And welcome to our presentation. Today, I will present the new action plan to revise the company's strategy following my appointment in May. The plan has 4 main priorities. The first is to continue to focus on exploration, the key element in our organic growth and also a major contributor to early cash in. The second is the optimization of project development to fast track the time to market and maximize the value of our discoveries.
The third is to accelerate the actions to reduce losses and reach the breakeven in the mid and downstream businesses, which continue to face weakening market conditions. And the 4th is to implement a strong cost efficiency program. The presentation will be focused on 2014 and 'fifteen outlook. I'm here with my management team, and we will be very happy to answer your questions after the presentation. I'd like to start giving you an overview of our first half results.
In recent months, we have carried out significant activity, achieving results that positively impacted our performance, both in term of cash and EBIT. In Upstream, we continue to achieve solid aspiration performance, reloading our portfolio in both core and emerging countries, such as Algeria, Kazakhstan, South Africa, Myanmar and Vietnam. Production was in line with the previous quarter in spite of the shutdown of WAFA in Libya for more than a month. In Gas and Power, we finalized agreement with Statoil and Gazprom, accelerating the recovery of prepaid gas and aligning supply pricing to market. In refining, we are progressing in restructuring the downstream business in Italy.
In terms of operating cash flow, our solid pace of improvement is well highlighted by the over 50 50% increase recorded in the first half of twenty fourteen versus the previous year. Now a few words on the scenario. In February, we assumed a conservative market view with a gradual decline in the oil price to $90 per barrel at the end of the period, a flat demand for hydrocarbons in Europe and in Italy and the lower refining margin. So far, the scenario has been weaker than expected. We have experienced a continuing deterioration of the mid downstream due to the lower than expected demand, reduced refining margins and lower spot prices for gas in Europe and in Italy.
Meanwhile, the upside of the tanker oil market of $5 per barrel above plan expectations was offset by the euro appreciating 5% versus the dollar. Despite a market that continues to confirm structural downside in the gas and power and the refining sectors, we have taken crucial steps to reach superior cash flow generation. In upstream, we confirm an average growth rate of 3% per year to 2017 and we will maximize the value of our portfolio leveraging on these three main actions: expediente new project development to ensure the 500,000 barrels per day contribution from startups in the planned period, fast tracking oil discoveries in Congo, Egypt and Nigeria to partially offset the impact of Kashagan and Angola LNG delays. And deploying our dual approach model to exploration by diluting our stake in the largest discoveries. In the Gas and Power sector, the main objectives are long term contract renegotiation to fully align our portfolio to market conditions and to end the growth of our high value segment.
Through the action implemented so far, we will be cash positive in 2014, 1 year earlier than promised and in spite of the weaker market. In refining, we will increase capacity cuts from 35% to more than 50% to ensure that refining and marketing will reach cash breakeven at the end of 2015, even at the current lower scenario. The transformation of Versalis is now fully underway. Here, we focus on optimizing the industrial footprint, upgrading the portfolio and improving the geographic position. And we expect to return to cash and EBIT breakeven in 2016.
One of our first action was to implement a major efficiency program, which target €1,700,000,000 of cumulative savings in general service costs by the end of the plan period. Finally, the large optionality of our portfolio will allow us to increase the disposal program from €9,000,000,000 to €11,000,000,000 with additional contribution from the upstream and midstream and downstream assets. The first action of our the first step of our action plan has been to change the company structure to better reflect the priorities of our strategy. In June, we deployed a simpler more compact organization focused on our core businesses and targeting stronger cost saving and high cash generation along all the business lines. The new organization is broadly divided into 3 main business areas.
The first in upstream is upstream, where we will continue to leverage on exploration, increase the efficiency of our project development and ensure production growth. The second is the mid downstream where we remain strongly focused on a turnaround strategy to create more efficiency and resilience. The third is retail gas, which is focused on its own specialized business area. We have centralized 2 major activities to support our business: development, operation and technology will work across all the business lines to engineer, execute and control any project operation and technology deployment. The staff function have been simplified to give us a more accelerated and efficient decision making process and improve communication among the businesses.
Now a closer look at the upstream, where we continue to expand and diversify our portfolio, add significant resources and deliver sound results in development and production. We have substantially reloaded our portfolio in the recent months by entering new countries such as South Africa and Myanmar and acquiring new areas in Algeria, China, Kazakhstan and Vietnam for a total of 42,000 Exploration is one of Eni's most distinctive characteristics. We will continue to target conventional assets, enter emerging basins and apply new geological concepts in proven plays. Our new acreage enhances our focus on the Pacific Basin, a growing area for exploration potential and increases the diversification of our portfolio. Exploration is continuing to deliver.
In the first half of twenty fourteen, we discovered more than 400,000,000 barrels of resources, mostly in Congo, Egypt and Nigeria. These, mainly oilfields, are close to existing facilities, allowing the fast track development and will contribute 25,000 barrels per day of equity production in 2015. The Gabon Discovered announced this morning and not yet included in the Discovered volume is a confirmation of our strategy on the pre sold place and exploration approach. Moreover, during the quarter, we continued to increase the value of our projects. In Venezuela, we signed an MoU to develop and produce Perla condensate reserves.
