Good afternoon, and welcome to Ayni's 2020 Update and Q1 Results. We are going through an unprecedented times with the recent collapse in commodity prices caused by the twin factors of COVID-nineteen pandemic and supply glut. In facing this scenario, AIN is stronger than it was in the last downturn in 2014 Because in the past 6 years, we have transformed the company into a leaner and more efficient organization with a robust upstream, a restructured mid downstream and a solid balance sheet. Overall, these actions, coupled with the cost and CapEx reductions, have more than halved our all in cash neutrality, while reducing our net debt. Today, in facing this new challenge, we are taking a number of initiatives that will further strengthen any both operationally and financially.
We are assuming the lockdown until the end of May and then a gradual demand recovery towards normality by the start of 2021. In the coming slide, I will detail our action plan for 2020. In these particular circumstances, all our action are being based on the following priorities. People are always at the center of our strategy and even more so now. Every decision we make is far is for the health and safety of all our employees and of all those that work with and around us.
On top of this, we are taking strong action to reduce our costs across the business and continuity of our assets safely. To date, we have had no interruptions as a result of COVID-nineteen. We consider that our low cost resources and flexibilities across all businesses are distinctive competitive advantages, which we will leverage to keep our balance sheet strong while we maintain significant liquidity to pass through the weak scenario. This year, we will fully leverage the flexibility in our portfolio to reduce our CapEx by €2,300,000,000 equal to around 30% of the total annual CapEx originally planned or 40% over the last three quarters of the year. Over 80% of the CapEx reduction is from upstream, where CapEx rephrasing affect mainly new development projects by 35% and production optimization by 20%.
Also, exploration has been reduced, while in the other businesses, we have optimized maintenance and logistics CapEx. Our portfolio is both resilient and flexible. The production optimization we have postponed can be restarted quickly as soon as appropriate market conditions appear and related production will be recovered accordingly with limited loss of value. In addition to the investment cut, we are carrying out a strong cost efficiency program in all our businesses and corporate functions. We expect an overall benefit of around €600,000,000 in 2020, with around 40% of the savings coming from the upstream, with reduction mainly in OpEx and GNG costs and the remainder across all the other businesses and the corporate.
Our production cost, notwithstanding the lower production this year, is being optimized further. We expect to keep it just below $6 per barrel, confirming our competitive position in the sector. Production in 2020 is expected to be around 1.75 to 1,800,000 barrels of oil equivalent per day before the OPEC cuts that are still unknown at field level. The lower production versus budget is 2 third as a result of CapEx cuts and COVID-nineteen and 1 third for lower gas demand mainly in Egypt and Fort Major in Libya. A contingency of 40,000 barrels per day is still retained in our project.
With CapEx at around €4,300,000,000 we expect to generate free cash flow for €1,500,000,000 in a $45 barrel scenario. The 2020 organic free cash flow of €1,500,000,000 shows a reduction of €2,000,000,000 versus the original budget of €3,500,000,000 at $6 Brent. The weaker scenario account for minus €3,000,000,000 while the action we are taking to contract the turmoil will result even considering the lower production in a positive effect of around EUR 1,000,000,000. To evaluate different scenarios, our sensitivity based on our current outlook is €180,000,000 €190,000,000 for each dollar move in brand. And now let me focus on the mid downstream businesses.
R and M has been the most affected by the virus containment measures, with a contraction in transport fuel consumption of up to 80% in the worst week of the pandemic. Oil product demand is expected to gradually recover with the easing of restrictions and the restart of industrial activities. We have optimized maintenance of our refineries, and we are containing our run our continuing to run them at reduced operating level. Overall, we expect a yearly utilization rate of around 80%. In marketing, despite falling oil products demand, we expect EBIT in 2020 in the range of €300,000,000 In Gas and Power, we expect to record around €400,000,000 of EBIT with almost 2 third coming from the resilient retail business.
In Versalis, we expect to reduce losses by around 2 third versus the last year's, thanks to a supportive scenario for steam cracking more than offsetting COVID related demand weakness, in particular for elastomers. Overall, the mid downstream is expected to contribute for over €600,000,000 of EBIT, slightly better than last year, notwithstanding the significant impact of COVID. These expected results when excluding COVID effect will also exceed the original 2020 budget that was around €1,300,000,000 Moving now to the group's cash position. Cash flow from operation before working capital is expected to be €7,300,000,000 in our revised Fortify brand scenario. The reduction versus the original budget of €11,500,000,000 at $6 Brent is due to €5,000,000,000 of reduction made up of scenario effect, COVID impact and remodulated production, partially mitigated by €800,000,000 coming from the combination of cost saving for €600,000,000 and better performance for €200,000,000 The expected cash flow from operation will more than cover the revised capital budget of around €5,500,000,000 Turning now to our Q1 results.
