Good afternoon, ladies and gentlemen, and welcome to Annie's 2015 2018 Strategy Presentation hosted by Claudio Descalci, Chief Executive Officer and Massimo Mondazzi, Chief Financial and Risk Management Officer. For the duration of the call, you will be in listen only mode. I'm now handing you over to Jos to begin today's conference. Thank you.
Okay. So good afternoon and welcome to our full year plan strategy update. For the presentation, I will be joined by Massimo Mondazzi, EME's Financial and Risk Officer and for the Q and A session by Amy's management team that is here in the room. I'd like to start by giving you a broader context highlighting what we have already done in 2014 when AIMI's transformation started. The first step was to change our organization from a divisional model to a fully integrated one.
Secondly, we deeply reviewed our company's cost structure and implemented a strategic program that allowed us to achieve positive results in Gas and Power 1 year in advance, progress the turnaround on R and M and Chemicals, beat our cash flow targets and lower our leverage. This was done months ahead of the oil downturn putting the company in a stronger position to face this challenging scenario. A scenario that has been characterized by an rapid decline in oil price more than 50% with respect to the average over 4 years. In this context, our assumption for this year foresee a brand price at $55 per barrel. This downturn has already stimulated a material reaction in the industry such as an average cost of our spending expenditures in the range of 10% to 15% and the lower level of drilling in unconventional with about 40% drop in the U.
S. On the other side, oil demand will be stimulated by the lower prices and could return to the historical growth rate of more than 1%, increasing the request of new production. And this difficult it is difficult to precisely predict when the market will completely rebalance, but our assumption is that the oil price will return to a level between $80 $90 per barrel at the end of the period. This material change in the oil price makes our transformation process even more necessary. And our objective is to complete our 4 year plan with the priorities of cash and value growth, a sustainable shareholder return and a vast balance sheet.
In practical terms, in E and P we will continue to grow leveraging on our distinctive exploration, a diversified portfolio of 70 projects and our development approach aimed at minimizing time to market. In mid downstream, we will complete our turnaround reaching structural breakeven in the next 2 years. And we will continue to improve CapEx, OpEx and G and A cost efficiency. While we are focused on carrying out these strategic actions, on the other hand, we have also to take into account the current weak scenario. For this reason, we are giving priority to significant additional effort on CapEx and cost reduction in all our businesses, while preserving our E and P growth.
And then as an appropriate last step, we are also rebasing our dividend. I will propose to my Board to pay for 20.15 a floor dividend of €0.80 per share, while confirming for the following years a progressive distribution policy in line with our earnings growth. The dividend floor has been defined in order to reach a sustainable payout ratio area in the plan, achieve cash neutrality including disposal next year and organically in 2017. Massimo will provide further details later in the presentation. And now our main operating targets that we confirm has been very strong.
In upstream, in the 4 year plan, our production will continue to increase substantially with an average growth rate of 3.5%. Exploration in the short term will be more focused on near field well appraisals. Upstream efficiency remain a key target and we plan to keep these at the top of our historical trend. In Gas and Power, we will continue to report positive results in 2015 and we confirm a structural positive EBIT and operating cash flow from 2016. In R and M, we reduced capacity by 30% and we will continue until we reach a 50% capacity cap.
R and M will reach EBIT and operating cash flow breakeven this year, while the refining sector will fall in 2017. In chemicals, last year we completed the rationalization of our site. EBIT and operating cash flow breakeven is confirmed next year. This result will be achieved investing 17% less than the previous plan, equivalent to €9,500,000,000 On top of this, our efficiency program will generate a structural reduction of €2,000,000,000 in gas in G and A cost over the next 4 years. Thanks to this action, in the next couple of years, our cash from operation will be entirely cover our CapEx which was reset at €12,000,000,000 per year.
In the last 2 years of the plan, we expect the increase of operating cash flow by 40% underpinned by an improvement in all our businesses. As a consequence, the CapEx coverage will grow to 140%. In particular, this year, we will manage the lower availability of cash due to the weak scenario through the reduction of CapEx by 14%, OpEx per barrel by 7% and G and A cost up to €500,000,000 per year, doubling last year's savings. And now I will give you more details on the main businesses. Let's start talking about exploration and production.
Exploration, on exploration, we remain one of that remain one of the main strategic drivers. The success of the 7 past years had increased in its potential by more than 10,000,000,000 barrels corresponding to a growth of 35% in our resource base. The resources come not only from the major find in Mozambique, but also from discoveries in many other basins such as Angola, Congo, Indonesia and Ghana, Gabon, Egypt and Ecuador. Leveraging on these results, our exploration plan has been shaped to face this challenging context. By shifting focus to proven place and near field exploration where we plan to drill 70% of our wells by reducing CapEx by 35% this year and by 25% over the period.
And with the objective of delivering 2,000,000,000 barrels of discovered reserves in the 4 year plan at a very competitive cost of $2.6 per barrel. In the meantime, our acreage of 300,000 square kilometer will be further enlarged, which puts us in a position to restart a new exploration cycle. And now moving to production. The depth and quality of our production allow us to confirm a substantial production increase. We are assuming an average growth rate of 3.5% in the planned period, including a major level of contingency.