Production in 2014 is proceeding well with Libya and Nigeria in line with the guidance, notwithstanding the shutdown of WAFA during the month of April. We confirm a flat production in 2014 versus 2013 and our long term guidance of 3% growth rate to 2017. Next year, in spite of the delays in Kashagan and Angola LNG, we forecast that production will grow by 3% versus 2014. Let me tell you more about the promising discovery in Gabon. Nione is a presold discovery in about 30 meter of water depth and in close proximity to the coast, where we found a hydrocarbon color of 3 20 meters.
It is a gas and condensate discovery with initial potential of 500,000,000 barrels of oil equivalent in place. The structure is more than 40 square kilometers, covers 2 blocks where HENI has a participating interest of 100%. We will drill additional appraisals to assess the full potential of this discovery. This is the 3rd field discovered in the promising pre salt place in shallow water offshore West Africa after Nene and Licinjili in Congo. The overall potential of these fields discovered in the last couple of years is estimated in 3,000,000,000 barrels of original hydrocarbon in place and there are still possible upside.
Now I'd like to share my views on how to unlock the full value from our large exploration discoveries. Our approach from the beginning has been to acquire high stakes in exploration assets and apply a dual exploration model. This blends the traditional drive of exploration for resource replacement through development, typical of a major, with a high risk, high reward attitude of a smaller independent, which focuses more on the early monetization of discoveries. Accelerating cash in and balancing cost and risk exposure is the best option to maximize the value of our exploration, guarantee the long term reserve replacement, bring forward cash flow generation and eventually rebalance our presence worldwide. Given the recent discoveries and the additional potential of our acreage, we are elaborating a new plan.
And at the moment, we have increased the disposal program by €1,000,000,000 in the next 4 year plan. Last February, we announced 26 major startups, which will contribute 500,000 barrels per day at the end of the plan. In 2014 2015, we will complete 15 projects, many throughout Europe, U. S, West Africa and Venezuela, which will produce more than 350,000 barrels per day in 2017. Our projects are mostly on schedule with very limited cost overruns.
Through the new centralized development organization, we have reinforced the presence of our own engineers in each project with a direct involvement in all the executional phases and management of all the different packages. The first successful application of this model is in Angola Block 1506. We already have the selling way of the FPSO and we plan to start up during the last quarter only 44 months after the FID. In the Gas and Power, we have significantly improved our targets. We concluded 2 major structural renegotiations with Gazprom and Statoil and our commercial activities are performing better than expected.
We will be cash positive in 2014 and we will bring forward EBIT breakeven to this year. With respect to the price, more than 60% of our supply portfolio is now hub related. We target full alignment of our portfolio by 20 16, in line with the guidance given in February. In addition to the price discount, we reached a significant reduction in the minimum of stake requirement. We have increased our sales activity at the hub.
This will result in a material cash improvement with the substantial recovery of the €1,900,000,000 tech or paid prepayment by 2017. All these factors represent a €2,700,000,000 cash improvement versus the previous plan, with €1,400,000,000 being generated in 2014 2015. In refining, in February, we referred to a program that aimed to cut 35% of capacity by 2016. A 30% capacity reduction has already been achieved, including the conversion of Venice plant to a biorefinery, the sale of our Czech asset and the restructuring of the Gela plant. However, the continuous fall in refining margins and the structural weakness of the European market forced us to tackle the situation more aggressively.
We increased the capacity reduction target to more than 50% by converting and restructuring most of our plants in Italy and through the reduction of our international presence. The new program has already been presented to all the relevant stakeholders. With the positive contribution of the marketing business, we have improved our target to of operating cash breakeven at the end of 2015 and EBIT breakeven in 2016. An important part of our action plan is the efficiency program to reduce general service costs that were originally around €2,000,000,000 per year. We deployed a new organization and implemented a cost efficiency program, which have brought us a reduction of €250,000,000 this year and will guarantee a structural reduction of €500,000,000 from 2015, giving a cumulative saving on €1,700,000,000 over the full year plan.
With the result already achieved and the ongoing action plan, we will generate in 2014 2015 an additional €2,000,000,000 of cash that will more than compensate for the impact of project delays and the weaker downstream scenario. Therefore, cash from operations will grow quicker than expected to reach a yearly average of more than €15,000,000,000 versus the €11,000,000,000 of 2013. Furthermore, in 2014 2015, we confirmed to cash in an average of more than €3,000,000,000 per year from disposals. To sum up, the main objectives of our restructuring and the new action plan are to increase earnings and deliver robust cash flow growth. We are convinced that we have all the skills and tools to continue with our exploration success, optimize project execution, confirm production guidance, enhance all the mid downstream result and Dole with the strict control of capital expenditure.
The first result of this action are a significant increase of more than 40% in operating cash flow and a growth in our free cash flow of 20% versus last year. Thank you for your attention. Now we are ready to answer to your questions. Thank you.
Good afternoon. We are now ready to start with Q and A session. We will start with questions raised from the floor and later we will answer to potential demands from the floor. Before asking, please stand up and state your name. Thanks.
It's Michel della Vigna from Goldman. Claudio, you lay out a very clear plan on how to improve the cash generation in the company. I was wondering terms of cash return to shareholders in the form of dividend and buybacks, how do you see them evolving from here, especially at a time when cost of debt is so cheap? I think you've recently issued a 15 year bond yield at below 3%. How do you think about opportunities for potentially ramping up the buyback and the answer for the new
So what I can say that we are working really hard to recover from this European market that is very depressed. So our main focus now is really to be able to restructure our downstream business, our gas and power business. I think that we succeeded in these first steps to reestablish a good cash flow generation. And I think that we have in front of us in term of cash flow and also earnings a good situation. But we are still we have still to work a lot, but I think that is positive.
