Afternoon, ladies and gentlemen, welcome to Eni's 2012 second quarter results conference call, hosted by Paolo Scaroni, Chief Executive Officer, and Alessandro Bernini, 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 hosts to begin today's conference. Thank you.
Good afternoon, ladies and gentlemen, welcome to our interim update and second quarter results conference call. Looking at the first half of 2012, there are three main highlights that I would like to draw your attention to. Two of these are positive strategic developments, one is a negative business trend. First, we have made a good start on our non-core asset disposal program, unlocking value for shareholders, reducing debt, and refocusing the business. Secondly, we have further built up the organic growth prospects of our E&P through a stream of truly exceptional exploration successes. Third, we are facing challenging market conditions in our Italian and European businesses with gas and power, refining, marketing, and chemicals buffeted by Euro area headwinds. I will now take you through each of these points in a little more depth. Sandro will present the financial performance in Q2.
Let's look at Snam and Galp. As for Snam, the disposal process is well underway. Following the signing of the sale of 30% to Cassa Depositi e Prestiti, we have placed a further 5% to the market, crystallizing value for our investors, reducing the overhang on Snam, and confirming the market's appetite for this asset. For our remaining 20%, we are talking to potential investors. Depending on the evolution of these talks and market conditions, we will evaluate how best to progress on the disposal. Any transaction will take place following the closing of the Cassa Depositi e Prestiti deal expected in the autumn. With regards to Galp, we have recently executed the first step of our disposal process, completing the sale of 5% to Amorim Energia for EUR 14.25 per share, exited the company's shareholder pact.
We are now free to evaluate the different options to extract value from our stake with flexibility, no time constraint. As a result of these two disposals, by next year, Eni's business portfolio will look like that of its peers, net debt will fall by around EUR 20 billion, bringing our gearing below industry average. As a consequence, we will adjust the way we return cash to shareholders in line with industry practices, accompanying our dividend with a recently approved share buyback program. Let's now turn to the second highlight, exploration. For many years now, we have discovered around one billion BOE of new resources a year, well in excess of our average production of about 600 million-700 million BOE a year, providing fuel for future growth.
In the first six months of this year, through our discoveries and appraisals in the Barents Sea, Egypt, and West Africa, we have discovered over 400 million BOE. On top of that, we have an extraordinary game-changing success in Mozambique, which brings total new resources discovered by June 30th to 2.2 billion BOE. This number does not include the results of the fifth well in Mozambique announced today, which increases gas in place to 60 TCF. Of these, 40 TCF are to be unitized with Area 1 and 20 TCF in structures which are fully in our block. Following this success, we now estimate the overall potential of the discoveries in Area 4, 70 TCF of gas in place.
We've also been working on our long-term exploration prospects, securing new and promising acreage in the Norwegian and Russian Barents Sea, in the Black Sea, in East Africa and in the Far East. Turning now to our operating performance. While in E&P, we seized the benefit of rapid recovery of Libyan volumes, our Italian and European businesses faced strong economic headwinds. In Gas & Power, gas demand continued to fall, driven by the weak economy and the competitiveness of coal and renewables in power generation. For an idea of the impact this is having, normalized demand in the first six months of the year was 5% lower in Italy and 7% lower in key European countries year-on-year, and as much as 13% and 18% lower compared to the pre-crisis first half of 2008.
This has prevented European oversupply from being absorbed, spot prices from closing the gap with oil-linked prices. In this context, we have leveraged on recent supplier negotiations to remain competitive and profitable. The first half, our merchant business delivered a positive result, even excluding one-offs, of which the main one is the Gazprom extraordinary benefit. R&M is also suffering from unprecedented demand decline. Italian consumption of refined products was down by around 10% in the first half of the year, adding further pressure to Europe's structural refining over capacity. We're working to offset the negative market environment through cost cuts and temporary capacity reductions, such as the partial closure of our Gela refinery. Lastly, our chemicals unit, Versalis, almost broke even in Q2. Our volumes have been suffering from low demand, and the rest of the year will remain challenging.
