Good afternoon, ladies and gentlemen, and welcome to Eni's 2012 first quarter results conference call, hosted by Alessandro Bernini, Chief Financial Officer. For the duration of the call, you will be in listen only mode. At the end of the call, you have the opportunity to ask questions. I am now handing you over to Joffs to begin today's conference call. Thank you.
Good afternoon, ladies and gentlemen, and welcome to our first quarter results conference call. Before I take you through the financial results, let me give you a summary of the main highlights of the quarter. In E&P, we are continuing to strengthen our long-term growth prospects. Our exploration continues to deliver exceptional results. In the first three months of the year, we added around 1 billion BOE of new exploration resources through Mamba North 1 in Mozambique, Havis in the Barents Sea, which together with the Skrugard, has recoverable resources of 500 million barrels, and other discoveries in proven or near field areas. Meanwhile, you will have seen that we have signed a strategic agreement with Rosneft to gain access to very promising exploration licenses in the Barents Sea and in the Black Sea, increasing the potential of our portfolio and providing support to long-term growth prospects.
In gas and power, in March, we completed the renegotiation of our gas supply contracts with Gazprom. The recognition of the associated economic effects was retroactive to the beginning of 2011, is included in our Q1 marketing results. Finally, we are progressing on our strategic objective of unlocking value from our non-core listed assets. Regarding Galp, on March 29th, we signed an agreement to sell 5% of the company to Amorim for EUR 14.25 a share. Once this sale is completed, we will have significant optionality on the disposal of our stake. With regard to Snam, I would like to remind you that the Italian government has passed legislation envisaging the completion of our exit by September 2013. The method by which the separation will occur will be defined by a government decree to be issued, at the latest, by the end of May. Turning now to our results.
In the first quarter of 2012, the market environment was broadly positive. This was mainly driven by the Brent price, which averaged $118 a barrel, up 13% compared to the first quarter of 2011. The euro-dollar exchange rate was also supported at $1.31 per euro, with an appreciation of the dollar of 4.1%. The European refining margin Brent/Urals was $3.30 a barrel, in line with the first quarter of last year. In the first quarter of 2012, adjusted operating profit was EUR 6.45 billion, up 26.5% from the first quarter of 2011. This was due to the better operating performance reported by the Exploration & Production Division, up 24%, to the increased results of the gas and power division, up 57%, driven by stronger profits from the marketing segment. This was partially offset by weaker results in R&M and chemicals.
In the first quarter of 2012, adjusted net profit was EUR 2.48 billion, up 13% compared with a year ago, as a result of better operating performance. This positive effect was partially offset by higher financial charges, which increased by EUR 207 million and a higher consolidated tax rate, up approximately six percentage points. The fiscal impact was the result of a higher tax rate in EMP and to the revision of the so-called Robin Hood Tax, enacted in August of 2011. Looking in more detail at exploration and production, in the first quarter of 2012, Eni reported liquids and gas production of 1,674,000 barrels of oil equivalent per day, representing a small decrease from the first quarter of 2011, down by 10,000 BOE per day or 0.6%.
Excluding price effects, which reduced Q1 production by 14,000 barrels of oil equivalent per day compared to the year earlier quarter, the production of the first quarter was marginally higher, up by 0.2%, driven by the ongoing recovery in Libyan production and the startup/ramp-up of new fields in Australia, Egypt, and the United States. These positives offset negatives from the sale of minor assets and some minor unplanned production losses. The exploration production division reported an adjusted operating profit of EUR 5.1 billion, increasing by EUR 980 million or 24%, on the back of stronger oil and gas prices and the recovery in Libyan activities. In gas and power, overall volumes sold, including consolidated and associated companies, fell by 5.4% to 29.9 BCM. The decline is mainly due to weak demand and higher competitive pressure in Europe.
