Good afternoon, ladies and gentlemen, and welcome to Eni's 2015-2018 Strategy Presentation, hosted by Claudio Descalzi, 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 you off to begin today's conference. Thank you.
Good afternoon, and welcome to our three-year plan strategy update. For the presentation, I will be joined by Massimo Mondazzi, Eni's Financial and Risk Officer, and for the Q&A session, by Eni'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 Eni'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 core structure and implemented a strategic program that allowed us to achieve positive results in gas and power one year in advance, progress the turnaround on R&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 a rapid decline in oil price more than 50% with respect to the average of the four years. In this context, our assumption for this year foresee a Brent price at $55 per barrel. This downturn has already stimulated a material reaction in the industry, such as an average cut of upstream expenditure in the range of 10%-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. 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 and $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 four-year plan with the priorities of cash and value growth, a sustainable shareholder return, and a vast balance sheet. In practical terms, in E&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 midstream, we will complete our turnaround, reaching structural break-even in the next two years, and we will continue to improve CapEx, OpEx, and G&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&P growth.
As an appropriate last step, we are also rebasing our dividend. I will propose to my board to pay for 2015 a floor dividend of EUR 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 earlier in the plan, achieve cash neutrality, including disposals next year, and organically in 2017. Massimo will provide further details later in the presentation. Our main operating targets that we confirm as being very strong. In upstream, in the four-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 remains a key target, we plan to keep this at the top of our historical trend. In gas and power, we will continue to report positive results in 2015, we confirm a structural positive EBIT and operating cash flow from 2016. In R&M, we reduced capacity by 30%, we will continue until we reach a 50% capacity cut. R&M will reach EBIT and operating cash flow breakeven this year, while the refining sector will follow 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 EUR 9.5 billion. On top of this, our efficiency program will generate a structural reduction of EUR 2 billion in G&A cost over the next four 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 EUR 12 billion per year. In the last two years of the plan, we expect an 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&A cost up to EUR 500 million per year, doubling last year's savings. I will give you more details on the main businesses. Let's start talking about exploration and production.
On exploration, that remains one of the main strategic drivers, the success of the seven past years has increased Eni's potential by more than 10 billion 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, 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 plays in 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. With the objective of delivering 2 billion barrels of discovered reserves in the four-year plan at a very competitive cost of $2.60 per barrel.
In the meantime, our acreage of 300,000 square kilometers will be further enlarged, which puts us in a position to restart a new exploration cycle. 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 plan 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 field. This new production is 90% sanctioned and 84% operated and will bring an additional cumulative cash flow of EUR 19 billion in the plan 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, 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 billion barrels of equity reserves. Now some more color on the economic and financial strength of our assets. Eni's 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 2009, the average breakeven of new projects has increased by only $10, notwithstanding the doubling of the oil price and the cost and growth of costs. Our upstream financial metrics panned out at the top of the industry. We expect a net cash per barrel of about $30 and a 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 four-year plan growth. First, Goliat. It's close to the production startup after the sail away of the FPSO from Korea one 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 two further phases of development will raise the equity production to 75,000 barrels per day in 2020. In Block 1506 in Angola, we are developing two hubs. The West Hub, currently producing from the Sangos field, will benefit from addition of other fields every eight months over the period. In the same block, the East 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 four 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.
Jangkrik field will start in 2017 with an equity plateau of 40,000 barrels per day to supply the Bontang LNG. Finally, Kashagan. Where the joint venture is progressing with the 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. Now a closer look at two major developments in our plan. The first, Marine XII in Congo, is the best example of our integrated approach to exploration and development. With the discoveries of Nené, Minsala, and Litchendjili, we proved that with advanced technology and innovative geological concept, it is feasible to unlock material upside also in mature acreage. Then, with a simple and pragmatic development approach, it is possible to reach first oil just 11 months after discovery.
The huge potential of this play is now about 5.5 billion barrels of resources, and we expect further upside from the completion of the appraisal of Minsala and the drilling of two additional prospects. In Nené, we expect FID for the second phase by the end of 2016. In addition, later this year, Litchendjili 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 Area 4 development. This project is a floating LNG with a capacity of 2.5 million 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 startup is planned for the end of 2019, with a peak equity contribution of about 40,000 barrels per day. This will be only the first milestone of the multi-year program of investment. Coral will be followed by the Mamba field with two onshore trains for 10 million tons. We will submit the plan of development in the second half of 2016, 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 EUR 300 million.