In this context, we are making steady progress on our turnaround strategy with the closure of our Porto Torres cracker benefiting Versalis results by around EUR 20 million in the first half. Thank you for your attention, and will now hand you over to Sandro for an overview of Q2 financial results.
Thank you, Paolo, and good afternoon, ladies and gentlemen. In the second quarter of 2012, the market environment was broadly positive. Decline in the Brent price, which averaged $108 a barrel in the quarter, down 8% year-on-year, was more than offset by the 11% appreciation of the U.S. dollar versus the Euro compared to one year ago. The European refining scenario was also supported with an average Brent Euro margin of $6.3 a barrel, almost a threefold increase from the second quarter of 2011. Turning now to our results. You should note that following the announced divestment of Snam, the regulated businesses in Italy have been deconsolidated from Gas & Power results and represented in accordance with the applicable reporting standard, precisely the IFRS 5.
Consequently, margins generated by transaction between Snam and Eni group companies are considered as a part of the EBIT adjusted and net income adjusted from continuing operations. Whilst margin generated by transaction between Snam and third parties have been classified as discontinued operations. The same reporting standard has been applied also to Q2 2011 results in order to facilitate the year-on-year comparison. In the second quarter of 2012, adjusted operating profit from continuing operation was €4.24 billion, up 14.2% from the second quarter of 2011. This result reflected a better operating performance by the Exploration & Production Division due to the ongoing production recovery in Libya and organic growth.
In spite of continuing demand weakness and rising competitive pressure, the merchant business of the Gas & Power Division reported operating losses in line with the second quarter of 2011, leveraging on an improved cost position due to the benefits of renegotiated supply contracts. On a similar note, Refining & Marketing and Chemicals reported stable losses in the face of a deteriorating trading environment. Adjusted net profit from continuing operation was €1.38 billion, in line with a year ago. Better operating performance was offset by a higher consolidated tax rate from continuing operation, up approximately four percentage points. This was mainly due to the increased contribution of E&P, which has a higher than average tax rate. Looking more closely at the E&P, in the second quarter of 2012, Eni grew liquid and gas production by 10.6% to 1,647,000 BOE per day.
This performance was mainly driven by the ongoing recovery in Libyan production and the startups and ramp-ups of the new fields in Russia, Australia, and Egypt. These positives were partially offset by the shutdown of the Elgin-Franklin field, the increase in bunkering in Nigeria, and mature field declines. In the second quarter of 2012, E&P reported an adjusted operating profit of €4.23 billion, up by 10.8%, driven by increased daily production and the appreciation of the U.S. dollar versus the Euro. Turning now to Gas & Power, in the second quarter of 2012, Eni's worldwide natural gas sales declined by 3% to 19.6 BCM. This decrease was mainly due to weak demand and ongoing competitive pressure. In Italy, volumes sold declined 8.3% in the quarter, with the power generation segment showing a double-digit decline owing to the increasing competitiveness of coal and growing use of renewables.
International sales, excluding volumes sold to shippers, increased by around 1%, benefiting from higher sales to retail, growing in excess of 18%, and the stronger LNG sales in premium Far Eastern markets. In terms of results, the gas and power division, which from this quarter includes just gas merchant, power, and international transport, reported an adjusted operating loss of EUR 369 million, compared to a loss of EUR 314 million in the second quarter of 2011. Decline is mainly attributable to the lower results of international transport after the sale of assets in the second half of 2011. Turning now to gas and power adjusted pro forma EBITDA, while overall losses widened slightly, the impact was entirely attributable to asset sales in international transport. Marketing profitability improved from the year earlier period, with losses narrowing by EUR 60 million to EUR 231 million, owing to improved results from associates.