In Italy, overall sales rose by 1.4%, with higher demand from residential users and higher sales to the network balancing market, more than compensating declining volumes sold to power generation and wholesalers. The gas and power division reported an adjusted operating profit of EUR 1.5 billion, increasing by EUR 546 million or 57%, from the first quarter of 2011. It is worth reminding you that the first quarter marketing results reflect the benefits of the finalized renegotiation with Gazprom, retroactive for the whole of 2011. Gas and power adjusted pro forma EBITDA for the first quarter of 2012 was EUR 1,641 million, up by EUR 587 million or 56%, compared to the same quarter of 2011. The increase is attributable to the marketing business, which more than doubled the result of the year-earlier quarter.
Excluding the portion of benefits from the Gazprom renegotiation associated with previous quarters, the marketing segment reported stronger results driven by improved supply costs, associated with the revision of long-term gas supply contracts and the recovery of Libyan imports, and stronger seasonal sales owing to the particularly cold winter. This positive was partially offset by a slowdown in demand across Italy and Europe and rising competitive pressures. The regulated businesses in Italy recorded a 4.3% increase in results, while the international transport activities reported a lower operating performance, reflecting the assets divestment which occurred at the end of 2011. In the first quarter of 2012, the refining and marketing business reported an adjusted operating loss of EUR 228 million. The deterioration compared to the first quarter of 2011 reflected weak industry fundamentals across Europe.
In addition, refining results continued to be adversely impacted by rising costs of energy utilities indexed to oil prices and shrinking price differentials between light and heavy crudes. Our initiatives to counteract this very weak trading environment included efficiency enhancement, the optimization of supply activities and lower throughputs at the weakest refineries, including temporary shutdown. As a result, the utilization index of our refineries fell to 63% compared to 82% in the first quarter of 2011. Marketing results were negatively affected by a decline in retail and wholesale demand for gasoline and gasoil, dampened by a cyclical downturn and competitive pressures, while selling margins in retail and wholesale markets were squeezed by a rapidly rising commodity cost that were only partially transferred to prices at the pump and clients. In the first quarter of 2011, the chemical division reported substantial operating losses of minus EUR 162 million.
The negative performance was driven by higher costs for oil feedstock, which impacted the unit margins as product demand suffered in a recessionary environment. This was particularly true for basic chemical commodities, with the benchmark cracker margin falling in negative territory. The engineering and construction business reported a strong operating performance, which was up by EUR 32 million, or 9.4%, to EUR 374 million from Q1 2011. Other activities and corporate showed an aggregate loss of EUR 127 million, in line with the EUR 129 in the first quarter of 2011. Net cash generated by operating activities amounted to EUR 4.2 billion. Capital expenditure for the quarter has been EUR 2.9 billion, mainly related to continued development of oil and gas reserves, the upgrading of rigs and offshore vessels belonging to Saipem, and the upgrading of gas infrastructures.
The group also incurred expenditures of EUR 500 million related to the financing of the new Belgium acquisition and joint venture projects. Net financial debts at the 31st of March 2012 was down by EUR 600 million from December 31, 2011, improving our leverage from 46% to 43%. Thank you for your attention. Now with my colleagues, I'll be pleased to answer to 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. Theepan Jothilingam from Nomura International. Mr. Jothilingam, please.
Yeah. Good afternoon, Alessandro. Three questions, please. Firstly, just on Snam. I know we're waiting for a government decree, but I was wondering whether you had any increased visibility on whether you think a disposal would be for cash or whether you think a spin-out is a more likely outcome. Secondly, on Galp, the second process, I guess, or second part of the process on a divestment is to sell the 18%. Again, do you have any view on timing, whether you believe those shares will be drip-fed into the market, or is there a strategic investor that you'll be discussing a disposal with? The third question, just on exploration, a very exciting agreement you've made with Rosneft. I was just wondering, do you have any color on the timeline of workflow there, when you expect to drill a first well?
Secondly, just is there any commitment of capital as part of that deal? Thank you.
As far as the agreement recently signed with Rosneft, I'll pass the table to my friend, Claudio Descalzi, who is with me now. Just starting to answer to your question as far as Snam and the Galp. Snam, as you have already anticipated, is still too early to make any assumption about how the separation will take place. For sure, it is, I believe, not correct to speculate about what could be the potential transaction which will be realized. However, you know quite well that our suggestion, our strategy, which of course we are suggesting, supporting to the government, is a strategy whereby the famous three pillars of our strategy must be satisfied. Which means that the transaction to be realized must be satisfactory, must be good for our shareholders and the shareholders of Snam as well.