So I think that there is no problem to confirm first our policy at the moment, so we don't have to say anything new about our policy. And also to confirm our dividend. To for the future, as you know, we have to wait next strategy to talk about policy or to talk about a different kind of dividend. At the moment, I think that we are working hard. We are in a good position to confirm also for the future the policy and the level of dividend.
It's clear that our dividend is linked to is going to grow as our policy with the earnings and with the strong cash flow. So the debt is in substance what we can say at the moment about the dividend. The first step is positive. Now we are in a situation in a position a very safe position from that point of view.
Irene Himona, Societe Generale. I have two questions please. Claudia you spoke about disposals. I wonder if you can share with us how you think about Saipem? How does it fit in the plan?
Are you looking to sell it? And what would be the time frame? And second, question on cash again. You have told us that the pipelines need replacing. Could you give us an idea of the cost and the time frame for that?
And in your Do you assume Kashagan actually starts? Thank you.
No. For Saipem, we are studying different options. I really said that Saipem is a very good company. It's progressing very well. We like Saipen very much.
But as an oil and gas As a company, I think that is not core to have a stake in a contractor company. We are the only one. So we are thinking about different possibility with an adviser. So the process started. We are just at the very beginning of this process.
So I cannot tell you about which kind of option or when We are going to do that because we are not in a rush. I show you that we are in a good position from a cash point of view. So it's more a strategic move than a need for cash. But it's clear that we're going to do that at the right time. We're going to keep the market informed.
And it's clear that what we are going to do is really for any and for Saipem. So we want to maximize the value for both shareholders. And I think that we will be back on that, but that is a clear position. For cash again, cash again is what we are doing now. I think that the all the tests and the analysis has been done and we are We have a clear idea about the reasons of this problem.
We don't have still the time in mind because we wait for the operator that is working on the market investigation for the pipe supplier. We already start to some tender and also some purchase of piping. So we are I think we are in a fast track. We don't think that is in our budget, we didn't put any production in 2015 and some production in 2016. I think that as soon as the market investigation will be finalized in September, October.
We will talk or the operator talk to us and then to the market about timing and costs. But it is clear that our expectation to have sometimes reduction in 2016.
Thank you. It's Lydia Rainforth from Barclays here. Two questions if I could. The first one on OpEx and the cost cutting that you've set out
Good afternoon.
Can you just walk us through what sorts of areas you're expecting to save that money in and just examples of what that looks like? And what if there are any difficulties around that or if you think that's a very achievable level in terms of is it easy to do or is there more to come later? And then secondly just on the you set up 20 fourteen-twenty fifteen targets. Can you just talk about how you expect 2016, 2017 cash flow to evolve relative to the previous plan as well? Thanks.
I'd say a few things about our cost efficiency program that's not really related to OpEx. Then Roberto can say something about OpEx and Massimo can say something about the evolution of the cash flow. The efficiency program is coming from now. We restructured the company, so we don't have any more B Corporates. We centralize all the services.
So we have different area where we already not only plan, but we already started studied a very aggressive efficiency program. And I talk about a target of €1,700,000,000 in the full year plan, so €500,000,000 each year. And that is something that we are doing at the we can say at the corporate level. For OpEx, you want to say something Roberto about OpEx?
About OpEx we are at the level of $8.7 per barrel in 2nd quarter which is showing a slight increase mainly due to ramp up and new projects that are bringing more fixed cost. Thank you.
Okay. And in terms of cash flow, as far as 2016 2017, we at the moment we don't have any significant reason to change the estimation we made we presented during our last 4 year presentation.
Thank you. Good afternoon. Thipan Chokolangan from Nomura. I just wanted to come back to your revised sort of cash flow trend. Could you just walk us through the moving parts, particularly on the contribution from E&P near field production and also working cap?
What are the revised assumptions there? Thank you.
In terms of cash flow, as far as the production, I would say that nothing happened in the short time. The most significant info we can provide to you is that as said some of the brand new exploration successes could be brought into early production contributing something in the range of 25,000 BOE per day in the very early times. So this could be something that could help us to sustain the free cash flow in the short term. And the second One question was about Working capital. The working capital.
Definitely working capital, we expect a significant contribution from especially the Gas and Power, the Mid Gas, thanks to the renegotiation of the contract we just had in the last month that has been recorded by Claudio will give us the opportunity to recover the majority of the €1,900,000,000 we had in prepaid gas at the end of 2013 in the next 2 years.
If I can add something, because from a corporate point of view, I think that we have all the other components, so gas and power or the reduction of capacity on R and M. So that is a contribution. For E and P, we have so a production. We have new projects. We have an increase of 3% last year expected this year.
But we have also what we I mentioned before what we I call the oil exploration. So we have some blocks a lot of blocks where we are in excess of 80% working interest. So there is a clear plan and we found interest around in the market to step into Fermi. So that is a for us also from a balance sheet point of view, we don't it's a special item, but we consider really in in bringing forward our cash and bringing forward our production in the exploration reducing our stakes. So that is another step to compensate especially for the next couple of years some lack of cash coming of cash flow coming from especially from cash again.
