Good afternoon, ladies and gentlemen, and welcome to Annie's 2014 4th Quarter Results Conference Call, offset 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. However, at the end of the call, you have the opportunity to ask questions. I'm now handing you over to your host to begin today's conference. Thank you.
Good afternoon and welcome to our Q4 results presentation. 2014 was a year of great change in AIM. In May, we started a deep review of our cost structure and accelerated the execution of strategic forward. These actions allow us to beat our cash flow growth targets, lower our leverage, bring Gas and Power back to profit, progress the turnaround of R and M and Chemicals. The first step of the new action plan was to change from a divisional company to a fully integrated one in order to enhance flexibility and efficiency.
The new simplified organization brought immediate benefit in terms of speeding up processes, reallocating staff and allowing G and A cost reduction of €250,000,000 Material results have been achieved in the different businesses. In upstream, we continue to obtain outstanding exploration results with 900,000,000 barrels of discoveries mainly in Congo, Ecuador, Egypt and Ghana with a competitive exploration cost of around $2 per barrel. These new resources, mainly liquid, are conventional and can be developed in phases using existing facilities with limited upfront investment. As a result, the project has strong economics also in the current weak scenario. We acquired new blocks in the Caspian region, West Africa and the Far East, reloading our asset base with an additional 100,000 square kilometers of new exploration acreage.
We fast tracked the start ups of recent discoveries in Angola, in Egypt and in Congo with an overall year end gross production of $60,000 per day of oil. Thanks to the contribution of new projects and the strict control of operations, we fully met the production target. And finally, also this year, the organic reserves replacement ratio was in excess of 110%. In mid downstream, we proceed with major gas renegotiation to align the supplies to the hubs reference, bringing forward Gas and Power breakeven by a new year and accelerating recovering the take or pay. We reduced losses in chemicals and R and M by cutting 30% of our refining capacity and focusing the portfolio with the start up of the green plants in Porto Torres and then with the agreements on the conversion of JLR Refinery.
Finally, we collected EUR 3,700,000,000 from disposals, mainly from the sale of Russian assets, the recent exit from South Sea and the dilution of Gulf states. Talking about 2014 results, I would like to give a special focus on project development, where the changes we implemented in 2012 have delivered a first result. We have based our development structure on 3 key pillars. First, we take the role of lead contractor in all phases of development from engineering to commissioning, directly managing all the different development packages. 2nd, most of the developments are split in different phases, mitigating operational risks, bringing forward cost recovery and finally reducing financial exposure.
And third, we maximize the use of modularization and standardization, exploiting the existing facilities and equipment already on the market. The most tangible result of this new model are the 2 recent start ups in West Africa. In Angola, in Block 1506, where we have found more than 3,000,000,000 barrels of resources in place, the startup was reached in less than 4 years after the declaration of commercial discovery, an impressive result for a deepwater project. The performance of this field is better than expected, currently producing about $45,000 per day. Every 6 to 8 months, we plan to add the producing cluster to existing hubs in order to reach 200,000 barrels per day in 2018 after the start up of the East hub.
In Congo, in the Marine 12 block, we have discovered 3,500,000,000 barrels of resources in place to be developed in different clusters. The first of this has been the new memory in discovery, where we were able to fast track the production startup only 9 months after the FID through the reconfiguration of available platform and maximizing the use of existing network and facilities. The huge discovery has started with the early production and will be developed in phases to reach a plateau of around 120,000 barrels per day in the next 5 years. We are adopting the same approach to other major discoveries in Angola, Ghana, Egypt and Ecuador. Now talking about cash result.
Despite the drop in oil prices in the last quarter, we have beaten our cash target with a cash flow from operation of more than €15,000,000,000 This represents a 40% increase with respect to 2013, well in advance of our original plan. It was reached mainly through €2,200,000,000 coming from cost and production efficiency in the renegotiation of gas contract and the downstream turnaround and a working capital improvement of €1,900,000,000 The outstanding cash generation from operations and disposals has entirely funded our CapEx and distribution policy, positively impacting also the reduction of leverage, which now stands at 22% from last year 25%. And now some preliminary elements for 2015. In order to better cope with the current price scenario, we continue to implement and reinforce the cost efficiency program that we started in May 2014. And our expectation is to have €2,500,000,000 of optimization coming from CapEx, OpEx and G and A costs.