The refining and marketing business reported an adjusted operating loss of EUR 144 million, EUR 20 million higher than in the previous period. In refining, margins were impacted by shrinking differential between light and heavy crudes, as well as higher expenses for oil-fueled utilities. The negative trading environment and volatile margins were partially offset by efficiency enhancements, the optimization of plant set up, and lower throughputs at the weakest refineries. The overall utilization index of our refineries is in line with the second quarter of 2011. Marketing results improved slightly, thanks to higher margin in wholesale as compared to the lows of the second quarter of 2011. This was partially offset by lower sales volumes in the retail market due to declining fuel demand.
In the second quarter of 2012, the chemical division reported an adjusted operating loss of EUR 26 million, an improvement versus the second quarter of 2011, and more remarkably, compared to the result achieved in the first quarter, in spite of weak commodity demand, but supported by the higher benchmark margin of cracking. The engineering construction business reported a steady operating result at EUR 388 million, up 2.6%. This trend reflected higher revenues and better margins on the works executed, mainly in the engineering and construction business unit. Other activities and corporate showed an aggregate loss of EUR 157 million versus EUR 129 million in the previous year, mainly due to higher insurance cost. Net cash generated by operating activities amount to EUR 4.2 billion in the quarter.
Cash outflows in the quarter include the dividend payments of EUR 2.3 billion, which reflect the payment of the final 2011 dividend, as well as dividends paid to Snam and certain minorities. Capital expenditure, including Snam, amounted to EUR 3.3 billion, and mainly relates to the continuing development of oil and gas reserves and the upgrading of rigs and offshore vessels in engineering and construction. We also completed the divestment for EUR 729 million, including the back-in of the Republic of Kazakhstan in Karachaganak, and the disposal of oil in Nigeria. The change in net debt was positively impacted by other items, including the initial refinancing of an intercompany loan due by Snam for around EUR 1.5 billion. As a result, net financial debt at the 3rd of June 2012 was down EUR 500 million from March 31st.
Thank you for your attention. I now will hand you over to Paolo for his final remarks.
Thank you, Sandro. Looking forward to the rest of the year. In E&P, production levels will continue to suffer from two unexpected events, namely the closure of Elgin and Franklin and the sharp increase in bunkering in Nigeria, which together reduced Q2 entitlements by over 30,000 BOE per day, year-on-year. Net of this impact, we confirm previous guidance of approximately 10% production growth before price effects, with better performance offsetting the shift of expected startups in Angola and Algeria to the second part of the year. In Gas and Power, by which we now mean our gas merchant, power, and international transport businesses, we confirm previous guidance of an improvement in operating profits compared to 2011. On reported figures, much of this improvement will come from one-off items, of which the largest is the retroactive impact of the Gazprom renegotiation.
In R&M, expect weak market conditions to continue, offsetting the benefit of increasing efficiency and operating improvements. Looking ahead, Eni is entering into a new era. Our balance sheet will be transformed by divestments, securing our capacity to finance long-term projects in any market environment. We will continue to leverage on our exploration success to deliver organic production growth. We will reward shareholders with a remuneration policy which guarantees a sustainable dividend and provides for further upside through buybacks. Thank you for your attention. Sandro and I, plus the heads of our main business units, will now be pleased to take 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. First question comes from Mr. Nitin Sharma from JPMorgan. Mr. Nitin, please.
Afternoon, gentlemen. Two questions from my side. First one on gas and power. You've highlighted in detail the sort of challenging conditions you face for gas marketing business. I was wondering, despite the renegotiated contracts with North Africans, Gazprom, the results are quite similar to Q2 in that business. Obviously impacted by the trading environment, how should we be thinking about the outlook for this business the second half? Second one on Iraq, please update us on the pace of developments. How are you progressing on Zubair? Thank you.
Maybe on the first question, I will ask Umberto to answer to you, while on the second, Claudio will tell you something about Zubair.
