NK Rosneft' PAO

LSE:ROSN

Earnings Call Transcript 2020-Q1

[Unknown Executive]

[Interpreted] Good evening, dear colleagues, ladies and gentlemen. Thank you very much for participating in this conference call about the performance of Rosneft for Q1 2020. This is the first conference call, which we do as a [ virtual ] conference. Hopefully, everything is going to work out in a correct way, but just in case, just apologies if all of a sudden, it may fail somewhere.We have the first Vice President of Upstream, then the Head of the In-House Services, Vice President of Company, Eric Liron; then the Head of the Downstream, Otabek Karimov; the Vice President, who is in charge of Operational Planning, Alexey; and [ Tom Brigoda ], the Vice President in charge of Strategies and Business Development; Alexey [indiscernible] as well as IR Head and other senior executives. And today, we're going to provide you with an overview of the most important operational performance based on results of the Q1 and respond to your questions.Please note that this presentation contains apart from other things, information about the future events, and there is a forecast. But before I begin talking to you about the performance results in Q1, I would like also to come up with a few general comments.Today, basically, the priority, number one, of the company is to minimize the consequences, undertake measures not to allow for the coronavirus infection to spread further. And that applies especially to company employees as well as the clients and the contractors. And here, I would like to express separate thanks to the employees of the contractor organizations as well as our direct employees who are providing unconditional and continued business for the process of the company. At the very early stages of the coronavirus, [indiscernible] throughout the company, Rosneft became acting without waiting proactively, so the Board of Directors basically together, especially how to maintain the continuous business where we established our presence in our key regions or the presence. So as to responses taken, so in 284 organizations, which are within the Rosneft. Prevention was also at point because we extended in between sheet intervals from 30 to 90 days. We have also deployed 94 lockdown facilities where people could maintain a certain period of time under the observation as well as maintain a very strict sanitary measures. The number of people who were put into the remote operation, more than 51,000 people without any damage to the operations. Despite the fact that most of the people are currently working remotely, we have provided for the continuous processes without losing -- falling down their quality of operations. And within the context of what is currently going on overall in the world in as far as the self-isolation, lockdown and the coronavirus impact upon the economy, we believe that the company was able to demonstrate a high discipline and resilience as well as to maintain its operational stability under the current environment.Now the second important point that I wanted to talk about is within the reporting period, it was the strategic deal that has been fully closed. We closed it several weeks ago, and that was about the -- our exit from various projects of the company had in Venezuela. For the reporting purposes, the Q1, this particular transaction is outside the format of the reporting period, and the full financial result is going to be recorded in the reporting for the second quarter. Now the decisions for the company to exit Venezuela was reviewed and made by the Board of Directors. All of the assets that are related to Venezuela has been fully divested from and closed. So the result of the divestiture, 100% subsidiary of the company was -- became a [ the company ], which came in and sold 69.9% of the stock of the company and respectively, the buy of this asset, which is the [indiscernible] company acquired, basically, the entity, which owns all the assets and operations that the company used to have in the Venezuelan market. So the transaction won't produce any immediate impact upon our values because the cost of stock that we have, we basically have it confirmed by the necessary valuation as having no negative impact. So speaking in general about the market environment that 2020 will be a pivotal year in many ways for the gas and oil industry, considering the fact that just 30 days ago in the world, they used to be almost 4 billion people, unprecedented reduction for the demand for oil, led to a dramatic historic volatility in prices on oil. Nevertheless, Rosneft, in the current market environment, is very confident in terms of its future because we possess a high-quality resource base. We are fully diversified in terms of our marketing, and we do have a long-term nature of our relationship with our consumers. The operational, operational efficiency helps our company to successfully stand on and uphold our position, which we believe to be a temporary challenge. About 90% of the exportable oil and refined products of the company currently being delivered under the obligatory long-term contract, which is the result of many years of effort, which have been put in as well as long-term cooperation with our partners. Therefore, the company does have a guaranteed sales market for the company, even in these dire conditions in terms of the short-term volatility