Our growth is based on a contribution of 16 major startups, which together with the ramp ups will add more than 650,000 barrels per day in 2018, 75% of which will be produced from onshore or shallow water steel. This new production is 90% sanctioned and 84% operated and will bring an additional cumulative cash flow of €19,000,000,000 in the planned period. This year, thanks to the contribution of last year's ramp ups and many material startups, we will have a stronger growth with an increase of 5% versus last year's level. Up to 2024, we expect so in the long run, we expect to continue to grow at an average rate above 3.5%. Thanks to the contribution of our larger legacy assets, which account for more than 3,000,000,000 barrels of equity reserves.
Now some more color on the economic and financial strength of our assets. Any new projects are resilient at a low oil price with an average breakeven of $45 per barrel. This low breakeven is based upon a very competitive cost structure, coming from exploration cost below $2 per barrel, OpEx at around $8 per barrel, Average development cost lower than $20 per barrel. Since 2,009, the average breakeven of new projects has increased by only $10 notwithstanding the doubling of the oil price and the constant growth of cost. Our upstream financial metrics stand out at the top of the industry and we expect a net cash per barrel of about $30 and the self financing ratio at around 140% in the last two years of the plan.
I would like now to highlight some of our developments that will provide a major contribution to the 4 year trend growth. First, Goya is close to the production startup after the sell away of the FPSO from Korea 1 month ago. The vessel will reach Norway in April and will start the final commissioning phase. First oil is expected in July with a rapid ramp up to the equity plateau rate of 65,000 barrels per day. Perla Phase 1 is progressing as planned and the startup is expected in the next quarter.
The production plateau is 70,000 barrels per day and to further phases of development we raise equity production to 75,000 per day in 2020. In Block 1506 in Angola, we are developing 2 hubs. The West hub currently producing from the Sangro field will benefit from addition to of other fields every 8 months over the period. In the same block, the yeast hub will start up in 2017 contributing to an overall block equity production of 45,000 barrels per day at the end of the period. OCTP is a fast track deep offshore development in Ghana with a time to market of just 4 years.
We took the FID in December and production startup is targeted in 2017. The project will reach an equity production of about 40,000 barrels per day in 2019. And finally, Kashagan, where JV Venture is progressing with a replacement of the pipeline. Most of the material is already on-site and the operator will start to lay the new pipe next month. The plan is to complete the activities by the end of 2016.
And now a closer look at 2 major developments in our plan. The first Marine 12 in Congo is the best example of our integrated approach to exploration and development. With the discoveries of Nene, Minsala and Licinjili, we proved that with advanced technology and innovative geological concept, it is feasible to unlock material upside also in mature acreage. And then with a simple and pragmatic development approach, it is possible to reach first toil just 11 months after discovery. The huge potential of this play is now about 5,500,000,000 barrels of resources and we expect further upside from the completion of the appraisal of Minzala and the drilling of 2 additional prospects.
In May, we expect FID for the 2nd phase by the end of 2015. In addition, later this year, Licinjili will start oil and gas production. At the end of this decade, we will achieve an overall equity production of 150,000 barrels per day. In Mozambique, our Coral development will be the first LNG plant in the country and the first phase of the Area 4 development. This project is a floating LNG with a capacity of 2,500,000 tons per year.
We expect to receive technical offers and commercial bids in May and the FID by Q3 this year. On the gas marketing activities, we are in advanced stage of negotiations. Production start up is planned for the end of 2019 with a peak equity contribution of about 40,000 barrels per day. This will be only the 1st milestone of a multiyear program of investment. Coral will be followed by the Mamba field with 2 onshore trains for 10,000,000 tons.
We will submit the plan of development in the second half of twenty fifteen followed by the finalization of the binding agreement for the LNG sales and project financing. We expect to receive bids by the end of this year. Equity production from the Mamba first phase is foreseen at 120,000 barrels per day at the beginning of the next decade. Now Gas and Power. In Gas and Power, we will complete the transformational plan that we accelerated the last year.
In 2014, we reversed the previous year's losses and reported a positive result of €300,000,000 We aligned 70% of our supply to AB indices and reduced volumes of take or pay by 55%. We will continue to grow profitability by leveraging on. 1st, the completion of contract renegotiations to ensure full alignment to the market conditions. 2nd, the rightsizing of the operating and logistics cost based cost with the selling of €300,000,000 per year from 2018 compared to 2014 levels. Then the expansion of the retail customer base by 16% to reach more than 11,000,000 clients at the end of the plan.
Finally, action will be taken on the contractual margin in the B2B segment, where we would sell about 50 BCM per year. With these actions and thanks to the full recovery of the prepaid gas balance for a total of €1,300,000 we will generate a cumulative operating cash contribution of €3,000,000,000 over the period. As regard EBIT, we will reach a structural positive result from 2016 with a growth to €800,000,000 in 2018. As regard the scenario of the refining sector, in Europe the process of capacity shrinkage is still underway to offset the large decline in demand, which has seen a 30% reduction since 2,008. We assume that the current improvements in margins are temporary as linked to the recent oil drop oil price drop.
In the future, refining margins will be compressed by stronger competition from the U. S, Russia and the Middle East. We have already achieved material improvement in this sector and we will complete the ongoing turnaround. Our plan is based on 3 key pillars that will deliver an adjusted EBIT improvement of €600,000,000 First of all, the reduction on our refining capacity up to 50% versus 2012 confirming our previous guidance. Secondly, continuous operational improvement, thanks to the ramp up of the Ennizvari Technology Plant in San Joselo and more efficiency in existing plants.