In particular, at the end of the transaction, Eni must be stronger than before. Which means that Eni can be stronger only to the extent a cash transaction will take place. For sure, we are supporting a strategy whereby a cash consideration will be recognized to Eni. We are discussing with the government, and I can say that so far we are a little bit positive in this respect. As far as Galp, as you correctly stated, after having sold the first 5% to Amorim at an agreed-upon price of EUR 14.25 per share, we will be free to sell in the market the 18% or 20%, depending on the possibility to place also a convertible bond.
As far as the type of transaction which can be applied in order to dispose the 18%, we can either refer to, let me say, a market type of transaction, accelerated book building, private placement, an OPV, or we can have access also to a strategic buyer. In this latest situation, we have still to agree the identity of the potential buyer with Amorim. Based on the approach, the unsolicited offer which we have received so far, either from financial institutions and the strategic investor, I do not expect to face any major problem in finding an agreement with our former partner, Amorim. I am pretty confident that already in 2012 we will be in a position to dispose a significant portion of our stake in Galp.
Thank you. For Russia, the agreement we signed with Rosneft is a strategic agreement that includes the Russian activities and will be followed by activity and alliance also abroad, outside Russia. Talking about Russia, the scope of this agreement, as you know, is the exploration development of 3 licenses, 2 in the Barents Sea and 1 in the Black Sea. We have, as a commitment to acquire seismic data, 2D and 3D in the Barents Sea, and Rosneft already acquired 2D and 3D seismic in the Black Sea. In terms of commitment, talking about figures, we have a strict commitment of 3 to 4 wells for an expenditure around $800 million. Additional 2 contingent appraisal wells in the Barents Sea for an additional $200 million. That is the main commitment. In terms of programs, now we finalize the agreements.
We have to pass through the sharehol der agreements and the JOA, and I think that will be done in the next 4 or 5 months. Then we start immediately our activity. We start in parallel in the Barents Sea and the Black Sea. I think that the first wells will be drilled at the end of the 4-year plan, so 2014, 2015.
Could I just follow up, coming back to your statement, Alessandro, on Galp. Should one see the €14.25 as a floor price for you to sell on any further stake?
Of course, the environment, compared to the timing when we have agreed the EUR 14.25 per share with Amorim, the environment has been a little bit changed. I don't want to fix any floor or cap as a target for our future sales. What I can say is that for sure, the present, the prevailing market price, do not meet our minimal expectations. For sure, it must be significantly higher compared to what is today the stock price of Galp.
Very clear. Thank you very much.
Next question come from Mr. Iain S. Reid from Jefferies. Mr. Reid, please.
Hi, good morning, gentlemen. Sorry, good afternoon. Can I ask you two questions? Firstly, is it possible you can tell us, in the gas and power division, in your marketing segments, the amount of the 2011 contribution which was made? We want to forecast the numbers going forward and for the full year, so we really need to know what that element was, because obviously it's not repeatable. Secondly, for Claudio, is it possible you can update us on what's happening on unitization on the Mozambique blocks, and what the program is for 2012 and maybe 2013 in terms of the exploration targets, the appraisal targets, which you've got in mind, following the completion of the current, I think it's called the Coral, well you're drilling at the moment. Thanks.
Alessandro.
Okay. On your first question on gas and power, unfortunately, we have to repeat that we can't make comment on this because it's a sensitive element of our renegotiation.
Okay. Ian P., Mozambique. Unitization, we set up a program with Anadarko and for the unitization between the two joint ventures. We start not only the discussion, but we have a program. I cannot tell you exactly now when we will finish this issue of the unitization. I just can say that it's not a very complicated issue. We are in agreement. We already work together in other unitization, I think that will be a question that will solve by the end of the year. You know that the unitization pass through different gates. We define at the very beginning and track participation. That is an initial one. We start working. That started. That is something that we started positively with Anadarko.