that won't [ affect us at all ]. Well, we used to say it a lot, and we will continue to say about it. We've got a lot of potential in terms of the optimization of the taxation system in the Russian oil industry to increase investment. But against the low prices, the tax system continues to work. Taking into account the interest of the producing companies, and that applies to the formula of the basic rental payments, which in principle is that, well, it goes below -- basically in 2020, it basically was down to 0 in terms of the tax break. It's the financial ambition of our production within the scenario of $15, $20 per barrel is something, which is more or less equivalent. So -- and we do expect that even for the kind of a situation, which is for many global energy companies are not easy, our free cash flow will remain positive, although the recent forecast on the market, in particular in terms of rebounding prices, does presuppose a more mid-term optimistic scenario.But once again, I would like to underscore the even -- even within the current environment, the company remains to be profitable, stable and generating cash flow in a sure way, which the Q1 reported results show. [ The Rosneft Synergy 2022 to offset ] as the main priority to improve the profitability of its businesses, to improve the efficiency of the current existing asset as well as the execution of the key projects within the budget and on time, being able to achieve the key synergies as well as the advanced application of the technologies. The basic [ principle of our synergy ], taking into account the current market volatility remain unchanged. But I would like it, again, to talking about the [ quantitative and qualitative side of it ] because that applies to the level of our target production? These are going to be inevitably reviewed, taking into account the directives, which we receive to reduce our production as part of the annual deals entered into a part of many [indiscernible]. So the average oil production for 2020 will be about 64 million tonnes. For 2021, about 34 million tonnes, but that's against our business plan. But we also expect that there will be a bit of a decline in 2022, taking into account the fact that the deal is covering the period beyond. That does produce a certain negative effect upon the structure of our output.However, all of the basic targets within the strategy in terms of improving our efficiency as well as the project execution and technology development will remain unchanged. And the evolution of the company confirms that. The basic criteria to reduce production as of May 1, 2020, within our output assets was the principle of reducing the least profitable assets taken into account the climatic and geographic locations. We have done a very detailed ranking between all of our assets in terms of the producing areas, and we have better decision to do it into a safe way.During the first stage within the 3-month transfer period, we have done the maximum [ production to be ] reduced in terms of the production will definitely require full conservation as well as the associated facilities.Within the next 3 months, we're in a very scrupulous detail in terms of our participation as well as our environmental impact of COVID will be considering long-term conservation of the most costly, as taken into account the whole set of geological, technological measures that we need to undertake as well as the capital valuation of all the costs involved.So respectively, once the transitional period is completed, we will rebalance our -- reducing measures whereby we will be balancing even more and transferring whatever has to be described upon the nonprofitable assets once the -- all of the [ subsectors are concerned ]. The only field that is not going to be affected by any decrease is a -- the [indiscernible], the development of which the company is continued on the basis of the investment agreement entered into together with the Russian Minister of Finance, where we have specifically fixed amount of investments as well as the reduction of MET for that particular field in absolute high importance, I must say, is one of the most successful precedent of a similar fruitful cooperation and a dialogue in as far as the investment agreement is concerned between the Russian oil company and the Russian financial authority. Because you know that in 2020, the production of oil at Samotlor was going down. And so that was about 5% decline since within the 5-year period. So about 10.5 million tonnes of direct losses of the government income because of the reduction of that were more than RUB 150 billion. So against -- there not being sufficient support and no incentives. So the decline -- further decline in that particular field would have been inevitable. So based on fact, we entered into a license agreement back in 2018, we have been able to put second life -- breathe second life into some employee, having given RUB 35 billion as MET with an obligation to invest this particular deduction into the field for the period of 10 years. So effectively, we breathe second life into this field. So today, the production of oil hasn't stabilized in a very clear and a sustainable way, even taking into account various OPEC+ limitation because we're not talking about increasing production, but to stabilize the decline. On the one hand, we are not negatively impacting the OpEx plant