And an enhancement of the positive performance in marketing through developing premium segment, rationalizing cost and restructuring our international presence. This will bring forward the adjusted EBIT breakeven by 1 year to 2015 and confirm a cumulative operating cash contribution of over €1,500,000,000 in the planned period. In the refining sector, we will complete the rightsizing program. Since 2012, we have achieved a reduction of 30% from initial capacity of 800,000 barrels per day. With the conversion of our Venice plant into a green refinery, the shutdown of JERA, a major milestone in the repositioning strategy and the sale of our stake in Czech refinery.
Looking forward, we will complete the conversion of Jena into a green plant by 2017 and we reduced our capacity up to 50%, leveraging on commercial agreements with third parties and through disposals. The additional contribution from the ongoing project as well as the efficiency program will bring our refining breakeven margin into a region of $3 per barrel, more than halving the 2014 level. Even our less complex refineries in Italy are already at the breakeven assuming a $4 per barrel margin. In chemical business, we expect to reach breakeven in 2016. Since 2012, the rationalization of the oil plants has reduced any exposure to the commodity business by 30%.
The restructuring of the loss making sites was carried out either through the shutdown of rents or the reconversion into new high value product lines. The EBIT improvement of €500,000,000 over the planned period is mainly driven by the rationalization of critical sites, the refocusing on the product portfolio both on the traditional and green segment and the international development with partnership with major players such as Petro National Leisure and Lottery in South Korea. And now to Massimo to present our financial strategy.
Thank you very much, Claudio. Good afternoon. Our financial strategy is based upon 5 key pillars, which are designed to make us more resilient in the current environment, enabling us to grow more profitably and enhancing our cash generation versus the previous plan. The first pillar is CapEx, which will be cut by 17% versus the previous plan at constant foreign exchange rate. We will also design our plan to maintain the highest level of flexibility with just around half of CapEx already sanctioned.
Secondly, we will operate more efficiently cutting group G and A costs and operating expenditures mainly upstream, which are already the lowest in the sector. These actions together with our continuous active portfolio management will allow us to maintain a robust balance sheet and consequently supporting our commitment to an A category credit rating and to pay competitive and sustainable dividends going forward. Our total CapEx plan is €47,800,000,000 a reduction of 17% or €9,500,000,000 versus the previous plan. In upstream, which represented 90% of our future investments, CapEx will be cut by 13% without affecting our robust plan of growth. Development will be reduced by 12%, leveraging on the flexibility of our portfolio announced by our significant recent discoveries.
In particular, we will give priority to lower intensity projects, brownfield developments and in filling wells mainly in Congo, Angola and Egypt, while we will reschedule spending in some larger projects. This rescheduling will account for half of the overall reduction, while the remaining will be determined by contract renegotiations. Exploration will cut its spending by 25% versus the previous plan without compromising our target of full reserve replacements. In particular, in the 1st 2 years, we will focus on the assessment of recent discoveries and reload our acreage to support later on a new cycle of Frontier Wells. 1 5th of the exploration saving will be related to contract renegotiations.
In terms of lowering our supply chain costs, we have been active since the Q4 2014 in negotiating upstream contracts and we are seeing signs of reduction for some items in the order of 20%. In mid downstream, we are cutting expenditure by 40%, thanks to the shutdown and conversion of sites as part of our turnaround plan and the disposal of assets under development such as South Stream. Finally, our CapEx program has been designed to be flexible with around half of spending not yet sanctioned. This proportion grows through the plan giving us further option should the weak market continue. As well as on CapEx, we continue to improve our efficiency in operations.
In 2014, our upstream OpEx was $8.3 per barrel and this is expected to be the lowest unit cost among peers. Nevertheless, we will continue our focus on it targeting a further reduction by 7% versus the old plan. The already identified areas to extract additional savings are logistics and working on preemptive maintenance to reduce downtime from 6.2 to 5.7. This is equivalent to 10,000 barrels per day of additional production free of cost per year. The lower energy scenario will be the 3rd factor to achieve the target reduction in costs.
On G and A, cuts are focused on external costs with the highest contribution coming from IT, communications, HR and finance. Lastly, we announced sorry, last July, we announced the 2 step program aimed at structurally reducing our €2,100,000,000 of G and A cost by 1 quarter. We already achieved the first step with a €250,000,000 reduction in 2014. And we are confirming our plan of an additional 2 €50,000,000 target to give us the total structural saving of €500,000,000 from 2015. An additional strategic pillar of the plan is our active portfolio management.
1 year ago, we launched a €9,000,000,000 disposal program for 20 fourteen-twenty 17 and last July we raised the target to €11,000,000,000 By selling asset for €3,700,000,000 in 2014, we already executed 1 third of that plan that now we foresee to complete and announce with an additional €1,000,000,000 by 2018. The largest contributor with more than 50% of the total amount will be the dilution of our excess stake in recent material discoveries in line with our dual exploration model. These assets, the value of which is only marginally reduced by the current scenario, are recording strong interest for the high quality, size, favorable location, competitive cost structure and for the opportunity we are offering to enter into new high potential geological place. The sale of remaining stakes in GALP and NAM respectively in 2015 2016 are expected to contribute a current market price for around 1 quarter of the overall program or about 40% of proceeds net of tax in the 1st 2 years. Finally, we will rationalize our position on mature upstream and noncore mid downstream assets.