For the work program, as you said correctly, we are drilling Coral, and I think we'll get results from this appraisal well by the end of May. We continue back to back until the end of the year. I think that we will be in the position to finalize our exploration activity by February, March 2013. That is the program, and meanwhile, we are working also on the development program and on LNG, on infrastructure. We are in parallel working also on the next steps
Claudio, could I just come back on the development program? Are you working together with Anadarko, even for development of prospects which lie entirely on Area 4? Is it going to be one facility rather than two or three?
You know that as in term of POD, you work first in the base of the wells, and I think that the priority, as we said, is unitization and plan of development of the unitized area. That means that we absolutely work together with Anadarko in term of development, wells, facilities, treatment, all this kind of stuff. We work with them. Now we got a new big discovery entirely in the Area 4, more than 80 Tcf, and we are working on that. Is really in an early stage, and we'll see if we'll have capacity in the first development or otherwise we go ahead with an additional development. Our priority is work with Anadarko on the unitized area.
Okay, thanks for your help.
Next question come from Mr. Oswald Clint from Sanford Bernstein. Mr. Oswald, please.
Yes, thank you very much. A couple of questions. Just thinking about the Russian gas field that you started up recently, selling the gas to Gazprom. Can I just confirm that that is the kind of regulated Russian gas price that you will be receiving, or if there's any discount to that? I note that you retain the buyback and marketing rights. Do you expect to use those rights at any stage, or is that just a separate clause? Secondly, just wondering about your U.S. volumes, oil and gas. Seems to be a large step, a decrease in the U.S. gas production. Is that just a function of the gas price, and should we expect to see those volumes decrease further? Just finally, quickly, just back on the Barents Sea, maybe a question for Claudio.
Just wondering, have you looked at these estimates of 36 billion barrels of oil equivalent? Are you comfortable with that resource number? Thank you.
Okay. First, you talk about the Yamal area, was the question on the gas price. As you say, the gas price come from a formula for our Yamal field. It's linked to the domestic, and it's linked also to the export. As you know, the domestic that is regulated update every year. That is as for the other gas producer in Russia. For the U.S., it's true, we reduce our gas production, but it's not due to price. We reduce gas production in some producing fields for maintenance program, and also from some technical reasons. Our aim is to increase or restore this production in the next months and recover the U.S. production average rate forecast for 2012.
About the resources for Rosneft, that is a preliminary figure coming from data, normally 2D data in the Barents Sea, and 2D and 3D data, new data, in the Black Sea. We work with Rosneft, that is mainly Rosneft evaluation. Now we are going to a new process of data acquisition. In terms of structures, volume, and number of structures, I think that these figures are quite accurate from a volume point of view. We have to see from a petrophysical point of view, thickness, net to gross, and transmissibility of the system, because we are talking about oil, if these figures, how we can translate these figures in reserves.
That's great. Thank you very much.
Next question comes from Mr. Mark Bloomfield from Deutsche Bank. Mr. Bloomfield, please.
Good afternoon. Yes, two questions, please. Firstly, coming back to gas marketing, just wondered if you can help us to get a better sense of the sustainable profit improvement. Specifically, if we set aside the debate around the retroactive element, to what extent do you think that you can enjoy ongoing benefits from the reduced cost of gas and actually retain those benefits as opposed to simply passing them on to your customers, when we come to the start of the next gas year? The second question, I just wondered if you could remind us of your exploration and appraisal activity plan for the Norwegian part of the Barents Sea and also for Indonesia, for the remainder of 2012, and thinking there about the number of wells, timing, targets, et cetera. Thank you.
On your question about gas. We can today confirm our guidance for 2012 that we gave at Q4 results. This means a higher EBIT and higher EBITDA. Which are the elements supporting this that make our estimate a sustainable estimate?
First, we have the contract of the Eni negotiation, that is positively impacting retroactively, but of course also in the volume that we are selling and we will continue to sell. We have the benefit of the production of Libya that is back to normal, and that is something that should continue. We have partially captured this year the negative impact of the sale of the international pipeline. On top of that, of course, we have to consider that besides these special effects, there is our underlying marketing situation. Our business will be more impacted in the remaining part of the year by the continuing increase in oil price and the reduced demand in Italy and in Europe as well. The mechanism that we will use to protect our result is, again, realigning our cost of supply to the market through the renegotiation.