arrangement. But on the other hand, the stabilization of production enabled one to reduce the decline ratio, down to 1% for the current year. The amount of investment or development of it was RUB 113 billion, and we are actively continuing to invest in it to be able to have Samotlor as an operating field for the benefit of the company as well as the country. Secondly, I would like to draw your attention to the station which evolved in the gas market -- in the global gas market. Because today, the global market, the gas spot prices and unprecedented low prices, [indiscernible] 1,000 cubic meters, which essentially below the Russian prices, because it's not -- it's not about [ $70 for ] consumers. And in this way, we do see the premium nature of the domestic market. We do see that the forward rate. I'll confirm the ability to maintain this premium nature of this market for at least the next 12 months, which in its turn, does underscore the correctness of our strategic vectors we put on the gas business, which does have a relatively low-risk profile. If we talk about the production projects and very much long-term portfolio of contracts. Sufficient and stable, very predictable cash flow, which is not so much dependent upon the infrastructure, which confirms it again, the correctness of our choice and the advanced investments which we've made in development of our gas business so far.Now speaking about the field segment. Then in Q1, the EBITDA in field segment, which is our commerce logistics and refining without taking to account the adjustments for the internal reserves, the EBITDA grew almost double compared to Q4 2019, up to RUB 80 billion. So the improvement of the indications, which is inversely related to the refining margin in the Russian market, growing up to $1.90 per barrel in Q1 2020 compared to a net margin minus $1.60 per barrel in Q4 2019. Even specifically the inputs of what's going down in terms of the cost, produced the positive effect. So growing refining margin in Q1 can be defined as a short term. Longer term and mid-term, the company is focusing upon increasing refining margin through in the [ current place ], completing the number of the technological units like hydrocracking at 4 refineries and cat cracking at 2 refineries as a result of the commencement operation of these. We believe that the output of the lighter products which exceed 70%.And as far as the financial results are concerned, the worsening in the macro environment in Q1 versus this year could not impact our financial. The revenue from the sale of refined products and oil in the reporting period went down by 27% or by RUB 440 billion, including as a result of the reduction of the sales by 7% and the price -- oil price declined by 14%. So this particular decrease in terms of the sale of the euro spent in rubles, but it [ wouldn't be 70% ] compared to Q4 2019. The sale price for refined product in the domestic market compared to the foreign market went down by 7% compared to the previous quarter. The decline in our revenue became the main impact in terms of EBITDA by 37% or by RUB 179 billion compared to the previous quarter.In the Q1 2020, we observed a certain lag effect in terms of the duty because of the slow reduction of the duty rate compared to the sales of the refined products. This is being established at RUB 98 billion of additional costs for the company in the reporting period. Negative factor, similarly, was the reduction of the dampening effect with the positive value of RUB 27 billion in Q4 2019 towards a negative value of RUB 26 billion in Q1 2020. And that happen as a result of the increase in premium in the domestic market over the export strategy, which made it necessary to pay an excise into budget of RUB 4 billion, while as a result of the fourth quarter, the company, on the contrary, received RUB 41 billion from the government budget. The reverse excise from the point of view of the EBITDA impact in between the fourth quarter last year and the first quarter this year, there appeared a negative difference in terms of the difference in excise in the amount of RUB 45 billion. But in a nutshell, in terms of the dampening mechanism because this is quite a nontrivial from the point of view of tax calculation kind of a mechanism, which comes into -- came into effect since 2019, and as a separate mechanism from the very onset, what's considered to be simply just sort of most of you been trying to compensate them and get the global prices growing.So it has to compensate the company between the actual prices in the world as well as the one that has been fixed in the law in terms of the conditional domestic market prices, as we know, against the oil price going down in the global market in Q1 this year. The dampening mechanism started working at the reverse basically becoming an additional driver for the tax levies for the refined product producers. In Q1, we saw negative values of the dampening effect.In April, we saw the paradox of the situation when against the continuing oil price decline, the total taxes of the company is supposed to pay based on its sales, excise, dampening, value -- VAT. Based on fact, in a number of regions, they started reaching the level of the sale price, 100% from the company's revenue from the sale of the domestic market. So -- and this is the reality of the regulatory environment that we have to operate in terms of