we are improving, which are very important.
I would add the human capital part here as well. We are in the process of completing a voluntary retirement scheme, which allows us to to have the ability to renew and upgrade our human talent in a very responsible way and in a way which effectively is forward compatible with what we plan to do.
Finally, before I hand over to Dinos, just a quick word on the placements a couple of months ago. It has been a very successful transaction. It was run by the 2 major shareholders of the company. The company got engaged in very specific parts of this journey, which has to do with the educational process and presenting the company's prospects, but the transaction was done by our 2 shareholders.
I think it has been a very successful transaction. number speaks for themselves. But at the end of the day, our intention as a group management is to keep the right messages to our shareholders and support a wider shareholding base, which will be beneficial not only for existing shareholders, but also for future plans of the company. So again, it is a transaction which has been successful for all involved.
With that, I will turn over to Dinos Panas, who will walk us through the energy environment.
Well, thank you, Andreas. Good evening, everybody. First slide is on the environment. The first slide on Page 8 is about the crude prices, the ForEx, natural gas, electricity price in the EUA.
Public data, all of them, crude is more or less close to 82 in 2023. ForEx at the same levels of the fourth quarter of the year. Electricity natural gas prices have gone down at the beginning of the year. And most importantly, the EUA cost has gone significantly lower than in the fourth quarter of 2023. Today, it trades at around EUR 55 per tonne, which is good for us because you have the deficit in the U.S.
Now going to Slide #9. You can see the cracks, the cracks have ended it. And of course, you all know the cracks of the main products in 2023. Your listing fourth quarter last year was 27. Now in rates at an average of 28 for the year. Gasoline, it was 10. Now it trades in the year around 15.4. [indiscernible] was minus 17. Now it's minus 15. And naphtha, minus 18. Now it's much better, it's minus 13.8.
Another, you may not know is the average margin of the year so far. We say above $10 a barrel, which is above the average of the year -- of the previous year. So we had a good start for the year. And this per environment.
And finally, looking into Greece. The Greek consumption, on Page 10, you will see that we had a significant increase in the key production in 2023 compared to 2022.
So the gasoline was plus 4%. [indiscernible] was plus 3%. And the LPC and the other products was plus 4%. We had a significant drop in support in gas consumption due to weather. We had an increase for the year of 7% in the aviation fuels and 3% in the banks. Now the available data that we have for Greece is only for January 2024.
The data is published by the Ministry, so an increase in the gas and consumption of 5.2% in January compared to January 2023, 11% increase in the diesel consumption, 88% increase in the heating gas oil consumption, a 6% increase of the LPG and the other products, a significant increase for the year.
Aviation fuels increased consumption in January increased 20% compared to last year, but the numbers are very low here in the beginning of the year. And in the banks, we had an overall increase of 70%.
So we're having -- we are seeing a market that is strong. I think the strength is continuing February as well, but we do not have the data -- the fiscal data yet for this period. And with this, I will pass you to Vasileios, our CFO.
Thank you, Dino. Good afternoon, as you perform -- thank you. Thank you, Dino. Good afternoon to all of you attending our call today. So discussing a little bit the results on Page 12. So refining volumes are higher, mainly driven by higher production at all our refineries.
The total turnover is lower mainly due to the normalization of crude and product prices, as discussed before. And adjusted EBITDA of EUR 1.2 billion, driven by fine supply and trading lower versus last year, and the trend is similar for the quarter and the year, certainly because of the unprecedented refining backdrop during 2022.
The Gas & Power contribution has largely normalized versus again an exceptional 2022. And financing costs are higher due to the significant increase in base rates starting from around 0 up until the mid of '22, getting as high as close to 4% at the end of last year. The impact of the base rate was around EUR 50 million, and that was largely mitigated by the lower gross debt levels.
The lower spread in -- following refinancing of a significant part of our loans as well as the improved cash management throughout the year. And that leads you to an adjusted net income of EUR 606 million. Capital employed flat versus last year, significantly lower net debt that we'll discuss further on.
Moving on to the various analysis of our results for the fourth quarter. So versus the compare fourth quarter of '22 with very strong [indiscernible] refining margins, wide crude spreads and relative pricing of noncash versus oil products that supported the use of oil products for use with a significant positive impact back then.
