Hello, ladies and gentlemen, and welcome to Annie's 2013 Interim Update and Second Quarter Results Conference Call, hosted by Paolo Scaroni, Chief Executive Officer and Massimo Mondazzi, Chief Financial 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 am now handing you over to your host to begin today's conference. Thank you.
Good afternoon, ladies and gentlemen, and welcome to our interim update and second quarter results. In the first half of twenty thirteen, our Italian and European operations performed poorly affected by weak market context across the board. Meanwhile, our upstream activity performed well, but suffered from non technical production shut ins in Libya and Nigeria. While these issues have impacted first half results, our underlying business has made strong strategic progress. Key startups for 2013, including Kashagan, are on track.
We have closed major gas negotiations and we are continuing the restructuring of our downstream businesses. On the corporate front, this has been an excellent first half. Our disposal program has unlocked a further €5,900,000,000 of value including the recently completed transaction with CNPC. Let's take a closer look at the first half, starting from upstream. The two key issues are Libya and Nigeria.
In Libya, the security issues in Q1 and other disruptions in Q2 cost us around 20,000 BOE per day in the 1st 6 months of the year. The situation in the country remains volatile and we cannot exclude further disruptions in the second half. Meanwhile, in the rest of North Africa, operations are only marginally affected by continued unrest, although the ramp up of our Argentinian projects has been slower than expected. The major concern is, however, Nigeria, where in the first half we lost around 30,000 BOE per day from a combination of flooding, bunkering and sabotage. Our reduction losses were even higher in July as a result of the LNG blockade, although this issue has now been resolved.
Turning now to the economic crisis, which is impacting European and Italian operations, this continued to worsen. Gas consumption in Italy fell by 11% in Q2, driven by a near 30% decline in gas demand for power generation. Decline in electricity consumption and competition from coal, renewables and hydro mean that gas demand for power generation is now 49% lower than in Q2, 2008. With regard to refined products, in the first quarter of 2013, we saw a further 7% contraction in Italian demand, bringing the total decline since 2 1,008 to 26%, adding further pressure to structural refining overcapacity in the Mediterranean. And in chemicals, demand continued to be depressed, in particular in the elastomer segment, which was hit by lower sales to the tire industry.
In this tough market context, we made robust progress on our long term objectives of growth and profitability. In E and P, we have already achieved 6 out of the 8 key startups we announced in our strategy in March. Cashagan is on track and we can confirm production of at least 75,000 BOE per day by the end of September. Altogether, new projects are performing well. Startups and ramp ups contributed an additional 90,000 BOE per day to Q2 production, offsetting the impact of the Karajaganak and Galp disposals, the disruptions in Libya and Nigeria and the heavier maintenance activities.
And we expect their contribution to grow in the second half, bringing the overall additional equity production to 120,000 BOE per day for the full year. With regard to our longer term prospects, exploration continues to deliver strong results. To date in 2013, we made 11 we made discoveries for almost 1,000,000,000 BOE of new resources with major oil finds in Ghana, Pakistan, Egypt, continued success in Mozambique and as you have seen today Congo. With regards to Mozambique, we are studying the results of our 10th well, which looks to be a play opener for the south of the block. In the rest of the year, we will drill promising prospects in Norway, Australia, Vietnam and the Gulf of Mexico.
At the same time, to fight the strong headwinds in Europe and in Italy, we are taking more incisive actions in our mid and downstream activities. In Gas and Power, we have closed good renegotiations with 2 major suppliers, Gazprom and Sonatak. We are determined to secure further significant cuts to supply prices through outstanding price reviews with Gastera and Statoil. With regards to Gastera, we have made some progress, but we cannot exclude arbitration proceedings. With regard to start oil, we believe that we have no alternative to arbitration and we have accordingly opened the proceeding.
In Refining and Chemicals, we are restructuring our footprint. On top of the announced closures and reconversions such as the Priolo cracker scheduled for this summer and the Venice refinery, which we will shut down in September, we have announced the additional closure of gasoline and polyethylene lines at our Gela plant. This brings the total cut in Eni's refining capacity to 5,000,000 tons and the total reduction in Eni's polyethylene capacity to 23%. Turning now to capital allocation. We continue to make excellent progress in streamlining our asset base, unlocking value and strengthening our balance sheet.