We aligned 70% of our supply to hub indices and reduced volumes of take-or-pay by 55%. We will continue to grow profitability by leveraging on, first, the completion of contract renegotiation to ensure full alignment to the market conditions. Second, the right sizing of the operating and logistics cost, with a saving of EUR 300 million per year from 2018 compared to 2014 levels. The expansion of the retail customer base by 16% to reach more than 11 million clients at the end of the plan. Finally, action will be taken on the contractual margin in the B2B segment, where we will sell about 50 BCM per year. With these actions, thanks to the full recovery of the prepaid gas balance, for a total of EUR 1.3 billion, we will generate a cumulative operating cash contribution of EUR 3 billion over the period.
As regards EBIT, we will reach a structural positive result from 2016, with a growth to EUR 800 million in 2018. As regards 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 2008. We assume that the current improvements in margins are temporary, as linked to the recent 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 three key pillars that will deliver an adjusted EBIT improvement of EUR 600 million. First of all, the reduction of refining capacity up to 50% versus 2012, confirming our previous guidance.
Secondly, continuous operational improvement, thanks to the ramp-up of the Eni Slurry Technology plant in Sannazzaro, and more efficiency in existing plants. An enhancement of the positive performance in marketing through developing premium segment, rationalizing cost, and restructuring our international presence. This action will bring forward the adjusted EBIT breakeven by one year to 2015 and confirm a cumulative operating cash contribution of over EUR 1.5 billion in the plan period. In the refining sector, we will complete the right-sizing program. Since 2012, we have achieved a reduction of 30% from an initial capacity of 800,000 barrels per day. With the conversion of our Venice plant into a green refinery, the shutdown of Gela, a major milestone in the repositioning strategy, and the sale of our stake in Česká rafinérská.
Looking forward, we will complete the conversion of Gela into a green plant by 2017, and will reduce 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 Eni exposure to the commodity business by 30%. The restructuring of the loss-making sites was carried out either through the shutdown of plants or the reconversion into new high-value product lines.
The EBIT improvement of EUR 500 million over the plan 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 PETRONAS in Malaysia and Lotte in South Korea. Now to Massimo to present our financial strategy.
Thank you very much, Claudio. Good afternoon. Our financial strategy is based upon five 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. We will operate more efficiently, cutting group G&A cost 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, consequently, supporting our commitment to an A category credit rating and to pay competitive and sustainable dividends going forward.
Our total CapEx plan is EUR 47.8 billion, a reduction of 17% or EUR 9.5 billion versus the previous plan. In upstream, which represent 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 enhanced by our significant recent discoveries. In particular, we will give priority to lower intensity projects, brownfield developments, and infilling wells, mainly in Congo, Angola, and Egypt. 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 spending by 25% versus the previous plan, without compromising our target of full reserve replacement.
In particular, in the first two years, we will focus on the assessment of recent discoveries and reload our acreage to support later on a new cycle of frontier wells. One-fifth of the exploration saving will be related to contract renegotiations. In terms of lowering our supply chain costs, we have been active since the fourth quarter 2014 in negotiating upstream contracts, we are seeing signs of reduction for some items in the order of 20%. In midstream, 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. Our CapEx program is being 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, this is expected to be the lowest unit cost among peers. We will continue our focus on it, targeting a further reduction by 7% versus the old plan. The already identified area 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 barrel per day of additional production free of cost per year. The lower energy scenario will be the third factor to achieve the target reduction in costs. On G&A, cuts are focused on external costs, with the highest contribution coming from IT, communications, HR, and finance. Last July, we announced a two-step program aimed at structurally reducing our EUR 2.1 billion of G&A costs by one quarter.