On the gas and power business, first of all, let's talk about the demand we expect to see the second half of the year, where also we expect to see a recovery in Europe than in Italy in the second half, that will keep the overall figure in line with 2011. On top of that, we are confident of the activity that we are going to perform on our commercial businesses, where we are certainly improving our performance, both in Italy and also in Europe, in the retail as well as in the business market.
On Iraq, that we are progressing and in line with the budget, we are producing about 240,000, 250,000 barrels a day. Our equity at $110 per barrel is about 17,000, 18,000 barrels per day. We are working for the full field development. We are confident that by the end of the year, early next year, we can have the FID for the full field. We are progressing and so far, so good. Let me just complete, maybe the answer that Umberto gave you was not really complete. As for the full year 2012, the guidance we give on our gas and power business, as I defined before, is a number reported better than last year, but a number excluding one-offs worse than previous year.
Okay.
I'm not going to disclose you the one-offs, in particularly the benefits we get from the Gazprom retroactive activity. Okay?
Yeah. Can I ask one follow-up on dividends? I think you made it amply clear that you want to keep your dividends competitive, and they'll be backed by buybacks. Is there any plan post SRG, Sonangol stake sale, either to revisit the dividend policy or the base dividend, i.e., in 2013?
No. Let's say, we certainly will revisit our dividend policy with our strategy presentation, which we will be holding sometime end of February, beginning of March. There, we will redefine our dividend policy. What I think I can tell you from now, that we are not planning any special dividend.
Thank you. Very clear.
Next question comes from Mr. Oswald Clint from Sanford C. Bernstein. Mr. Oswald, please.
Oh, yes. Thank you very much. First question, just on Galp. You talked about evaluating various options from this point onwards now that the shareholder agreement has finished. Can you just remind us what those are from your perspective? Secondly, on the gas business, again, given your comments on the macro within that division, I think you've spoken about having the ability to talk more frequently with Russia, with Norway on supply. Would you expect to enact any further discussions with those suppliers through the rest of the year? Then just a small one on, it was small, but impairments in the U.S. and some reserve downward revisions. I wonder if you could just say which assets those were. Thank you.
Okay. On the first and the third question, I think it will be Sandro, and on the second one, Umberto. You start, Sandro, with Galp.
Yes.
Yeah.
Basically, with reference to 18% of the residual stake that we own in Galp, we have no limitation at all. We can have access to the wide range of disposal options, including market transactions, structured market transaction, or as well as bilateral transaction with interested parties. By the way, we have already ongoing discussions with some interested parties, interested to buy a quite significant stake of our participation in Galp. It is still too early to predict when those discussion will arrive at the end, but we are confident that before the closing of the third quarter results, the announcement of the third quarter result, we will be more precise about the timing and the strategy with respect to the residual portion we have in Galp. Basically, we have no limitation at all.
We maintain only for 5%, Amorim maintains the right of first refusal. For the rest, we are free to do whatever we want. As far as the impairment we have booked on as far as some E&P assets based in U.S. are concerned, the figure relating to those assets is really negligible because we are talking about something close to EUR 90 million, so more or less nothing, and the impairment was the result of some increased development cost, as well as the deterioration in the gas market prices prevailing in the U.S. market.
In relation to the long-term contract renegotiation, we are currently involved in several discussions with some of our suppliers in order to guarantee continuously cost competitiveness in our portfolio. More precisely, in 2012, this renegotiation will relate to a significant portion of our portfolio that is equivalent to 30% of its total volume. Besides 2011 and 2013, we are planning to reopen the renegotiation with other major supplier like Gazprom and Sonatrach.
That's very clear. Thank you.
Next question come from Mr. Hootan Yaghoobzadeh from Bank of America. Mr. Hootan, please.
Hi there. I just wanted to get an update with regards to following the success of the Mozambique exploration program. I just wanted to see where you've gotten to in terms of unitization and how you're thinking about your stake going forward from here. Would you be comfortable selling down to 40%, 30%, or is 70% how you want to take this development forward? Thank you.