But that turned -- turning 2023 6, but to a large extent offset by improved operating performance across our business, mainly in the refining with higher availability and production leading to an adjusted EBITDA for the quarter of EUR 269 million.
This picture is similar, if we look at the full year, a normalization of the environment in terms of refining margins, crude spreads and [indiscernible] pricing, mainly, which are the main drivers for -- that affected our results. But on the other hand, around half of the impact was mitigated by high utilization and reduced tenant requirements at our refineries as most of that has been carried out in 2022.
Now looking a little bit at our capital structure. I think it's important to, first of all, to split our done business versus renewables because it's a different business and -- but we have designed our capital structure in order to be fit for purpose for each of the 2 businesses.
In terms of renewables, we have started remaining the project finance [indiscernible] agreement that we signed on the summer with 2 of our larger projects already capitalized under the framework agreement. There is efficient capacity in order to get us through our target of 1 gigawatt over the next couple of years. And certainly, the equity to debt mix of the business will be designed on a project-by-project basis. as they come through and being commissioned and become operating.
Equally, there's plenty of headroom in our downstream business in order to cut out our growth plans for this management purposes, being able to face any volatility in working capital. And on top of that, we also have adequate working capital capacity or capital funding capacity in the form of LCs to manage any change in the environment.
And also, the [indiscernible] equally are on the res business, they reflect the gradual repayment of the debt through the cash flows over the lifetime of the projects, depending on the revenue structure, whether it's PPAs with a system or with parts commercial PPAs. And equally, in downstream to basically provide the flexibility required for medium- to long-term funding depending on the projects and the price environment.
In terms of cash flow, accounting for the main operating outflows as well as the minimum staying business CapEx. We get to around EUR 700 million for the year. In terms of more one-offs like working capital changes as prices have gone down and inventories have normalized following the end of the crisis.
And on the other hand, the outflow due to the one-off of solar contribution. Those 2 more or less even now so even adjusting for that for kind of one-offs or nonrecurring will get to free cash flow against EUR 700 million in order to pursue our growth plans and remunerate our total providers in the pro dividend and interest and deleverage by around EUR 300 million.
So looking at the total balance sheet, a significant reduction in our gearing levels. Certainly, if you look at each of the separate business due to the financing model different numbers deferred. And despite the normalization of the EBITDA, our levels are more or less in line with last year and the lowest that has been for at least 10 to 15 years in the group.
In terms of shareholder returns on Page 17, we discussed before about the EUR 0.90 dividend -- the total dividend, EUR 0.30 as a interim EUR 0.60 million, which will be the proposal to the AGM for the final dividend. That is a payout of 45% over adjusted net income, which is in line with our dividend policy towards the high end of our dividend policy, a yield of around 12%, considering the price up at the end of the year, very competitive in the sector.
And if someone had invested a few years ago in the group, they would have gotten back the total investment in the form of dividends. And given the high -- the competitive dividend yield around 8% over the last few years. Important to always look at our total shareholders and not share price performance only.
So on that point, we will move to discussing the performance of the business segments, starting with the coming supply and trading. We mentioned before, the key drivers, some higher availability and production at all our finance, mainly [indiscernible] using an adjusted EBITDA of over EUR 1 billion for another year. CapEx reflects mainly long-term maintenance the transaction of our refineries. In terms -- and totally advanced margin of $17.4 per barrel that we discussed further on.
Now looking in operations, high production, as we mentioned before, in [indiscernible] and [ Lesina ] given a lighter maintenance year versus 2022. Exports drove the increase in sales. And this is the second or third highest performance historically in terms of export volumes.
In terms of the of the feedstock sourcing that reflects mainly market conditions and availability and pricing of the various sources with medium to high sulfur being less attractive versus previous years as well as the ability of our refineries to take advantage of the flexibility as well as to look at opportunities for crude sourcing outside of the traditional regional sources that help us mitigate the impact from the group threads.