We already achieved the first step with a EUR 250 million reduction in 2014. We are confirming our plan of an additional EUR 250 million target to give us the total structural saving of EUR 500 million from 2015. An additional strategic pillar of the plan is our active portfolio management. One year ago, we launched a EUR 9 billion disposal program for 2014-17. Last July, we raised the target to EUR 11 billion. By selling asset for EUR 3.7 billion in 2014, we already executed one third of that plan. Now we foresee to complete and enhance with an additional EUR 1 billion 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 which is only marginally reduced by the current scenario, are recording strong interest for their high quality, size, favorable location, competitive cost structure, and for the opportunity we are offering to enter into new high-potential geological plays. The sale of remaining stakes in Galp and Snam, respectively in 2015 and 2016, are expected to contribute a current market price for around one quarter of the overall program, or about 40% of proceeds net of tax in the first two years. Finally, we will rationalize our position on mature upstream and non-core midstream 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'll 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 numbers we are showing to you today. Let's move to the cash generation. It is solidly based on the clear action in our four-year plan. In 2015-2016, cash flow from operations at the price of $63 per barrel implied in our scenario, will average around EUR 12 billion, fully covering our CapEx. At the same time, we will continue to proceed with disposals. In the following two years, assuming $63 per barrel flat, the growth in upstream and the return to structural profitability of the mid- and downstream businesses will raise our operating cash by 25%. In addition, we expect a further EUR 1 billion per year from disposals.
In 2017-2018, 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 2015-2016. All in all, at our scenario assumption, we will generate a cumulative free cash flow of more than EUR 16 billion over the four-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. Finally, some additional information about our shareholders' remuneration policy. In 2015, we are committed to pay a floor dividend of EUR 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 floor dividend, we consider two different targets, earnings payout and cash neutrality. Our payout ratio is expected to remain higher than 100% in 2015 and 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. In conclusion, the main objective of the strategic transformation process we started last May, was to make Eni a company that is increasingly focused on exploration and production. Rationalizing its structure, turning around loss-making segments, and diluting our presence in non-core activities. This process of change was initiated and implemented quickly, and was immediately brought excellent result 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 that today our company is more focused and more robust.
This is shown by our four-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 two years of the plan. Because of the 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 Eni which is capable of facing even the depressed price scenario in a sustainable manner, while creating value.
I can assure you of my own strong commitment, and that of all of Eni management, to increasing the value of each individual business and to consequently increasing remuneration of our shareholders. Thank you. Now I think we can pass to the Q&A section.
Claudio. Good afternoon. We are now ready to start with the Q&A session. Please, before asking, stand up, state your name. Thank you.
Okay.
Okay, I will start.
Hi, hello, it's Martijn Rats. 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 dividends. I was wondering what drove your decision to do an outright reduction of the headline dividend rather than introduce a scrip?
Okay. I just give you a fast question that Massimo can go deep during this. Massimo said that we have two main points, two 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%. Applying the scrip dividend, we just impact our cash, that is really quite interesting, good cash, and is not impacting the EBIT on the payout, so the net result. That was the reason why we didn't use it.
What we are doing, we are targeting an equilibrium well within the four-year plan on these two parameters, the payout and the cash neutrality. What do we mean by sustainable and normal equilibrium in these two parameters? First of all, the payouts at equilibrium is the one I've shown in the last slide. What we are targeting within the four-year plan is a payout in the broad range of 60%-80% of payouts. This is what we consider sustainable and normal. In term of cash neutrality, what we are targeting is an organic cash neutrality, again, to be reached inside well within the four-year plan, without disposal. 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 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 first two year. 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 2016. It's a material lever still in our hand to manage this commitment to comply with the objective. Financially, debt by definition, the first lever will be our leverage, that you know is, at the end of 2014, 0.22.
I've 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 four-year plan. That's the first lever. Secondly, what we are ready to do, even to apply different levers, such as an hybrid, for example, if would be the case. Possibly not in 2015, because our promise is just to distribute the EUR 0.8 cash dividend, but for the future, maybe even a scrip would be a good example of additional flexibility. Why we didn't use the scrip for this plan? The scrip, you know better than me, doesn't solve the payout issue. That, again, has been fixed by ourself as one of the most important parameter in order to fix this dividend policy.
Thank you. Irene Himona, Société Générale. You show on your asset disposal chart that over 50% of the sales will be from your 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. 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 80% dividend still be a floor for you? Thank you.