In response to the COVID-nineteen pandemic, we immediately put in place safety measures worldwide to protect our people and all those around us. In addition, Eni has launched a series of initiatives to help local stakeholders in areas in which it operates and also made its supercomputers HPC5 available for coronavirus research. Turning to business. Exploration continued to have success. In Angola Block 1506, the AGOGO discoveries all in place was upgrade to 1,000,000,000 barrels as a result of the second successful appraisal well.
In Mexico, the first well drilled in Block 10 resulted in an oil discovery containing up to 300,000,000 barrels of oil in place. Several prospects have been identified nearby. In case of success, they can be clusterized in a common development project. In Sarja, Area B, we drilled the first well, discovering gas and condensate in just 1 year from designing the block. The well has been tested with excellent flow rates that already approved the commercial viability of the discovery.
Upstream production was 1,770,000 barrels per day, minus 4% year on year, impacted by lower gas demand, together with the effect of contractual triggers and force majeure in Libya. These effects more than offset the increased production in Norway. Gas and power performance proved to be robust, notwithstanding the weakness of the LNG market. In R and M, the improvement was due to both marketing and refining, which in particular benefited from an enhanced industrial configuration and the higher contribution of the bio business. In the Renewable business, in March, we started 50 Megawatt wind farm in Kazakhstan, and we have completed the acquisition of 49% of the FARC portfolio in the U.
S, with an equity production of 57 Megawatt. In the 1st 3 months of 2020, we generate €2,000,000,000 of cash flow from operation before working capital, a reduction versus last year is mainly due to the lower oil and gas scenario, but matching our CapEx requirements. Our balance sheet is strong. We can rely on EUR 16,000,000,000 of liquidity to face the drawdown of activities related to the pandemic. In terms of economic results, upstream EBIT in Q1 was €1,000,000,000 impacted for €1,100,000,000 by the lower oil and gas prices.
On a comparable scenario basis, upstream EBIT was resilient, notwithstanding the lower production volumes. Moving to mid downstream, the overall result improved by 40% or 85% excluding the COVID impact. Gas and Power EBIT was robust at €430,000,000 up almost 30% year on year. This result was driven by the GLP business unit with €270,000,000 of contribution, thanks to contract optimization and volatile market scenario. This positive performance was only partially offset by the lower contribution of the LNG business related to the weakness in the Asian markets.
In retail, Enigas eluche delivered a result of almost €160,000,000 driven by the addition of almost 250,000 customers and the higher contribution from non commodity activities, which offset the sales reduction linked to the virus, milder weather conditions and increased expected default by clients. Refining and marketing was at €80,000,000 despite a challenging scenario, in particular, the refining business benefited from the optimization of industrial asset, lower operating cost and from the positive contribution of the bio business, thanks to the Geller plant ramp up. The marketing result helped counterbalance the demand reduction related to the lockdown measures. Finally, the Versailles result was impacted by the press demand, in particular in the automotive, building and construction sectors and by competition from U. S.
Producers. Turning now to the cash position. In Q1, adjusted cash flow from operation before working capital was €2,000,000,000 matching our CapEx requirement. Excluding this scenario, COVID and non cash derivative effects, cash flow would have improved yearly on year by €200,000,000 The balance sheet remained robust with leverage at 28%. To sum up, we have taken action in term of CapEx, cost savings and remuneration through the suspension of the buyback to recover €3,300,000,000 versus our original plans this year.
In this new environment affected by the pandemic with the consequent revised plan, we expect to produce between 1.75 1,800,000 barrel per day with the flexibility to reactivate production as the scenario improves. Our mid downstream will continue to improve year on year despite the COVID pandemic. We will maintain sizable reserves of liquidity, which are currently around €16,000,000,000 3.5 times our short term debt. Together, this action will allow us to navigate the challenging scenario while we maintain the highest standards of safety at fault. Thank you very much.
We are now ready to answer your questions.
Ladies and gentlemen, we will now begin the question and answer session. The first question comes from Oswald Clint of Bernstein. Please go ahead, sir.
Thank you very much, Claudio. Thank you for getting on to the call in this tough time. So my first question, please. Thank you for the updated guidance here on 2020 cash flow. You're obviously using $45 for the year.
It looks like the market's really gone to $35 for the year. So you've given the sensitivities quite clearly today and obviously your cash flow would just cover CapEx therefore for 2020. So obvious question, but could you just talk about how you think about sustaining other distribution? Can other distributions like the dividend at such a price level if it was to happen? Secondly, just on the downstream, pretty impressive Q1 with the operational improvements coming through offsetting some of the COVID demand impacts.