The €2,500,000,000 are split as follows. In terms of overall CapEx, we expect around €2,000,000,000 of reduction equivalent to 14% of 2014 CapEx at a constant euro dollar exchange rate coming from the first 20% due to the reduction in non upstream businesses as a result of the recent rightsizing second 30% due to the reduction in exploration spending, where we will continue to focus more on near field and the prior activities, reducing investments in the frontier exploration areas where we have been successful in the recent past. And lastly, 50% from the reduction in upstream spending due to a rephrasing of complex projects focusing on center development with short term time to market and the overall revision of the existing supply chain where we see signs of cost reduction for the same item in the order for some items in the order of 20% to 30%. Additional cost revisions in the following years will be presented in the full year plan strategy presentation next month. In terms of OpEx, we expect in 2015 a reduction of €300,000,000 coming from optimization activity substantially from contract revision, rescheduling our non mandatory activities and energy feedstock prices and logistics costs.
Our total cost per barrel will be reduced by 14%, while we still confirm a production growth rate of 3% at price prices. As a final point, from 2015, G and A cost will be reduced by about €500,000,000 doubling what we already said in 2014. And now I will hand over to Massimo for a brief overview of the results.
Thank you,
Claudio. For Q4 2014, the adjusted operating profit was €2,300,000,000 down 34% versus the same period last year. This was mainly due to the fall in Brent, which averaged $76 per barrel in the quarter. The major impact was on E and P, where the benefits of €350,000,000 of industrial improvement, cost and volumes was more than offset by the scenario impact that accounted for €1,600,000,000 On a full year basis, the operating result is down EUR 1,100,000,000 due to the reduction of EUR 3,100,000,000 for E and P, mainly due to the negative oil and gas prices effects, while all the other businesses delivered a €2,000,000,000 improvement in performance. The adjusted net profit for the quarter amounted to €464,000,000 The year on year decline is principally due other than the aforementioned scenario, the negative fair value contribution of our remaining stakes in Galp and NAM evaluated at the share prices of 31st December 2014.
Since then, these prices have moved up significantly and if we had to adjust evaluation to today's levels, the reported loss would have been reduced to around 1 half. The fair value evaluation also impacts the tax rate that was 15 percentage points above the Q4 2013. Net of this effect, the tax rate would have been in line with the guidance. For the M and T sector, on a full year basis, net of the effect of the sale of Russian assets, production was slightly higher than in 2013. Looking at 4th quarter versus 3rd quarter, the increase is largely attributable to better performance and recovery from lower production in 3rd quarter related to maintenance and the contribution on new start ups such as in Angola Block 1506, Abbo in Nigeria, Aburu base and Embry Deep in Egypt, Neme in Congo and finally the PSA effects that accounted for BRL 14,000 per day.
Operating profit in the last quarter was affected by the decline in crude oil and gas prices. That was only partially offset by the weakening euro. The overall negative effect of the scenario is estimated at €1,600,000,000 versus the Q4 last year and more than €1,100,000,000 versus the Q3. The entire reduction in operating profit between 3rd quarter and Q4 2014 is explained by the scenario effect as better operating performance was offset by higher exploration cost of around €100,000,000 Turning to reserve replacement. We confirm our historical track record with a ratio of 112% last year.
Around 20% of the promotions were related to new discoveries and extension mainly in West Africa, Guyana, Congo and Angola and Far East in Indonesia, whilst the remaining 80% related to positive revisions of reserves in already proven fields. Among the revisions, the price effect on PSA related reserves contributed a limited 30,000,000 Boe. Since 2010, Eni has consistently been replacing its production organically with an average rate of 127 percent. Turning to Gas and Power. Adjusted operating profit was a positive €108,000,000 thanks to the continuous improvement of the underlying performance and the benefit of renegotiations concluded in the year.
The full year result was €310,000,000 an increase of almost 1,000,000,000 euros over 2013. Even excluding one off effects and retroactive elements, this result represents a material operating performance improvement of around €600,000,000 On a cash basis, the take or pay recovery amounted to €650,000,000 leaving a residual amount of €1,300,000,000 at the end of 2014, of which around €400,000,000 already accrued in late 2014 will be cashed in at the beginning of 2015. Refining and marketing showed a marked improvement both sequentially and year on year with an adjusted operating profit of €190 2,000,000 achieved in Q4 2014. It is the 2nd consecutive quarter of positive results and it confirms that this business is already profitable on an adjusted basis at the current scenario. This is the consequence of our progress in reducing capacity to counterbalance the decline of demand.
13, 2014,000 was 1 percent lower than the previous year. Capacity reductions were achieved at the Venice Angela plants, while further operating announcements took place at the remaining place. Overall, our capacity utilization rate in the quarter was up to 73%, an improvement of 12 percentage points versus 4th quarter of last year, driving down the breakeven EBITDA margin of our refineries below $6 per barrel. And finally, the improved cash position helped to lower the leverage to 22% even after the payment of €4,400,000,000 in dividends and buyback, which represents the 10% increase in our distribution policy versus the previous year. In detail, the €15,100,000,000 of operating cash flow with a 40% growth versus 2013 marked our best performance since 2008.
