Good afternoon, ladies and gentlemen, welcome to Eni's 2012 fourth quarter and full year 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 will have the opportunity to ask questions. I am now handing you over to your hosts to begin today's conference. Thank you.
Good afternoon, ladies and gentlemen, and welcome to our conference call. I will take you through some of the highlights of this year, and then I will hand you over to Massimo Mondazzi, our CFO, who many of you know well from his time as deputy CFO of Eni and in key positions in E&P for a more detailed look at the Q4 and full year numbers. With regard to the highlights, in 2012, Eni delivered a robust performance. On top of that, we have fundamentally changed the profile of our company. Eni is now financially stronger and more focused. Our balance sheet has been transformed. Through the disposal of significant stakes in Snam and Galp, we have reduced net debt by almost EUR 13 billion, bringing our leverage to 25% from the previous 46%.
Our remaining stakes in Snam and Galp are worth around EUR 5 billion at current market prices, and we will continue to pursue value-creating opportunities. The transformation of our balance sheet has gone hand in hand with that of our long-term growth prospects. Exploration has been truly exceptional. In 2012, we have added over 3.6 billion BOE of new resources or almost six times our 2012 production. This is not just Mozambique. We have also had significant success in the Barents Sea, West Africa, and in Egypt. Through efficient project sanctioning, we have achieved an organic reserve replacement ratio of 147%. We are on track with our major development projects. In particular, we are pressing ahead with Mozambique, thanks to the agreements struck with Anadarko in December, and confirm FID by 2014.
With regards to Kashagan, we are progressing steadily towards completion, and we will start up before the contractual date of June 2013. Of course, growth needs to be built on a secure base, and on that front, you should note that Libya has delivered a robust performance with a quicker ramp-up than many were expecting, although there is still a shortfall compared to pre-revolution production levels. While Eni's value creation opportunities have never been stronger, reaping the full benefits of this transformation requires structural reform of our mid and downstream businesses. In gas and power, we have seen continuing demand destruction. In 2012, consumption was 6% lower in Italy and in key European countries year-on-year, and 12% lower compared to pre-crisis 2008. This has prevented European oversupply from being absorbed and spot prices from closing the gap with oil-linked prices.
In this context, our focus is on the renegotiation of our supply portfolio. We have now opened renegotiations regarding around 80% of our supply base. At the same time, we have focused our commercial efforts on segments in which we can add value, such as retail and LNG. On top of that, we have launched a reorganization to integrate the supply activities of gas and power and R&M together with trading, risk management, and the wholesale commercial activities of gas and power, including LNG. This integration will allow Eni to capture synergies between supply, trading, and sales, which are becoming increasingly interconnected as the market for natural gas becomes more liquid. This activity will be led by Marco Alverà, who is currently in charge of our risk trading arm and in the past has run the supply activities of gas and power.
Turning to R&M, here too we are facing unprecedented product demand declines, down 10% year-over-year in Italy, adding further pressure to Europe's structural refining overcapacity. We have made progress in aligning capacity with demand through the temporary closures at the Gela, Venice, and Taranto refineries, and a reduced cost by over EUR 100 million. Lastly, Versalis has experienced the worst scenario on record, with high naphtha and utility costs and low prices for commodity chemicals. We are working to reduce our exposure to loss-making commodity chemicals, while at the same time striking international alliances to strengthen our position in more profitable niches. Overall, 2012 was a strong year for our company, with robust results in E&P and good progress on the restructuring of our downstream businesses.
The board of directors intend to submit a proposal to the AGM for a full year 2012 dividend of €1.08 per share. Now over to Massimo for a more detailed look at our numbers.
Thank you, Paolo. In the fourth quarter of 2012, the market environment was mixed. The average Brent price was $110, slightly up versus both last quarter and year-over-year. Refining margin in the Mediterranean area remained volatile, and the Brent-Ural margin dropped down from the high level seen in the third quarter to around $2.8 per barrel, 10% lower than the same quarter last year. Despite the improving trend of the euro against the US dollar, comparing Q4 2012 with Q4 2011, the US dollar has appreciated 3.8% versus euro. Before we turn to our results, you should note that following the sale of the 30% of Snam to Cassa Depositi e Prestiti, which occurred last October, from the fourth quarter, Snam is completely deconsolidated, while the portion of it, the so-called continuing operation contribution under IFRS 5, was present in the Q4 2011.