The $5,900,000,000 of asset sales so far this year brings total disposal benefits secured since June 2012 to over €24,000,000,000 This has driven a substantial improvement in our financial position. Adjusting Q2 net debt for the proceeds from the Mozambique disposal, it is €13,000,000,000 less than half the €27,000,000,000 we had in June 2012. In what remains a volatile context, the strengthened balance sheet is a key pillar of our strategy to create value, investing in high returns growth opportunities generated by our exploration success. I will now hand you over to Massimo for a review of our financial results. Thank you, Paolo.
Good afternoon. In the Q2 of 2013, the market environment was negative for all relevant parameters. The average dated Brent price was $102.4 a barrel, down 9% versus last quarter and down 5% year on year. The Brent Urals refining margin weakened by $3.8 per barrel, representing a fall of 13% versus last quarter and a fall of 40% year on year. In Q2, euro averaged $1.31 This represented a depreciation of 1% against U.
S. Dollar versus the previous quarter versus any appreciation year on year of 2%. In the Q2 of 20 13, adjusted operating profit was €1,950,000,000 down 51% when excluding NAM's contribution to continue operation in the Q2 of 2012. The decline reflected the significant losses incurred by engineering and construction due to a revision of ratability estimate on some large contracts. Excluding the Engineering and Construction impact, TENI's operating profit would have declined by 27.2%.
Adjusted net profit was 0 point €58,000,000,000 down 55% when excluding NAM's contribution to continuing operation in Q2 of 2012. The decline was due to a lower operating performance and higher group tax rate, which rose to 91.2% or almost 30 percentage points higher than a year ago. The increase was almost exclusively due to the absence of tax shield for the site and losses with residual effect due to higher contribution of profit before income taxes from E and P, which is subject to a larger fiscal take than the other businesses. We now expect our full year tax rate to be around 66%. Excluding the effect of certain guidance revision, this is current with our previous expectation of a range of 63% to 64%.
Turning to E and P. In the Q2 of 2013, any liquids and gas production of 1 648,000 BOE per day was broadly in line with the Q2 of 2012 for the reason outlined by Paolo. Exploration and production reported an adjusted operating profit of €3,409,000, down by 19.6 percent year on year. This was driven in roughly equal parts by the worsening scenario on one end and by lower oil production, increased OpEx and ED rate on the other. And now Gas and Power.
In the Q2 of 2013, gas sales declined by 6% to 18,400,000,000 cubic meter from the Q2 of 2012 or 3.4% excluding the impact of Egad divestment. Against the backdrop of the ongoing downturn in demand and intensified competitive pressure, any sales in Italy were broadly stable at 6 500,000,000 cubic meter, while international gas sales were down by 9% to 11,900,000,000 cubic meters. In the Q2 of 2013, the Gas and Power division reported an adjusted operating loss of €436,000,000 a deterioration of €35,000,000 compared to Q2 2012. The marketing business reported an adjusted operating losses of €457,000,000 an improvement from the 4 €94,000,000 loss in Q2 of 2012. The effect of the worsening competitive environment were offset by the renegotiation of gas supply contracts with retroactive effects to the beginning of the year.
As you may recall, a number of our Gas and Power activities are not consolidated in EBIT. Income from this associated in the 2nd quarter amounted to 50 €6,000,000 compared to €81,000,000 in the Q2 of 2020. This reflects the impact of the gas of Galp disposal and reduced Uno Tenozagas profitability from the shut in in diameter. And now R and M. In the Q2 of 2013, Refining and Marketing reported an adjusted operating loss of €174,000,000 increasing by €32,000,000 or 22.5 percent from the Q2 of 2020.
Performance reflected lower refining margins impacted by the narrowing price differentials between light and heavy crude and weak demand for refined products. The negative trading environment was partially counteracted by efficiency gain of €42,000,000 compared to Q2 of 2012. This related to reduced energy costs, plant optimizations and lower throughputs at less competitive refineries. Marketing results declined driven by lower sales related to declining demand for fuels and mounting competitive pressures. Passing to the other businesses.