our sales operations [ on automotive ] in the domestic market. Now speaking about the cost control and operational results of the company, which is something that we always refer to. In Q1, we continue to maintain a very stringent control over our costs in the first [ that defies ] to the average hydrocarbon production cost, which went down by 2.7% compared to Q4 and by 2.8% compared to the first quarter last year.In dollars, we, today, can say that our percentage of cost per production is equivalent to USD 3.9 per barrel of oil equivalent. The decline in operational, of course, was 17% compared to the previous period. The company in Q1 demonstrated the positive cash flow, but at the same time, has generated the net loss attributable to the shareholders in about RUB 156 billion compared to the net profit from RUB 158 billion into Q1 of 2019. So the basic factor, which had defined the financial performance was the negative exchange rate is about RUB 170 billion as a result of the revaluation of our currency assets as a result of the dramatic increase of the current exchange rate as of 31st of March 2020.So these drivers were certainly offset by the reduction of the interest rate payment compared to the first [ level ] of 2019 by 25% or by RUB 40 billion [indiscernible], RUB 43 billion and the reduction of the financial debt and our trade obligation as the interest rate.I would like to note that the level of net debt-to-EBITDA of the company is speaking towards the end of the Q1, remains unchanged, and it's about 1.5. If you do it like debt-to-EBITDA in U.S. dollars, so about 1.5% of the Q1, exactly the same one as we remember seeing last year. So bearing in mind, the direction that we receive in terms of the reduction of our production as part of the OPEC+ deal, the company is optimizing in oil production program, as I previously stated. Without the detailed ranking of the kind of investments we're supposed to do, having given up some number of optimization and a number of exploratory wells, in order to meet the target of the reduced production of the overall reduction, in terms of the capital budget in 2020 compared to 2019 is about RUB 200 billion. Out of which, RUB 180 billion will be [ the major ] of the exploration efforts, where approximately 47% will be in the optimization of the [ maturity ] of 26% into new major projects and 7% this offshore project.So reduction in terms of mature assets, about RUB 100 million. In the first place, we are going to reduce investments into nonprofitable hydrocracking operations, taking into account the need to maintain high standards of industrial safety and environmental impact, we would basically be re-ranking it. Now speaking about the projects, which have been frozen previously [indiscernible] some of the capital investments are already been endorsed in the reduced business plan to 2020, up to the minimum level in order to be able for the company to enjoy something as a -- so basically, these investments have been totally excluded and put on hold. In terms of the deal, about RUB 30 million will be as a reduction because here we're talking about optimizing our costs in terms of the maintenance and delaying and deferring it to the future period of some of the long-term projects for our development.In the reporting period, the company was able to get the cash flow leverage in RUB 19.9 billion, which is a good achievement considering the overall worsening of the market demand. Thanks to the cash flow. Despite overall worsening of the market demand, we continue to reduce our debt burden. In absolute terms, we're maintaining a stable ratio in terms of net debt to EBITDA at the level of 1.5%, as I previously stated, and we are returning these resources to the shareholders, the financial obligations and reduced by USD 9 billion or by 11%. In March, the Board of Directors considered the terms and conditions for the buyback program execution and made a decision to reconsider a number of criteria in order to initiate it, and so the company undertook some active steps in the market in terms of buying back the stock. And so today, we continue working on this program. At this point in time, the company has bought back about 33 million of its own shares, putting it into the balance sheet to one of our subsidiaries.Last month, the Board of Directors company -- identified the final dividend payment of RUB 1.18 [ per 1, ] considering the interim dividend payment based on results of the first half year in 2019, the payment of the dividends will be the record RUB 354.1 billion. The planned payments fully conforms with the basic principles of the monetary policy, 50% of the dividends to be paid to our shareholders. Once again, we confirm the unchanged principle of our monetary policy, even against unprecedentedly difficult current environment.As far as the rest of the things are concerned, we are now ready to switch over to the Q&A session. But once again, I would like to emphasize a very strong cash flow, stable financial status of the company and the closing of strategic deal in exiting from the Venezuelan assets today, the company doesn't have any contract, nor any operations, nor any other kind of assets there and being ready in terms of the lack of our new project to actively go further into developing long-term project.Thank you very much for your attention. We are now ready to switch over to Q&A. Thank you.