The €4,100,000,000 increase versus 2013 was due to an improved overall performance including €1,900,000,000 per cover in working capital, mainly related to the reduction in E and P credits and the reduction in take or pay position. Disposal of almost €3,700,000,000 were completed in the year included the collection of €350,000,000 for South Stream. CapEx was kept €12,600,000,000 5% lower than 13, in line with our guidance. Net borrowings were down €1,300,000,000 lowering our leverage to its lowest level since 2006. And now I will hand over to Claudio for final conclusions.
Thank you, Ignacio. To conclude, 2014 was a year of important achievements for AUM, where we deliver remarkable economic and financial results. Even taking into account the weaker price environment, our cash flow from operation was over €15,000,000,000 a 40% increase over 2013. This very positive cash generation, including cash from disposals, has covered our need with regard to CapEx and distribution policy and also contributed to reducing the leverage. Based on these results, I'm pleased to announce that the 2014 final dividend proposal is confirmed at €0.56 per share.
So thank you very much for your attention and we are glad to take your questions.
Thank you. First question comes from Mr. Oswald Klee from Bernstein. Mr. Oswald Klee, please.
Yes. Good afternoon. Thank you. Claudio, I really want to just talk about 2,009. Obviously, similar environment and through the year some of your businesses within the E and I group became a lot weaker.
And then by October that year, you had decided to the Board decided to reduce the level of dividend. Can you talk about whether you see ENI as in a better or worse position today going through 2015 as it kind of talks about the dividend level for 2015, please? And then maybe a second question maybe for Massimo. I'm just curious about the Gas and Power business. I know 60% of the volumes have been renegotiated to hub linked.
On the 40% remaining, which is oil linked, is the price of that at the moment, is it actually low enough or sufficiently low enough to start generating a profit as you import that and sell it through Italy and parts of Europe? Thank you.
Thank you very much for your question. I think that this comparison between 2,009 2014 is very interesting. But I'm sorry that I can't elaborate further on that because that is a part of our presentation in March, our strategy presentation. So I cannot say I'm not in a position to anticipate anything. In March, we are going to elaborate and make comparisons.
In any case, I think that we are in a strong position. We are in a strong position, but the dividend policy is something that is related to both decisions. So I cannot anticipate anything.
Regarding Gas and Power, it's Marco. You don't see in these results any benefit from the drop in oil for two reasons. First, there's a time lag, which on average on these contracts is 9 months between when the price changes and the impact is fell through on the gas contracts. And also we have a number of sales contracts that are also oil index, so they fluctuate together when the drop will come.
Okay. Okay. Thank you both.
Next question comes from Mr. Tivan Jotlingan from Nomura International. Mr. Jotlingan, please.
Yes. Hi. Good afternoon, gentlemen. I just wanted to come back to your guidance on CapEx. Could you just re clarify what the explicit number on CapEx is for 2015 on a stable sort of euro environment to last year?
Secondly, just coming back to I think you talked about the reductions. I was interested in the 50% of that reduction being rephrasing in complex projects. So could you maybe clarify again what projects you deferred spend on for this year? Secondly, on cash flow and working capital release, significant release in the second half of the year. I think you've talked about the reduction in the take or pay commitments.
Again, could you clarify what you expect at current prices in terms of working capital release for 2015? Thank you.
So CapEx, so I can repeat that our expectation and our plan is to have about €2,000,000,000 of capital reduction. That is a practically equivalent to 14% reduction respect to 2014. So we are in the range of about 12,000,000,000 euros of charter investment. As you said, we have different chapter with different items. We have a 20% reduction of this €2,000,000,000 due to non upstream CapEx in practically in R and M and Chemicals.
We had a 30% reduction in exploration and that is quite clear because we have been so successful in the last 6 years. And we collected about 10,000,000,000 barrels of resources. And now we want to be more focused on the short term value. And that means to work around our existing fields, our existing facilities to be able like we did this year to have good restoration results and immediately paying to the to our existing field to have a to shore the time to market. Going to the remaining 50% that is the CapEx project, we are now telling exactly the name of the projects, I refer to a more big and complex project that fortunately we already phased in so in different phase of development.
So we are able to reduce and postpone and move this CapEx and reduce amount of CapEx to a faster project because we have this flexibility, because we discover a lot of good oil in the West Africa or in Egypt. So I'm talking about Angola, I'm talking about Congo where we can in a very short time. Last year, we just had a 9 months of time to market to develop and create cash flow. We have a retail plan. We have a retail plan.