We have a number of them in front of us, with two important ones this year. These are the key of maintaining sustainable results at the time of continuing marketing weakness. Exploration. As you know, Norway and Indonesia are two of our best hub in term of exploration potential. We forecast to drill two wells in Norway on new prospects. We have additional 11 prospects in Norway that we think to drill in the next three years. This year, we'll explore two new prospects that are not very far from Skrugard. They are south of Skrugard. For Indonesia, we start also this year. We have an appraisal campaign in the North East. Also in this case, we drill in the next couple of years, additional five, six wells, seven wells, sorry.
In these two upsides, I think that in the next three years, through these two upsides, we'll increase our resource base. Meanwhile, we are also developing different fields in the area where we can get the FID in the next couple of years. They are not just exploration ups, but also very important development and production ups.
If I could follow on from that, if I may. You talk about 11 follow-on prospects in the Barents Sea. Can you give us any sense of the average size of those prospects, perhaps relative to the size of the existing discoveries that you've made there?
Yes. I think that you know that we are in Barents Sea, we need reasonable reserves to drill exploration wells for future development. We can say that we are more or less, in term of potential targets, in the same size of volume of what we drilled until now. You know that the range is between 200 million and 250 million barrel internal reserve. That is our target in this kind of prospects.
Thank you very much.
Next question come from Mr. Karim Rahim from Barclays. Mr. Karim, please.
Hi. Good afternoon, gentlemen. Two questions, if I may. The first on the Galp, and specifically, I just wanted to ask about your thoughts on the exchangeable, whether you decided if this should be mandatory or not, and any color that you could give us there, that would be appreciated. Second, on Snam, maybe you could just give us an update, Alessandro, on the discussions that you're having with the banks in terms of the bridge financing for Snam, how that's progressing, and if there's anything that we should be aware of there. Thanks.
Well, Galp?
Exchangeable mandate.
Yes. Sorry. For Galp, of course, we are studying the project, including evaluating what could be the most appropriate strategies to be applied in order to monetize at least a portion of our stake. I repeat, starting from the situation whereby today the present market price do not meet our minimal expectation, first. Second, in terms of convertible, we do not exclude the possibility to apply for a convertible, to place a convertible bond. It's not mandatory to record to a convertible bond. It's just one of the strategies which we can apply in monetizing our stake. So far is not in our radar screen, the placement of a convertible with the Galp shares. As far as Snam.
Snam, your question, I can understand your question, of course. We are not the appropriate entity to who you can place your question, you can raise your question, because, of course, we are cooperating with Snam. The entity, the company who is presently engaged in setting up the appropriate bridge financing is Snam itself. As you know.
Mr. Malacarne, just if I well remember yesterday, has already disclosed that they are working in order to get an autonomous rating very soon. As soon as the rating will be obtained, they will start actively in placing their debt in the market. As far as we know, as per our knowledge, since I repeat, we participate with them in the meetings with the banks, they are progressing extremely well. Of course, the reputation of the company and the solidity of their balance sheet support extremely well the possibility to obtain an appropriate bridge financing at a very interesting price very, very soon.
Great. Thank you.
Next question comes from Mr. Jason Kenney from Santander. Mr. Kenney, please. Mr. Kenney, Jason? Mr. Jason is not available at the moment. Next question comes from Mr. Michele Della Vigna from Goldman Sachs. Mr. Della Vigna, please.
Hi, thank you for the presentation. I'd like to ask two questions, if possible. The first one, Claudio, could you update us on the Kashagan development and what you think would be the key milestone to achieve the stable production rate of 70,000-80,000 barrels per day by the end of the year? The second question really is for Alessandro. In this Q1 results, the only slight disappointment was R&M and chemicals within a very good set of results. I was wondering, now that we're about one month into Q2, do you see any improvement in those areas or the situation is likely to remain as challenging? Thank you.