The overall disposal plan is front loaded with 70% of disposal expected by the end of 2016. Lastly, Saipem. As already announced, we decided to postpone the deconsolidation process due to the increased volatility in the oil and gas market. In the interim, we continue to provide our financial support to the company. While the deconsolidation remains a strategic objective, the financial effect of it are not represented in the number we are showing to you today.
Let's move to the cash generation. It is solidly based on the clear action in our 4 year plan. In 20 fifteen-sixteen cash flow from operations at the price of $63 per barrel implied in our scenario will average around €12,000,000,000 fully covering our CapEx. At the same time, we will continue to proceed with disposals. In the following 2 years, assuming $63 per barrel flat, the growing upstream and the return to structural of profitability of the mid and downstream businesses will raise our operating cash by 25%.
In addition, we expect a further €1,000,000,000 per year from disposals. In 20 seventeen-twenty 18, considering our average scenario of $85 per barrel, we expect an additional operating cash increase of 15% bringing the overall improvement of cash flow from operation to 40% versus 20 fifteen-sixteen. All in all, at our scenario assumption, we will generate a cumulative free cash flow of more than €16,000,000,000 over the 4 year plan. The resulting balance sheet will be stronger in time with a target to keep our leverage within 30% in 2015 and to lower it in the following years as part of our commitment to an A rating. And finally, some additional information about our shareholders remuneration policy.
In 2015, we are committed to pay a floor dividend of €0.8 per share that is consistent with our strategic objectives. In the following years, our distribution policy will remain progressive with our underlying earnings growth. In defining this low dividend, we consider 2 different targets, earnings payout and cash neutrality. Our payout ratio is expected to remain higher than 100% in 2015 2016 and to drop significantly later on. Cash neutrality will be reached including disposals next year and organically in 2017.
These projections show the solidity of our floor dividend together with the expectation of a progression looking forward. Even in the case of a delay in the recovery of oil prices versus our expectations, the operational and financial flexibility embedded in our plan allow us to comply with this commitment. The buyback is suspended. We will consider to reactivate it when strategic progress and the market scenario will allow for it. I will now hand back to Claudio for the conclusion.
Thank you, Massimo.
So in conclusion, the main objective of the strategic transformation process we started last May was to make any company that is increasingly focused on exploration and production. We are rationalizing its structure, turning around loss making segment and diluting our presence in non core activities. This process of change was initiated and implemented quickly and was immediately brought excellent results in all areas of our business and also in economic and financial terms through obtaining a record level of cash flow in 2014 despite the sharp worsening of the scenario. We can say today our company is more focused and more robust. This is shown by our full year plan targets in terms of strong production growth, top ranking exploration, resilience and flexibility of our development options and growing economic and financial results with a cash neutrality at an oil price just above $60 in the last 2 years of the plan.
Because of this scenario and only after applying a stringent cost optimization process, we felt it was appropriate to rebase the dividend as a part of the transformation effort, anticipating a sustainable payout and ensuring the neutrality of our cash flow in the first two years of the plan. Ultimately, we are building a much more robust A and E, which is capable of fetching even depressed price scenario in a sustainable manner while creating value. I can assure you from my own strong commitment and that of all of any management to increasing the value of each individual business and to consequently increasing remuneration of our shareholder. Thank you. And now I think we can pass to the Q and A session.
Thank you.
Hi, hello. It's Martin Ratzes. I'm with Morgan Stanley. I wanted to ask one question with regards to the dividend. A number of other major oil companies in Europe have successfully introduced scrip dividend.
And I was wondering what drove your decision to do an outright reduction of the headline dividend while they introduce the script?
Okay. I'll just give you a fast question that Massimo can go to you regarding this. So Massimo said that we have 2 main points, 2 main milestone in our policy, we can say policy. The one is to be cash neutral and the other one to have a payout that is lower than 100%. And so applying the scrip dividend, we just impact our cash that is really quite interesting, good cash and is not impacting the EBIT or the payout.
So the net result that was the reason why we didn't use it.
Some few flavor on this issue. So what we are doing, we are targeting an equilibrium well within the 4 year plan on these two parameters. So the payout and the cash neutrality. What do we mean by sustainable and normal equilibrium in these two parameters? First of all, the payouts, the equilibrium is the one I've shown in the last slide.
So what we are targeting within the 4 year plan is a payout in the range of the broad range of 60%, 80% of payouts. This is what we consider sustainable and normal. In terms of cash, cash neutrality, what we are targeting is an organic cash neutrality, again, to be reached inside well within the 4 year plan without disposal. So what we are expecting to see looking at our scenario and our action in 2017, while the overall cash neutrality including disposal is expected by 2016. To do it, what we are doing is we are, I would say, taking some additional lever that are operational and financial.
What do we mean by operational? Definitely, the amount of un uncommitted CapEx is the most important one. I mentioned that half of the CapEx in our plan are today uncommitted. And this number is significant even if we are targeting the 1st 2 years. We are talking about uncommitted CapEx that in 2015 will be in the range of 10%, 15% and will be in the range of 30%, 35% in 20 16.
So it's a material lever still in our hand to manage this commitment to comply with the objective. Financially, paid by definition, the first lever will be our leverage that is at the end of 2014, 0.22. I just said that our target is to remain above the sorry beyond the floor of 0.3 at the end of 2015. That is I would say the most critical year in the full year plan. So that's the first lever.