And that doesn't imply any impact on the foreign plane growth rate and also is not impacting the long term one. So I think that during the strategy, we will be able to explain in more detail what we plan to do. We have to consider that half of this 30% or 30% 40% of this remaining CapEx reduction is due to contract renegotiation. And as what we experienced in the recent past in the last 4, 5 months that we were able to renew contracts, especially on the RIGA on the services contract of about between 15% 35%. So that is already part of something that we already acquired that is a quite important result.
And that is why also the reason why we are we can't reach the EUR 2,000,000,000 of cost reduction. Okay. So, Stephen, Massimo speaking. I'll try to give you some more color about the working capital movement and expectation as far as 2015. So you have seen from the balance sheet that the full year contribution working capital to the cash has been at €3,100,000,000 That means €2,600,000,000 additional contribution versus 2013.
I would like to say that the more direct way to look at this number is to, I would say, eliminate the gross up effect due to the write down of stocks that definitely occur at the end of 2014 because of the price. This effect accounted for 0.7. So I mean the more direct way to read the number is to increase the result contribution to the cash from operation of 2014 by EUR 700,000,000 dollars reducing the working capital contribution for the same amount. It means that I'm back to the €1,900,000,000 I just commented together with Claudio all along our presentation. Let me now elaborate a little bit more about this €1,900,000,000 The major contribution to this €1,900,000 definitely has been the Paycorp Pay.
Ecopay contributed EUR 700,000,000 in 2014 versus a cash absorption of EUR 200,000,000 in 2014 in 20 13, sorry. So it means an additional contribution of around EUR 900,000,000. At the end of 20 14, the stock in the core pay amounted to €1,300,000,000 that is already commented take into consideration EUR 400,000,000 already accrued in EUR 20 14 that will be cash in at the beginning of 2015. On top of this, we expect an additional cash in 2015 of around €400,000,000 in this that overall in 2015, we expect an €800,000,000 in contribution in terms of cash. The second big contributor has been the reduction in overdue in E and P mainly in Egypt.
You remember that we had $1,500,000,000 overdue in Egypt for a long 14. This number now has been reduced to around €950,000,000 thanks to the latest payment received by the Egyptian government in December 2014. Now this remaining amount of €150,000,000 the expectation are to, I would say, to reduce even more this amount in 2015. And we are keeping on working closely together with the Egyptian authorities in order to find out the best way to speed up at least a significant part of reduction in 2015. 3rd, the contribution has been the destocking oil.
Thanks to the reduction in the refinery capacity already achieved, I'm referring to the 30%. We have been in a position to reduce our oil stock. And this accounted for €270,000,000 cash because of the disposal in 2014. Definitely, we expect an additional disposition in 2015 2016, while we are targeting the further decrease in capacity from 30% to 50%. Finally, the retail Gas and Power had a significant, I would say, reduction in overview that has been mature in 2014.
I'm talking about a number that will be in the range of EUR 200,000,000 to EUR 200,000,000. These are the, I would say, the elements that explained the result in 20 14 and main expectation in 20 15.
Okay. Perfect. And just a final question. I guess, what do you see gearing at year end? I mean, lots of moving parts, but at $60 do you see gearing flat up or down?
Again, I'm referring what Stavros already said. So everything about the financial projection as far as 2015, sorry, but we elaborate a bit more on this during last sorry, during our strategy presentation in March.
Okay. Thank you very much.
Next question comes from Mr. Nitin Sharma from JPMorgan. Mr. Sharma, please.
Good afternoon, gentlemen. Two questions. First one on Mozambique. I think you've indicated in past that further sale of stake in Area 4 is possible.
My question is, is this still
on agenda given the recent oil price pullback and weaker Asian appetite for deals? So that's the first one. And the second one on gas marketing, performance in Q4 2014 both have been ahead of guidance. You also mentioned that you've completed the planned contract renegotiations or substantially completed those renegotiations. So therefore, is it fair to assume a year on year improvement in operating earnings of this business in 2015?
Thank you.
Okay. So the first question, yes, is Mozambique is still in Argentina. So the 10% is
still in Argentina. It's Marco. Regarding guidance for Gas and Power, as Massimo said in 2014, there's some retroactive elements. The way we look at the business, we put the take or pay contracts and logistics together. And in 2014, excluding the retroactive elements, the combination of take or pay and logistics is still not positive.
The result is due to the performance on what we call value added segments, which is LNG, Power and Trading. Looking ahead, we have avoided arbitration with Statoil. We've exited arbitration with Statoil. We've avoided arbitration with Sonatrec and Gazprom. We are still in arbitration with Gastera.
So we give the same guidance we gave last year, which is that assuming we successfully closed the Gastera arbitration in 2015, we are at breakeven. However, we also confirm the guidance that in 2016 regardless of this arbitration, we will be in a structural breakeven position.
Thank you. Thanks.
Next question comes from Mr. Martin Ratz from Morgan Stanley. Mr. Ratz, please.