I will leave Claudio to give you some hints about what we think.
Unitization first. We are continuously talk, and we are working with Anadarko. As we said previously, we exchange data and information. We are working on the future model of unitization and also on the plan of development. There is no big news. The work is in progress. For the future, as we said, the first objective is to finalize the exploration phase, so have a clear view about our resources and about how to develop these resources with our partners and first with the government. We are thinking about possible future strategic alliance on the area. That's all. Thank you.
Like you said, it is early days to give you more detail on this. Exploration first, alliances second.
Okay. Thank you.
Next question comes from Mr. Jon Rigby from UBS. Mr. Rigby, please.
Yes. Thank you. Few questions. The first is on the upstream. I noticed that there's, I think you mentioned, and certainly you said in the release, been a couple of slips in projects that are affecting this year, and I just wondered whether we could take the chance for Claudio just to run through where you are on the key startups that run through maybe for the next 12 months, i.e. for 2012 and 2013. Versus the visibility you provided for us at the start of the year. Second one is just going back to Mozambique. Once you've finished the exploration phases you reference. When you talk about strategic alliances, would that potentially involve some sort of monetization of what is a very large stake that you have or block 70%? Which I guess to show value for what you've got on an early stage.
The last one, I think is for Sandro, is there's obviously a program in place for Snam to raise money externally and repay you back the cash that you've lent them. In terms of the next six months or nine months, are you able to give some visibility on when you would expect to be receiving that cash and reflecting it on your balance sheet?
Okay. Claudio will give an update on the startups.
Yeah. Startups, as we said, this year, we experienced some delay in some startups, especially in Angola and India and in Nigeria, MLE and Kaska, and also projects in Italy, Aquila. That is a delay. We think that we will be able to start up this project by the end of this year, and that is the main delay. For the rest of the year, looking forward, I think that for talking about Russia, this will be a contributor in the next couple of years. We don't think that we have any delay, and the first project, Samburskoye, has been started two, three months before the expectation. It's good news from Russia. The other project, Kashagan, our expectation technically is always to start production by the end of this year. Practically all the new CapEx is finished, and we are in progress with the commissioning.
Also we are in progress with handing over operatorship to Shell. There is a huge process of checking and cross-checking all the procedure of the two companies. Again, within that, Angola is on track. Goliat, as we said, is confirmed by June, sorry, so by the first half of 2014. There is no bad news for Goliat. The rest is on track. The main issue are in 2012 for the project I said.
Okay. On Mozambique, let me add something on that. As you might have seen from our press release of today, we expect to have in total in our block 4, something in the region of 70 TCF, divided roughly 40, 45 will be unitized with block 1 and 20, 25, which would be totally under our control. By our, I mean, we will have 70% of it with our partners. When we look at the strategic alliances there, the first thing we are looking at that is the wishes of the Mozambican government, because whatever we will do has to be approved by the government, it has to be approved, let's say, really, apart from a formal approval, it has to be really something that the government want us to do.
Is such a changing thing for Mozambique, this discovery, that this is the first thing we have in mind. The second one is, of course, gas utilization. There will be a lot of gas produced there. Be nice to have, as partner, the clients for this gas, at least partially. We have already KOGAS with us. KOGAS is already a potential client. We might be interested in looking for other sides. The third point will be potentially monetization, even if this is not really our priority. Of course, we know that these resources have a huge value, and we will try to extract the maximum value doing our activity. If there would be a partner which fulfills the first two conditions, which is ready to pay, this will certainly be acceptable. On Snam.
Well, Jon, as you know, we have already mentioned that Snam already started repaying their loans to Eni before the closing of the 30th of June. They have already repaid EUR 1.5 billion within the end of June. In July, thanks to the proceeds generated by the placement of bonds on the institutional market, Snam has repaid an additional EUR 1 billion, totaling in aggregate so far EUR 2.5 billion. Last Tuesday, Snam has secured proper financing with a club of banks, which have granted their support for an amount capable to repay entirely the outstanding loan. Now we are
meeting with our former colleagues, but still friends, obviously, we are defining with them a proper schedule. I am confident that very soon, probably within the end of September, early October, the repayment of the entire outstanding position will take place.