Just quickly, because we try to be short in our answer. The answer is yes, it is a floor. Secondly, our disposals are risks. We have a very high level of risk, and we are quite confident that Galp and Snam would not be the only one. In any case, the answer is yes. Floor.
Yes.
Giuseppe Lutini from Credendus Equities. A couple of questions. The first on the gas and power plan. You mentioned a cash flow from operation of EUR 3 billion in the plan, versus around EUR 1 billion last year. We understand EUR 1.3 billion comes from the improvement in working capital, basically from the prepayments.
Prepayments, yes.
Can you please elaborate on the remaining improvement? Again, on gas and power, maybe you've given a target of EBIT or EBITDA, but I missed. Or if not, can you give us? About Kashagan, if you can please give us the cost for the fixing the pipe issue, and the ramp-up of production after the start-up of Kashagan. Thank you.
Okay. For gas and power, for EBIT and the additional, I feel Marco will give an answer. Antonio will give you an answer on Kashagan.
Thank you, Giuseppe, for the question. On the cash flow target of EUR 3 billion, it's an improvement compared to the previous plan, it's about EUR 1 billion coming from the take-or-pay recovery, EUR 1 billion 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 EUR 800 million, again, it's about one-third retail and two-thirds the other businesses.
Thank you, Marco. For Kashagan, as you know, the consortia signed the contract for replacing the pipe, oil and gas to Saipem. In May, we'll start the laydown of the first batch of material, by mid of 2016, the installation will be completed. Minor production in 2016 and full ramp-up at 370 oil in 2017.
Cost?
The cost-
The only question was cost, and you answered two other questions.
You asked the ramp-up. It's EUR 3 billion. Thank you. You can open it now.
Thank you. It's Lydia Rainforth from Barclays. A couple of questions if I could, both related to the cost base and some others. When you're looking at a 7% reduction in upstream cost per barrel for this year, what happens after that? Is it a case of you can continue to change the way you work and continue to bring that cost base down, or do you expect to see inflation come back in there? 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 project. Can you just walk through those aspects for me?
Thank you. OpEx, what we aim at is a structural reduction in cost. For that reason, say that our OpEx will remain steady on the period. Around EUR 8 per barrel. This year, we reduce of 7%, then we keep steady. For CapEx point of view, in the plan, how we reduce the CapEx and we grow our production is because we move the CapEx from major projects that we didn't stop, but just phased. Like in Iraq, like in Venezuela. Other projects where we are not operator, like in Indonesia, the IDP project, or Johan Castberg in Norway that has postponed.
That is a big bunch of CapEx that's been moved, maybe more than what we cut because we used this CapEx, and we moved to the field that we recently found, and they are oil fields, very small, like what we discussed about Congo, that in a very short time can put in production. The flexibility came from the huge amount of resources that we found.
Thank you. It's Hamish Clegg from Bank of America Merrill Lynch. My question was just relating to your disposals of Snam and Galp. In this instance, you basically already disposed of them in the form of convertible bonds, and I believe Galp will convert in November, and I think Snam is due in January. Where they're 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?
Okay. You know that we are talking about the remaining stakes that are in the range of 8% for both Snam and Galp, related to the convertible bond, in which we retain the option to repay the bondholder to shares. Our disposal assumptions are based on this contract clause that gives us the right to use the share to repay the bondholders. That's the reason why we consider quite sure the disposal for these two packages of stocks.
Hi, Oswald Clint at Sanford C. Bernstein. Maybe just a question on your production guidance, the 3.5% over the four-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. Ultimately, when you add up the EBIT growth for all of these divisions, it does feel like a high single-digit EBIT growth from the company. Does that mean you want to grow the dividend at a 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 three times the contingency that we had in the last plan, so it is quite important. That especially to face geopolitical situation, in this case, Libya, that is the main critical point in our production growth. Our production growth could be higher than that, but we kept a quite important level of contingency distributed along the plan. Before I didn't answer about the long-term growth. As I said during the presentation, our long-term growth will be about 3.5%, and that's because we have a huge amount of project, a big project, especially Sub-Saharan Africa, but not only, also in Indonesia and in North Sea, and in the Gulf of Mexico. We have a diversified set of projects.