Secondly, what we are ready to do is even to apply different levers such as an ivory for example, it would be the case. And obviously not in 2015 because our promise is that to distribute the 0.8% cash dividend. But for the future, maybe even the script would be a good example of additional flexibility. Why we didn't use script for this plan, because the script you know better than me doesn't solve the payout issue that again has been fixed by ourselves as one of the most important parameter in order to fix this dividend policy.
Thank you. Irene Himans, Societe Generale. You show on your asset disposal chart that over 50% of the sales will be from your exploration material exploration positions. You mentioned that the value of these is not impacted by the oil price, but clearly the ability of potential buyers to fund such acquisitions is impacted by the oil price. So my question is, if you only achieve the Snam and Galp disposals, which is roughly a quarter of your plan, In your oil price scenario, would the $0.80 dividend still be a floor for you?
Thank you.
So just quickly because we try to be short in our answer. So the answer is yes, it's a floor. Secondly, our disposals are at risk. We have a very high level of risk and we are quite confident that Galp has done, but not be the only one. In any case, the answer is yes.
Josefa Luthini from Pidentiis Equities. A couple of questions. The first on the Gas and Power plan. You mentioned cash flow from operation of €3,000,000,000 in the plan versus around €1,000,000,000 last year. We understand €1,300,000,000 was comes from the improvement in working capital basically from the repayments.
Can you please elaborate on the remaining improvement? Again, on Gas and Power, maybe you've given a target of EBITDA or EBITDA, but I missed it. And if not, can you give us? Then about cash again,
if you can please give us
the cost for the fixing, the pipe issue and the ramp up of production after the startup of Caschen. Thank you.
Okay. For Gaziantara for EBIT and the additional, I forgot Marco will give an answer. Then Antonio will give an answer on cash again.
Thank you, Giuseppe for the question. So on the cash flow target of $3,000,000,000 it's an improvement compared to the previous plan and it's about $1,000,000,000 coming from the take or pay recovery, dollars 1,000,000,000 coming from retail and the other third coming from the other businesses together. In terms of EBIT, the target Claudio gave for 2018, it's $800,000,000 And again, it's about 1 third retail and 2 thirds the other
businesses. Thank you, Marco. For cash again, as you know, the consortium signed the contract or replacing the pipe oil and gas in to Saipem. And in May, we'll start the lay down of the 1st batch of material. And by mid of 2016, the installation will be completed.
Minor production in 2016 and full ramp up at 370 oils in 2017. Cost. The only question was cost and you answered to other questions. Yes, the ramp up is $3,000,000,000 Thank you.
Thank you. It's Lydia Rainforth from Barclays. A couple of questions if I could both related to the cost base and some other. When you're looking at a 7% reduction in upstream cost per barrel for this year, what happens after that? Is it a case if you can continue to change the way you work and continue to bring that cost base down?
Would you expect to see inflation come back in there? And partly related to that on CapEx, given how much you're growing production over the period and given what the plans are for production growth beyond 2018, how do you keep that CapEx level flat from the current scenario? It either implies that you're going to be spending less on the base CapEx or that you're getting efficiencies out of the growth projects. Can you just walk through those aspects for me?
Thank you. So OpEx, what we aim at is a structural reduction cost. So for that reason, say that our OpEx will remain steady on the period. So around $8 per barrel this year we reduced of 7% and we keep steady. And for a CapEx point of view, in the plant, we reduce the CapEx and we grow our production is because we move CapEx from major projects that we didn't stop, just faced like in Iraq, like in Venezuela, other projects that we are not operator like in Indonesia, the IDB project or Kaspbrake in Norway that has postponed.
So that is a big bunch of CapEx that's been moved. It will be more than what we cut because we use these CapEx and we move to the field that we recently found and our oil field very small like what we discussed with our Cognos that's in a very short time you can put in production. So the flexibility came from the huge amount of resources that we found.
Thank you. It's Hamish Kleeig from Bank of America Merrill Lynch. My question is just relating to your disposals of Snam and Galp in this instance that you basically already disposed of them in the form of convertible bonds and I believe Galp will convert November. I think Snam is due in January. Where they are trading below the strike price, how will it effectively work?
We have to buy the stock and then sell it. Could you maybe talk us through the technicals of those bond converts and how you'll deal
with that?
Yes. You know that we are talking about the remaining stakes that are in the range of 8% for both NAM and GAAP related to the convertible bond in which we retain the option to repay the bondholders to shares. So our disposal assumption are based on this contract clause that give us the right to use the share to repay the bondholders. That's the reason why we consider quite sure at the disposal for these 2 packages of stocks.
Hi. It's Oswald Smith at Sanford Bernstein. Maybe just a question on your production guidance, the 3.5% over the 4 year plan, it's longer and probably stronger than some of your peers. Just talk about your confidence around that number, the risking that you've attached to that you mentioned risk before. And ultimately, when you add up the EBIT growth for all of these divisions, it does feel like kind of high single digit EBIT growth from the company.
Does that mean you want to grow the dividend at kind of high single digit level from here? Thank you.
Well, production, how risky is our production? As you said, we have an important amount of contingency this year. For this plan, we have 3 times the contingency that we have in the last plan. So it's quite important and that especially to face geopolitical situation in this case Libya that is the main critical point in our production growth. So our production growth could be higher than that, but we kept quite an important level of continuously distributing along the plant.