With all these actions considering also the other Russian are going to create a cash flow that is in excess of what is not present because of cash again especially.
Thank you. Sorry. Oswald Clint, it's Alfred Bernstein. First question just on Gas and Power. I guess you were surprised by the deal you did with Gazprom this year.
It's allowed you to revise your guidance.
You're not surprised?
Yes. You are not surprised. But So that's helped you revise that guidance and you've 60% on hub at the moment and you hope to get that 100% by 2016. So could you be surprised again or what change why are these renegotiations being easier And could it become easier? And you could get to 100% hub exposure faster than 2016?
And then secondly, just on the refining plans, you mentioned Claudio, you presented these plans to all the relevant stakeholders and hoping for cash breakeven by next year. So what's the necessary plans or steps we have to watch out for to see that being actually executed? Thank you.
Marco? Okay.
So on Gas and Power, thanks for the question, Oswald. Really, I think surprised is not the right word. I think when we gave the guidance, you remember we had an ongoing arbitration with Statoil, which was very significant and we had the very concrete risk of an arbitration with Gazprom as well. And I think both have been solved commercially which is always preferable. And both have been solved at a level, which aligns them essentially to the hub.
Now there's going to be ongoing revisions to these contracts. You remember they all look back and the hub has deteriorated since and there's a lot of logistics implications. So it's not done. But I think having settled both in a positive way plus the good performance of what we call the high value segments that Karlie referred to which are LNG Trading and Commercial that together has enabled us to revise the guidance on EBIT. On the cash flow, the guidance is even greater because of what Claudio said and the take or pay reduction, which is really a factor of all these things together.
Looking forward, the effort is going to be to bring all the contracts to hub level. So it's not hub indexation, it's So that's really what's between us and the target of getting to 100%. So
downstream refinery and marketing that now we are referring to the what we are doing on refinery. I think that you follow the Italian newspaper. I don't know if you got the opportunity. Yes, I followed very closely. I think that we for the first time, we really start a strong and determined action to change something.
And we don't want to run away or leave this decided. And we want to do something differently and we don't want to lose money and hopefully we will like to make money. So we start with JLR. We have a plan for all different refinery. There is a very important plan that is a transformational plan.
We start we already done something in Venice and that is doing positively. We want to do the same in Gela with the transformation. And what we are doing is linking the downstream restructuring with the upstream opportunity. We have a big important or big or less big opportunities in Sicily or in other countries. And we and that help us to shift people after the right training.
But in the downstream, we're already using a lot of people from the downstream in the plants. They are very knowledgeable and capable and very effective. So we are moving, so we don't impact the labor. And we transform the ore in green refinery ore in depots, a storage facility where we can import and we can export. And that is a part of the strong action.
It's clear that abroad we have some refinery, small refinery. We are still 2 refinery. We have a plan to sell out these refineries. So we really want to reduce our exposure. That is not very big, but we are losing a lot of money.
So we really we are really determined to go ahead. We today, just 1 hour ago, I think, after 2 days of discussion with the Minister of Development and with the unions, we signed an agreement, very important agreement in Rome. And that is a I think that is a very important agreement because all the parties are set to sit down and discuss our new plan. Let's start with Sicily. It's very positive for the region.
Is very positive for the workers, for the labor. And especially because we can we are going to invest in something that through which we can make money. And that is good because we have development also in the region. That is the first step. It was not very easy to reach it.
And now we start negotiation of each single project and then we're going to continue. When we talk about the breakeven, it's a combination of breakeven or refining where we are reducing capacity, so reducing losses and marketing, where we are optimizing also the marketing also the retail oil. So that is a combination. But we really we are really very focused every day.
Peter Kemp from Energy Intelligence. I had a question about Mozambique. You just mentioned farming down your licenses to increase cash flow. And you still have 50% of Area 4. I was wondering what your eventual and optimum stake in that block, what it is you're targeting.
In your strategy briefing earlier this year, you outlined various FLNG projects for Mozambique. There was no clarity on your proposals for a land sited LNG train. Just wondering what you're planning on the land sites at the moment and what the LNG FLNG picture is at this stage. And finally on indexation, you had indexation with Anadarko on the early sorry, you had indexation with Anadarko on the Prosperidade Mamba discoveries. I was wondering if there's further indexation to do further south on the block.
Okay. So I'll answer you about the first question about the M and A part. So we our position is to be operator with 30%, 35%. So we have a the possibility to firm out between 15% 20%. That's well the plan for this year, but because we don't need cash at the moment.
We always need cash, but I think that we try to optimize our the value of our assets. We are close to take the FID. So the FID for Cora is expected in December this year 2014. So we'll move again on the firm out after the FID. So now Roberto can give you some detail about the project and about the unitization and the rest.
Well, let's talk firstly about Coral, the non struggling reserves. We are running a competitive feed exercise for the floating LNG with 3 major consortia. We have already submitted to the authorities the plan of development. In terms of contract, this development will be under the petroleum agreement. So there will be no need for special regime.
And as Claudio said, we are targeting December for FID. About the onshore part, the onshore part actually is for the struggling reservoir. I mean the reserves we are sharing with Area 1. In Area the name is Prosperidade. In Area 4, as you said, is a member.