As you may remember, until Q3 2012, continuing operations including the result of Snam's transaction with Eni. This change in perimeter affected our year-on-year comparisons. In terms of adjusted operating profit, in the fourth quarter of 2012, we reported a 17% increase to EUR 4.96 billion. Excluding Snam from Q4 2011, Eni would have reported an increase of approximately 30% in adjusted operating profit. The result reflects a robust operating performance in Exploration and Production division, up 15.4%, also due to the ongoing production recovery in Libya. Gas and Power reported a profit reversing the prior year loss, driven by the marketing activity, which benefited from the renegotiation of certain supply contracts and the ongoing recovery of Libyan supplies. Refining and Marketing reported a substantial reduction in operating losses, driven by efficiency and optimization gains. Turning now to the adjusted net profit from continuing operations.
In Q4, it was EUR 1.52 billion, a 3.6% decline year-on-year. Adjusted for this Snam deconsolidation, this metric would have shown a 9% gain year-on-year. The fourth quarter net profit was also impacted by a higher than average adjusted tax rate of 67.3%, affected by a write-down of deferred tax asset accrued as adjusted profit in the previous quarter of this year. Excluding this effect, the fourth quarter tax rate would have been 62.5%, still higher than the 56.4% recorded in the corresponding period of 2011, due to the higher E&P tax rate and the lower result from associates. Now, I give you some highlights for each business. First, E&P. In the fourth quarter of 2012, reported liquids and gas production was 1,747,000 BOE per day. This figure is calculated assuming the new Eni conversion rate of gas to barrel equivalent, which was also used in the third quarter.
Performance was sustained by a recovery of the activity in Libya, the start-up and ramp-up of fields, particularly in Russia, and higher production in Iraq. These positive factors were partially offset by the shutdown of the Elgin-Franklin field in the U.K., force majeure events in Nigeria, and mature field decline. The stronger production led to higher E&P EBIT, which was up 15.4% to EUR 4.86 billion. Now Gas and Power. In the fourth quarter of 2012, despite the contraction in European demand, Eni's gas sales of 24.4 billion cubic meters were in line with the fourth quarter of 2011, excluding the impact of the gas disposal. Eni's sales in Italy increased by 9.1% from the fourth quarter of 2011. The positive performance was driven by increased sales at certain Italian spot exchanges, following the positive effect of commercial initiatives.
These increases were partially offset by lower sales to the power generation sector, reflecting the ongoing economic downturn, while sales to residential customers were stable. The increase in the sales in Italy was offset by the fall in European markets, which, on a comparable basis, were down 8%. This decline is mainly attributable to the U.K. and Northern Europe due to the unavailability of gas, a result of the accident which occurred at Elgin-Franklin, and the Iberian Peninsula market, which was down 9%. In terms of economic result, in the fourth quarter of 2012, the Gas and Power division reported an adjusted profit of EUR 41 million, reversing the loss of EUR 72 million in the fourth quarter of 2011. This performance was driven by the marketing activity, which benefited from the renegotiations of certain supply contracts and the ongoing recovery of Libyan supplies.
This positive was partially offset by lower sales prices due to the current demand downturn in gas and electricity. Strong competitive pressures. The international transport result that generated a result of EUR 75 million was broadly in line with the same period 2011. As you may recall, a number of our gas and power activities, among which Unión Fenosa Gas and Galp, are not consolidated in EBIT. Income from these associates in the fourth quarter accounted for EUR 23 million versus EUR 93 million last year, impacted by the European recession and lower income from Galp following the sale.
As for R&M, in the fourth quarter of 2012, it reported an adjusted operating loss of EUR 9 million, with a significant improvement for the fourth quarter of 2011, reflecting the efficiency gains and optimization measures, lower throughputs at less competitive plants, and better marketing performance due to additional sales to the Italian wholesale sector as a consequence of the shutdown of certain competitor refineries. These positives helped to mitigate continuing margin weakness and volatility. Finally, the other businesses. In the fourth quarter of 2012, the chemical division reported an adjusted operating loss of EUR 117 million. The improved performance versus last year was mainly due to slightly better margin at cracking plants, which benefited from lower supply cost of oil-based feedstock and efficiency measures. The engineering construction segment reported a lower adjusted operating profit, which was down by 18.7% in the fourth quarter of 2012 to EUR 317 million.