On Page 22, looking at the full year, a realized margin of $17.4, a couple of dollars lower in terms of the metro margins that we discussed before and another $2 more or less lower additional margin or overperformance. Still at $8.6 per barrel, if we compare to the average of $6.5 to $7 before 2022, are still a very strong performance reflecting banners as well as SMT contribution.
In petrochemicals, the fourth quarter closes the year of a year of the weakest best margins that we've seen in for polypropylene and propylene for more than DK in the beginning of '24. We've seen a gradual recovery and -- and it's still early days to see whether we have entered a new site. Important to note here that the expansion of the polypropylene plant capacity is 500,000 tons is in progress, aiming to have it online in 2025.
Moving on to our fuels marketing business. In our domestic market, it was another year of the the regulatory margin cut affecting the ability to deliver additional profitability as well as the seasonally lower heating gas oil.
Okay. That was largely offset by the penetration of our premium products across our network as well as higher contribution. And adjusting, I think while -- as a reminder, we don't adjust the EBITDA for inventory impact.
But it's important to understand that if we take out the impact of pricing on both inventories as well as the pricing effect of aviation, the EBITDA performance is effectively comparable to 2022. This is starting with international marketing, as markets -- regional markets have normalized. We're still able to retain profitability above EUR 70 million, which is a number that we exceeded for the first time in 2022.
So at this point, I'll pass you over to George to discuss our renewables and Gas & Power business. George?
Thank you, Vasily. Good evening, everybody. On the Renewables business, we reached capacity of 356 megawatts during the year and 341 out of the 356 were operating for the whole year. The result was a much higher production and profitability. Production was close to 700 gigawatt hours, whereas EBITDA for the year was at EUR 42 million versus EUR 29 million for last year.
Regarding our growth plans, we are happy to report progress. If we can move to Page 30, yes, we are happy to report progress towards our near-term goal of installed capacity of by the end of 2025. As you can see, the maturity of our pipeline has also improved. And we currently have 260 megawatts under construction.
And in total, we have over 700 megawatts under construction or ready to build and/or in advanced stages, the combination of which will take us to our over 1 gigawatt goal in installed capacity by 2025.
If we move to Page 32, a -- regarding Elpedison. It was a challenging quarter, lower production as a result of the reduced availability of things we planned. But also, unlike earlier quarters and 2022, limited opportunities on the gas supply and trading side. Overall, we can say that it was a satisfactory year with profitability normalizing, if you will, after an exceptional year in 2022.
Moving on to Page 33 on Vepa, a better quarter than last quarter and also better compared to the same quarter last year. But overall, certainly a tough year for Vepa. Lower gas demand in the domestic market certainly affected the results in addition to higher costs associated with security of supply. The situation improved a bit in the fourth quarter, but overall, the year was a quite challenging one.
And with this, I think we have reached the end of the presentation. So I believe we can move to the Q&A.
The first question comes from the line of Athanasoulias Nikos with Eurobank Equities.
Congratulations on the great set of results. I have 3 short questions, if I may. So the first 1 relates, of course, to the dividend. Should we be expecting a double-digit dividend yield for the years to come and something that you aim for? Or should we expect a payout ratio closer to the 50%? Can you give us a little bit more color on that?
The second question is on renewables. Do you expect any of the 260 megawatts under construction to be operational by the end of the year?
And the third one relates to the petrochemicals regarding the investment that you mentioned that is ongoing. What returns are you expecting from this investment given the the current environment that is sustained of low full propylene margins. Do you expect a recovery? Give us a little bit more color on that end as well.
Nikos, and many thanks for the questions. Starting from the dividend. Our dividend policy aims for a payout versus our adjusted net income. So this is anywhere between 35% to 50%. Usually, we try to go towards the upper end of the range as we did this year, and that can be supplemented by one-offs like the divestment of noncore activities like we have done with DEPA infrastructure and Vespa in the past.
We certainly keep an eye on the yield going to be competitive among our peer group. But if we won't commit to a dividend given the fact that it's also share price delivered hopefully, share price will increase much higher the level that we won't be able to support a double-digit dividend yield based on our payout targets. But I would stick to the payout ratio as a policy and certainly considering all other variables.