We agreed with Area 1 draft unitization agreement. We have agreed the master depletion plan. We have also agreed with the authorities the draft of enabling legislation and the free law because the struggling reserves will be developed under a special regime. And about the project itself just yesterday we have issued the main tender for the EPC contract. So for the construction of 2 train 5,000,000 plus 5,000,000 tons per year with results expected in Q2 2015.
So for the Stradlin reservoir, we are targeting an FID basically in the second half of twenty fifteen. Thank you. Right, right. We have also agreed with Anadarko the layout in the Afunji Bay to locate our two trains.
Good afternoon. Thomas Adolff from Credit Suisse. I've got three questions please. Firstly, on your production guidance for next year. I was just wondering what sort of contingencies you have in place or whether they're any different to your prior plan?
The second question, I guess, just sticking with Mozambique. Just wondering what progress you're making on the MOUs for the offtakes, if any? And related to your potential partial monetization, I guess, it will have to be at the ENI East Africa level since, I guess, CNPC has a stake in the subsidiary rather direct stake. And almost certainly CMPC doesn't want to be diluted? And the last question I have is on Iraq.
And I guess I asked you on the Q1 call what your view is on Iraq and you said I'll give you a decision a year from now. Has that changed? Thanks.
So production, you want to talk about production for next year or is Aetna?
First of all, we confirm the guidance. Next year, we will have significant projects coming on stream counting 450,000 barrels a day. So we confirm as I said the guidance we already gave you. And about 2014 as you know we have almost flat production between 2013 2014. So this is the scenario for production with further contribution from new projects from the pipeline of new projects.
The question was on contingencies.
Libya, Nigeria. We are considering Libya, Nigeria basically at the same level we have this year. Consider that Nigeria is producing around 120,000, 130,000 barrels clearly affected by bunker and sabotage, but we are focusing on offshore in particular in the deepwater where we are getting very good results from our Abu field. And about Libya, our present level of production is in the range of 2,030, 2,050,000. But a day mainly on the Western region because our Abu Atifel field is still shut in.
And we consider that this situation will stay also for next year. This is the assumption we have for next year. Mozambique. Mozambique, well Mozambique we are working with Marco to talking to the buyers in particular in the Far East. We have clearly a priority for Coral because of an ID late 2014.
Marco maybe you can say more about the scatter on the market.
I think there's a lot of interest and excitement in the area for LNG in general, but for this project in particular. So we confirm the previous target of having binding agreements in place at least for Coral by the end of the year.
And as far as the disposition of additional stake in our Mamba project. I will say that the disposition of shares in East Africa will be the I would say the easier solution in front of us. But I would say that potentially there are other solution in place. So I cannot say anything specific on this respect.
So the last point about Iraq. We are about our project in Iraq, we are not really happy about what's always going on. So we didn't take any decision yet so to pull out from this project. But it's clear that it's becoming more and more difficult. And the main problem is not security.
It's the problem that we are not really proceeding as we schedule. So we reduce our people for security reasons, but I think that is really we are thinking about the future. The production level is good. It's about 340,000 barrels per day, but we need water injection. If we are not able to have water injection in place, we cannot keep this kind of production level.
We have to reduce the production level. And that means that we cannot invest anymore. So the main reason is that we need all the different situation in place correctly to go ahead. We are not excited about our project in Iraq.
Hi. I would stand up. I don't think I can get out. This is Jon Rigby from UBS. Three questions, 2 on gas.
The first is, would you, as you approach FID, consider taking any gas or LNG yourselves into a portfolio as part of your sort of growing trading business that you've talked about? I that's been common practice among the major LNG traders. The second is, Marco, could you talk a little bit about how you would see the shape of the earnings from your business as it sort of matures over the next 2 to 3 years? So the various contributions of the different activities that you are doing? And then the third question is just one thing I don't think has been discussed, unless I missed it, is CapEx and the perimeter around CapEx.
I think you talked in the release about lower CapEx or targeting lower CapEx for this year. But of the measures you're talking about seem to me to be either deferrals or complete removals of activities you were envisaging in February. So perhaps if you could talk about where you think the sort of trajectory of CapEx versus your previous plan is? Thanks.
So on the LNG, I think our preferred option at this point is to go and sell the gas. But we always retain the opportunity to preserve some of the gas, particularly the Corral gas. It's 2,500,000 tonnes, so it could part of that could nicely fit into our portfolio without significantly changing the risk profile. Regarding the shape of our earnings, we don't disclose specific lines. But in a ballpark, as we say, we target to have gas take or pay contracts in line with the market.
So volumes decline and the shipper pay commitments remain in place you have some costs associated with that unused capacity which is a negative. And on the positive side, the way we look at the business is retail, trading, LNG and B2B. And so those are the high value segments that Claudio referred to. So as we target to have the contracts at 0 by the end of next year, then we'll have a negative on the logistics and positives that overcompensate that on the high value segments.
CapEx. So CapEx has been what we've done at the very first you're right. We postponed some projects. But really, the work we are doing on CapEx is quite is more sophisticated, more analytical work because we are restructuring some projects in terms of modularization. We are phasing some projects.
So we are practically starting with early production, creating a free cash flow and then developing. We started doing that with more, we can say, risky projects Dubeiro or like Perla and Kunin5 where we treat these projects in different packages with the early production. So we are doing the same also in the big oilseed that we discover in West Africa. We did this Block 1506, but we are doing that also in anywhere. We have a 3 phase project with a modularization project, modularization project.