Very good. Thank you.
Next question comes from Mr. Matt Lofthouse from Nomura. Mr. Lofthouse, please.
Hi, good afternoon. Thanks. Just one remaining question, please. I just wondered if in the context of the success in the first half of the year around resource additions, et cetera, that you talked through earlier, I wonder if you could talk about some of the primary exploration prospects outside of Mozambique in the portfolio for the second half of the year and into next year, and in particular, which of those you're most excited about. Thanks.
Very good. For exploration, apart from Mozambique, we got a very good result in Norway, in Egypt, Nigeria, the U.S., and Angola. That are the main country where we continue to drill wells also in the next six years. We have to add also Indonesia, because we have in July drilled a successful well in Indonesia. We drill until now 38 wells, we have to reach about 90 wells, so that we can reach a target, excluding Mozambique, of about more than 1 billion resources for exploration, except Mozambique. Indonesia, Angola again, and Norway will be the main target.
Okay, thanks.
Next question comes from Ms. Irene Himona from Société Générale. Ms. Himona, please.
Thank you. Good afternoon. I had two questions, please. First, in the first half of the year, your DD&A charges were up quite substantially, 22% year-over-year. I wonder if you can give us some guidance for full year depreciation and also for the tax rate. Secondly, as you mentioned, Paolo, with the Snam and Galp disposals, Eni clearly becomes a pure play, a completely different risk profile. What sort of balance sheet gearing, what leverage do you think is appropriate to this new portfolio? Thank you.
Okay. Well, I think that Sandro will answer the first question.
Yes. More or less, the DD&A charges, the increase we have experienced over the first half of the year, you can maintain the same trend for the entire 2012, all over the 2012 year. More or less, we do not expect any major fluctuation in the second half of the year. As far as the leverage, we expect to maintain after the disposal of Snam and Galp will be completed, and so far, it is reasonable to expect that the completion of those two extraordinary transactions will take place only in the 2013. After the completion of those transactions, we believe we have not yet defined a precise leverage target, but our idea is to maintain a leverage in line with the average of our peers group, which means something between 15% and 20% in terms of debt to equity ratio.
Yes, 15% and 20%. Even if we go down to 10%, we will feel perfectly at ease.
Thank you.
Next question comes from Mr. Rahim Karim from Barclays. Mr. Rahim, please.
Hi, good afternoon, gentlemen. A couple of questions, if I may. The first was just around the impact that you're seeing in terms of the downstream from the pricing discounting that you're offering in Italy, and whether we should be looking out for anything in the course of the summer from that in the downstream. The second question was just in terms of Venezuela. It wasn't among the countries that you talked about in the upstream about medium-term growth. I was just wondering if there was any changes there that we should be looking out for in terms of your perception of risk in that country, especially ahead of the elections later this year.
Okay, let me just touch on the first issue. Yes, you are right. We launched a major advertising campaign for a special discount we are offering during weekends to the Italian drivers. Let me just start by saying that this has been a great success. We had our market share growing, lots of new clients coming to our service stations, good publicity. Certainly, our reputation in the country has been enhanced quite a lot. It's early days to tell you the total cost of this, but it will be a number, let's say, between EUR 100 and EUR 200 million, depending upon how much stolen products we sell during the period.
The campaign started on the 16th of June, and will last until September the 2nd, and then the campaign will stop. It is a kind of corporate investment, not just a refining marketing division investment. Of course, it will improve the market share. It will improve the visibility of our service station. You might be aware that we are changing the name of our service station from Agip into Eni. This will help us on that. In total, we expect to have a reputational reward for the company as a whole. Now, as far as Venezuela is concerned, well, of course, Venezuela, you quite correctly mentioned the fact that there will be election later this year. We continue on our path to make out of Venezuela one of our major countries. If I well remember the number, we expect by 2020 to producing Venezuela 200,000 barrels a day.