Hi. Hello. There have been some press reports about the potential sale of the Gas and Power division or at least some sort of disposal IPO. I was wondering if you could comment on those. And in the same sort of train of thought, if you could update us on your latest thought on the slide deck.
So the first question is about Gas and Power. So that we don't like to comment on almost a rumors of speculation on the press. What I can say and repeat what I said during the strategy presentation in July, we consider, first of all, the possibility to give more value to our retail gas. So we are not talking about gas and power, first of all. So we really want to give more value to our retail gas.
That is a very strong segment. We have 10,000,000 clients. It's a very large one. It's not just in Italy, but also in Europe. And we think that specialized structure, because that is a specialized business, quite far from our core business, can be more mobile.
That is something that is under evaluation. There are different possible options, but we never talk about this option and we never talk exactly about any plans. So at the moment that is just rumors. And Saipem. So Saipem, I think we have 2 main objectives for Saipem.
The first one because they are the most important shareholders is to really improve the value of Saipem. That is a very good company now is doing very well. So it's now interest to improve the stock value of the company and that is our first priority. And the second priority because we are also the lender and we redeem money to the site and is to reduce our debt or deconsolidate each debt that represents about 32%. So that's our 2 main options.
We said few months ago that we suspended what we are doing because of the market that is very volatile and we prefer to have a stable situation to go ahead. It's clear that meanwhile, we confirm our strong support beside them. Okay. Thank you.
Next question comes from Mr. Ian Reid from BMO. Mr. Reid, please.
Yes. Hi, gentlemen. A couple of questions, please.
Sorry, can you talk a lot because we can't hear you, sorry.
How's that, Claudio? Hello?
Not big improvement, but we're trying.
Yes. Okay. All right. Sorry, I'll
pick up. Fine.
That is okay.
I'll pick up a handset. Yes. I wondered if you could just update us on your oil price sensitivity for earnings and cash flow per dollar or per $10 or so? As obviously we've seen a big differential from what you were guiding to a few months ago. And maybe secondly, I heard you say that you're more confident about the dividend in this kind of iteration of E and I.
I just wondered if you could update us on what you think about the share buyback at current oil price levels?
Okay. So, Ian, just to give you some flavor about sensitivities. In terms of brand, our scheme is that every dollar, I would say, minus $1 for example, means on the EBIT adjusted at the group level around minus or plus €180,000,000 In terms of net result, it's in the range of EUR 140,000,000 more or less the same amount as you referred to the cash flow. I don't remember, Ian, if you mentioned also the request to have sensitivity on refining margin or exchange rate. But by the way, I'll give you anyway this quick number.
So in terms of margin for as far as the refinery, in terms of EBIT adjusted, dollars 1 means €150,000,000 difference. In term of net result €100,000,000 the same for the free cash flow. In term of exchange rate, our metric is €0.05 in terms of exchange rate. So €0.05 means around €280,000,000 at the EBIT level, €100,000,000 at the level of net adjusted result, a bit less in terms of free cash flow in the range of €60,000,000 because of the compensation of CapEx. Thank you, Massimo.
I'd like and thank you for the opportunity. I'd like to clarify what I said before. I said that I don't want to talk about dividend because the subject will be treated and discussed during our strategy presentation. So I never say that I'm confident or not confident. I say that I don't talk.
I cannot talk about dividend. Just to be clear, and thank you for the question. And the buyback is sustained.
Are you ready? Okay.
Have you renewed the mandate for the buyback? Or when do you have to renew it again?
In May. In May. Okay.
All right. Thank you, guys.
Next question comes from Mr. Thomas Adolff from Credit Suisse. Mr. Adolff, please.
Hi, guys. A couple of questions, please, as well. Firstly, on CapEx again, upstream specifically. I just and you gave a bit of color on where the cut is coming from exploration and some of the rescheduling or rephrasing of the larger projects, which makes sense. But can you perhaps also comment whether you have trimmed some of the base CapEx because base CapEx sometimes is based on a 3 year payout ratio according to some of your peers and the current oil price environment doesn't justify that?
And if you have, what sort of impact that may have on portfolio decline rate? The other question I had was on Mozambique. I wondered whether your CapEx guidance for this year assumes the FID to be taken on both the floating and the onshore and whether you have signed a non binding offtake agreements or HOAs or whatever you want to call it? Thank you.
Thank you. First on CapEx. When you talk about CapEx by adding that you are talking about the production optimization or CapEx or what we spent on the existing field to maintain production. And that is something that we don't reduce because that's a very fast recoverability and that's a very high internal rate of return. So that remain our base CapEx.
That is also one of the elements, our strong element to fight the future. So that is not part of the yearly reduction for 2015.