Other activities was in line with the previous year, while corporate shows a loss of EUR 83 million compared to EUR 90 million last year as a consequence of a lower contribution from Eni Insurance, the group insurance captive company, related to the increase in claims settled. In line with our new structure, we have strengthened our net debt position, which, as of December 31st, 2012, amounted to EUR 15.4 billion, a reduction of EUR 12.6 billion from December 2011. Net cash generated by operating activities was EUR 12.4 billion in the year. It was impacted by deterioration of working capital of EUR 3.4 billion, due mainly to the engineering construction business and gas and power, because gas and power payment has been delays from client, and take-or-pay prepayment to suppliers, and the general deterioration in European economic environment.
Capital expenditure amounted to EUR 12.8 billion and mainly relates to the continuing development of oil and gas reserve and the upgrading of Saipem's offshore vessels and drilling units. Financial investment amounted to EUR 0.57 billion. Dividend payments to Eni and minority shareholders were EUR 4.4 billion. Our balance sheet transformation was driven by the streamlining on our corporate structure. Asset disposals, mainly related to the sale of 35% of Snam, 9% of GALP and upstream assets, including 10% stake in Karachaganak, generated proceed of EUR 6.6 billion and a consolidated EUR 12.4 billion of debt. The stronger balance sheet position has been accompanied by an improvement of our cash and cash equivalent position from EUR 1.5 billion at year-end 2011 to EUR 7.8 billion at year-end 2012. Thank you for your attention. Now, I will hand you over to Paolo for his final remarks.
Thank you, Massimo. Looking forward to 2013. In E&P, we will grow production by over 3% at our planned scenario, now $90 a barrel, driven by key startups such as Kashagan, Angola LNG, and the Algerian projects. We will also continue our focus on exploration and target over 1 billion BOE of new resources. In gas and power, we expect results to be lower than those reported in 2012, owing to significant competitive pressure, especially on the oversupplied Italian market. We will contain the impacts of the market deterioration by accelerating our renegotiation efforts with all our major suppliers. In R&M, we expect results to be better than those reported in 2012, as cost efficiencies and a stronger retail performance will more than offset the expected deterioration in the refining environment and weak product demand.
CapEx will remain broadly in line with 2012, and will be mainly focused on the development of our new major projects. This will continue to fuel Eni's growth in the future, a theme which we will discuss further in our strategy presentation next month. Thank you for your attention. Massimo and I, together with other key managers from the business unit, will now be pleased to take up your questions.
Ladies and gentlemen, the Q&A session is now open. I'd like to remind you that if you want to register for your questions, please press star followed by one. To cancel the reservation, press star followed by two. Thank you. The question comes from Mr. Theepan Jothilingam from Nomura. Mr. Jothilingam, please.
Thank you. Good afternoon, gentlemen. Two areas, please, that I'd like to make my questions on. Firstly, just on Kashagan, could you talk about the exact milestones that you now need to reach first oil? The speed of the ramp-up to the threshold for commercial production, and if there is a number that you may give that you've assumed in terms of the contribution from Kashagan for 2013. My second question comes onto Algeria and the recent news flow around Saipem. I wanted to know, has Eni executed its own internal investigations on activities and relationships in Algeria? Has the company taken any further steps there, and are you comfortable with your corporate governance? Thank you.
Thank you. Claudio will answer the first question on Kashagan, I will answer your on Algeria.
Kashagan, we have three main milestones. The first is onshore. We have to finalize the completion by March, then we start testing with the sweet gas and diesel. We have finalized the completion onshore for the second train by April. That are the main milestones. In term of production, we budgeted about a contribution, our equity, about 19,000 barrel per days for 2013.
Now on Algeria. First of all, thank you for your question. Before going into the details of it, perhaps it would be useful to set out my thinking on the whole subject. First of all, Eni's policy is that nothing illegal is ever acceptable. It is perfectly possible to do business anywhere in the world without paying bribes. If it wasn't, we wouldn't do business there. That needs to be crystal clear. Second, to ensure that our actions are compliant with our policy, since I joined Eni in 2005, I have ensured that no contracts with intermediaries were entered into. In addition, we have introduced strict anti-bribery processes and procedures, which are recognized as some of the best in the world. Bribes are not only illegal, they would also damage our business. Our reputation has always been one of the major drivers of our growth.