And before I didn't answer about the growth the long term growth and as I said during the presentation, our long term growth would be about 3.5%. And that's because we have a huge amount of projects, big projects especially in South, Africa and also in Indonesia and in Northeast and in Gulf of Mexico. So we have a diversified set of projects and Mozambique is one of them because we have a long term growth in Mozambique and Congo, Angola and Gabon and Ghana. So they are existing production. It's just a guess, but it's something that we already found.
The last question maybe you want to answer about the growing dividend with our EBIT.
The only I would say the only answer I could tell you is that the solid base of new projects that are going to production even in this 4 year plan and then beyond. The other one that Claudio mentioned that are characterized by very low cost because we are talking about very conventional project with low cost give us the full confidence about the capability to have a significant growing one. Secondly, EBIT the business other than E and P that finally I would say starting from 2015 we talk about the R and M, we'll turn into breakeven and then we'll be back to a positive earnings in 2016 2017. That's the reason why we are confident about growing that from an earnings and cash point of view will create enough room to give a positive expectation in term of dividend growing.
Philippe Kladek, Bloomberg Intelligence. My question is about the
sanctions in Iran. How would the removal of the sanctions and more heavy crude oil in Mediterranean improve your refining margin? And would you also be interested in reentering Iran or entering Iran upstream? Thank you.
So, Iran, I didn't expect any question about Iran. This is not so crucial now in our back of the basket. But we are discussing the last outstanding with Iran and it's clear that removing sanctions create a more easier situation to discuss with the Iranians. We are discussing quite well and we hope really to recover this money this year and finish. To go ahead with Iran again with projects investing in Iran again dependent sanction is clear that is the first conditions.
But I think that there is not important condition that is the contract, petroleum contract that is clear that we buy back never and never and never again. That is clear. The impact on refinery, I think that we are going to have as I said a depressed situation for refinery in the Mediterranean Sea especially in Europe and that is not due to possible removal of sanction in Iran, but it's because the recent effects of products coming from the U. S. And kind of diesel and from the Middle East and China.
So that is more impacting factor on their fire.
Yes. Hi, it's John Rigby from UBS.
Can I ask 2 questions, one on dividend and then on 5 Chem? On the dividend, can you confirm that you won't go chasing the dividend up again from the oil price or if the oil price gives rise beyond your scenario in that, confirm that there is underlying earnings and performance. It seems
to me that's one of
the problems you got into in the 1st place and not just yourselves. And the second is, is will you revisit the dividend payout if you were to sell meaningful parts of the business because again is you need to look at underlying dividend and payout to the underlying performance.
So I just want to check
as we roll forward that there's a degree of consistency expected in the way you pay this dividend now. And then the second question is on SiPEM. You sort of obliquely mentioned this and then moved on. And I understand that now is not the time to be doing anything radical with the way that the market is. But can you talk a little bit about what it is you can do right now with it?
I think you talked about giving it all the support that it needed. Perhaps you could expand a little on that. And then perhaps what needs to change for you to start to think about addressing Saipem and the ownership of Saipem and how Saipem looks going forward? Thanks.
So for the dividend, and Alfac can answer it. In that we talk about the floor dividend and that is a real floor dividend. So I don't want to say more, but that is the answer. For Saipem, what is going to happen if we are going to do Saipem? And it depends on how we are going to do Saipem.
Our position on Saipem is clear that as Massimo said in this presentation is in our strategy with the consolidate Saipem. We have a double hedge for Saipem because we are the main lender, the only lender. So it's clear that we want to deconsolidate to debt. And on the other side, we are the major shareholders. So we want strong cycle.
So it's clear that I don't want to go in it how in the process, but I can say that it's strategic that we have a double aim. So we want to do things properly. And I think that that's what is going to change what you ask or what is going to change if you realize that? That is a good question. I don't know if I had the right answer now, but it's clear that is a step change for our company.
And I said that it's a step change means that we're going to improve all our financial parameters and also from a shape from our shape and from a strategic point of view, our move will be different, but I cannot tell you exactly what we are going to do. But it's a step change that we want to do. Then but so you ask how to articulate a little bit more how we can do that. I think that is I say everything in my answer. I don't think that there is anything else to add.
Thank you.
Thank you. It's Titan from Nomura. Three questions, please. A couple first on CapEx. Could you just confirm when you see CapEx ramp up in the full year plan for Mozambique?
Secondly, just on the dividend, just clarification on the split in the dividend for 2015. Is it equal to the $0.40 for the first half and $0.40 for the second half? And then third question is just on the broader question of the E and P portfolio. So are you happy in terms of the portfolio mix as it stands between liquids, gas, OECD, non OECD? And then where future projects sit on the cost curve at ENI?
Thank you. Thank you.
So for the first question, I think that is for the is Roberto Gazzura talking about Mozambique and the distribution of CapEx in the 4 year plan for the Mozambique and for dividend is maximum. And I will talk about our geographical distribution and positioning.
First of all, out of the
figure, Massimo, shown earlier about the overall CapEx of any. The one answer related to the development projects is €28,000,000,000 The impact of Mozambique within the period is less than 20%, is in the range of 18% of this figure. This takes into account the FID of Coral in 2015 and the one of Mamba in 20
16. Sorry, I'm not sure I correctly understood. What you're asking for is how we intend to split the 0.8 between the advance payment September and then the final payment in 2016. I would say that it should be equally split.