Could you just talk about 2Q so far in terms of gasoline, diesel, jet fuel? And just whether you think some of those operational improvements might also come through to offset some of that demand weakness once again in the Q2, please? Thank you.
Thank you. I so about the first questions, I think that to talk about dividend and what we are going to do with dividend is not time now because the pandemic and the GLA started just 1.5 months ago. So I think that we have to continue working, first of all, on the optimization of our CapEx, OpEx, G and A, all the possible optimization that we can do in our structure. We act very rapidly. We start immediately the 1st week of March.
We have a first revision in the March 2019 and then 10 days ago, less than 10 days ago, we finalized the revision that we presented today. And we are continuing to fine tuning and also execute this revision in our subsidiaries. So we will see the next couple of months how the COVID-nineteen will evolve. In our assumptions, also in term of price and in term of COVID-nineteen, within that by the end of May, the critical phase is finished. So we start gradually to recover the consumption and go through a possible new normal situation by the end of the year.
So we will see what is going to happen in May June July. And in July, we can update on the dividend. We run different scenario clearly. We don't we didn't just run 45, we run a 40, we run a 35. We still have flexibility clearly, flexibility in the cost reductions.
And it's something that we can apply if the scenario remain less attractive than what we thought at the beginning $45 And then we will can think about the dividend, but not now because we it's just happened. We don't want to react immediately before having a clear idea of what we can do in term of efficiency inside our company. For the question about refinery, still refinery worked very well. We can say that the biorefineries were very positive, both in Venice and Gela. From an R and M point of view, they work a lot of cost, efficiency on the logistics, on the stocks and we can have some additional improvement on that.
Also, now the situation in March was, I think, the most critical in term of transportation and consumption because during the week, we had an average of 70% reduction in about 80% during the weekend. Now it's improving. So the good news that is improving some percentage point, but it's improving. So we are following up. And we'll see what is going to happen in May.
We think that in May, the situation in term of transportation and consumption will be better, especially for gasoline. Diesel was diesel consumption was, I can say, good also during this period because the heavy truck continued to work for transport materials and food, so that was less impacted. But I think that we can recover also on gasoline.
That's very helpful. Thank you.
The next question is from Michele Della Vigna of Goldman Sachs. Please go ahead.
Thank you very much for taking my question. And Claudio, congratulations and best of luck for your new mandate. I had two questions, if I may. The first one is around the CapEx and OpEx cuts. I was wondering if how much in your mind is cyclical and just belongs to this really difficult time in the market?
And how much you think could be sticky even at the time of a recovery? We've seen before how the industry in difficult times manages to put through cost cuts, which actually then can become quite sticky even after the price recovers? And then my second question is about price dislocations. We are seeing a lot of dislocation in the physical crude markets. And I was wondering through your business where perhaps you see realizations really starting to diverge versus Brent?
Thank you.
So I answer about the maybe with the help of Sander, about what you asked about the cyclity, if this kind of situation is cyclical or how we can manage this kind of up and down in our Upstream business in term of prices. And then maybe about prices in diverging between Brent. I don't know if Massimo or Pino can answer. I give them time to think about, and I answer to the first question. So Michele, in the last 6 years, we had a very low price.
We have up and down. For that reason, we started already before, but we changed also our way of developing fields and all of our way to how to select the field that we want to develop and try to explain better this what I mean. First of all, as you know very well, we put a lot of focus on the exploration to be very resilient in terms of cost because our exploration cost is less than $1 per barrel. So we start from a very strong basis. Then we start working on short cycle.
What I mean for short cycle? Also for big projects, we start working on phase, Phase 1, Phase 2, Phase 3 to be able to capture with a very good fast with a good time to market the cash flow return, the return on the projects. So we don't do anymore another giant super giant project where we put all the investment upfront and then we start recovering. Because of that reason, because today we can have $60 tomorrow $80 and then we can jump down to $30 So you must be very, very fast in your development. Clearly, the world need energy.
Until December, the consumption was at 1,000,000,000 yearly average. So we need oil, we need gas, we need energy. So we have to adapt ourselves, and we must have the flexibility to be able to be inside this short cycle. For that, you must have the right asset and also the right strategy in term of development and the geography where you are to exploit at the maximum level your position and the position of the on your consumers, so or your customers, we can say. So that is my answer to your question.
Now I give the floor to Pino to talk about the diverging price between Brent and other crudes.
So the volatility of the the differential volatility of the crudes, of course, we are in a period where in only 1 week, we change completely the spread between Brent, rural or Brent, Middle East Crude. And the question is to try to take the maximum advantage of this volatility. Of course, in the last month, we took advantage to buy crude for our refining system with a very good discount on OSP on the official pricing. And about the equity production. We tried also to maximize the use of our equity production in order to avoid to be damaged from the sale of our crude on the market.