Versalis losses amounted to €82,000,000 €57,000,000 worse than in the Q2 last year. But you should take into consideration that in the Q2 of 2012, Versalis benefited from a relatively favorable environment owing to the rapid and temporary decline in feedstock costs. Overall, in the first half of this year, Versalis' results show an improvement of €49,000,000 or 25% as a result of a stronger scenario from steam crackers, efficiency gain of €14,000,000 and higher revenues from licensing activities. The Engineering and Construction segment has been commented on previously and the combined other activities and corporate results improved by €28,000,000 Commenting now on the overall debt evolution. Net cash generated this quarter by operating activities and disposal amounted to €4,400,000,000 This was made up of €2,000,000,000 from operating activities and €2,400,000,000 from divestment mainly disposals of NAM and Galp.
Capital expenditure amounted to BRL 2,800,000,000 mainly related to continued development of oil and gas reserves and exploration projects. Overall, investment in the first half of the year included both technical and financial were €6,300,000,000 and we confirmed for the full year 2013 CapEx broadly in line with 2012. Dividends were paid in the Q3 for $2,200,000,000 As a result, net financial debt remained broadly stable as compared to 1st quarter. Following the close of the quarter, we have received €3,500,000,000 of cash from the sale of 20% of Mozambique Area 4. This will support an improvement in leverage at year end 2013 compared to year end 2012 at our scenario of $104 barrel Brent for the full year.
And now I'll hand you over to Paolo for the final remarks. Thank you, Massimo. Looking forward to the rest of the year. In E and P, technical performance in terms of start ups and ramp ups is in line with our previous guidance of 3% growth and $90 a barrel. However, Libya and Nigeria remain key uncertainties.
On the assumption that Nigerian and Libyan production remains at the low levels experiencing low in the first half, production at current oil price is will be broadly in line with last year. For Gas and Power, we confirm our expectation of a further significant cut in gas supply prices. Although where revisions are not closed before year end, the benefits relating to 2013 will be deferred for 2 future periods. In any case, as a result of the renegotiation we have already closed, we expect no further take or pay prepayments this year. In L and M, we expect weak market conditions to continue, largely offset by the benefits of cost cuts and capacity closures.
In Versalis, results will improve, supported by the shutdown of unprofitable capacity. We are determined to bring these two businesses to profit and should the scenario prove more negative, we'll launch additional measures. Looking ahead, we expect the second half to be significantly better than the first, driven by production growth from start ups and ramp ups and more incisive actions to face the deteriorating market environment in Europe. We will continue to reward shareholders with a sustainable progressive dividend and we'll evaluate the activation of a buyback in Q3. Thank you for your attention.
Massimo and I plus the heads of our main business units, will now be pleased to take your questions.
Thank you.
Comes from Mr. Tipan Jotlingan from Nomura International. Mr. Jotlingan, please.
Yes. Good afternoon, gentlemen. Thank you for taking much of the questions. 3, please. Firstly, just on the balance sheet.
I just wanted to talk about your discussions with credit rating agencies. Is there perhaps a target gearing level that you want to reach? And does that sort of impact how and when you activate a buyback? Secondly, just in the upstream, two questions. Just on cash again, could you again sort of remind us where we are in the commissioning process, what you've budgeted?
And when exactly you plan for the 2nd train to come on stream perhaps next year? And then thirdly, I thought a very important discovery in the Congo. Again, could you talk perhaps about the P10 upside case? And also any follow-up prospectivities? Thank you.
Very good. Massimo will answer your first question and Claudio the second too. Okay. So as far as the credit agencies, as you know, the only change that happened recently has been the change in the Italian ratings made by Standard and Poor that didn't affect the rating of AIM. So for the first time it's retaining 3 notches up the Italian government.
And now the discussion comes together with Standard and Poor is about the qualification of Eni as a government related entity. So what we are like to
we'd like to explain to
Standard and Poor that Eni now is running on its own legs and is betting on its balance sheet without any strong, I would say, effect from the government. And as you made reference to the buyback, sincerely speaking, our balance sheet now is very strong, but we didn't enter into any specific discussion with the Standard and Poor about this specific issue that I guess will not under the spotlight for this time?