So from our positioning, our E and P portfolio, we work a lot in the last 5 years to diversify our positioning and we move in Far East and we move in other places. We've been very, very strong in Africa. So we are not willing to grow in Africa, but we were so successful that now our weight in Africa is the AI. For that reason, we are diluting. But it's clear that we are acquiring new acreage and the new acreage that we are acquiring outside Africa.
We are in the U. S. We have in the Gulf of Mexico, we are in Indonesia, in Vietnam, in Myanmar. So we are increasing our equity, our aspiration for the future in different areas, not because we don't like Africa because it's our country, but because we are really, really, really strong. And we are transforming the company.
So we are transforming the company, we are moving to a different one. Last year, we acquired 140,000 square kilometers of new acreage worldwide. And that is clear that now we have to run seismic and then interpretation. I think that I'm quite happy. I think that we have to do some additional effort to be in other countries and we are working on that.
We are working.
A follow-up question. Does this plan give you some flexibility then to participate in M and A? And is the 30% and that credit rating sort of the ceiling in terms of where you go to in the 4 year plan? Thank you.
I would say that as has been recapped all along this presentation, we found so many new resources even very well differentiated from a geographical point of view that we don't have any need to acquire anything to get results we are showing today. And what I would like to add that even as we said the cost base of what we found is so good. So again there is a good expectation to have a very, very wealthy increase in production and in return. So the answer would be we don't have any need. So we don't have any projection to do it.
Just coming back to ask another question. It's Hamish from Merrill. You talked at the beginning about the move to being an integrated company. Do you feel your Gas and Power business really has a position in the integrated company given potentially the lack of integration? And would you consider strategic options in that business, especially given the capital intensity of the division?
So would you consider that? And secondly, on Mozambique, you talked about potentially reducing that stake. Is those negotiations still ongoing? And how should we think about the timing of that?
Gas and Power gave us a lot of satisfaction in the past and now it's changing. But when I talk when we talk about core activity, we don't consider as oil and gas activity, the retail gas for example. That's where we have a very strong position, very, very good activity, 10,000,000 clients, a large market in Italy and Europe with good returns. That could be something that we can consider to treat in a way to increase the value. So give a structure that can really be focused with the right skills to get additional values.
The rest of gas and power whether it's B2B or the long term contracts, we are increasing and improving their position. Is still quite important because you see what Marco said during the presentation is going to have a good EBIT at the end of the period. And we are working need to get more efficient. But it's clear that the retail gas is something that we are going to work on it.
It.
So the dilution in Mozambique is still a target we are working. We see positively and the discussions are quite advanced in advanced stage. So that is one of the asset that we're trying to dilute in our free up plan.
Hi, there. It's Mark Koffler from Jefferies. I just had a couple of questions. Firstly, on Libya, I'd appreciate if you could give us your thoughts there, both in terms of current operations, but then also how you think about the investment profile and decisions in terms of the growth that you expect from Libya going forward? And then secondly, just to clarify on the upstream growth.
Does that 3.5%, apologies if I missed it, but does that account for potential disposals going forward?
So Libya, first of all, we are assuring security for our people and we are assuring also the right standard operating standard because in this situation we have to be focused on our assets. We are protecting our assets from a physical point of view. Most of our people is offshore. We are still people, our leading people in the field in a safe we can say in a safe situation because of their geographical position and also because we create some protection for this field. Production has been a we had an average production of 240 barrels per day in 2014.
Last quarter 275,000 barrels per day. Now we are a little above this production. So we are producing. Scale that is a critical production for that reason we put some high contingency. But from operation point of view, the situation is okay in terms of assets, peoples and fields and platform.
In the last period the situation I would say from we have more terrorist attacks, but all different parties on the ground started discussing from the first time 2 months ago and the discussion ongoing. So in the long term, we have signed positive signs of different groups, quality groups or ethnic groups or tribes that are trying to find a solution. And that is quite important. And that happened for the first time after 4 years in January. Then we have the other side, ISIS, the terrorist attack and that is clearly we are quite concerned about that.
So for growth profile and possible M and A, I think that we have 50% of our sales from the exploration and we have 25% of sales from gas and power and R and M. And we also inside that we have a small percentage of mature assets. So we are selling some mature assets and that is a cleanup of our baskets where we're moving out something that became marginal for us and maybe still interesting for the others. So that is a normal routine activity that we are doing.
Thank you. It's Neil Morten at Investec. I've got two questions. The first is on Mozambique FID. And I appreciate this is slightly unfair because you haven't yet got the contract costs in from the various bidders.
But one of your partners was suggesting earlier this week that they would be very reluctant to go ahead with the project unless costs were very much brought into line. And given the fact the oil prices only have fallen for the past 6 months, it doesn't suggest we're yet far enough into the cycle to see meaningful cost deflation. So are you still willing or would you be prepared effectively to delay FID further if those bids don't come in line with your expectations? Or are you perhaps too far down the line towards FID? And then just secondly on chemicals, I do appreciate closing capacity moving away from commodity Chemicals.
But over the past 3 years that the losses in the division have been declining by €50,000,000 per annum, 1 minuteus €350,000,000 last year. Moving to breakeven in 2 years' time still feels a bit of a stretch. Maybe just reassure us in that regard that you are still on track. Thank you.
Thank you for Mozambique. So you gave a chance to clarify. It's clear that when I talk in my presentation, I was talking about CORO. You are talking about CORO, you're talking about number both. So the situation is different.