Now in terms of our polypropylene capacity expansion project, we have a hard rate of around 8% to 12% for projects in our downstream business. that is certainly exceeded by this investment. We are targeting an additional EBITDA of around $10 million out of this investment. So in a payout of anywhere between 4 to 5 years.
Certainly, we're looking at the market which is cyclical and volatile. If we look at the long-term average and projections, the numbers justify the levels that we discussed before. And the impact on polypropylene margins is more on the propylene part rather than the polypropylene versus propylene spreads where this investment is actually based on.
On the renewables, I think it's fair to expect that the capacity under construction will be operational in 2024. And I would say that approximately half of that should be operational are approximately at the half year mark or so. So there will be a contribution for this year as well.
The next question is from Elan Grigoriou George with Pantelakis Securities.
I've got a few. First, regarding your crude slate. There's been a massive change understandably over the I don't know, 18 months or so in terms of more light products. And conversely, your -- obviously, your fuel oil production has actually gone down in the product release.
I was wondering if you could walk us through a bit how do you see it playing out in the next couple of quarters? And then could you help us out in terms of pricing? And what should we expect as from -- in terms of refining margins -- that's my first question.
The second one is related to the voluntary exit scheme for the employee head count reduction would be just mentioned before. How much do you think it will cost and what will be the payback period for that? What do you think will be the savings on a per annum basis?
And my last question is what Dinos mentioned about EUAs that they have massively committed this year. I don't expect you to give us hard numbers, but deter numbers, but if you could help us out to think if prices stayed where they are today, what would be the savings, if you could guide us in terms of how much you actually need to book out every year for CO2?
Okay. George, about the crude slate, I mean, we have to change a lot because we have the Russian out of the market. We have a key cook out of the market, so we have to change it. We are currently evaluating more than 120 different slates around the globe every week. And we have started buying alternative crudes that we have never bought before, crude from Guyana, crude from Brazil to Buzios, like Buzios, crude from Nigeria and crude from the Middle East and the crude for the Middle East.
So it's an ongoing exercise. We are seeing quite a significant benefit compared to the availability of the mainstream crude as like, let's say, side but on light and continue doing that. But the market is dynamic. We'll see how it goes.
Currently, in 2024, we are doing quite well with that. We have bought some slates that have given us a significant better margin than the benchmark one. And hopefully, this will continue for the year.
Now the U.S. We have a deficit of 1.5 million tons. So it certainly helps having US lower -- we see that there is a surplus capacity, surplus quantity in the market. You've seen, I guess, the financial times article last week, which exactly described the balances and why is that happening.
I think that we will have to manage a little bit the risk of this going higher again, and we'll see how we'll do that. We are discussing that. We have taken a few cautious steps, but it's under consideration what the final decision will be how [indiscernible] So the rest, I think the last question is for Andreas.
George, we are completing the VRS process next week as application. So at the end of the week. The target was to be able to achieve 2 things. First of all, [indiscernible] our human capital and the renewal brings with it 2 benefits, which is ability to replace somebody who is of an older age and generally speaking, given our salary sort of policies, more expensive than somebody who is younger and newer into the system and of course, to be able to change the culture of the group by attracting new people. So that's the first part.
And there is a second part, which has to do with the restructuring. And effectively, the fact that there are positions which are no longer relevant either because of digital transformation or because of optimization structures.
Now the original expectation, I will not call it a target, but the expectation was that around 200 people would be participating in this VRS. Anything between 150 to 200 people was, if you will, the range of estimation and the approvals we have, we have gone well beyond that target, which means that a number of these applicants will not be approved.
The payback on this initiative is roughly about 1.5 years on position, which will not be filled and about 2.5 on positions that will be filled. So even if somebody is replaced with a new recruit, there is a benefit to the company, which will accrue in about 2.5 years after he leaves.
Now the exact number in terms of cost, I would not be in a position to sort of comment on now, simply because the program is still ongoing. It will be completed tomorrow.
So that is something that we will be able to tell within March because we have to review the applications. But it is a key strategic objective of ours to be able to renew our human capital and of course, attract new skills in the system.
If I can just 1 follow-up on the EUA. Deasy mentioned 1.5 million tonnes is a deficit. That's for 2023. Does that increase this year? Are you free allowances nowhere this year? Am I correct in thinking that?