The goodwill this creates has made Eni one of the major companies in our sector. Specifically with regards to Saipem, which is an independent listed company, neither Eni nor I have any involvement whatsoever with the alleged practices under investigation. When we found out about the allegations at the end of 2012, in line with our role as major shareholders, we made our concerns known to the board of Saipem, suggesting they take all appropriate measures, including possible management changes, in order to rectify the issue. This step indicates our zero-tolerance approach on this subject. While any wrongdoing will need to be evaluated by the Italian magistrates, we felt our concern was justified by the red flags which the investigation raised on Saipem's processes. More specifically on your question, we commenced our own internal audit with a view to act in a completely transparent manner.
As far as our procedures are concerned, particularly our anti-corruption procedure, we believe that we are at the top of the best practices in the world as far as Eni's concerned.
Thank you.
Next question comes from Mr. Hootan Yazhari from Bank of America Merrill Lynch. Mr. Yazhari, please.
Thank you, gentlemen, and good afternoon. I just really wanted to focus around the gas renegotiations, which you say are underway. Maybe you can give us some color on how receptive your gas suppliers are to renegotiations whether they're going to be applied retroactively like we saw last year, we obviously had a very good first quarter result in 2012, and whether we could potentially expect similar sorts of effects coming through from renegotiations there. The second thing, I just wanted to move on to Mozambique, and just get an update in terms of how the asset negotiations are going there with your partners. Whether you're looking to farm down, and indeed, has there been any progress on farming down your 70% stake? Thank you.
Very good. On the first question, I will ask Marco Alverà to answer.
Thank you, Paolo. Good afternoon. I would like to say, without going into the specifics of each contract, that if on the one hand, the increasing liquidity at the hubs is putting severe pressure on our commercial margins, on the other hand, this increased liquidity is giving us some benefit in the negotiations as the suppliers are now finally coming to terms with the fact that liquid markets and hub markets are to be reckoned with and have to be taken into account into the contracts. We're in an unprecedented phase where we have effectively all our major contracts open. That's about 80% of volumes. We expect to close most of these in 2013. The timing of the closing of these is not predictable, because it's a lengthy negotiation. We expect some volatility in the quarters. When we close, we also have retroactive impacts on the accounts.
Okay, very good, Marco. With regard to Mozambique, this has been an exceptional success for Eni. We have now 75 Tcf of gas in place and an agreement with Anadarko that basically means we can go ahead with the development at full tilt while fine-tuning unitization agreement. We are very happy to be sitting on 70% of 75 Tcf and are progressing towards FID by 2014. If we were to receive an offer of a strategic alliance which adds value to the project, we would, of course, consider it and inform the market upon its signing.
Wonderful. Thank you. Just a follow-up on that. How comfortable are you going to FID on the Mozambique project without having announced major offtake agreements for gas just as yet?
The answer is that we don't get any FID without any contractual option on the offtake. That is one of the conditions.
Understood.
We are working on that, obviously. Of course, you know that we have KOGAS as one of our partners as well.
Yes, there are also to add that there is a queue, because this gas is a good and a cheap gas, so it is very competitive.
Well-positioned as well.
Very competitive from a market point of view.
Understood. Thank you, gentlemen.
Next question comes from Mr. Nitin Sharma from JP Morgan. Mr. Sharma, please.
Thanks. Afternoon, gentlemen. Two questions, if I may. First one is on your guidance. You guided to a no change in gearing in 2013 versus 2012 under $90 oil price scenario after factoring in portfolio management. My question is, what extent of portfolio management have you factored in? For example, does it include any further stake sale in Galp? The second one on dividend, what is your thinking on both the dividend policy and payout in 2013? Thanks.
Okay. Massimo will answer the first question, and I will answer the second one.
Okay. As you can imagine, we are unwilling to disclose our assumption as far as the disposal are concerned. I understand your point, and I'll try to give you a different guidance, if I may. I would say, if we imagine the current scenario, a Brent price around $110, and we assume still the negative and deteriorating environment in gas and power and downstream, and Euro versus Dollar exchange rate is around 1.3, I would say that the Eni leverage should be just slightly higher than what we experienced at the end of 2012.
Okay, as far as dividend is concerned, you took note that our final dividend for 2012 is up 3.8% year-over-year. As for next year, and in general, for our future shareholder remuneration policy, we will give you further detail at our strategy presentation in March.
Thank you.
Next question comes from Mr. Oswald Clint from Sanford Bernstein. Mr. Clint, please.