And that is going to have an impact on the final results. So less CapEx anticipation of cash flow and the next phase of CapEx we're going to do with the ready existing production to utilize the cost recovery. So we try to avoid any upfront big upfront investment. And that is what we are really doing in a strong detail in our projects. It's clear that we are really attempting to avoid any impact on the production on the 4 year plan.
The other point that is always linked to the exploration, Big stake, we sell, we cash in, but also we are going to reduce our exposure. So in the new plan, we are considering the firm out of some project that we try to accelerate, but with a lower amount of CapEx because we are reducing our stake that at the very beginning is very high. So that are the different situation or reason why we can reduce our CapEx plan. Downstream, yes, Downstream and Chemicals, absolutely, yes. We made some efficiency in Downstream.
That is clear. And also in Chemicals, we already reduced of €350,000,000 in the full year plan from Chemicals. And I tried to do better, but Versalisio is fighting a lot.
Any more questions?
Thank you. It's Neil Morton at Investec. I had two questions. You announced the reorganization of
E and
I sort of remarkably quickly after you took over as CEO. Was this just out of interest a cloudy discalte decision? Or had it been in train for some time? And indeed will it be if you like the final step in ENI's evolution since its IPO in the middle of 1990s? And just secondly on Kashagan and the replacement of the 2 pipelines, who will end up footing the bill for that work?
Thank you.
So the first point, the organization is clear that has been my decision because I did it. So it's clear that it's not my wife, it's anybody else. And but it's clear that it's something that grow up in the sense that the A and P business is 95% of our revenues and 115% of our AB. So it's clear that we have to we needed to transform our company. We did also because of the general context.
We need a shorter company, more flexible company to increase communication with all the people and to be more flexible to avoid or to overcome all the different hurdles that we have in front of us. And we need a team very, very close team in a company that is not a group of different companies, but the management team is very close around the company itself. So we change completely. But it's also we changed because we needed to change. We are not more the company of 2,005, 2,004 with the different business going very well.
The situation changed. The gas changed as directed gas is not more there. Refineries losing money. Chemicals are losing money. We had to react.
And to react, we have to change your culture. To change your culture you have to create a big anomaly. And the anomaly is the company, the organization and the management team. For that reason, I took this decision. I Kashagan.
Kashagan. Kashagan. Kashagan. Kashagan. Kashagan.
Kashagan. Kashagan. Kashagan. Kashagan. Kashagan.
Kashagan. Kashagan. Kashagan. Kashagan. Kashagan.
Kashagan. Kashagan. No. Kashagan. No.
I didn't take any decision about that, but I think that who is going to pay the bill. From a contractual point of view, every cost that has been yes, that we add after the first oil after before the commercial production is at cost of the joint venture. That is clear. We have to understand which kind of the perimeter because we are also spending out the money for the development because we are to continue the development drilling the wells so that is out. But for the pipe itself normally from a contractual point of view is at the expense of the joint venture.
We don't have contractually any penalties. So that is but the penalty itself is really to pay the bill for the pipeline. So that is the answer.
Hi. It's Nitin Sharma from JPMorgan. Looking at the cash flow from operations guidance, maybe you could just throw some light as to how much of this improvement is coming through from the underlying macro assumptions? I see Brent is clearly going quite positively in terms of those assumptions and that must be helping. So maybe some light on that.
And probably Marco you could throw some light on the declining spot prices and what we've seen in terms of European gas prices. How does that play out for your renegotiations and going forward now that you would not have hub linkage, but prices that will be closer to hub? So if there is a fluctuation, how does that kind of play out in your earnings? Thank you.
So as far as the contribution in term of cash flow, definitely the strong flow of production in E and P will represent the baseline together with the increase we are projecting by 3% as said in 2015 starting from 2015. 2nd, the Gas and Power evolution from a contractor point of view that we said and we outlined will give us some additional contribution in term of recovery of prepaid gas. And 3rd, I would say the shutdown of up to 50% of refinery capacity. At the same time, we'll free some cash trapped in working capital in term of oil in place that will be free as we shut down the capacity. And then in this projection, we are assuming recovery as a reasonable in cash contribution from Saipem and even the reduction in losses from the Chemicals business.
These are in good order the main elements of this contribution.
So talking about the hub changes and the impact on the take or pay. Last year, we had 100% oil indexation. And so the 30% reduction we've seen in hubs would have resulted directly in a hit to the bottom line or at least in extra purchasing costs. Now we have 60%, so that's hugely mitigated. And as we target the 100% going forward, we will be floating around the hub.
We have had on the sales side some contracts that were not hub linked to support that transition. So that's why you're seeing overall a smoother ride than if we had taken the full hit.
Any other questions?
Thank you. Eirini Gimano, Societe Generale. Just if I may go back to the efficiency program, the €1,700,000,000 4 year cost savings. You described it comes from simplification and centralization and so on. Can you say how many people are actually involved?
So by the end of the 4 year plan, what is the headcount reduction going to be? Because I imagine that is part of it.
There is no head reduction. That is not coming from reduction of our people. It's coming from other different services general services, IT, sponsorization and duplication of stuff that we had and now we are using in a different place. So we are not reducing our people. We are netting.