Okay. If I may add something on this, Michele. So talking about the average price we got in the Q1, the average has been versus Brent minus 5 versus minus 2.6 that was in the Q1 of 2019. But I would say that the minus 5 is more normal than the minus 2.6% we had last year. Do you remember last year, the heavier oil had, I would say, a very high quotation on the market because of the first copper cuts, Venezuela and so forth.
Now the minus 5% is more in line with what we have seen in the past, giving some advantage to our refinery system that you remember is quite complex. In term of sales, I would like to add that all the forward sales in May has been already placed as far as our equity production. So everything has been sold.
Thank you.
The next question comes from Alessandro Pozzi of Mediobanca. Please go ahead, sir.
Yes. Good morning, all. I was I wanted to go back to the comment about the flexibility in costs. And I was wondering, where are the areas where you think you can take a bit more decisive actions in the event the oil price remain depressed? I'm asking that because I mean compared to the last downturn, I think oil majors are much leaner.
So potentially the room for cutting costs maybe on the OpEx side, it may not be that great. And therefore, you have to lean on the CapEx side. And maybe a follow on from that. Can you give us a bit more color on what projects you put brakes on? Because I think you reduced the CapEx by 30% and which other projects are still going ahead?
Thank you.
Thank you. So I give the floor to Sandro Pulitti to answer your question.
Okay. Good morning. So the reduction in CapEx was basically allocated for EUR 400,000,000 to production optimization activity that means on the short cycle and the $1,200,000,000 that is allocated on long cycle, the main projects. The main projects that have been postponed are the Ruhum LNG in Angola, our activities in the Cabassana or Dago, the Merakes in Indonesia, expenditure in Iraq and Zubair, some reduction in Egypt and in the UAE. Those are the main areas where we postponed projects to achieve cost reduction this year.
On top of that, there are $300,000,000 of reduction on the exploration activity. So in definitely, how we can do more, clearly going doing more we can do it in further rationalization in our operation, especially on the operating cost side.
Okay. Thank you.
Sorry. Just to complete just to give you more color on this, how we can be resilient if the price is lower or what we can do more. You have to think that this is a size of revision of our CapEx, OpEx and costs generally has been performed practically in 1 month. So we reacted immediately. As I said, we started the 1st week of March, but we can do much more working on with each single subsidiary inside the inner costs.
There are yes, we are a big company, So it's something that we can perform further and we can optimize and the exercise is now finished. We run fast to be to give immediately to be immediately in the right side and to be to clearly to impact positively the year. But this optimization is going to continue. But that's the reason we run sensitivity of $35 or $40 and we continue to understand how to optimize it. So it's something that the budget we prepared, we presented the strategy, I've been working for 5, 6, 7 months.
And now in practically one and a half months, working with all the people, starting from top, down and down, bottom up, we revise. We make an aggression. We have been very aggressive and determined to do that. And now we continue to finalize. So not just in the upstream.
We have several other component where we are looking inside corporate cost and G and A. So a broad range of costs that we can optimize and we have optimized, also changing organization and structure to be even more flexible and resilient in the future.
Okay. Thank you very much. And just maybe a second one on the tax rate. It's been fairly high in Q1 in the Upstream, but I guess that's mainly a reflection of the lower oil price. Can you give us a guidance for the tax rate for the rest of the year?
Thank you.
Thank you.
So the tax rate, targeting a $45 per barrel for average this year means a lower oil price for the remaining 9 months. It means that we expect an increase in the E and P tax rate that is correlated to the oil price. So we expect for this reason, a tax rate adjusted for the full year that will be more or less same level around 100% as you have seen in the Q1. A different story as far as the cash tax rate, because of the different composition in this environment between deferred taxes and cash taxes, we will project a reduction in cash taxes to be paid. That's the reason why we expect a decrease in the cash tax rate from the 33% we had in 2019 to around 25% in 2020.
Thank you. Very clear. Thanks.
The next question is from Thomas Adolff of Credit Suisse. Please go ahead,
sir. Good morning. Good afternoon. I've got a few questions, please. Just firstly, on cash flow.
Obviously, cash flow is one thing and working capital is another thing. If you can't sell what you produce and you don't get paid what you sell, then obviously, the cash flow would look worse than your base case. So I wondered if you can give some guidance for working capital and how that evolves over the balance of the year. Secondly, I wondered if you can also give a comment on the supply chain. Obviously, we're seeing major disruptions there.
Are you seeing any major issues there that could impact your operations? And then finally, if I may, just on Global Gas, you've announced obviously, force majeure on Libya, what does that mean in terms of production? You probably have some issues in Indonesia. You've highlighted issues in Egypt. What is Zol producing there?