So, cash again first. Cash again is on track with the recent guidance. The project is progressing well to which KCP, I mean, 75,000 barrels per day by the end of September and around 180,000 barrels per day by the 1st part of 2014 and by the beginning of 2015 to reach 370,000 barrels per day. Just in summary, the technical situation of the project, onshore facilities have been completed. The 2 trains onshore have been handed over to production.
We finalized all the dynamical tests, so we are ready to receive the first oil. The A island, which will provide initial production has already been handover to operation and is ready for production. And on the island, the Train 1 is completed and has been pressurized with sweet gas since 13 July. We are finalizing the dynamic commission for the rest of the facility process and utilities. We think that by the end of August, we can start the production KCP.
For the Crane 2, I think that you asked about when the Crane 2 can start production will be in the Q1 of 2013, but that is following our schedule and program. For Congo, Congo is a very important discovery in the free salt. I think that the most important free salt discovery in the offshore of Congo salt discovery in the offshore of Congo in the WRAP-twelve. And we have at the moment drilled 2 wells. And at this stage as we said we have found about 600,000,000 barrels of oil, good very good oil at 33 degree and very good viscosity.
So also from a production point of view is it will be a good well. We have to continue the appraisal for these blocks. The name is Nene, but also on another block where we are drilling other wells, oil wells in a block called Leachangile. So I think that the potentiality of this area will increase. And I think by September, we'll be ready also to reissue the results of Deletinge as well.
Great. Thank you, Claudio.
Next question comes from Mr. Clint Oswald from Sandstorm Bernstein. Mr. Oswald, please.
Yes. Thank you very much. Maybe a question on Nigeria. Given the issues and actually given what Royal Dutch Shell has activated this morning with a portfolio review. Is there something there?
Is E and I considering something similar? Or is something you might think about going forward? And then secondly, just on Gas and Power, with your comments there about supply prices being deferred and but no take or pay payments. Can you talk about your confidence about this business potentially turning positive in terms of earnings contribution in 2014? Thank you.
Okay. Let me say a few words about our Nigerian years. We've been living through the Biafra war. So for us, Nigeria is really a legacy country. Now of course, we are quite worried of what happens in Nigeria and we expect frankly that the situation will not improve dramatically in the next few months.
We are reviewing our position. For the time being, our decision is certainly to try to be more offshore and less onshore in Nigeria. With the acquisition of Block 245, you should read this intention of ours to decrease the impact of our onshore activities as compared to our total activities on Nigeria. Now in terms of disposals, well, to dispose of onshore activities today in Nigeria is not exactly the easiest thing to do. That's our impression.
Marco?
Okay. Thank you. So on the gas business, as Paolo said, we are satisfied with the Gazprom and Sonitrack agreements, which we consider complementary, because the Gazprom agreement addresses prices and the SonaTraq agreement addresses volumes. And the SonaTraq agreement is the one that allows us to essentially for this year stop incurring take or pay prepayments. So that's on the volume front.
And through these negotiations, we've been able to offset the very weak trading environment we're in this year. It's particularly weak on the gas fired power generation. There could be some one off impacts due to the very high hydro power generation industries. But overall, coal and renewables are squeezing gas demand. In 2014, though we are not giving any guidance for 2014, we expect there should be more positive impacts from further supply discussions ongoing with Castera.
The prices are continuing to align themselves to Northern European and to hub prices across Europe. Also on the regulated tariff, there will be an alignment to hubs in Italy. So there should be pricing pressure in 2014 compared to 2013. Although on the supply side, we expect the benefits to continue to come. As we've said at the beginning of the year, we expect there to be a new round of pricing discussions as these discussions have a retroactive observation period to fully capture the deterioration we've really seen since last summer.
We need to do a new round of negotiations, which will probably involve a part of 2014 2015. As regards to the arbitration, we expect that to last would start to at around 18 months.
Even if during the arbitration, it is possible to continue negotiation. Absolutely.
That's great. Thank you.
Next question comes from Ms. Lydia Rainforth from Barclays. Ms. Rainforth, please.
Thank you. And so good afternoon. If I could just ask around Saipem and has the scenario that we've seen in the last 6 months changed your view on that investment there? And then secondly, if I could just come back to North Africa and both Libya and Egypt. Is there anything that you can do within Libya to try and limit or more anything more that you can do that you can limit the downtime there?