Thank you very much. First, just on the upstream earnings in the fourth quarter, which looked very strong, can you just talk about if there's anything there on the cost side? Talk about costs in the 4Q relative to the last couple of quarters. When you have a force majeure in Nigeria, does that mean you don't pay royalties? Was there royalties not being paid in terms of fourth quarter? Secondly, just on Libya, you mentioned there's still a bit of a shortfall versus previous production levels. Do you expect to get back to those levels? If so, over what time period? Thank you.
Claudio will answer both questions.
Yes. Three questions. Cost, in 2012, we have been quite good on cost because we reduced our operating cost, and we are in a range of $6.70 per barrel. That is one of the best in the industry, and that is also the reason of our robust result. Cost is quite good, and that could be also true looking forward. For Nigeria, when we don't produce, we don't pay royalties. The royalties is linked to production. For Libya
As you said, our performance in 2012 has been quite good. The average is 255,000 barrel per day, and that also was our target. We think that we can recover full production by 2013, or fair to say, in 2014. In 2013, we continue progressively increasing and updating our projects and our maintenance.
That's great. Thank you.
Next question comes from Miss Irene Himona from Societe Generale. Miss Himona, please.
Thank you. Good afternoon. I had three questions, please. Firstly, in 2012, did you have some take-or-pay obligation? If so, could you give us the cost and the volume? Secondly, you point to 2013 production growth at USD 90 oil of over 3%. Can you just remind us of your oil price sensitivity in terms of the PSC effect? What would it be at current prices? Thirdly, in 2012, you had a EUR 4 billion asset impairment, which EUR 2.8 in Q4. It's a substantial amount. Can you just remind us of what it's made up of? Thank you.
Okay. A quick answer to your first question. We had a take-or-pay of EUR 500 million in 2012. On the second question, Claudio? On the second question, at today production, the growth should be 2% instead of 3%.
Irene, Massimo speaking. As far as the impairment, the total impaired cost are EUR 2.9 billion in the fourth quarter 2012. Some color, around EUR 500 million relate to the E&P asset, some asset in U.S. and in Middle East. All these write-down relate to, I would say, industrial reasons. The majority of the total write-down relate to gas and power. The total amount is around EUR 1.6 billion and relate to the write-down of the divisional goodwill. For your information, the remaining goodwill at year-end is around EUR 400 million.
Okay.
The remaining part relate to the refining and marketing, the write-down amount to around EUR 600 million, and relate to some refinery place we have in Italy.
Thank you very much.
Next question come from Mr. Alastair Syme from Citi. Mr. Syme, please.
Yeah, good afternoon, everyone. Can I just ask for a bit of disclosure around the reserve replacement figures for 2012? What are the big moving parts in the billion barrels that you've added?
Okay, Claudio. The replacements of these here. The main contributors in term of countries in the replacement of 2012 are Venezuela, Nigeria, Algeria, Congo and Libya. Russia, yes, Russia is fourth party. Yes. That are the main contributors coming from the project that we sanctioned in 2012.
Can I just confirm that there's none of Mozambique booked at this point?
No, Mozambique, we can put as a P1, non-development P1 when we take the FID in 2014.
Can you say, I don't know, in absolute or percentage terms, roughly how much of Kashagan is booked at this point?
The Kashagan, nothing this year because we already booked, because we took the FID. During the production, after the production, we can book something following the startup of the different wells. This year, there is no Kashagan.
Thank you, Claudio.
Next question comes from Mr. Mark Bloomfield from Deutsche Bank. Mr. Bloomfield, please.
Good afternoon. Two questions, please. First of all, on Kashagan. Just wondered if you can give us any sense of whether there's going to be a significant working capital build prior to that project starting commercial production. On that point, perhaps you can give us some sense of when you expect to book first revenues. Also on Kashagan, perhaps you can give us a sense of what you see the exit rate at the end of 2013, please. The second question is on refining and marketing. A very strong result in the fourth quarter despite indicating margins and throughputs essentially flat year-over-year. Perhaps you could quantify for us the year-over-year contribution from efficiency gains and operational improvement, and maybe give us some sense of what the expected benefit from those factors is going to be in 2013. Thanks.
Very good. Claudio will answer the first one. No, maybe Massimo will answer the first one.
The first one about the working capital related to Kashagan, I don't have any significant value to highlight in this respect. There will be not any significant amount capitalized as far as Kashagan.
Answering to your question about production is by the end of 2013 or early 2014, we seem to reach about 200,000 barrels per day, then there is a growth going up to 370 during the 2014.