And what generally is happening to your LNG portfolio? Is your share of spot LNG higher than in 2019? Thank you.
So I think for the cash flow working capital maximum and then supply chain, Sandro Polite and then for the LNG and the gas issue and the force majeure between Christian and Sandro Polite, they can answer.
Okay. So as far as the working capital, you have seen that we absorbed in the Q1 EUR 640,000,000 because of the seasonality, but much better than in the Q1 2019 that contains some you probably remember some special item we paid around €300,000,000 for an arbitration. And definitely, we are taking advantage from the decrease in the prices environment that is giving us an advantage. So we are cashing in bills that we issue in 2019 when the oil price and the gas prices were higher, and we are releasing new bills with lower scenario. Projecting what we expect for the full year is a bit complex because all the reason that you mentioned.
So the market is really volatile. But can I say that taking into consideration what we expect in term of, I would say, a higher probability of default from our clients, mainly in Gas and Power, retail specifically, we can project a cash absorption for the full year that will be, I would say, in the range of €100,000,000 to EUR 300,000,000? So let's say, in average, EUR 200,000,000 cash absorption for the full 2020.
Can I just quickly just follow-up on the working capital? Obviously, the comment you made just now, the release that the LIFO, FIFO effect, right, inventory losses and inventory gains or the offset in the cash flow. So I was just wondering about the underlying working capital effect, not the LIFO FIFO.
Well, the underlying is more or less stable. So we do not expect a significant change in respect to what we have seen last year, so remaining more or less flat. So out of the for the full year, out of the EUR 100,000,000 EUR 300,000,000 EUR 200,000,000 I would say, the most important deterioration is linked to the reduced level of cash in from our clients. And so if you take this out, we'd be in the range of between 0 and minus 100.
Okay. Thank you.
The next question is from
It's now finished now. We have other 2 questions to answer. Sandro and then Christian.
Okay. Regarding supply chain and disruption due to the pandemic, The pandemic is mostly affecting those activities that requires international support and mobilization. And therefore, we are suspending or rephrasing most of our drilling and especially deepwater drilling, drilling activities. While on production operation, always with the aim to protect our people while granting production continuity, we have been able to maintain production level, thanks to the fact that we have a prevalence of local workforce in our producing countries. So we are not affected by the blockage of traveling between countries.
And then we also reinforced our 8 quarter support where possible and we identified critical manpower and optimize HR management. And then we have also improved our supply chain monitoring regarding spare parts to ensure their availability and advanced booking and delivery. Now I leave the floor to Christian for
Yes. Hello, everybody. So when it comes to, let's say, the global gas environment, clearly, we enter in 2020, which already the fundamentals were fairly weak in terms of supply, balance and demand. Just to remind, in the Q1 of 2020, there has been 15,000,000 tonne of more LNG floating around due to the startup of U. S.
LNG trains visavislastyearquarter. Clearly, the lockdown linked to the pandemic has increased, let's say, the weakness of the market due to the demand disruption. We have seen it firstly in China in February, but I have to say that now we see China picking up in terms of demand and actually recovering from that slump. But clearly, Europe has been affected. So let's say, all in all, this weak market environment has affected also, let's say, our results.
But as you can see from the result of the Q1, our exposure to LNG spot prices are fairly limited. In fact, we are growing our portfolio of LNG, and we try to balance and to manage the exposure to that balance. And so our, let's say, exposure to spot prices are not that high. So that's why you don't see a huge impact on the results.
Thank you.
The next question is from Lydia Rainforth of Barclays. Please go ahead, ma'am.
Thank you and good afternoon. Two questions, if I could. The first one was on the strategy presentation, and I appreciate it was only a month ago and that a lot has changed since then. But does the current crisis that we go through and depending on the duration change how you think that might evolve? So does that mean that you accelerate some of your energy transition ambitions?
Or is it really just too early to think about that? And then the second one was more of a social question as to can you talk about some of the initiatives that E and I has been deploying in terms of response to the pandemic, and clearly there's been a lot of brilliant examples of the help that Eni has been giving to the wider society. But what initiatives are you seeing making the most difference, say for example, the supercomputer being used for the virus modeling?
I'll take the first questions and I know Massimo for the second questions. First of all, the long term don't change at all because I think looking at what is happening, I feel more to accelerate the long term. It means that the action to go through a different kind of retail products, so green or blue or bio that are working well now and they are really resilient and give a good balance with the traditional business. I think that to counterbalance then this possible volatility that we'll see in the future, what we presented in the long term has to be improved and maybe accelerated. Clearly, we have to understand how and also find the means, the money to accelerate it.