Mozambique, well, we are as you know the APC tender is ongoing with a major consortia and we are expecting to receive the offers by the end of May. In addition to that, as you probably remember during the last call, we mentioned the road map to FID. Well, we achieved the first three out of 4 steps in the submission of the plan of development. And just a few days ago, we completed also the process for the environmental impact assessment, which is a very important step for the approval of the POD. So certainly, we do see the FID around the mid 2015.
About the gas, we are
Hi, Thomas, it's Marco. On the commercial discussions, I would say we're in advanced talks with a few very interested parties. Our aim is to agree key terms in the next few months. And I would like to add that in the current even in the current low oil price environment, the appetite for our project remains very high because of its geography, its size and I think buyers see it as a way to diversify risk in their portfolio.
Thank you. Can I just quickly follow-up on Mozambique on the onshore side? Presumably, the mid-twenty 15 FID is linked to the floating. But on the onshore side, do you expect intend to submit the the development time to the government separate from Anadarko or jointly?
Well, talking about the
onshore, first of all, as you know, at the end of 2014, Mozambique authorities issued the decree law, which is the legal, administrative framework to implement the project. And this is a very, very good move from the Mozambique side. As part of this decree law, we have the possibility to run independently from back in coordination with Anadarko. The first phase for 10,000,000 ton per year. For this project, again, all the tenders are ongoing, the APC tender for the offshore plant and the tenders for the subsea systems.
We are planning to submit in the next few weeks also the plan of development. So all activities are on track.
Okay. Thank you very much.
Next question comes from Ms. Lydia Rainforth from Barclays. Ms. Rainforth, please.
Thank you. And Geordashne, if I could go back to the chart on Page 5 around the cost data. Could I just ask you to clarify for me what unit that's based on? Is it your own operated production? Or is it as the entire production?
And partly linked to that, what are you assuming in terms of cost reductions on your non operated production side?
That is our equity production.
Okay. So within the cost reduction?
Yes, equity production, our impact.
Okay. I'd say within that, what are you assuming for cost reductions from your non operated production side? So I'm assuming that most of that cost reduction is purely related to your own actions. Yes.
What we are doing, we are working with the operator of the other joint ventures trying to push on each project to get the same level of reduction. You have to consider that more than 80%, 80 something percent is operated. So that represents a really important part of our production. It's clear that we are working with the operators and we rely on the operators. Most of our operators are the top company in the industry.
So they are following and they are doing the same kind of process. They are following the same kind of process. So in this case, we are considering just our equity cost and our operated production. Now the overall production was with our equity cost, yes.
Perfect. Thank you.
Mr. Bonizoli, please.
Good afternoon. Just a couple of questions. Regarding Libya, could you give us some color on the current production and safety situation in the country? And also could you also comment on the market share decline in marketing volumes in Italy in Q4? Thank you.
So Libya, we are clearly constantly monitoring the situation because the environment is very volatile. And our priority is to protect our people, so the security of our people and the security of our installation. What we have done until now is especially onshore, we create protection for all our activities. And we at the moment, we didn't have any damage to our facilities. 2013 we closed 2014 with a heavy production of about 240,000 barrels per day.
The last quarter was very, very high because reached practically our full capacity. We are close to 275. And at the moment, we are producing like in the last quarter, close to 300,000 barrels per day. Also because in Libya, we renegotiate some gas, storage gas in the East that we sell because we're tender for us, but useful for the East part. So we will have additional production also from this agreement.
And as far as probably you was referring to the oil falling demand that we recorded even in 2014 over in the range of 1%. But there is no nothing more unfortunate to comment in the sense that the fall kept on even 2014 because of the I would say the overall depressed market. The only positive news on this respect is the I would say, the stop in the fall we testified at the end of 2014 beginning of 2015. So the expectation is to see at least a stable number as far as 2015.
Okay. Thank you. Can I just follow-up? Can I Just shoot another question? On the outlook for E and P, the outlook was positive for the production increase in 2015.
But given the run rate very strong in Q4, do you feel more confident on achieving higher growth rate versus the guidance of the plan for 2015? Or should we assume more or less the same level? I don't want you to spoil the strategy of presentation into this. No, no,
no, no. I don't want to spoil you. No, I just want to say that from a production point of view, I think that we will be able to increase our production about, as you said, 3% at the old plant level, because if you consider new plant level, we can reach because of the price effect of the PSC also 5 percent, but the 3% at a constant price level price scenario, I think that we can confirm the 3% of increase. Because in 2015, we have big projects that will start production and we talk about Perla, we talk about Volleya and we'll talk about West Hub. And that is the situation.
Clearly, for 2015, we kept some important contingency production contingency because of Libya. But also considering this contingency, our growth is 3% on average.