Mozambique is one of them because we have a long-term growth in Mozambique, in Congo, Angola, and Gabon, and Ghana. They are existing production. It's just a guess, but it's something that we already found. The last question will be you want to answer about the growing dividend with our EBIT.
The only answer I could tell you is that the solid base of new projects that are going to production, even in this four-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 result coming from the E&P that will be a significant growing one. Secondly, the business other than E&P, that finally, I would say, starting from 2015, we talk about the R&M, will turn into breakeven, and then we'll be back to a positive earnings in 2016 and 2017. That's the reason why we are confident about growing debt from an earnings and cash point of view. We create enough room to give a positive expectation in term of dividend growing.
Philipp Chladek, 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? Would you also be interested in reentering Iran or entering Iran upstream? Thank you.
Iran, I didn't expect any question about Iran because they are not so crucial now in our baskets. We are discussing the last outstanding with Iran, and it is clear that removing sanctions create a more easier situation to discuss with 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 and investing in Iran again, depend on sanction is clear that is the first conditions, but I think that there is another important condition that is the contract. It is really a contract that is clear that we buy back 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, and then in Europe, and that is not due to a possible removal of sanction in Iran, but it is because there is an effect of products coming from the U.S. in term of diesel and from the Middle East and China. That is the more impacting factor on the refinery.
Hi, it is Jon Rigby from UBS. Can I ask two questions, one on dividend and then on Saipem? On the dividend, can you confirm that you won't go chasing the dividend up again when the oil price, or if the oil price, gives the rise beyond your scenario in that confirm that there is underlying earnings and performance? It seems to me as that is one of the problems you got into in the first place, and not just yourselves. And the second 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. I just want to check as we roll forward, that there is a degree of consistency expected in the way you pay this dividend now. And then the second question is on Saipem.
You sort of obliquely mentioned it and then moved on. I understand that now is not the time to be doing anything radical with the way that the market is. 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.
For the dividend, enough I can answer. I think that we talk about floor dividend, and that is a real floor dividend. 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, depends on how we are going to do Saipem. Our position on Saipem, it's clear that, as Massimo said in his presentation, is in our strategy to deconsolidate Saipem. We have a double hedge for Saipem because we are the main lender, or the only lender. It's clear that we want to deconsolidate the debt. On the other side, we are the major shareholder, we want a strong Saipem. It's clear that I don't want to go in how in the process, but I can say that is strategic, that we have a double aim.
We want to do things properly. I think that's what is going to change. You ask, what is going to change if you revise Saipem? That is a good question. I don't know if I have the right answer now, but it's clear that is a step change for our company. I said that it's a step change, means that we're going to improve all our financial parameters and also from our shape and from a strategic point of view, our move will be different. I cannot tell you exactly what we are going to do, but it's a step change that we want to do. 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 Theepan from Nomura. Three questions, please. A couple first on CapEx. Could you just confirm when you see CapEx ramp up in the four-year plan for Mozambique? Secondly, just on the dividend, just clarification on the split in the dividend for 2015. Is it equal, EUR 0.40 the first half, and EUR 0.40 for the second half? Third question is just on the broader question of the E&P portfolio. Claudio, 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. For answering for the first question, I think that is Roberto Casula talking about Mozambique and the distribution of CapEx in the four-year plan for the Mozambique, and for dividend is Massimo. I will talk about our geographical distribution and positioning.
First of all, out of the figure Massimo had shown earlier about the overall CapEx of Eni, the ones related to the development projects is EUR 28 billion. 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 2016.
Sorry, I'm not sure I correctly understood. What you're asking for is how we intend to split the 0.8 between the advanced payment in September and then the final payment in 2016? I would say that it should be equally split.
From our positioning, our E&P portfolio, we worked a lot in the last five years to diversify our positioning, and we move in Far East, and we move in other places. We've been very strong in Africa. We are not willing to grow in Africa, but we were so successful that now our weight in Africa is very high. For that reason, we are diluting. 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 are in the Gulf of Mexico, we are in Indonesia, in Vietnam, in Myanmar.