We have also, as I said during the strategy, we are working through a different organization that will be useful to accelerate and also to reduce our overall structural cost. But for sure, that remain our main target to continue and to go to really to work on the SCORP 1, 2 and also the SCORP 3. And that is our plan and we go ahead with the termination. The second question, Massimo?
So second question about what we are doing. So we are doing something in Italy and abroad. So in Italy, mainly we are helping hospital to deal with to cope with this critical moment. So we provide them breathing systems. We add them to set up additional beds to assist the more critical people.
We did it everywhere in Italy from south to north. And maybe I'll leave the floor to Alessandro to give you some detail about what we are doing abroad.
Okay. Abroad, basically, we are adopting same strategy. In each of our subsidiaries, we are in contact with local health authorities. And according to their needs, we are helping in their response to the COVID by providing either beds, ventilators or personal protective equipment when required and always in accordance with local health authorities.
The next question is from Jason Kenney of Santander. Please go ahead.
Good morning and wishing everyone at E and I and on this call good health and sanity at this time, crazy as it is. I've got a couple of questions, if I may. The first on going back to CapEx. Out of the €5,500,000,000 how much of that is absolute minimum maintenance CapEx, do you think in 2020? And then the second question, I think you commented that the 1,750,000 to 1,800,000 barrel a day volume guidance for this year is pre OPEC plus.
I'm just wondering if any of the OPEC nations or indeed any country that is going to support production curtailment in the year has contacted you about field restrictions. I know you've mentioned a 40,000 barrel a day contingency. Is that purely for possible OPEC cuts? Or is it contingency on operational procedures? Just a bit more color around where volumes might be impacted if OPEC were to contact you.
Okay. Sandra, you can start talking about, I think, both because the first question is about the minimum CapEx for maintenance and the second, if somebody has already contacted us and if there is a contingency in the contingency for
OPECAT.
Okay. So we always divide our CapEx in CapEx that are related to development project, production optimization and also what we call it as mandatory CapEx that are the one that are related to our asset basically our asset integrity. So the level of that CapEx is around EUR 2,000,000,000 euros per year. So this is our minimum CapEx level that we have to maintain to ensure asset full asset integrity of our operation. And the other question?
OpEx. First, if countries start contacting us and we have contingency in our plan.
Okay. Then in our plan, we have a contingency of 40,000 barrels equivalent per day that to cover also that is covering also possibility of some OPEC cut. Although to date we don't have any request recorded to date of OPEC cuts from our producing countries.
Okay. Many thanks.
The next question is from Irene Himona of Societe Generale. Please go ahead.
Thank you very much. I had two questions, please. Firstly, thinking about the 2 affiliates now, ADNOC and Var Energi, can you tell us what they contributed to the Q1 results either in terms of profit or dividend? And then what you expect from them for the full year, please? And my second question, Claudio, as you mentioned, you worked hard over the last few years to strengthen the balance sheet.
And all your actions in response to this crisis is indeed to protect the integrity of the balance sheet. What would be the maximum the ceiling level of leverage that in this environment you would be prepared to tolerate? Thank you.
Okay. Thank you. I think that for the first question, the first question, also the second question, can Massimo can answer please.
Okay. So as far as ADNOC and VOR, in term of cash, we talking about VOR, we already cashed in our share of €150,000,000 of dividend. That is the Q1 dividend. So because of the situation, definitely, we distributed what was available to be distributed in the Q1. And then we are waiting for, I would say, more clear information ahead in order to decide what to do in the remaining three quarters.
So last year, we distributed something in the range of 850%, 100%. I would say more clear decision on this respect will be taken probably in June, July, talking about the Q2 and the remaining quarters. Maybe Pino could give you some additional detail as far as ADNOC and then I'll be back talking about the leverage.
ADNOC in the Q1 of this year had the general turnaround of West East and West. The general turnaround is already finished and happened at just in the same time of the development of crisis in China for COVID. So this is a good news. Now the units are already in operation, And the refinery is quite empty because the turnaround. So it's ready to supply the Far East where the crisis is finishing and the consumption is increasing.
So we consider to be in a good situation to cover the market after the crisis from Ruwais. Notwithstanding this, we considered in the second quarter a conservative throughput of the refinery around 60%, considering the Q in April of the turnaround and the ramp up slowly in parallel with the grow or the consumption and the full utilization in the second half of the year.
And Irene, in term of leverage, so it's a bit difficult to make such a projection this year due to the very high volatility. For sure, we will be a bit more precise in July presenting the 1st semester. The first attempt should be this year, notwithstanding all this volatility to try to stay below 0.4 in term of maximum leverage.
Thanks very much.
The next question comes from Mr. Martin Ratz of Morgan Stanley. Please go ahead, sir.