So we are balancing our people in different business. And that means that we are reducing the employment maybe in some area because we are able to free up resources from this exercise. So we are not going to dismiss anybody. We are going to dismiss costs and useless activities.
It's Jon Rigby again from UBS. One other question I had. I noticed as I was looking through your release that if I look at the dividend you announced and the EPS number you reported, it's effectively 100% payout ratio I think for the first half of the year. So Claudio, I mean, you've now moved to the Board level. So could you tell me, was there a pause for thought about that situation and a thought process about what an appropriate level of payout should be?
And particularly, I guess, because the nature of the company is also evolving, right? So this is a legacy dividend based around a company that will will look very different 3 or 4 years ago to what it will look like in 2 to 3 years. So I just wondered I know you reiterated confidence in the dividend, but maybe you could just talk about that in your role as a Director of E and I.
Yes. So I can tell you what I told to my Board. And here we have also our President and one of the directors that are in front of me. And what we what I told to my Board and to the Chairman, we show the cash flow and the EBIT profile in the next 4 year. It's clear that the payout of so the level of today is not accessible.
But I think that with the program that we have in terms of EBIT result and cash results, so we confirm our guidance. We have a strong number of action very robust. We reached by the end in 3 year time by the end of the plan, we reach a level that is going back to the unstacted or acceptable leverage level sorry average. So we'll leave something that is about 58% that is an acceptable level of payout. And so and we did that in a very analytic way with all the different components at the corporate level.
So and after these figures, the Board accepted. I made a recommendation to go ahead and in the Board of mid September. I'm going to ask the approval for this dividend. But I think that it's done on the base of the results of the last 2 months of the new program and the all the different components that we have in Gas and Power, in E&P, in Erendem, in Chemicals, in the restructuring of the cost of the corporate that has been done not only to pay the dividend, but really to write the level of the cash flow and the efficiency of the company. So I think that we are quite sure that what we propose is sustainable not just for this year, but for the long term.
It's Thomas Adolff from Credit Suisse again. As I look at your E and P portfolio, I mean your exposure is predominantly to conventional place, which is a conscious decision you made a number of years ago. You've got a little bit of LNG. You've got gas value chain. How does shale play into your thinking over the medium to longer term as a major oil company?
As a major oil company, it played the same role that played just 2, 3, 4, 5, 6, 7 years ago. So it's still out in term of traditional North American shale gas or shale oil. At the moment, shale gas more than shale oil. What we continue what we are continuing is to work in the country where we are for the unconventional. We are unconventional block in Nigeria.
We have a conventional block in Pakistan, In Indonesia, so we have some unconventional blocks. We are working on it at the exploration level or production level like in Pakistan. But we want to do something sustainable. And in term of activities and in term of costs. And so where we have facilities, we are already drilling conventional horizons and we have also in the proximity or underneath we have unconventional like we have in Algeria and Pakistan.
We can optimize cost and we can do something that is sustainable. I we think that we have found we have so many conventional assets that we prefer to continue our strategy. And the strategy is still to reload and we are reloading our portfolio on the base of a conventional asset oil and gas. Now we are more oriented to oil plays in West Africa and not only in West Africa. Gas play more in the Pacific, but that will be also the future.
It's Mark Bloomfield from Deutsche Bank. Two questions please. Firstly, on the restructuring plan in refining and marketing. You talked about cash breakeven by the end of 2015. I wonder if you could give us a sense of the kind of upside as we look ahead to 2017 if you're successful in delivering that plan?
And the second question just thinking about your success with exploration in the Presort West Africa. I think you've indicated that there'll be some early production potential by 2015. But again perhaps you can give us a flavor of where you see that going 2016, 2017 and baked into your 3% production growth aspiration? Thanks.
So we start with the aspiration. So we give the opportunity to Luca Bartelli that he's the head of exploration to say something about what he's doing.
Well, as exploration, we had these successes in the pre sold plays in West Africa. And now the focus is in developing the oil that we discovered in Marine 12, Nene Marine. We have already first production coming at year end from the Nemarina Marine. And as Claudio said, the Nemarina Marine will be developed in phased approach. So we will see 2, 3 phases of development of NNE Marine.
The field still need to be fully appraised, because now we consider that we have 1,200,000,000 barrels of oil in NME Marine, but there is still further potential for upside. So this is the focus on development of it. Gabon, the well is just finished now. It's a nice discovery. Very thick hydrocarbon column.
It's gas incontinence. It's not oil. And we need to uprise and we will do very soon as when we found a proper rig for upraising and testing the field. So this is the short term plan for West Africa for all these covers.
To be clear, we already found the rig. He doesn't know, but we found it. So for refinery and downstream, I think that the context is we try to go we'll go to breakeven. It's clear that the context is very especially in Europe is very difficult. And I think that is continuing to be difficult, because we don't have the right conditions.
So the fundamentals in term of gas price, oil price, facilities, regulation, time to market. So I don't think that the refinery business will be the future for us or for any other European company. So what we have to do is really to reduce our losses, get the breakeven and continue our optimization. But we want to reduce capacity to reduce losses. What we can do is to reduce additional capacity.
I think that with the level that we plan now, we can reach the breakeven and maybe make some money. But the refinery system in Europe remain really difficult for the reason I told you. Under pressure. I said under pressure.