We start from Kashagan, and I think that we can give very positive news. I mean that one of the main milestones was the hookup, and the hookup is practically finished, will be completed in 95% in April and the rest in May. The hookup is completely finished. We already start testing all the line with gas. The gas is on the R&D. We can also now practically say that the commissioning is going very well. Without any big issue. One possible issue was the asset integrity of the package finalized in 2008. We can say now that there is no problem. The asset integrity test has been passed positively just last week. I think that it's really we are in a good shape.
good shape means that to reach the commercial production of 75,000 barrels per day by December, we have to start production about the first week of November and ramp up. All the team, all the management is really focused on following up this last step on a daily basis. With my visit every month, and my colleague that can say every two weeks from the headquarters. There is a full support.
As far as refining, marketing, and petrochemical, as you correctly stated, we have experienced a quarter of quite disappointing results, but for sure, not due to our performance. The industrial performance in both segments have been extremely satisfactory. Unfortunately, both of them have not been assisted by the market scenario, which both for refining and for petrochemical, the scenario, which consists predominantly in the high cost of the oil, which represent the cost of the raw material for both of them, have negatively, more than in the past, affected their results. What we are assisting now, in particular immediately after the closing of the quarter, is a sign of the first improvement both in refining margins and in the chemical market.
All in all, we remain a little bit pessimistic for the entire 2012, but not for sure in the same magnitude we experienced in the first quarter. The first sign of recovery, which we are looking at in particular in April, we hope that this situation will continue all over the rest of the year, allowing the possibility to recover a little bit the very negative situation we have experienced in the first quarter of the year.
Great. Thank you.
Next question comes from Mr. Nitin Sharma from JP Morgan. Mr. Sharma, please.
Afternoon, gentlemen. Two questions, if I may. First, you signed an MoU with PetroChina last year, and if I'm not mistaken, the objective was to look at unconventional blocks in China, also PetroChina projects in Africa. Any progress on this front? Second, recent events in Argentina on nationalization at all, does it have any impact on either the timeline or the scale of investment plans that you have for your projects in Venezuela, in terms of your risk perception? Thank you.
Okay. E&P, both questions for E&P. PetroChina, I think that we are progressing, we are working. The scope of this MoU was to have an exchange of blocks data, and when you're analyzing E&P data, it's a question of evaluation test. We are working positively. I hope very soon we can find a good result for us and for them. We are working. I remind you that we have also an MoU with CNOOC that is more or less on the same line. We are working, and we are working well, we are quite confident that we'll have access also to the shale gas in China. For Venezuela, I don't think that will have any impact also to following the press. I think that you read the declaration and the announcement of the minister and of PDVSA.
They said that they confirmed that they don't change at all any terms and condition of our agreement. They did that immediately after they knew that result from Argentina. That means that is a very sensitive problem for everybody. They want to have international company working with them. We are working quite well with them, with PDVSA. We are progressing, working very well on all our projects. I don't have any negative perception or feeling as far as Venezuela is concerned.
Claudio, if I may just add one more. Any updates on Iraq? Pace of development?
Iraq. Yes. Iraq, during the strategy presentation, we didn't talk a lot. We were not very happy about the slowdown and the slow pace of our presence in Iraq, especially because of bureaucracy. In the last month, I think that is quite better. We are progressing. They approve some very important contracts for us in terms of drilling and early facilities for production, for oil treatment. We are moving on, and I think that we are in position to confirm our production target for Iraq in 2012, that considering the price effect is about 17,000, 18,000 barrel per day equity production.
Thank you.
Okay. Next question come from Mr. Jon Rigby from UBS. Mr. Rigby, please.
Yeah. Hi. Two questions, please. The first, I guess, is for Alessandro. Can you explain to me how it will work once the split with Snam takes place with the debt that you have, that you lend onto them? Will you go into the market and retire that debt, or will you keep it? Can you make some money actually on retiring it, I guess, given where markets are? Can you just explain to me a little bit about the mechanism of that? The second is on cash, again, just to follow up on that. Could you explain how many people, or just confirm how many people you have working on there at the moment, and sort of contrast that with how many people you would normally expect to be working on an operated JV?