And my last question, I'm sorry, I'm taking at this time it's late. Regarding your network reach in the retail space. quarter-by-quarter, the number of hydrostatihas been decreasing. I suspect that has to do with the dealer on dealer-operated stations. How did -- what would you see as the optimal number, I don't know, at the end of 2025 for example? And that's it.
In terms 1.5 is for 2024. Now going forward, the allowances are going on the 1 hand to be decreased. On the other hand, we are taking actions to also decrease our emissions. So we have to see how these 2 balances. But let's take for sure that 2024 is 1.5% and we'll discuss some numbers going forward, let's in the next discussion.
Okay. On domestic marketing and retail, I would not expect to see more than 1,600 by the end of 2025 when I joined this company, we were talking about 8,500 petro stations, close to 9,000 petro station in Greece. Today, we're just over 5,000. A lot of them not operating on a full year basis.
Increased tourist has given a lease of life to some of the smaller [indiscernible] into more areas, which is good. But with consumption patterns and projection in terms of e-mobility and everything, we expect the number to shrink even more. So if I was to give a target, I would say that by 2025, we will have less than 1,600 service stations.
The next question is from the line of Hitchens Peter with Edison Group.
I had a couple of questions for you. The first was on hydrogen. The [ E ] is making a big push on hydrogen. How are you progressing with your projects on green hydrogen and blue hydrogen with the carbon sequestration?
The second part was on renewables. Acquisition has been the big driver in your growth. How are acquisition costs coming in moving ahead, particularly with higher interest rates and hence, a lot less appeal for things like sort of hedge funds?
And thirdly, you probably can't answer this one. Have your shareholders given any indications about further reducing their stakes?
Okay. The first question regarding hydrogen. As you know, we are already today a major consumer of hydrogen, and thus, we have a lot of experience with hydrogen unlike many others who talk about hydrogen, but haven't experienced.
Regarding our initiatives, I think it is in the presentation, but we probably didn't cover it. We have a number of initiatives regarding CCS, which, of course, means that the hydrogen in our main -- in our refinery of Elefsina will become blue, therefore, with a much lower carbon footprint.
And at the same time, of course, as Dinos mentioned before, reduced substantially our overall carbon footprint, which we're targeting a 30% reduction by 2030. At the same time, we are also developing green hydrogen initiatives in 2 of our refineries with the aim to produce synthetic fuels.
As Andreas said before, I'd like to repeat, we are developing these projects. We will push the implementation button if and when these projects make sense from a value point of view. And to that end, we are planning to utilize all available tools in order to achieve feasibility of these projects. But as I'm sure you realize, green hydrogen today is not commercially viable on its own.
Now regarding renewables, you are right, we've used acquisitions quite a bit. Going forward, our plan is for most of our installed capacity, if not all to come from our pipeline, therefore, keeping at least part of the development profit.
Regarding the comment on possible values of acquisition targets, I would tend to agree that in principle, in the face of higher interest rates and potentially lower demand by investors there should be some softening in the prices. There tends to be a lag, however, on this effect. So we will continue to consider acquisitions on an opportunistic basis. And if the numbers are right and the value is there. But our main target is to bring most, if not all of the new capacity to get to the 2 gigawatts by 2030 through development of our own pipeline.
Okay. On the third part, which has to do with further sell down, if I got it right, clearly, it is not something that we can comment on. It is something for the shareholders.
Next question is from [ Vassilis ] Roumantzis with Optima Bank.
Hello from my side and congratulations on your great set of results. So my question has to do with your upstream activities. We're reading the press that some positive developments on from I think it's the area northwest of it. Can you please set us some light on your upstream activities?
Yes. Regarding the Upstream, indeed, there has been a lot of noise because that's the correct term for it in the press. What we have said, and I think we can repeat is that we have -- we and as the case maybe, we and our partners have completed seismic acquisitions in several blocks. We are currently in the interpretation phase.
And on the basis of the results we and our partners will make decisions as to whether to proceed or not with exploration drilling. There's no imminent decision as you may have read in the press, but we expect in the fourth quarter of the year to have further updates on this.