[Operator]

[Operator Instructions] Our first question today comes from Karen Kostanian of Bank of America.

[Karen Kostanian]

[Foreign Language] I've got 2 questions. The first one is more of a theoretical one because there is quite a range of opinions that in Russia, if it is to go for such a substantial reduction of output, it would be very difficult to recover it. So I would like to hear what you think about the extent to which it would be possible to quickly rebound the production after the OPEC+ is ending or because, let's say, if it is softened? And my second question about your dividend policy. The environment for Rosneft's current and future might turn out not to be a very perfect one because of the paper write-offs. So what do you think? Would it be possible for the company to adjust its dividend policy? So as not to take into account these paper write-offs?

[Unknown Executive]

[Foreign Language] Karen, thank you very much for your question. So on my part, I would like to answer the following way. And as far as the first question was concerned, which was about the flexibility that the Russia has in terms of recovering its production if the terms and conditions in OPEC+ change, I think I can say the following. Generally speaking, about the Russian industry and describe it is something as homogeneous, uniform, in terms of the reserves from which the oil is being produced and considering specifically, the surface conditions where this whole work is commencing is not the correct thing to say because you understand it quite well. Therefore, we believe that we do have the possibility to reduce production. But at the same time, control our risks in terms of the recovery. We do not see any special risk here. Although one must understand that some of the companies are facing not equal conditions altogether. And for some other resource developers, it would be a different environment. But it would be proper to direct this question to the Ministry of Energy. But in terms of us, as a company, we identify here only the risks that we control.And as far as the dividend policy is concerned, again, you are making references to paper write-downs and paper write ups. And generally speaking, we do not like very much do something subjectively write-down or write-up or write-off. We do believe that we've got the IFRS principles in terms of our profit calculation that we adhere to strictly. Also undoubtedly, there are certain paper losses that do emerge considering the objective macroeconomic environment in Q1 because we do understand that alongside with what is currently going on and the market environment rebounding and the ruble becoming stronger. So maybe in another quarter, in Q3, we would face exactly the same kind of the revenue stream, which would transform itself in the dividends. So we do stand for a certain unity of calculations so as to demonstrate our profit. We will follow that. And as far as the policy is concerned, where it concerns the profit estimation, we're not going to change it. So I believe this is my answer.

[Operator]

Our next question today comes from Alex Comer of JPMorgan.

[Alex Robert John Comer, Research Analyst]

I've just got a couple of quick questions. First of all, the downstream business held up pretty well in the first quarter and you've kindly pointed to, I think, $1.89 margin in Russia. Obviously, things have got materially worse as we moved into April and May. I'm just wondering if you could let us know roughly what the level of profitability in the Russian refining business was in April, and what your outlook for that business is for the rest of the year. And then also, I noticed some comments in the meeting between the CEO and the President regarding asking for extended terms from some banks. Your leverage is relatively high. You're enacting a share buyback. I just wonder where we stand with regard to access to ruble debt. And then also the potential for prepayment with the Chinese further in the year? So those are my questions.

[Unknown Executive]

[Foreign Language] Alex, thank you so much for your questions. Just taking them one by one. And I actually just trying to disagree with few of your statements [Foreign Language] So if we are to talk about the downstream margin in April, the April downstream margin in a clear way, considering the dynamics of the global netbacks was even higher than what we were able to see during Q1 so to say, our downstream business demonstrated some very unique results. In the right mind, it wouldn't be correct, of course, to believe that this is something forever because they resulted from a paradoxical situation in many ways in terms of the global inputs and the settlement netbacks. So it wouldn't be correct to believe this is for good. But I believe that the expectation for Q2 in downstream will be relatively a good one. This is the first thing that I wanted to say.Now second point, and talking about the financial leverage and the debt of the company. Here, I would allow myself to disagree with your point of view. Because the leverage and the net debt to EBITDA, if you consider this particular ratio, 1.5, this is not really a high financial leverage. And this is the kind of an indicator, which is tangibly lower compared to the financial leverage. As you find amongst the majority of the big international energy peers and the company even under the current conditions, continues to remain the kind of company, which continues to generate free cash flow. So in terms of the leverage point of view, it's not the highest one, definitely. Now second point, the materiality of such things as the buyback program is incomparable to the issues of the overall profitability of the company and is conformed to the risk capital. Because if you talk about the overall quantity of the capital bought back, it's about 30 million. This is a little bit over USD 100 million, which definitely is not material compared to the EBITDA and the cash flow and the capitalization. This is the second thing.Now the third point if we are to consider the financial policy of the company. And as far as liquidity -- available liquidity is concerned, then certainly, the company has very good comfortable financial cushion in terms of the free cash available because we've always been conservative about this. And here, we -- and as far as it is concerned, we feel quite comfortable. It's a different matter. Meaning to say that whatever our CEO was mentioning during his meeting with the President and during various governmental meetings, he used to mention that without doubt, there are certain issues in -- as far as the limitations are concerned, which are applicable to the size. And the regulation within the Russian banking system related to the concentration of risk per one borrower, which do not allow -- and as far as the number of our future projects are concerned, and as far as various joint projects are concerned, to enjoy the kind of access to funding and the cost of funding, which our global competitors do have because we are very well aware that the terms and conditions of funding in Russia, let's say, which are -- in terms of the refinancing rate, specifically, which is higher than what you may find in the international market, and we do understand that this does impact the capital cost in terms of the funding for the domestic and overseas projects and capital projects. So speaking about the overall amount of capital in the Russian banking system, it's not really comparable size-wise to, let's say, Societe Generale, and the global oil market. And specifically, actually, I meant to say that the total -- put together assets of the Russian banking system wouldn't be even at par completely with the SocGen's assets.So here, we do see a certain potential in order to optimize the regulation so as to develop and create conditions within which top-rated borrowers in the Russian banking system will be able to gain and enjoy access to better conditions, lower rates so that their global competitive operational models could have benefits from it in the interest of the shareholders and certainly, the Russian government, which is our key strategic shareholder.