Very good. Thank you.
Next question comes from Mr. Marc Koffler from Jefferies. Mr. Koffler, please.
Good afternoon, everyone. Two questions, please. I just wanted to come back to the major projects scheduled for this year and potential FRDs. I noticed you've moved forward at Pankofa Offshore Ghana. And clearly, there's quite positive commentary around coral.
Are there any more major projects which you'd expect to be sanctioning this year? And then secondly, I was hoping if I could just double check on the prior operating cost saving target, which you communicated. Was that €500,000,000 for this year? Thanks.
Okay. So I think you can answer. If again, we are anticipating too much because we are talking about FAD for 2015, but we can give you some view,
a preview on this. Roberto, please. Yes. Well, as I said earlier, Coral will be one of the major FID this year. In addition to that, I can also mention Congo, obviously, and Angola.
Okay. Thank you, Alberto. Now when you talk about OpEx and the reduction of OpEx here, we talk about 300,000,000 euros not $500,000,000 So €300,000,000 is expected to be figures. And on average, our operating cost for 2015 will be about 8.3 dollars sorry, dollars 8 per barrel so $8 per barrel unit cost.
Okay. And the prior guidance going into today?
Say what? Can you repeat, please? Because I can't hear you very well.
Sure. I was just wondering if what the prior guidance ahead of today's presentation was for 2015.
No, no, no. That is the first time that we gave the guidance for OpEx reduction because when you talk, I mean, maybe you mix up on the G and A. Last year, we started with our G and A reduction cost efficiency cost. It was when we talk about €250,000,000 on G and A and that was the guidance last year. For this year, the G and A guidance €500,000,000 but the G and A not OpEx.
OpEx is €200,000,000 and I'm talking about euro only.
Okay, great. Thanks, Marc. Is
that clear? Okay, thanks.
Next question comes from Ms. Irene Himona from Societe Generale. Ms. Himona, please.
Thank you. Good afternoon. I had a couple of questions please. Firstly, on working capital. Obviously, as oil went from EUR 145,000,000,000 you released about EUR 3,000,000,000 Now in Q1, we've gone from EUR 45,000,000 to EUR 62,000,000 but you still have the release of take or pay prepayments in gas.
So net net, what guidance can you give us for the present quarter please on working capital? And secondly on refining and marketing, I mean, obviously, the recovery in refining margin in Europe is seen generally as temporary. Can you split refining from marketing or give us some estimate of roughly how much of the improvement we saw is self help rather than margin? Thank you.
Okay, Irina. I'll give the answer to your question. So as far as the working capital, again, we wouldn't like to release any kind of guidance even for the Q1 15. You exactly mentioned what we expect in this quarter from some items such as the take or pay. What we are doing to paying the utmost attention to all the other items in working capital and this is happening also thanks to the reorganization that took place since May 2014 that allow the corporate people to have much more grip on this item all over the world.
But again, in term of so the expectation is to keep on delivering on the exceptional items I mentioned and to not to have any kind of worsening scenario on all the other items. As far as M and M, you asked about the breakdown of the refining versus marketing. I'm referring to the full year economic results that you know are around minus €200,000,000 which is the net effect of around €600,000,000 negative from refinery and €400,000,000 positive from marketing. The margin helped this result, especially in the 4th quarter that has been positive even if you refer just to refining results in the range of €30,000,000 And thirdly speaking, on a year on year basis, the upgrade of the results that is in the range of €200,000,000 has been a 60% scenario and 40% result of all the efficiency measure closure of additional capacity we have just mentioned.
Thank you very much. Thank you, Massimo.
Next question comes from Mr. Robert West from Redburn. Mr. West, please.
Hi, there. Thanks very much for taking my question. The first one is around the downstream and the refinery closures that we were talking about last year. It looks like more of those are going to come in as some turnarounds or conversions to green facilities. Can you give us some color on the differential cost of converting something to a green biorefinery versus shutting it down completely?
And then secondly, I noticed one of your partners in the U. S. Has elected to defer paying the interest charges on some of its debt and the equity has basically gone to 0. How does that affect you within your U. S.
Partnership? And any desire if you could pick it up basically for free equity value to up your exposure in those shale plays? Thank you.
The conversion of the refinery like the green refinery in JLR that has been announced in November, consisting the conversion of some assets in Jela refinery similar to the one that we have developed in Venice. The exploitation of this technology, the refining technology will allow us to process about 750,000 tons per year. The overall cost is estimated in about €200,000,000 to €120,000,000 and the timing for completion of the project is about 24 months after the approval has been obtained. We are not sure that we have completed your question shiver. Yes, that's right.
Yes. There is no intention to make any acquisition in the unconventional or increase our share over there. We are working with them. That is there is not any intention to make any acquisition.