Thank you. It's Chris Kuplent from Bank of America. I'll start with the boring question. The restructuring for your efficiency program and the refinery capacity shutdowns, can you give us an idea for both items whether there are significant upfront one off costs that you have already budgeted for the next few years as you're fixing both those items? And the second question back to the topic of dividends.
We're looking at roughly €4,000,000,000 €13,000,000,000 of CapEx and you're telling us about a €15,000,000,000 operating cash flow number. So it looks to me like that's still not quite enough. Are you effectively arguing we'll get there by 2017? And surrounding that question maybe you can also comment on buybacks, scrip dividends, other flexibilities you see around shareholder returns? Thank you.
I'll answer about the upfront cost for the efficiency program and the refining restructuring then Massimo will answer about the rest. For the efficiency program, we don't have a lot of upfront cost. We already started. We already got €250,000,000 I think that we have some costs clearly to optimize, but quite marginal and will start in 2015, so next year. For the refining, we have to so we are shutting down.
It's clear that we have cost for abandon and we have cost for investment and that we don't start before 2015 second half and we'll be more clear about the profile of this cost at the next strategy presentation.
Okay. As far as the cash flow, you did the calculation right. So what we talk about this afternoon was an average of $15,000,000,000 in 20 14, 20 15, but we mentioned the 20 sixteen-twenty 17 level that for the time being remain as we said during last strategy presentation that would be in the range of 16, 17. So it means that reaching this final target means that definitely looking at the I would say the real cash flow from operation less the level of CapEx that by the way this year is projected to be in the range of $12,500,000,000 that could be in the range €13,000,000,000 all along the 4 year plan. We will help us to cover completely the dividend.
On top of this, let me remind what Claudio already said about the exploration potential contribution to this result. If we dispose off some interest in some of the recent successes we got in exploration that are far above the level of development that be sustainable in our organization and without affecting the 3% production increase we are keeping on promises. This contribution could help us really as it would be a contribution from operation because what we are doing is just to anticipate part of the future contribution. If the price will be the right one definitely as we did when we disposed off the interest in China. So that to the Chinese in Mozambique sorry.
So this is the scheme. So sustainable by definition without any additional effort by 2016, 2017 if we include this kind of industrial contribution from partial disposition, respiration would be sustainable even in 2014 2015. We thought about the scrip dividend, but scrip dividend in case would be so as an opportunity for our shareholders not I would say a solution to avoid a cash payment of the dividend. That's our thought on this prospect. And third, you mentioned the again the buyback.
You know that buyback, we would like to retain a high degree of freedom in decided the level of buyback. And so I'm not ready to share any kind of guidance on this respect.
Okay. The last question from the floor and then we'll take the question on the phone.
Good afternoon, gentlemen. Christian Malle from Nomura. Going back to Saipem, just two questions if I may. First of all, in the options that you consider around the strategic review on Saipem, would that be would that include the placing of the stock into the market and or a breakup of the business? And secondly, given the pressures facing the services sector arguably, what sort of time line would you consider around that strategic review?
Would you consider delaying it if the price wasn't attractive enough?
So I told you that we are at the very beginning of the process. So we don't have any strategy now for the future. It's too early. But it's clear that never and never and never recover the business. That is not our role.
We are shareholder. We are going to sell a stake in the future. We are going to understand how we are going to do that. And we want to maximize I repeat the value for Eni and the value for Saipem. So for sure, we don't want to break out the business.
So sorry, can you repeat the last questions?
Do the options that you are considering include a placing of the stock?
Thank you.
No, definitely. Claudio said that we are at very beginning. So we are not ready to share any kind of potential solution for the future.
Okay. I think that we can have a few questions on the phone.
Past now from Mr. Roberto Leticia from Equinoxim. Mr. Leticia please.
Yes, good evening. I hope you can hear me well because the audio quality is poor. Again on Saipem, please, you answered already to some topics, but maybe you can spend a few words about the financing that you're giving to Saipem. So what's going to be the attitude of Ennis towards Saipem for its financing in next month during the decision of what could be with the stake? Then a question on the Gas and Power.
Clarification on the breakeven at EBIT for this year already. Can you repeat us or remind us please what are the eventually the retroactive impact that you're accounting for this year within the breakeven number you're mentioning? And there's again a final on the gas import again. But the fact that you're going to be 100% hot link in the future for your gas procurement, is that going to change also the marketing strategy for the future in selling gas meaning that you won't no longer go to fixed price 2, 3 year contracts, but you will also on this change in the policy? Thank you.
So the answer on Savi is very short and fast. I repeat what I said before. We are at the very beginning. So I don't want to talk about something that we are still under evaluation. So I don't know we can talk about gas and power.
Marco?
Yes. So you should assume there is about €500,000,000 of retroactive and this is a combination of various contracts and various things in this year's results. The pricing structure is really driven by the clients. And so I think we're in a point now where we price more of our sales contracts linked to hub than the purchasing contracts are. I think the good news with moving to the hub indexation is we have the flexibility now to sell on the hubs themselves.
And as you see in our half year and quarterly results, our sales at the PSV, the Italian hub becoming finally a real liquid hub really gives us that extra flexibility that we didn't have before. So overall, you will have a greater percentage of sales price at the hub as well, but part of that is going to be a result of direct sales at the hub.
Okay. I don't think that there is any more question. Yes? Okay. Thank you.
Thank you very much for your attendance, for your question. And this the start of the presentation update is finished. Thanks.