Therefore, it will be a major country for us. Of course, the big investments are in 2014. Let's say, we will have time to see how the situation will develop in that country before taking major investment decisions.
Okay, thank you.
No more question at the moment. Ladies and gentlemen, I'd like to remind you that if you want to register for more questions, please press star followed by one. To cancel the reservation, press star followed by two. Thank you. Okay. Next question come from Miss Kim Fustier from Credit Suisse. Ms. Fustier, please.
Hi. Good afternoon, gentlemen. Just two questions if I could. Actually, two for Claudio. The first one is on the Gulf of Mexico. I think you and your partner, Exxon, have two rigs operating at the moment on Hadrian. I was just wondering if you could talk about your expectations in terms of recoverable resources and the development timeline there. Secondly, in terms of your latest developments on your global share portfolio, whether you have any recent drilling results in Ukraine or Poland that you're happy to share with us. Thank you.
Starting from the last question, because we operate in Poland and Ukraine, I think that I'm more comfortable talking about an asset that I operate. We are drilling the second well in Poland, and we are analyzing the data. We are to drill a third well in September, and we think to start fracturing and wheel production, test production, by the end of the year. We are still in a explorational appraisal phase. In Ukraine, we got nine very good blocks in term of shale gas. We are in the early stage. We have to start from seismic then start immediately drilling. That is on track. We are quite optimistic about that. With Hadrian, honestly, I think that we are sharing, we are following the operatorship. We are quite optimistic about Hadrian.
There are additional resources. I think that the plan of development, the future operation are well led by Exxon. I think that is one of the major discovery and one of the major projects in Gulf of Mexico for us.
Thank you.
Next question comes from Mr. Alistair Syme from Citigroup. Mr. Syme, please.
Yeah, good afternoon. Can I just clarify, Paolo, what you're saying on the dividend? Is the EUR 0.54 considered to be the last dividend of Eni as it stands today, and that into next year, you get to set a new policy for a new company, or is the EUR 0.54 a reference point to how you look at the dividend going forward?
I'm not sure I've understood well your question.
I guess I'm saying.
Please, please ask it.
Are all bets off on the dividend as we come into next year? You sort of started with a clean sheet of paper.
I want to be sure to have well understood, since dividend is quite a sensitive question. Please ask it again.
Well, my question is, are all bets off on the dividend to next year? Are you going to start with a clean sheet of paper and say, "This is the new company-
No, no, we are not going to. No.
This is not a cash generation, et cetera, et cetera? Do we use the current dividend as a starting point to think about your payout?
No, listen, we are not going to start with a clean piece of paper at all. We know exactly what is the dividend we pay today. We know what have been our promises in the past. As usual, when we make the next presentation of our strategy, we want to ensure the market that the dividend will be sustainable during the plan. This will remain a point, and we start from the EUR 0.54 that we promised. I am going to bring to the board on September, which make me think that quite likely the dividend for the full year will be in the region of EUR 1.08.
Can I ask why you felt the necessity in an environment of reasonable uncertainty to actually raise the dividend?
We are not raising the dividend. We are fulfilling on our promises because we said that our dividend will follow the OECD inflation. The OECD inflation will bring us to EUR 1.07, but we didn't like the idea of paying a dividend, a half dividend of EUR 53.5. We brought it to EUR 54. This was the kind of reasoning, simply fulfilling on our promises.
Brilliant. Thank you very much.
Thank you.
Next question comes from Mr. Martijn Rats from Morgan Stanley. Mr. Rats, please.