As far as the refining and marketing margins are concerned, obviously the shape of the result we got quarter by quarter in 2012 is related to the trend of the margin. By definition, we benefited from the spike we had in the third quarter. As far as the internal effects are concerned, what I could add is that we gained something like EUR 100 million in terms of efficiency, so reduction in fixed costs during 2012. We also benefited from the partial closure of some sites we have in Italy that are the ones, for example, Venice, that now is under a transforming process to a biorefinery and some other sites, among which Gela, that has been partially stopped, this results in a total benefit for our margin.
Good, thanks.
Next question comes from Mr. Michele Della Vigna from Goldman Sachs. Mr. Della Vigna, please.
Good afternoon. I'd like to ask two questions, if I may. The first one is on E&P. We've seen a big improvement in the realizations for both oil and gas in Q4 versus Q3. I was wondering what the key drivers are there. My second question is regarding buybacks. You approved the program with your board. I was wondering under which scenario of oil price or of further disposals you would start to use that to avoid going into an inefficient balance sheet. Thanks, Paolo.
Very good. For the first question, the good increase comes from mainly Libya. That had a good production in terms of gas in the last quarter. The U.S., Italy, and Iraq, that we have some good increase. That are the main contributors in Ecuador, sorry. That are the four main contributors in the last quarter.
As far as the buyback program is concerned, you are aware that the last AGM, we acquired the authorization of buying back up to 10% of our shares. We will talk again about this subject at our strategy presentation in March, in which we present the whole plan for cash back to shareholders.
Thank you.
Next question comes from Mr. Jon Rigby from UBS. Mr. Rigby, please.
Thank you. Thank you for the opportunity to ask questions. I've got two clarifications and then one broader point. On the guidance that you've given for 2013 on production, can you explain what your adjustment is, if you've done any for Elgin Franklin? So is this an underlying number? Are you able to lay your hands on the number of what Elgin Franklin did contribute to your production in 2012? Also on your gas and power guidance, going back to the comments right at the start of the call on the Q&As, does the guidance that you're providing take into account any expectation on the retroactive adjustments that you mentioned? The second question, that was a double part first question. The second question is around Saipem.
I know, Mr. Scaroni, you made some comments, I'm not sure how official they were or not, a couple of days ago about Saipem. It does raise the question, a point that you've made before of having equity ownership and no control, if the sort of arm's length investment that you have runs the risk of damaging both Eni and your personal reputations. I just wonder whether you were prepared just to expand a little bit about that in the aftermath of what's taken place. Thank you.
Very good. Claudio, on the first one, I will answer the other two questions.
On the first one, Elgin Franklin, our hypothesis was to have a startup. We have a startup in March. It's been confirmed by the operator, Total, and also by the authority in U.K. That is, we will start, as you know, with the four wells, two plus two. During the year, if all the technical issue will be fixed there, we can add additional two wells. That is the program. For the years, for the three months, we have a loss of 88,000 barrels. In 2012, Elgin Franklin for us was a loss of 20,000 barrels per day. That was the average.
Okay. On the guidance on gas and power for 2013, let me try to give you some insight into the various moving parts.
When looking at year-on-year comparisons, you should remember that 2012 included a number of extraordinary positive and negative impacts from supply and sales contract negotiations. While we do not disclose the individual numbers, you should bear in mind, and we said it before, that on an underlying basis, gas and power was not profitable in 2012, as our supply does not yet reflect the deteriorated market conditions. How this situation will evolve in 2013? It's a kind of a complex answer I have to give you, but it requires several elements. First of all, gas and electricity demand will continue to be weak in our hypothesis. On the back of an extremely weak 2012, we are expecting only a very limited improvement in Europe and none in Italy.
The negative market context, coupled with the significant take-or-pay pressures accumulated not only by us but by all major operators, mean we expect competition to increase further, and especially on the Italian market. We have seen the Italian hub price, which we call PSV, trading below European hub prices, a trend which has impacted the 2012/2013 commercial campaign significantly. Given the increased pricing pressure, absent any change in supply costs, we would see gas and power results well below those achieved in 2012 on an underlying basis. The question becomes: what will happen to supply costs in 2013? On the assumption that we will close all the negotiations in 2013, and including the retroactive benefit of the negotiations we are working on, we expect to limit the impact of the market deterioration. In that case, 2013 would look similar to the underlying 2012.