Okay. Thank you.
Next question comes from Mr. John Rigby from UBS. Mr. Rigby, please.
Thank you very much. Two questions. One on Gas and Power, you'd be surprised to know. Can you help me a little bit in first, there's a comment actually. I think some of your disclosure is increasingly obsolete as you develop a different business.
I think I might have said that a couple of quarters ago as well. So is it possible, Marco, that you can break out or disaggregate a little bit further the impacts of the things you name checked, I think power, LNG, etcetera, on the delta on your performance? And maybe also is how much of that is maybe a seasonal effect or a temporary effect or whatever? Just give a bit more insight into if that is possible. And then the second question is on the exploration and the cut in exploration spend.
And I guess it's an easy thing to cut, but you're fairly unique in the industry by actually
appearing to drive quite a
lot of value from your exploration business. So I guess two questions. One, is there still a relatively high level of activity? You're not going to have to lose some of the momentum that you've clearly got in that business by shutting down spending? And second, are you still able or do you think you're still able to monetize some of those discoveries?
I think you said last year that one of the things that you would like to do is to accelerate the value in exploration by monetizing it. But I'm very conscious that the market right now might not let you do that. Thanks.
Michael, please. Okay. Well, John,
I mean, we're keeping consistent with the disclosure that we do give. And what I said before is the take or pay contracts, we bundle those together with logistics. Excluding retroactivity, you should assume that remains negative in 2014 and also remains negative in 2015 when we expect to recover some one offs with the Gastera arbitration. The other segments, which is power, B2B, trading, LNG and retail are all positive throughout 2014 and expected to be positive in 2015. As we discussed previously, there's been a sharp decline in B2B compared to 2013, which was still living off what the market was like in 2012.
And I think the other value added segments are stable and increasingly recovering with the power business being exposed to the spark spreads. So you can use your own curves and make those assessments going forward. Okay.
So exploration, first of all, I want to assure that we are still explorationists. So we like exploration. And the evidence is that in 2014, we acquire about 100,000 square kilometers of new acreage. It's clear that we're going to continue to work on our best Q and that is sure. We study our plan clearly in the details because we don't want to ask ourselves.
And we didn't do that in the past. And after all this success, you can be sure that you are still more convinced about our potentiality. What happened that in the last 7 years, we started spending a lot. We found a lot of resources also in a frontier exploration. Today, we really feel the need to look at value and resilience.
So that is really our big title for all our businesses, value and resilience. And that means that for our exploration units that is very efficient and effective is to go close to our field or our near field or in filling or appraisal and puts all our skills to find oil and tying oil very quickly or gas tying oil and gas very quickly. So that is a is not just strategic move, but it is a tactic move. And so I think that is I'm kind of sure everybody that we don't want to ourselves, we continue strongly with our aspiration target and strategy.
And the monetization angle?
Monetization that I forgot at this point, I was so focused on exploration. No, I think the exploration has a different kind of asset is not producing well for the long term. So it's less impacted by the fluctuation of the market of the price. And our assets are very good. They we can say cheap from a developed point of view or conventional.
And it's clear that it's a good business also for the buyers. We can say that it's a good investment also for the buyer. And they are not impacted by the price. So we are continuing and in discussion with different kind of people, entity groups. And we don't think we don't see any reduction in interest talking about exploration assets.
I think that they are recognizing a lot of volumes.
Okay. Thank you.
Next question and the last question comes from Mr. Neil Morten from Investec. Mr. Morten, please.
Thank you. Good afternoon, everyone. Two numbers questions, please. The first relates to the upstream business in Q4. Can you perhaps explain why there is such a big increase in the depreciation charge in the quarter on an adjusted basis?
And following on from that, there's an implied very sharp fall in your cash costs in Q4. And then just secondly, I wondered if you could give us an up to date rule of thumb with regards to PSC sensitivity for every dollar move in the oil price, how your entitlement barrels are affected? Thank you.
Neil, the most important reason why the Q4 DD and A increase in E and P is because of the ramp up of the new production and the start up of new fields that as you well know take into consideration and higher depreciation cost because of the higher cost that has been spent recently in order to develop the TIF? The PSA, yes. The PSA effect is in the as far as 15, internal volume is in the range a little bit less than 1. So it's in the range of 800,000 to 900,000 BOE per day every dollar frame.
Thank you. Is that Q4 charge then a sort of ratable number for 2015?
Definitely the D and A is expected to increase in time as the production ramp up, yes. Because there are a lot of projects remaining. For sure.
Thank you very much.
Okay. I feel that the call is over. Thank you for all the panel. Thank you very much. Bye bye.
Thank you. Bye.
Ladies and gentlemen, the conference is over. Thank you for calling