[Operator]

Our next question today comes from Olga Danilenko of Prosperity Capital Management.

[Olga Danilenko, Director of Oil and Gas]

[Foreign Language] I've got several questions. There would be 3 of them. The first one is you mentioned that the treasury stock appeared after the Venezuelan assets have been divested from. Do you have any plans to further do something with this stock, maybe already you have or maybe you are thinking or maybe there is a need, you believe, to sign a shareholdership agreement with Rosneftegaz with respect to how one could vote with these shares? Or you have it fully under your control and you can do whatever you want with it?My second question is related, I would guess, with pricing. Possibly, I do not have the opportunity to so closely monitor pricing. But considering the April prices, the way I understand, they occurred a bit of a discrepancy between the price -- sales prices in the physical market and the ratings linked to the financial instruments. So I don't have an understanding. And I guess, amongst other global companies, the kind of ratings that we see through Bloomberg, for example, Brent is at $30. Is this kind of a price which more or less is currently oil is being sold at? Or the prices are going to be totally different? Or used to be totally different. Could you possibly comment on that? I would be very much grateful to you for this.And my third question, could you please tell me the write-offs, write-downs that you've demonstrated in the others with respect to the assets, possibly or some sort of resources or some kind of refined products. Do you believe that these are all the kind of write-offs and write-downs that you came up were having analyzed or your whole asset base and adjusted to the oil price? Or is it some kind of an interim result? And you are being guided by some sort of a long-term oil price that you will have in your reporting, maybe $50, $60 or some other kind of a price? Or one may expect that considering the year-end results, there will be some sort of an additional revaluation by that point in time, considering the kind of a pricing environment that would evolve by then for oil and refined products?

[Unknown Executive]

[Foreign Language] So with your permission, I would also, this time, answering your questions one by one. So as to allow you to back every answer to the question. So in as far as the treasury stock is concerned, you're quite right that the whole of the stock that we have is on the books of one of our subsidiaries, which is 100% subsidiary of Rosneft. And speaking about the plans that our company has about these particular shares, we are planning to hold them because we undoubtedly do consider these shares as a valuable asset, which has an enormous potential of additional capitalization. So there aren't any serious plans apart from holding this share of stock that we have. Speaking about your position as the Rosneft shareholder, I would believe that the key thing that you need to be aware of and understand is the additional economic value that you, as a shareholder, may derive from it from the fact that we are holding the share of stock because considering the IFRS rules, you will be having accretion related to our dividend because this year's stock is not going to be taken into account when we will calculating dividends in your case. So the actual amount of dividends that is going to be paid per share is going to be accretive. It will be raised based on the fact that this particular share of stock is on the books of the company and all of the internal, as you may understand, intra-group [ curls ] are going to be taking into account when estimating the net earnings per share for the sake of our shareholders. So this is the first point.And as far as the second question was concerned, which was about the April prices. I mean you are right. There is a bit of a discrepancy in terms of between the physical market as well as the paper market. On the other hand, and that is definitely the specificity of the American market. But speaking about the company, the situation is as follows: Today, we've got about, let's say, 90% of the long-term contracts. And under many of them prices being determined by the estimate prices towards the end of the year because for that period of time, the prices take so many contracts. In some of the contracts, it's a floating value, but in many of them, the price is fixed. So in a very clear way, the prices in April, not in the most significant way may affect our financial year-end results. So on the contrary, one should expect that this should be sort of an average something from the point of view of our sales efficiency and the revenue towards the end of the year, where the April month, I would say, is not going to produce any tangible impact because the downstream is going to demonstrate a much better financial result in April, the first thing. And second thing, and as far as the majority of our contracts are concerned, they have fixed price in them, and that concerns the refined products until the end of the year.And the last issue, which is the asset valuation -- value loss test. We certainly applied long-term models, if the oil companies will start testing their assets for the loss of value within the market conditions or the condition, let's say, this hypothetical April. So that would totally be incomparable in terms of the order and magnitude of things compared to what we see actually. So we definitely apply long-term models. Yes, there's a bit of a decline in April. But as I previously described it, we do identify it as a short-term factor that is not going to generate any tangible impact upon our financials. Thank you very much.