It's clear that CORA with a commitment is 100% in our end. We are the operator at 50%. And we expect to have the bid results in May. And we can confirm it's clear that we have to look at the bid results as we have already a preliminary estimation of cost. We can confirm a FID for the Q3 because the commercial side as Marco said and the development side are going quite well.
So Mamba is quite different. Mamba is going to follow Cora. We're talking about the offshore activities. And the same we have to finalize everything in term of bid that we and our expectation for the onshore train is December in terms of beat results of Q1 2016 with an FID in 2016 at the end. It's clear that for the onshore trains the situation is we have to assess the situation in China cost.
And after we see the results and we hope that in this we hope we our guess that expectation that in this low price scenario also the all the ancillary contract and the other T will be much reduced and that will be very good for the project. For chemicals, I ask Danieli to give some color and answer to the question.
Thank you. Sure. Thank you, Parde. On chemicals, why we feel confident about going on and finishing this restructuring? Because we can see that over the last 18 months, we did exactly what you told what we told you that we would have done in Puerto Torres, in Porto Marguera and basically dismissing the assets which were not strategic like the SRO was a reforming unit attached to the chemical business.
We sold it to the nearby refinery. We started the Orgottores facilities commissioned in June. The Grangemouth facilities with new functionalized elastomers. And we basically see these results coming at the last quarter and the Q1 of this year. So it's not anymore scenario.
It's just we being now able to capture the upside of this scenario because we've done our homework on the structural side. So we feel confident about that. Thank you.
It's Irene Himan again, it's SocGen. You've had a tremendously successful run on exploration in recent years. But I think there have been serious issues with time to market for some of your flagship projects. So two questions on that. Firstly, can you perhaps share with us what in your planning and development process may have changed to fix that?
And secondly, that Mozambique's start update is not at risk from that issue? Thank you.
No, thank you. I really like this question because I'm ready. Because we work a lot and you know that what we got in the last in the recent months with the VOC 1506 with the West half where we had a very good very, very good time to market. And with many that we discovered 15 months ago and we put in production in 11 months, That's how the first result of what we have changed in our organization. That's the reason I have to run the question because that's we didn't develop enough in our presentation.
What we changed basically and we start in 2011 is to create a new organization using less the EPC contracts. So practically moving away from the consent to have a main contractor. What we thought and now we realized with the good result that we are the main contractor. There is no contractor that's working with another contractor and another contractor. We want to run the project.
We are putting a lot of money. We want to keep and create more skill working as a main contractor. And that's what we changed. And we changed with all the Angola development. So all the Block 1506 in the West and in East Hub is running like that.
For that reason, it's running by phases to reduce the risk. It's running by our people. And our people is not just an MA contractor. So talk about conceptual and put it together and linking together all the different contracts. But we have people now for the first time also in the engineering phase, in the construction phase and the more dedicated phase the decommissioning.
In Goya, we put more than 2 50 people in commissioning there in Korea. So that make me more optimistic about the future, respect what happened in the past. And it's a big step change because we insourced a lot of people. The SKIA there preferred to have good people with the ownership that run our projects that create efficiency of the labor and use other labor that is not in line with the same culture, the design project. And then without with all the respect for constructors, without any main responsibility in term of impact, delay projects.
So that is a big step change and makes me very, very confident about the future. Mozambique, Mozambique. But I think the most I answer to Mozambique because if we are not efficient in this kind of process,
most of
it could be impacted. But we are using this kind of approach also in Mozambique. So answer also for the Mozambique.
Massimo Bonsolidi from Equita. Just a question on chemicals. Considering current petrochemical margins and the euro dollar depreciation, would it be possible to see already Versalis at breakeven this year? So what would be the mark to market at current programmatic margins in terms of EBIT with Versalis?
Ares? Thank you. It's an interesting question. I obviously very encouraged about the scenario that helped us a little bit last year towards the end of last year, but is now still present and it's discouraging a lot of imports from other countries into Europe. Therefore, we can play all our strength of the restructuring we have done and maximize into the Q1 and into the rest of the year.
So the rest of the work will be for us to make sure that the portfolio that now we can get out of our restructured assets will be useful for developing options in Europe, but also developing new markets outside Europe fully balanced in the future on a more global portfolio. So the answer is yes, I'm optimistic about what is going on in 2015.
Hello, it's Alex Fosnani from Citi. Very quick question. In your reference scenario $63 oil, where do you think you can get return on capital to at the end of this forecast period?
The return on capital is expected to grow because definitely if you calculate the return on capital in terms of ROACE looking at 2015 definitely the number would be quite low because what we are doing is we are comparing quite depressed number that in our scenario would be 55% as far as 2015 versus full capital employed that is coming from a long story of high prices that we experienced in the past. So definitely the ROACE in 2015 is something penalized. But what we expect is that as the turnaround is going to happen and the prime is going to ramp up a little bit, we think we are going to be back in more acceptable range of ROACE that would be slightly higher than the weighted cost of capital of EMEA, I would say in the second part of the 4 year plan.
So what 7% 8%?
It will be currently 7 6.7%.
At the end of the plan?
Yes. 2nd part of the plan, so 2017, 2018. Assuming a flat Brent price of $63 per barrel. Definitely would be higher if you assume the ramp up we are assuming in our scenario.
I think that you can take the last question.
Thank you very much.