Just maybe sort of contextualize it by where those people are likely to go, and how quickly once first production is reached. Thanks.
Starting from your first question, with reference to the repayment of the loans we have granted to Snam. As you know, all the loans that we have released to Snam have a clause whereby as soon as the company will not be considered a subsidiary of Eni anymore, the company has a maximum time of six months in order to repay entirely the existing debt. Okay. Of course, the company is actively and efficiently and positively working in order to be ready to satisfy the contractual provision. As soon as Eni will have repaid back the entire amount, what we will do with this amount? For sure, as a first step, we will repay those loans granted by banks which carry the higher financial costs. For the rest, we will increase our liquidity
As many other energy company, oil companies, our peer group, the liquidity that they have, and it is useful to have, is an amount which should be enough to cover at least one year of spending. Today, we have a much lower situation, but for sure, as soon as we have the cash coming from the repayment of the loans from Snam, our strategy is to increase significantly our liquidity in order to be able to face any potential change in the market, even when in case of very negative, when the financial market should move or can move in a very difficult situation. Because we are convinced that the troubles which affected the financial market recently, the troubles are not over. We are still in a quite difficult financial environment. It is better to face the future with a strong shoulder.
We will keep on board most of the cash coming from the repayment of the loan, increasing the liquidity of our group.
Kashagan. Now we are about considering Eni staff and the right contracted staff. We are about 2,000 people. Direct Eni is about between 600 and 700. Until June, I think, June next year, I think that we'll have this. We start demobilizing, I think, in January, February next year, because we have all the 2013 in ramp-up, we have to leave some people of our team overlapping with Shell and KMG people that will take over in January. The team of Shell and KMG is already in place for some years, so they are working with us. We have these people. We reach production, the full production in January, the ramp-up, and we start demobilizing in, sorry, in January 2014, and we start the demobilization in January 2013. In one year, we are going to demobilize all our people.
We need these people because you know that we are in a lot of different hubs in exploration and development and production, starting from Mozambique, Barents Sea. I think that a lot of people that now are working in Kashagan, that will work in Russia and in Barents Sea, and also somebody in Mozambique. Those are the three main hubs where we use our people in the future. Okay. That's interesting. Thank you.
The last question comes from Mr. Neil Morton from Berenberg. Mr. Morton, please.
Thank you very much. Good afternoon. I had two questions on Mozambique, please. Shell were quite clear yesterday in saying that their bid for Cove was a sort of opening gambit in terms of increasing their stake in the future. You've previously said that you would like to be operator of a combined development. I just wondered what your thoughts are of a big LNG company moving in next door. Just secondly, a clarification. On that Cove deal, they recently got a ruling regarding the capital gains tax of 13%. I just wondered, as far as you're aware, is that an ad hoc ruling with regards to Cove, or would that also apply to Eni if you were to sell down your 70% stake in Area 4? Thank you.
Thank you. First, talking about development, we said that we'd like to develop our sources, and that is clear for our experience and for our knowledge of Africa and knowledge of the offshore. We don't mind also with Anadarko, a joint operatorship, and that is for the upstream. For the midstream, as you know, worldwide, normally there is a company or a joint venture, but normally a company, through which we develop the LNG, like we did in Angola or Nigeria or Egypt. I think that if Shell will be with us, is welcome. We work with Shell, and we start working with Shell in the LNG big project of Nigeria in 1992, '93, some 20 years ago.
Is a good and knowledgeable and reputable partners that we know very well, and I think that is one of the first company in the LNG. I think that is a good point for the joint venture for everybody if they join us.
On the tax then?
For the taxation. I don't think that there is law that would be, or that is ad hoc for a company. I think that the deal is a deal. I think that will be valid for everybody. If we are going to reduce our share, we have to pay this tax. At the moment, as we repeated several times, now we are focused on what we have to do, not on selling. We don't want to sell, we don't want to reduce our share, and want to keep a strong position in Mozambique.
Great. Thank you very much.
There are no more questions. Ladies and gentlemen, the conference is over.