And just any comments on what you're seeing in Egypt at the moment? Thank you.
Okay. Let me answer something about Saipem just to update you on our strategic thinking. And then I will try to give you some answer about North Africa. Maybe Claudio will help me on that. Now on Saipem, essentially we have 2 objectives.
Now the first is to support the company in whatever way is needed until it recovers profitability, financial solidity and reputation. The second is to try to unwind the contradiction in our relationship with Saipem, a company that we consolidate, but we do not necessarily go together at all times. However, while we are keen to protect any shareholders from risks that are not under our control, you should bear in mind that the CIPA relationship is a contradiction that we have been living with for almost 30 years. So it's nothing really new. We prefer to create value for any and for Citum shareholders than to rush into a quick fix of this problem.
Therefore, we continue to evaluate our strategic options with regard to our SIPAM holding and we'll of course inform the market as a whole in the proper way as and when any decision is taken. Now moving to North Africa. Now you should bear in mind that we are the major player in North Africa. From North Africa, in North Africa, we produce almost 30% of our hydrocarbons and therefore for us is certainly a very important part of our business. So far, we have not had any major production problems neither in Egypt nor in Algeria.
The only country which we have been suffering in terms of production is Libya. We continue to keep certain optimism about the outcome of the situation, both in Egypt and Libya, while we regard Algeria as a solid country from which we should not expect in the short term any major trouble. I don't know if you want to add something Claudio on this.
For Libya, as you know, we in the first half, we lost an average of 18,000 barrels per day, 20,000 barrels per day. What we experienced in Libya, we don't have any problem with the terminals. I mean that our 2 terminals, 1 is offshore, that is Duri and the other is Narita. In good shape. We have just some introduction of our production in our fields.
The situation is recovering. Also, if in July, I have to highlight that we are suffering some big losses. We are following the situation. We are traveling to Libya every week. We are going to visit our fields.
But what we remark that all the institution, all the state company and the institution are really focused to recover the situation in as soon as possible. So we are as Pablo said, we are confident
about the future.
That's very helpful. Thank you very much.
Next question, sorry, comes from Mr. Ian Reid from Jefferies. Mr. Reid, please.
Yes. Hi, gentlemen. Just a question on Mozambique, whether you can update us on the status of the development in terms of unitization with Area 1, what you're thinking at the moment about the LNG developments? And maybe you can also say something about this Platia opener well you're talking about. I think it's in the liquids focused region of the block towards the south.
Thanks very much.
Okay. Claudio will take you.
So in terms of exploration starting from exploration, I think we are very happy about the new result because it's a new play, Kritaxios play, so completely segregated and far from Mamba complex. We are going to announce the results, I hope, in a couple of weeks.
So I
don't want to anticipate anything. But there are further 10 wells. We're going to after this, we are going to drill a 10 wells. We're going to after this well, we're going to drill an additional appraisal in the Mamba complex. And we finish the exploration.
We take a break for some months. On the development side, collaboration and working with Anadarko are going very, very well in terms of LNG, in terms of development, in term of unitization. So we don't see any problem of big hurdle in front of us. We are together in all the discussion also with the state company and with the government and that give us a big push and big help in progressing on the development. We are still we have the target to have the FID as we said in 2014 in the second half of twenty fourteen for the LNG and as well for the tender development of better unitized area.
So everything is on track and the things are moving in a positive way.
Okay. Just a follow-up. Is it too early to give us a rough idea of what the total CapEx could be?
So I think we can confirm on the CapEx the level of CapEx we said a few months ago that we'll be fine tuning next year during the sanction of the project, but we talked about $35,000,000,000 $40,000,000,000 for the first two plus 2 trains or 4 trains to develop 24 TCF of gas.
Okay. Thanks very much, Claudio.
Next question comes from Mr. John Rigby from UBS. Mr. Rigby, please.
Thank you. Yes. Two questions actually. The first is you mentioned Paolo the you were going to look at the potential for share buybacks in the second half of the year. Can I just ask whether an active consideration was made of whether you would start right away just simply because I mean you have a unique insight into the sort of strategic progress that you're making?