We are increasing our acreage, our exploration for the future in different areas, not because we don't like Africa, because it's our country, but because we are really strong. We are transforming the company. We are transforming the company, and we are moving to a different one. Last year, we acquired 140,000 square kilometers of new acreage worldwide. 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.
A follow-up question, does this plan give you some flexibility then to participate in M&A? Is that 30% and that credit rating sort of a ceiling in terms of where you go to in the four-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. What I would like to add, that even, as we said, the cost base of what we found is so good, so that again, there is a good expectation to have a very healthy increase in production and in return. The answer would be, we don't have any needs, so we don't have any projection to do it.
Hi, just coming back to ask another question. It's Hamish from Merrill's. 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 essentially the lack of integration? Would you consider strategic options in that business, especially given the capital intensity of the division? Would you consider that? Secondly, on Mozambique, you talked about potentially reducing that stake. Are those negotiations still ongoing? How should we think about the timing of that?
Gas and power gave us a lot of satisfaction in the past, and now it is changing. When we talk about core activity, we don't consider it an oil and gas core activity, the retail gas, for example. That's where we have a very strong position, very good activity, 10 million clients, a large market in Italy, Europe, with good returns. That could be something that we can consider to treat in a way to increase the value. Give a structure that can really be focused with the right skills to get additional values. The rest of the gas and power, whether B2B or the long-term contracts, we are increasing and improving the position.
It's still quite important because you see what Marco said, and during the presentation, it's going to have a good EBIT at the end of the period, and we are working on it to get more efficient. It's clear that the retail gas is something that we're going to work on it. The other, Mozambique. The dilution of Mozambique is still a target. We are working. We see positively, and the discussions are quite advanced, in advanced stages. That is one of the assets that we're trying to dilute in our three-year plan.
Hi there. It's Marc Kofler 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? 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?
Libya, first of all, we are assuring security for our people, we are assuring also the right operating standard, 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 are offshore. We have still people, our million people in the fields, we can say, in a safe situation because of their geographical position and also because we create some protection for these fields. Production, we had an average production of 240,000 barrel per day in 2014. In last quarter, 275,000 barrel per day. Now we are a little above this production, we are producing. It's clear that is a critical production. For that reason, we put some high contingency. From operation point of view, the situation is okay in terms of assets, people, and fields, and platform.
In the last period, the situation, I would say, we have more terrorist attack, all different parties on the ground started discussing from the first time 2 months ago, the discussion ongoing. In the long term, we are finding positive signs of different groups, political groups or ethnic groups or tribes that are trying to find a solution, that is quite important. That happened for the first time after 4 years in January. Then we have the other side, ISIS, the terrorist attack, that is clearly, we are quite concerned about that. For growth profile and possible M&A, I think that we have 50% of our targets from exploration, we have 25% of sales from gas and power and R&M. We also, inside that, we have a small percentage of mature assets.
We are selling some mature assets, that is a cleanup of our basket, where we're moving out something that became marginal for us and maybe still interesting for the others. That is a normal routine activity that we are doing.
Thank you. It's Neil Morton at Investec. I've got two questions. The first is on Mozambique FID. I appreciate this is slightly unfair because you haven't yet got the contract costs in from the various bidders. 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. Given the fact the oil price has only fallen for the past 6 months, it doesn't suggest we're yet far enough into the cycle to see meaningful cost deflation. Are you still willing, or would you be prepared, effectively, to delay FID further if those bids don't come in in line with your expectations, or are you perhaps too far down the line towards FID?
Just secondly, on chemicals, I do appreciate closing capacity, moving away from commodity chemicals. Over the past 3 years, the losses in the division have been declining by EUR 50 million per annum. Minus EUR 350 last year. Moving to break even 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, maybe you get a chance to clarify. It's clear that when I talk in my presentation, I was talking about Coral. You are talking about Coral, you're talking about Mamba. Both. The situation is different. It's clear the Coral, there is a commitment, is 100% now. We are operating to at 50%. We expect to have the bid result in May. We can confirm, it's clear that we have to look at the bid result, but we have already a preliminary estimation of cost. We can confirm a FID for the 3rd quarter because the commercial side, as Marco said, the development side are going quite well. For Mamba, it's quite different. Mamba is going to follow Coral. We're talking about the onshore activities. The same, we have to finalize everything in term of bid.