And also keep in mind that from the time a decision to proceed with drilling takes place, you need 12 to 18 months to prepare for an exploration well, which is quite a heavy capital project and a very complex project at that.
The next question comes from the line of [indiscernible] with Euro Securities.
Just 1 question on the last answer. With regards to the capital employed on the potential, let's say, drilling, how would it be financed? I assume you would go for some reverse base lending or something similar.
On, if I heard you correct, you said working capital financing on drilling?
Yes, yes. I mean would you -- what would be the funding structure would be through reverse-based lending? Or how would this be?
Fani, exploration drilling is actually 1 step before that because you have some encouraging data from your seismic, but there's certainly no guarantees that the resource is there in commercial quantities.
Therefore, the reserve-based lending is not available at that stage. And the funding is an equity-type funding. It's not based on the project itself.
Ladies and gentlemen, there are no further audio questions. I will now pass the floor to Mr. Katsenos to accommodate any recent questions from the webcast participants. Mr. Katsenos, please proceed.
Yes. Thank you, operator. We have a couple of questions from the webcast participants. The first question comes from Andreas [indiscernible] from Societe Generale, who looks for a guidance for 2024 in terms of leverage?
Thank you, Nikos. Thank you, Andreas, for the question. Effectively, in terms of 2020 guidance, -- we have a target for our downstream business, we have a target of up to 2x net debt to adjusted EBITDA, would likely looking at the environment and the outlook for 2024 to undershoot this gain. So -- and renewables, it's a totally different business and financing model. So leverage targets are higher. And if you look at the blending, if it comes based on the participation of each of our 2 business to the group.
The second question comes from Alfredo Viegas from Oaktree Capital, who -- did you have any update or probes to report on the exploration program? What is the earliest timing we could expect any updated results from the seismic program? .
I think we answered it. If there's a follow-on question, we are happy to take it, but I think we addressed the question.
Ladies and gentlemen, there are no further questions at this time. I will now turn the conference over to management for any closing statements. Thank you.
Thank you very much for attending the call and all of the interesting questions on our business. As I said at the beginning, it has been a good year for us, 2023, with a good set of results, albeit lower than last year, but that was to be expected.
There is a lot of positive signs in these numbers, both for last year and for the year before for '22 and '23 in that a lot of the initiatives we took the strategic redirection and the improvements in operational excellence fronts are delivering the benefits that we expected. It's always very good, and it allows us to sort of -- it gives us incentives and strength to continue.
And the good thing is that a lot of these things are more controllable and more predictable than the impact of a very strong refinery margin which make no mistake, we want that and we like that and we enjoy it when it comes. But unfortunately, we cannot do a lot in terms of repeating it.
We do think that we have a decent run ahead of us. The new norm is higher than what it has been over the last few years. But we also try to get as much controllable benefits and repeatable benefits as possible.
Before concluding this call, I would like to sort of mention something which we believe is important, and it has to do with the change that we've seen in the last call. We had to do with the role of hydrocarbons in the energy mix. And it is important because we spent the last few years trying to explain why hydrocarbons are needed.
Clearly, it is not a world where we can actually switch off everything tomorrow and start using green electronics, not even electronics, but green electronics. It is not doable to do that.
And in that respect, we welcome the sense of realism that has been discussed recently. And it means that we, as a company, we'll be able to have a little bit more visibility in the next 5 to 10 years. and be able to roll out initiatives and investments, which will add value to our core business and, at the same time, achieve a lower carbon footprint.
The benefit to the shareholders is that we make the most in a very positive refining environment. We can utilize our resources to grow into the green energy space that we are doing now. And at the same time, keep our shareholders well remunerated for the good results that we have been blessed with.
And to that respect, the relatively high dividend that we are proposing to the AGM is a reflection that we believe that this is a result that needs to be distributed and the shareholders to benefit, be it all the shareholders or the new shareholders who gave us the order of participating in the latest transaction in December. And we hope that we will be able to continue this path -- down this path.
So thank you very much once again for sitting into this call, and we look forward to welcoming you back on the first quarter call in a couple of months' time. Thank you.