Hi. Hello. Thanks for taking my questions. Frankly, I a lot of them have already been asked, so I only had one. So clearly, 1Q saw a significant sort of decline in earnings, but it doesn't look like 2Q is going to look any better.
And it's a little difficult to gauge how much the what the incremental impact is from here on 2Q results. Now the closer we get to 2nd quarter results, the more difficult it is, I would imagine, for you to brief the market on it. So this might be an opportune time. Could you talk us through generally what your observations are when it comes to the Q2 and the factors that this could impact earnings from here on?
So sorry, if I understood, you want to understand some color about the 2nd Q and how it can be for us? Because didn't catch your question? Yes. Exactly. Okay.
So as I told you, we can analyze from different point of view because the COVID-nineteen is not is really propagating in different parts of the world and with different timing. What I can say that from a downstream point of view, from a retail or marketing point of view, we see that we have some recoveries and is recovering. And also, you see that refining in the Q1, in any case, in marketing, worked quite well in a very quite difficult condition. So I hope that we can see some recovery in the second quarter in term of consumption. That means consumption means also that will be easier also for our productions.
I cannot give you from a quantity point of view because I will be able just to give you at the end of the quarter. But I think I see the progression positively in respect to the last one half month. From a production point of view, that means that our production in Middle East or Far East is, as Massimo or Pino said before, for May June, we already sell our production. That is a good point. And we see a recovery in China and generally in the in East Asia.
So if that happen completely and we can have a recovery as expected about 70%, 80% on the consumption, That means that give space for our production in the area. Then we have Africa. Africa is linked in term of our production to the European market. And the European market is, as I said for before for Italy, it is improving also in other countries. In Germany, it's already improving.
It's better than in Italy. If it's improving also for other country, it could be good also for our production in Africa. We have another point that is not just COVID-nineteen. It's how the OPEC plus will be program will be implemented because that is clearly going to impact on the price. And as soon they start implementing, I think that we can have an improvement in the price.
So should be positive from that point of view in term of recovery for the reason I said. Clearly, we have to analyze and understand the impact of COVID and so the impact in term of time of COVID and the implementation of the OPEC plus resolutions. So if the two things are working in the positive way, I think that we can have some recovery in the Q2. But as we said this morning, the situation is very volatile, and we have to understand now for end of April May what is really going to happen for these two points.
Okay. Thank you.
The next question is from John Rigby of UBS. Please go ahead.
Thank you. Yes, can you just given we're on the call, just give a bit more color detail around the 2 areas where you're producing below capacity? So Libya with the force majeure Egypt, I think you referenced demand. Just sort of if you can give me a little bit more detail about the around that and also perhaps some indication of what how far below theoretical capacity you're running in both those countries?
Can you answer, please?
Okay. So, situation of force majeure in Libya is detected now by 2 main events. 1 is the lock of all the ports in the east side of the country that is blocking basically the oil production of Libya. And recently, we registered also an illegal closure of a valve on the coastal line for gas distribution. So currently, we have these 2 events that are reducing production for Libya.
Our expectation are that by end of June, situation should be back to normal. And this will allow us to recover around 30,000, 40,000 barrels of oil equivalent of equity production from Libya. Regarding Egypt, situation is still recording low gas demand, low internal gas demand due to the COVID situation, especially nowadays. But we do expect a recovery of the demand with the summer, increase of temperature and so more consumption for power generation. So we expect a recovery of the demand in Egypt in the second half of the year.
Thanks. That's great.
The next question comes from Christian Malek of JPMorgan. Please go ahead.
Hi, thanks for taking my questions. I do hope you're keeping healthy and safe from the same store and esteemed counterpart. Just sorry, I've come back on the dividend, but it seems to me that on the critical path of a good dividend decision is whether we see an end to lockdowns next month. I appreciate it's certainly not binary and there are any variables. But would it be fair to say that if nothing has changed 3 ounces from now, you would actively cut the dividend to protect the gearing on your future CapEx?
Because the way that the economy stands, the capital frame does appear already constrained. It seems you're working very hard to protect it with gearing moving higher. And I just want to understand what the industrial logic is to keep the dividend levels through cycle and not just in 2020? Secondly, and I guess linked to the gearing, is there a threshold for yourselves and the board like a red line you wouldn't cross before prices remain low and gearing continues to rise? Thank you.
Massimo, please.
On both questions, Claudio?
Understood the first one. I didn't understand the second
one. The first one is about the dividend and the
Yes. Understood the first
The rationale to judge about the future decision on dividend. So may I try to answer and you can definitely complement, Claudio. So, Christian, the what you said is not completely right. So not we are not going to take the decision about the dividend looking at the lockdown only. And we are not taking the decision looking at what's going on in 2020 only.