I don't know if I gave you an answer, it's a kind of complex guidance to give you in such a complex market. On Saipem, your question is, in fact, does what has happened change our view on what is an appropriate shareholding in Saipem? Let me first point out something which has gone somewhat forgotten, that despite the recent share price fall, Saipem has been an extremely good investment for Eni. Investors who bought the shares at the listing in 1999 have made their money 18 times over, between a reinvested dividend and a share price appreciation. The total shareholder return in the last 10 years has been 300%. This using as numbers, the today numbers, not the numbers of two months ago. As I've said, reviewing our longstanding relation with Saipem is not a priority at this time.
Just to give you some insight into our thinking, as we have shown in 2012, we have a pragmatic view of our corporate structure, and our North Star is shareholder value creation. To date, our view has been that, on balance, disposing of any stake in Saipem would not be in the interest of our shareholders. That's because we judged that the synergy between the two businesses, on top of Saipem's extremely strong prospects, were worth the complexity of consolidating and guaranteeing the liabilities of a company we don't control and can't control by law, and because if we did it, we would damage its business model. We periodically review the advantages and disadvantages of our corporate structure, and our judgment of the best way to create value for our investors may change over time, and what has happened recently might contribute to it.
That's very clear. Thank you.
Next question comes from Ms. Kim Fustier from Credit Suisse. Ms. Fustier, please.
Yeah. Hi, good afternoon. Just two questions, if I could. Firstly, if I could ask the usual question on Galp. I believe we're approaching the end of the lock-up period on the 28th of February, and I was wondering if you could offer any thoughts or comments on how you see the remaining stake. My second question, I guess, is on chemicals. I think last year you guided to a EUR 400 million EBIT improvement by 2015, but you actually made a record loss in 2012. Do you still believe that you're on track to achieve that target? Thank you.
Massimo, the first one, and Daniele Ferrari, the second one.
Okay. Sorry, I cannot give you clearly any guidance as far as Galp is concerned. What we can confirm is that our idea is not to keep this position for a longer period, but I'm not able to give you any clear guidance about when and how we will go on exposing these shares.
Okay. About chemicals. 2012 was the year when we started to engineer. We announced the new strategy at the beginning of 2012. We changed the name. We started to engineer an intervention on the structural reforms we had to do in our industrial system, and we are going to apply those starting from August this year. The full effect on what we have under control will start to happen from August onward. This means that the restructuring of the poor performing side, change of our portfolio. Alongside the engineering of that, during 2013, we have strike a few deals to reposition ourselves internationally in most growing market and interesting markets for the chemical business. There has been an unprecedented combination of scenario for us in terms of raw material price and commodity price of our chemicals, which made us to make an unprecedented loss.
We are confident that this will come under our control during 2013.
Good.
Are there any more questions? No more question at the moment. There is one more question from Mr. Andrea Scauri from Mediobanca. Mr. Scauri, please.
Yes, good afternoon. Mr. Scaroni, I had just a follow-up question on gas marketing guidance, detailed guidance that you just provided. The guidance that you said, does it include a potential positive one-off from the renegotiation of contracts that you are implementing and you expect to close in 2013 or not? Thank you.
Yes. I would say yes. We expect also, we included in this guidance some positives.
I don't know if you can answer, but is it possible to quantify or not?
No, we are in the middle of a negotiation and of course, middle of several negotiations, and it would not be appropriate to give you more details now.
Okay. Thank you.
Thank you.
Next question comes from Mr. Jason Kenny from Santander. Mr. Kenny, please.
Hi there. Just a short question, sorry if you did mention this earlier, I joined the call late. Just on the tax guidance for this year, obviously, surprisingly strong tax charge in the fourth quarter with the hit EUR 230 million. If you could guide for what 2013 tax should be and how we should think about tax with a rising upstream contribution, that would be great.
Yes. The guidance I can give you as far as the 2013 is concerned is a slightly higher tax rate than the tax rate we experienced in 2012 due to the fact that, as I would say, it's clear after this discussion, the contribution of the Italian businesses will be poor in 2013 versus an increase in the contribution from the E&P businesses abroad that suffer a higher tax rate. That's the reason why the guidance will be slightly higher.
Okay.
Great. Thank you. Well, perhaps if there's no more questions, we can wrap this up. If you do happen to have any more, you can get in touch with us at the investor relations number. Thank you very much. The control room confirm there are no more question. Ladies and gentlemen, the conference is over. Thank you for calling.