Our expectation for the onshore trend is December in term of bid result. First quarter 2016 with an FID in 2016 at the end. It's clear that for the onshore trends, we have to assess the situation in term of cost. After we see the result, we hope that in this, we are against that expectation that in this low price scenario, also all the ancillary contract The other T will be much reduced, that will be very good for the project. For chemicals, I ask Daniele to give some color and answer to the question. Thank you.
Sure. Thank you, Claudio. 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 we told you that we would have done in Porto Torres, in Porto Marghera. Basically dismissing the assets which were not strategic, like the SAROM, was a reforming unit attached to the chemical business. We sold it to the nearby refinery. We started the Porto Torres facilities, commissioned in June, the Grangemouth facilities with new functionalized elastomers. We basically see this result coming at the last quarter and the first quarter of this year. 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. We feel confident about that.
Thank you. Back to you.
It's Irene Himona again at SocGen. You've had a tremendously successful run on exploration in recent years. I think there have been serious issues with time to market for some of your flagship projects. Two questions on that. Firstly, can you perhaps share with us what in your planning and development process may have changed to fix that? Secondly, that Mozambique start update is not at risk from that issue. Thank you.
No, thank you. I really like this question, because I'm ready. We work a lot, and you know that what we got in the recent months with the Block 1506, with the West Hub, where we had a very good time to market. With Nené that we discover 15 months ago, and we put in production in 11 months. That are the first result of what we have changed in our organization. For that reason, I have to go on the question, because a point that we didn't develop enough in our presentation. What we changed, basically, 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, now we realized with a good result, that we are the main contractor.
There's now a 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 a more skill working as a main contractor, and that's what we change. We change with all the Angola development. 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 the main contractor. Talk about conceptual and put it together and link it together, all the different concepts. We have people now for the first time also in the engineering phase, in the construction phase, in the more delicate phase that the commissioning. In Angola, we put more than 250 people in the commissioning there in Korea.
That make me more optimistic about the future, respect what happened in the past. A big step change because we insourced a lot of people. The scale that I prefer to have good people, with the ownership that run our projects, that create efficiency of the labor, and use other labor that is not Eni with the same culture, design project, and then with all due respect for contractors, without any main responsibility in terms of impact, delay projects. That is a big step change and makes me very, very confident about the future. Mozambique. I answer to Mozambique because if we are not efficient in this kind of process, Mozambique could be impacted, but we are using this kind of approach also in Mozambique. Answer also for the Mozambique. Okay.
Massimo Bonisoli 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 break-even this year? What would be the mark to market at current petrochemical margins in terms of EBITDA for Versalis?
Daniele will answer.
Thank you. It's interesting question. I am 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 is discouraging a lot of imports from other country into Europe. We can play all our strength of the restructuring we have done and maximize into the first quarter and into the rest of the year. The rest of the work will be for us to make sure that the portfolio that now we can get out of our structured asset will be useful for developing options in Europe, but also developing new markets outside Europe to rebalance in the future on a more global portfolio. The answer is yes, I'm optimistic about what is going on in 2015.
Thank you. Hello, it's Alastair Syme 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? Do you want to say?
The return on capital is expected to grow, because definitely if you calculate return on capital in terms of ROACE, looking at 2015, definitely the number will be quite low, because what we are doing is we are comparing quite depressed number that in our scenario will be 55% as far as 2015, versus a full capital employed that is coming from a long story of high prices that we experienced in the past. Definitely, the ROACE in 2015 is something penalized. What we expect is that as the turnaround is going to happen and the price is going to ramp up a little bit, we think we are going to be back in a more acceptable range of ROACE. That will be slightly higher than the weighted cost of capital of Eni. I would say in the second part of the four-year plan.
What, 7%, 8%?
It would be currently 6.7%.
At the end of the plan?
Yes. Second part of the plan, so 2017, 2018. Assuming a flat Brent price at $63 per barrel. Definitely would be higher if you assume the ramp-up we are assuming in our scenario.
I think that we can take the last question. Last question? Thank you very much. Thank you