So the what we are going to evaluate mid year is a more complex environment, including by definition what we expect in 2021. So definitely, if we see a recovery in the overall situation, including prices during 2020, in order not to, we say, compromise our balance sheet equilibrium. And we see a price in 2021 that is close to our cash neutrality, I would say that the decision would be in some direction. If the situation will be different, then I just figure out that the decision would be probably the opposite. Now as I answer to Irene, we try to fix the maximum level of leverage, not the gearing, but I would say you can calculate the difference easily.
That is the maximum of 0.4 we would like not to cross in 2020. But even on this, we will be more precise when we elaborate a bit more in July based on additional information that we have as far as what's going on in 2020 and what we can more grounded we can judge about what's going on in 2021? So
if I can complement what Massimo said. First of all, we are working a quarter. It's just 1.5 month clearly. As a company, as an energy company and oil and gas company, we work on long cycle. So may make a projection and talking about details in a with a statistic of 1.5 month is absolutely incorrect.
It's not only possible, but is not reasonable. Clearly, when you talk about gearing, Massimo said, and I agree, the gearing is based on the gearing that I can have is based on the medium term. So what I can do this year and next year in the 3 years, how we can recover my debt. So it's something that is made by different variables. At the moment, we have really few elements.
Clearly, we showed from the beginning in the last 6 years that the debt, so the gearing and the leverage is very important for us, is a priority, is one of also the basis of our remuneration policies. But in this case, we have to understand if what happened in 2020 can be recovered in 2021. I want to I cannot and it's wrong to react after 1.5 month and change everything drastically. Also for my shareholders, I cannot be schizophrenic, without having the right parameters to take a decision, share with my shareholder and explaining why the range of hypothesis and the guess are too many now to take this kind of decision. We said very clearly and we demonstrated that it's a priority, the capital allocation, the gearing, the dividend.
But I cannot be reacting like if I run a small motorcycle, I'm running a big truck, I'm running the life of a lot of people, I have my shareholders, I have to be reasonable in each step I take. That is my answer.
The next question is from Biraj Borkhataria of Royal Bank of Canada. Please go ahead.
Hi, thanks for taking my questions. Just a couple of quick ones. The first one is on your R and M guidance this year is €300,000,000 That would suggest earnings up year on year and given the current environment, at least heading into Q2, looks quite challenging. So could you just run through the assumptions behind that? And then the second question, another easy one, is your for Egypt, that's one of the countries you've highlighted for the year on year declines in volume.
Could you just highlight what the contribution you expect to your 2020 production budget is for that?
I understand the second question. That is for Sandra. I didn't understand anything about the first question. So obviously, if you must know from there, because I didn't catch what you said for us, sorry.
So the question is about the assumption underlying our guidance in R and M full year result about €300,000,000 I guess that Pino would be in the position to answer.
No, about this is very simple. Our crash program to improve the efficiency, again, to the good result of the ramp up of Jela Biorefinery and some optimization in the marketing cover in part the effect of scenario in COVID and that we have evaluated in more than EUR 800,000,000. So with this improvement in this area, together with a strong cost cutting and re optimization of the maintenance in the refineries, allow us to confirm a guidance of €300,000,000 for the year.
Okay. Regarding Egypt production and the contribution to the overall E and I production in 2020, it is 300 is around 300,000 barrels of oil equivalent as an average of the year.
Great. Thank you.
The next question comes from Mr. Peter Low of Redburn. Please go ahead.
Thanks for taking my question. Just one last. In your scenario, you see a recovery to $55 well in 2021, but you still intend to cut CapEx even further in that year. Can you perhaps just explain what's the driver of that? And then as a follow-up, would investment at that level be enough to maintain your production flat?
Or should we then assume it's kind of declining at that level of spending? Thank you.
Massimo?
But the answer right now would be yes. So even if the scenario will be 55,000,000 we will intend to reduce CapEx as we said. Nothing new versus what we said 1 month ago when we revised our scenario, so 45% this year and 55% next year. It means that we are giving some priority to recover what we are losing in 2020. Thanks to the cuts, reducing a little bit our production expectation, but giving priority to the cash in order to increase the cash to be generated that year.
So we said that thanks to this action, we expect that all in all our cash neutrality will drop to around $50 $52 per barrel giving us the possibility to leave with some comfort in a world of €55,000,000 So the decision would be to keep the CapEx cuts in order to increase the cash generation, keeping production same level as is expected in 2020.
Thank you.
If there are no questions, please let's close the call here. Thank you.
There are no questions registered, sir.
Okay. Thank you very much.
Thank you very much. Thank you very much. Thank you. Bye bye.