And clearly you can see where the share price is right now. So there was an opportunity or still is an opportunity, I guess, to arbitrage those 2 and use capital appropriately. And it's a great signaling device clearly. The second question is just on the downstream. As I understand it, I think there are 3 main events in the second half of the year that are important.
I think you mentioned 2, just Jaylor and Venice closures. And I think given the Este conversion unit starting up in the second half, I wondered is it possible to estimate or give some indication of what those three effects would have had on your earnings in the first half of the year if they had been in effect in the first half of the year just to get some idea about momentum through the second half in the Downstream? Thanks.
Okay. Now the second question requires a little calculation that I'm not sure I'll be able to give you right away. But certainly with the very weak demand, the closure of Venice will have a positive effect. And also Gela both for the refining and for Versavres would have been a positive. Now if you want some number, I might ask Camilla to give you more detailed information, which I don't have right now.
Now in terms of share buyback, we well, of course, this is has to be an ordinary process because it is not me taking the decision to bring it to my Board. And I planified with my Board to go there in September to make a proposal. Now I have to tell you from my point of view, I'm very keen to start a buyback as I think of it as a very useful tool to contain the overall dividend payment while maintaining a progressive dividend policy. This is the purpose of the share buyback. We have not yet been aligning the different elements of this decision, which we will do in the next few weeks, because I'm going to present it in September to my Board.
But I maintain the fact that I'm certainly keen to have in the future years a plan of share buyback active to contain the total dividend payment.
Right. That sounds great. I mean just to come back on that. I mean also presumably will the any kind of affirmation from the rest of the board that you just started leave you with some flexibility over that following 12 months to decide how and when and what you do?
Yes. I'm planning to ask for a flexible decision, which we will include timing, amount, price at which I would be making the share buyback. So this will be left to me and to Massimo to decide. We have also to propose which we have not done so far an algorithm, which we'll be using to buy back those shares. So we are still a little behind in this process.
But in September, we will conclude the whole process. Okay. Great. Thank you. Thank
you. Next question comes from Mr. Jason Kenney from Santander. Mr. Kenney, please.
Hi there. And sorry if you've already discussed some of this. I joined the call a bit late, unfortunately. So just following up on the Congo. Is it too early to think of a development scenario there or a start up timing for that particular find?
And then secondly, on effective tax guidance, could you just maybe talk around the moving parts of the impact of a very high effective tax rate in the second quarter, of course, Where you think that might play out for the rest of the year?
Well, we have already said something about Congo, but not exactly your question. Maybe you can add something. Yes.
No. I think that is quite early to talk about the future development because we frankly, we discovered 2 structures, 1 structure that we announced today and there is other appraisal wells in progress in the area. So we prefer to have a clear idea about the true potentiality of this area before starting the appraisal. For sure, it will be a project that will go behind this 4 year plan. But we have to say also that we are in a very shallow water.
We are these blocks are 15 kilometers from the coast in a very good area with natural grid. And so I think that when we will be I remember all the data where we can think about a very fast track development.
Yes. I think we can rate combo as a near field discovery in some way.
It's a good hub. It's clear that that is so big that will be a unique hub that we have to rethink back in term of development.
Okay, Massimo. Okay. So you're right. As I already said, we experienced a very high tax rate in the 2nd quarter amounting to 91.2%. The great majority of this increase is due to the site and review of its results.
So if you strip out this fact, the tax rate will be in the range we already announced during our strategy in March. So I can confirm that the overall tax rate we expect for the full year would be in the range of 66%. Again, on the full year, if you strip the SIFAM effect out, we will become back to the range we gave at that time. It was between 63% 64%.
Okay. Thanks very much.
Next question comes from Mr. Nitin Sharma from JPMorgan. Mr. Sharma, please.
Afternoon, gentlemen. Two quick questions, please. First one, you've discovered close to 1,000,000,000 barrels of resources in H1. Could you maybe give us some more color on this I. E.
How much of this is Mozambique and how much is ex Mozambique coming from other areas? And sorry one more on buyback. Guidance of Q3 potential start up buyback in Q3, does the weakness in Saipem's share price has any implications on your decision whether to start a buyback or not? Thank you.