[Operator]

Our next question today comes from Alexander Burgansky of Renaissance Capital.

[Alexander Burgansky, MD and Head of Oil & Gas Research]

[Foreign Language] I will have 3 questions, if I may. First of all, you mentioned that you are expecting production to decline by 24 million tonnes compared to your business plan. So could you possibly give us a guidance in terms of your production target for 2020 to 2022 as opposed to 2019? Or, let's say, in absolute terms because the business plan hasn't been published?My second question is about refining business. Taking into account the declining refined products volume consumption in Europe as well as in Russia, could you possibly share with us your approximate plans in terms of the refining volumes as well as the possible utilization ratio for your refining assets in the second quarter of this year. And my second -- my third question is about Slide #21 in your presentation where you demonstrated the EBITDA dynamics. In your reporting, you reflected a one-off benefit, about RUB 30 billion as an offset from the previously paid export duties, which were repaid in the course of Q1. So this RUB 30 billion is not reflected here. So what I would like to find out, possibly, there are certain factors that you may describe, which have this reverse effect of exactly the same one-off nature, which could have reduced your EBITDA during Q1. And in this way, won't have a similar kind of one-off impact in the second quarter.

[Unknown Executive]

[Foreign Language] Thank you very much for your questions. And with your permission from the point of view of our guidance, you may as well know that usually, the guidance with respect to the capital expenditure for the full year. And I specifically mentioned that this year, we're going to reduce our CapEx by about RUB 200 billion, as opposed to the kind of guidance that we shared with you in December last year is part of the business plan approval process, 20%, which was the amount of our CapEx. And usually, we do not issue any guidance in terms of the level of refining and production because the external environment remains quite changes and the amounts of refining as well as the production will depend upon the kind of external environment that we will be living in, we will definitely do our best in order to maximize the returns to our shareholders, in view of the external limitations. It seems to me that Karen, in one of his previous questions, mentioned the possible softening of the OPEC+ limitations, which is honestly speaking, I'm hearing for the first time. But nevertheless, the kind of scenario that Karen described. If it materializes, then in a very clear way, our level of production is going to be different. Therefore, I would say that we wouldn't like to come up with any guidances in terms of the level of refining and production because that will be defined by the external factors, as I previously stated. However, just approximately talking about the high levels in terms of the possible declines, you may say that the year-on-year decline will be about 1.5% to 2% in production, 5% in refining, considering the kind of dynamics that we are currently observing in the market. But again, these are the kind of values and indicators that we would need to weigh and most probably alter or change as the external environment evolves. This is the first thing.Now speaking about the other question that you have about the 21st slide in our presentation, it takes into account the windfall profit tax. So there is this particular effect, and there is a column. But actually, if you need to have a more detailed reply, I'm sure that our colleagues from IR as part of individual or a separate presentation, we'll be able to explain to you how this whole thing works.

[Operator]

Our next question today comes from Igor Kuzmin of Morgan Stanley.

[Igor Kuzmin, Equity Analyst]

I have 3 questions as well. First one is in regards to the Venezuela-related transactions. So this 9.6% stake in Rosneft that the company has obtained as a result of this transaction, do you foresee, at this stage, any sort of revaluations related to this assets which could be reflected, positive or negative, as part of the second quarter results?Second question is in regards to the net debt step down by $9 billion compared to the end of 2019. Perhaps, I missed it, I apologize in that case. But how much of that step down is related due to revaluation of the obligations to the weakening of the ruble against the dollar?And the third question is in terms of the free cash flow performance, Rosneft recognized RUB 98 billion of changes in the -- negative effects related to the banking operations. And I just would like to understand if there is a risk that in the second quarter we might see something of a similar magnitude. You are proposing [ something like nonuse commercial is the right one ], if that's okay.