Hi. Hello, good afternoon. I've got one more question, less than I asked already, but I had a question for Mr. Scaroni. At the OPEC seminar, sort of a month or two ago, you made a presentation where you said about global gas prices, that they were a puzzle wrapped in a mystery within an enigma or something along those lines. From that perspective, it's actually not that easy to formulate a gas price, to put in the sort of Mozambique model, when you're going to discuss it with your partners out of the FID.
I was wondering if over the two months that have passed since, whether you've formulated your thoughts on the right gas price assumption for the investment planning of that particular project, whether you formulated your thoughts on that perhaps a little bit more clearly, and whether you are willing to share that with us.
Well, listen, I can see that you remember quite well the speech I gave in Houston a few months ago. The whole point I was making was at that time, gas prices in the U.S. were $2.5 per million BTU. In Europe, they were EUR 10, in the Far East were EUR 18, and that this situation was not sustainable. In particular, considering that the calories in the U.S., when you buy gas at $2.5 per million BTU, you are buying the calories at 15% the price of what you pay the calories coming from oil. This was the whole point I was making. Having said that, you are right that this is a big enigma for our future, not for what happens next year, but for what happens in 2020, 2022, 2024.
For every investment in gas, including Mozambique, the variable, what will be the price in 2020, 22, 24, 25, is going to be the most difficult to define. Luckily, in the case of Mozambique, I have to say that the upstream cost of that gas is so low, actually, almost in every scenario, Mozambique would be competitive. Therefore, we do not feel the pressure from that point of view, and we are sure that every potential partner will be very much interested in entering into this venture due to the fact that the cost of gas in Mozambique is particularly low.
All right. Fair enough. Thank you.
Next question comes from Mr. Andrea Scauri from Mediobanca. Mr. Scauri, please.
Yes. Good afternoon, everyone. A couple of questions from me. The first one is on South Stream. According to the Russian government, it seems that the project should fly in October, November this year. Are you comfortable with this indication? Second point, what is the stake of CapEx, from your side, devoted to this project? The second question, just a pure technical question on your accounting system. Should we see the split of continuing operation and discontinued operation also for the next couple of quarters? Third question, could you please repeat again what is your guidance of tax rate for the full year 2012 for the continuing operation? Thank you.
Okay. Sandro will answer the two accounting questions. We might, either me or Roberto will answer the one on the South Stream.
Sorry. You are right. We will maintain, let me say, unfortunately, the same accounting criteria also for the third quarter and as well as for the entire 2012 results. Also by the end of September, by the end of the year, you will examine our numbers, our figures, divided between continuing and discontinuing operation. Effective from the first quarter 2013, Snam will definitively disappear from our consolidated figures. I believe it will be more clear to understand our results.
Sorry. Also the consolidation of the debt, I suppose.
Correct. The consolidation of the debt, more than an accounting effect will be a substantial effect because we expect to recover our own money within the end of the year. It is not a matter of the consolidation, but it is a real reimbursement of the outstanding loan.
As far as tax rate is concerned, our guidance with reference to the continuing operation approximate 60% of taxable income.
Thank you.
Relates your question on South Stream. We can confirm what other South Stream partners have announced that there is an FID target by the end of this year. This, of course, is also depending on European authorization that for a partner like us is quite important. This FID will confirm the commitment of the parties to continue the development of the project in order to be ready to start with the subsequent execution.
Okay. Sorry, if I may. What is your planned CapEx for the entire project? If it's possible to have this here.
Sorry, miss. Your question-
The CapEx will be around EUR 10 billion.
EUR 10 billion, your stake?
Let's say, there will be financing. Okay?
In total.
No, in total will be EUR 10 billion. We expect to have roughly EUR 3 billion of equity, which will have roughly 20%.
What other %?
In total, we expect to put as an equity something like EUR 600 million-EUR 700 million.
Okay. Thank you.
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Great. Thank you. We'll be bringing the conference to a close. If there are further questions later on, could you just get in touch on the investor relations number? Thank you.
Ladies and gentlemen, the conference is over. Thank you for calling.