Let me start Let me answer the second question, then I will ask Salve to answer the first one. The second question, the quick answer is no. Whatever is the share price of Saipem does not really have a major impact on our balance sheet. Besides, the share price of Saipem has been recovering quite a lot recently. And just as a reminder, just for you as a reminder, in 2009, the share price of Saipem was as low as €9 so the 16 of today, well, is some progress as compared to 2,009 at least.
But Claudio will be the second one.
So, yes, so on the exploration for the first half up to now on July, we have 60% of resources discovered in Mozambique and the rest in other discovery like Congo or Ghana or Egypt or Pakistan. So and we can also say that 40% is oil and 60% is gas. So that is more or less the data about this first half exploration result.
Thank you very clear.
Next question comes from Mr. Della Vigna Michele from Goldman Sachs.
And gas in Italy. The first half was clearly very weak. I was wondering what signs you are getting from the July data point in terms of whether there is any recovery or stabilization in demand? And the second one is about your Gas and Power business. I was wondering if you could give us a guidance for EBIT for this year in view of the possibility that the Statoil and Gastera renegotiations do not happen this year?
Let me ask the first question, then I will hand it over to Marco. Unfortunately, not. The market in Italy continues to be extremely weak, while in the rest of Europe is just weak. So we do not see any sign of improvement neither in gas nor in petroleum products. In particular, petroleum products in July have been minus 7 percent as compared to July 2012, which was not exactly a very good month.
So as you can see, the situation continues to be extremely difficult.
I would say, Michele, picking up on what Paolo said on oil on gas, July is also weak. We're now forecasting about 70, 7 0 BCM for the whole of Italy for 2013. Regarding the guidance, as we said, it's early to predict the outcome of the Gaspera discussion, which is ongoing. And that will determine very much what parts of the 2013 EBIT we can actually put into the 2013 year end results. And I would say the same applies to Statoil.
Of course, the arbitration decision on Statoil comes with that uncertainty. As Paolo mentioned, we can close sooner than the 18 months. But certainly, a deferral of the closures of those two negotiations will
mean that we'll have to wait to
recover those profits as they close. Overall, I think with excluding these deferrals, we confirm the guidance we gave at the beginning of the year, which as you remember was to close in line with last year excluding one offs, which would bring last year's result to somewhere around minus €200,000,000 I don't know if that's clear.
Sorry, going back to that. So the minus 200 would be if Starter and Gastera were successfully closed this year?
Yes, which is what we said at the beginning of the year. That was the same guidance we're sticking to.
Okay. And you couldn't quantify how much those 2 renegotiations could be worth on the year? No. Understood.
Thank you.
Thank you.
Next question comes from Ms. Irene Himona from Societe Generale. Ms. Himona, please.
Thank you. Good afternoon. I had firstly a question on production guidance. You reduced today the guidance for this year to flat effectively because of Libya and Nigeria. Thinking about the strategy presentation guidance, I was under the impression that the 4 year plan already included a contingency.
And I thought a contingency is meant to capture events such as Libya and Nigeria. So I wonder how we can sort of reconcile the 2. My second question concerns cash flow in Saipem. I see in the Q2 you had a €448,000,000 cash release from working capital. I think Saipem had a €1,000,000,000 cash inflow in working capital.
Would you look just thinking about Saipem, would you look at their Q2 working capital movers perhaps an indication of that all the
the precisely to your first question, then Claudio might help me on that. Now the guidance was 1,740,000 barrels a day on an oil price of $90 This was the previous guidance. Today, we say roughly in line with last year, which means around 1,700,000 barrels at today's scenario of $104 More or less this is the difference. This assumption assumes that Libya and Nigeria will perform in the second half at the same level than the first half, which was a level not particularly satisfactory, but we do not foresee a worsening of the situation neither in Libya nor in Nigeria. This is where we stand today.