[Unknown Executive]

[Foreign Language] Thank you very much for your questions. And if we are to talk about the key points that you're asking for. So -- and as far as the revaluation is concerned, we don't expect that there will be revaluation applied to this particular share of stock because we consider this stock to be a strategic asset and the mark-to-market operation. And as I previously stated, responding to the previous question, the key fact will be that we will end up having an accretion when we will do the estimation of dividend per share, and that will be the main thing for the shareholders. But in terms of the volatility, in any additional sort of profiting, that particular stock won't produce this kind of an effect. Now the second thing that one may definitely refer to. And as far as the amount of banking operations is concerned, and the line items that you referred to in our reporting, you know that as we stated in the reporting, we bought the EBRD Bank, Reconstruction and Development Bank, which is developing very quickly by the April 2020. It has the 12th position in Russia in terms of the amount of the raise their funding from legal entities. We are actively raising funding from the external customers and as of -- and the banking assets are growing during Q1, we've registered the banking assets growing by RUB 200 billion, out of which RUB 100 billion was added specifically in the form of deposits, which is something that is reflected in the reporting now. And as far as the split is concerned, between the net debt linked to the ruble devaluation, Andrey Baranov will be able to comment because I think this is quite a simple thing to understand.

[Andrey Baranov;Head of Investor Relations]

[Foreign Language] So I would offer just a bit of an extension in terms of what Mr. Fedorov previously described to you. And as far as the banking transactions are concerned, and specifically RUB 100 billion, where you assume that this might have a negative impact in the future. But I would like to tell you that in Q1, in our reporting for the purposes of very correct presentation of our cash flow -- free cash flow. We purposely excluded RUB 100 billion of the raised deposits in our bank from the estimation of the cash flow intentionally to have those who are interested to understand in the most transparent way, what the core business of Rosneft, the way it looks like. So effectively, you may say that we've reduced the free cash flow to our holders. So as to let them see that this free cash flow specifically is attributable to the Rosneft operation rather than anything else. So that is my additional comment in relation to the third question.

[Unknown Executive]

[Foreign Language] And in addition to the question about the impact from the ruble devaluation upon the reduction of our debt, I would like to start saying by emphasizing the fact that the company is in a position of the maximum kind of a balance between the net debt and general debt. 50% of the debt is in hot currency, 50% in rubles. And so having this 50% in a softer kind of a currency, yes, we do pay a little bit of a higher interest rate. But this in itself enabled us in Q1 as a result of the devaluation and the weakening of the ruble, up to RUB 77 per dollar to have more than 20% of our debt denominated in U.S. dollars. I specifically mean the ruble amount of debt. It went down by this 20%. So if you do a little bit of a calculus, that would be somewhere a little bit more than USD 4 billion, less than USD 5 billion energy exercise. And I would like to say that amongst the biggest exporters in Russia, even all of the exporters in Russia, the share of the ruble-denominated [ to date, Rosneft is one, is the max ]. So we ended up being the biggest beneficiary of the ruble weakening.

[Operator]

Our next question today comes from Andrey Zakharov of Raiffeisen Bank.

[Andrey Zakharov;Raiffeisen Bank;Analyst]

[Foreign Language] I've got a quick question about your retail business. And if at all possible, I would like to direct my question to [ Conroy ]. So what's your take on the current retail sales in Russia as well as abroad and specifically in Germany? And to what extent the current lockdown environment and respective restrictions imposed upon transportation do impact your retail motor fuel sales, let's say, compared to last year? And when do you believe one should expect the market to recover and consequently, your sales to recover as well?

[Unknown Executive]

[Foreign Language] Thank you very much, Andrey, for your questions. So of course, we all suffer from what's happening around. In April, we did note that overall volumes went down by about 30% compared to last year's level. That was to be expected. But if you compare this with other countries, it doesn't look that big because, overall, in Europe, we see that it fell down to 60%. Clearly, in Spain and Italy were worse off. In Germany, if I'm not mistaken, that was about 30%, 35%. If we take a look at India and Georgia, it was down to minus 50%. And so of course, we feel that against this particular backdrop is certainly not good enough, but not too bad. And so now being in May and looking into the past 3 weeks, I do feel that there are improvements. Of course, it's not at the level of last year's but, let's say, we might average out to minus 26% towards the end of May compared to last year. And so we do hope that every year, will give us a little bit more improvement with average step. So I hope that, Andrey, I did answer your question.

[Unknown Executive]

[Foreign Language] Thank you very much. I believe that we have come to the end of the Q&A session. Thank you, dearly, for your interest that you have towards Rosneft. Any questions that you might want us to answer, please direct them to our IR. And please, please take good care of yourself.

[Operator]

This concludes today's call. Thank you for joining. You may now disconnect your lines. Have a lovely day.