Now part of this difference between $7.40 and $1.7 which is the guidance we give today is scenario. Part of this is Libya and Nigeria continue to perform worse than expected. And part of this has been eating some of the reserves of the provisions of the contingencies that we were having at the beginning of the year. I don't know if you want
to add anything. I think that you said everything. You can add that the contingency that we put at the beginning of the year has been burnt by the slowdown of the NAV, so especially in Algeria project that and Angola LNG that have a very slow ramp up. Angola LNG for tracking tourism and in Algeria because of the security issue that we experienced at the very beginning of the year. So that is the reasons.
It's clear that Libya and Nigeria are something that we didn't consider in the continuous. It's something that is really force majeure as it is a force majeure and is a extraordinary event.
Okay. Irina, you're perfectly right. We had an advantage from the working capital movement side in the Q2. I'm averaging to around €1,000,000,000 that are €700,000,000,000 if I refer to the first half. Our expectation is that this advantage will be partially absorbed by the end of the year.
So in line with the guidance of Saipem we received at the beginning of the year. So working capital neutral as far as 2013 with the recovery beginning of 2013. And exactly the same guideline can be applied to any. So any benefited from this advantage from Saipem in the second quarter and the advantage has been amplified some way by the reduction the seasonal reduction of inventories from Gas and Power. But at the same time, we suffered an increase in the commercial credits.
So all in all, we had a small advantage around €500,000,000 as far as the Q2. But again, the expectation for the full year would be cash neutral as far as the working capital.
Thank you. And would you look at Saibem as pretty much being at the bottom? And are you also looking for a recovery in their margins going forwards?
We have the same information you have.
Okay. Thank you very much.
Thank you.
Next question comes from Mr. Marc Bloomfield from Deutsche Bank. Mr. Bloomfield, please.
Good afternoon. Thanks for taking my question. Two questions, please. First, going back to cash profitability in Italy and the pricing pressure on your sales. Can you perhaps indicate roughly what proportion of your Italian volumes being sold on spot or spot linked terms today, ideally split between Industry Power and Residential?
And maybe give some sort of sense of how you expect that percentage to evolve over the next 12 months? And second question, could you perhaps update on the Goliap project, particularly when you expect that to start up and what the key critical plant items are over the next 12 months? Thanks.
So on the first point, in Italy, I would say we still have in our current sales price some of the older contracts that had some oil indexation. Basically, 100% of the contracts we are signing are hub indexed, both for industry and for power. Regarding residential, it's a regulated tariff that will move to 100% hub indexation as of the last quarter of this year. And so in 2014, excluding some of the older contracts that are going to expire, we don't have a lot of long term sales in the Italian market. And the Italian market tends to have a 1 year time horizon as opposed to 2 or 3 that we see in Northern Europe in terms of length of industrial contracts.
So I would say it's fair to assume that we have in 2013 some oil indexation that will disappear and is disappearing as we move into 2014.
Completion activities in October 2012 and that is in progress progressing well. The Flowline advisor has been already installed and the FPSO construction in Hyundai Yard in Korea is in progress. And we foresee a sell away in Q2 2014 and schedule the construction the production in the Q3 2014.
Thank you.
Next question comes from Mr. Alastair Syme from Citi. Mr. Syme, please.
Yeah, good afternoon. Another question on gas actually. Given that you've seen over the last couple of years the sort of gradual convergence between spot and contract again in Europe, I just wonder how that changes the dynamics of the renegotiation talks. And does the seller say it doesn't really matter now, contract versus spot will sell you either? Or will we not go to that point yet?
I would answer that. It is helping. As the Italian market becomes more liquid and the PSD becomes more liquid, it will over time become a reference for sales and for the long term purchases as is happening in other European countries. As these renegotiations look backward, they still include periods of time when our sales mix had oil indexation in it. So that's why it will take more than one round to get to a full hub based pricing system.
So yes indeed it is helping, but we're not able to fully reflect what's going on because of the time lag in the contract and the retroactive the backward looking nature of the observation period.
Just to sort of hit on its head Marco, do you therefore get much benefit if you don't have to renegotiate?
Yes. I think discounts we've achieved with Gazprom is a result of that convergence and that alignment.
Okay. Thank you.
No more questions at the moment. The conference room confirms there are no more questions.
Great. Thank you very much. So the conference call is over. If you've got any further questions, please get in touch with us on the Investor Relations number.
Ladies and gentlemen, the conference is over. Thank you for calling Annie.