Afternoon, ladies and gentlemen, and welcome to NE's 2018 4th Quarter and Full Year Results Conference Call hosted by Mr. Claudia Discaulci, Chief Executive Officer. For the duration of the call, you will be on listen only mode. However, at the end of the call, you will have the opportunity to ask questions by pressing star and one on your touchtone telephone. I will now hand your conference over to your host to begin.
Please go ahead, sir.
Thank you. Good afternoon, and welcome to the 2018 full year results presentation. The transformation undertaken by Aeni in the last years allowed us in 2018 to further improve our results, both from operation and financial point of view. We have been able to accelerate the implementation of our strategy, achieving remarkable milestones in terms of geographical diversification and in the rebalancing of our businesses. In terms of our priorities, in 2018, in safety, we registered a total recordable injury rate of 0.35, confirming a level that is in the lower range of the industry average.
For the environment, we are strongly committed to reduce the carbon footprint of our activities. Upstream GHG intensity decreased by 6% versus 2017. In 2018, we improved our main KPIs from the upstream to the downstream sector, increasing our financial and technological efficiency and with an extensive integration of all our businesses. The main highlights for Upstream are a new record of production with 1,851,000 barrels per day, an increase of 2.5 percent excluding price effect. In exploration, more than 60,000,000 barrels of added resources at a unitary exploration cost of $1.5 per barrel, which confirms our focus of exploration to guarantee organic growth contributing to low breakeven cost.
Moreover, also in 2018, we reached a very high level of all oil resources reserve replacement ratio of 124%, which was fostered by new FADs taken in the period. And finally, we increased the value of each produced barrel faster than expected. In mid downstream gas and power, performance was strong with an EBIT of EUR 544,000,000 more than twice that of 2017. This growth has been led by gas portfolio improvements, LNG and Power and remarkable retail contribution of EUR 201,000,000 Downstream performance was slowed down by the high cost of the feedstock, the exchange rate effect and market conditions. In the refining and marketing, we reached an EBIT of EUR 390,000,000 for the full year.
These results represent a 25% reduction versus 2017, in line with the reduction in the refining margin. In Chemicals, downturn was more severe. However, despite a extremely negative scenario, we reached breakeven, thus confirming the resilience of our chemical sector. From a financial point of view, we had one of our best performances of the last decade. Cash flow from operation of EUR 13,900,000,000 is 39% higher than last year, including the contribution of EUR 400,000,000 from the Dror D'affaires cash in.
This result, driven by our valuable and diversified portfolio, has exceeded our original 2019 guidance of €13,500,000,000 The efficiency of our investments allow us to lower our full cash neutrality that in 2018 reached $52 per barrel. As a result, we generated an organic free cash flow of €6,500,000,000 the highest since 2,008. With a net debt of €8,300,000,000 leverage has dropped to 16%, the minimum in the last 12 years and one of the lowest amongst peers. And now some color on our recent activities in Middle East. The exceptional rate of growth of aiming in this region over the last years represent the strategic achievement, one which was a major target in terms of geographical diversification and more balanced portfolio.
Starting from a limited presence in the area, we signed 11 contracts from the exploration to the downstream according to our model to be all along the value chain. We entered already producing assets that have a high potential growth rate, discovered Giant Field to be developed, areas to be explored and one of the largest refinery in the world. Starting from 2018, production of 40,000 barrels per day from Lower Justicia Kume and Humi site, we have added the development of Gasha, the largest gas field in Abu Dhabi Offshore. Based on this, from the second half of the next decade, we will raise our equity production to more than 180,000 barrels per day. We acquired 70,000 square feet of meter of highly promising low risk equity in Oman, Abu Dhabi, Faja and Bahrain.
This is the largest equity held by an INC in the region. With the risk of planning and a potential of around 3,000,000,000 barrels of oil and gas in place, these areas will be a primary target of our exploration activity in the coming years. This potential will be developed leveraging the existing infrastructures with an accelerated end to market and low cost. Overall, in the Gulf, we target a long term equity production of around 400,000 barrels per day. In the refining, we reached another strategic result with the acquisition of a 20% stake in Ruiz, which increases our overall refining capacity by 35% without taking into account any further improvement resulting from the already defined expansion plan.
RACE is one of the best refinanced in the world, a unique opportunity to rebalance our business structure and improve the average profitability of our refining sector. This deal has 2 components. First, we entered a large flexible producing asset with an important upside potential. And second, we are establishing a trading JV with our partners to better capture the market potential in Europe, Middle East and Far East and Africa. This is a significant step up in our processing capacity that will further enhance the resilience of our refining system.
Through this acquisition, we will improve our average breakeven margin from about $3 per barrel to around $2.7 per barrel from 2020 and to $1.5 per barrel at the completion of the upgrade project, which will increase the complex refining capacity to 1,100,000 barrel per day by 2023. The new development will be entirely self financed by the revenues of the refineries. These assets will be equity accounted and will contribute to our cash flow, thanks to an attractive dividend distribution policy. The key drivers that have characterized this impressive expansion in the region has been the deployment of our technologies and our operational model from exploration to the refining phase. In 2018, we set a new production record.
With a production of 1,851,000 barrel, we grew by 2.5 percent, excluding price effect versus last year, mainly thanks to the ramp ups of Dror and Nowruz in Egypt, of John Creek in Indonesia and Kashagan in Kazakhstan. And these startups from OCTP gas project in Ghana, Wafaa compression and Baresalant Phase II in Libya and Ochigufo and Bandungo in Angola. Lower gas demand due to the geopolitical issues in Libya and Venezuela and 2 commercial reasons in Ghana has reduced our existing potential growth by about 27,000 Nigeria. During the year, we more than replaced our sales base organically. Through the sales at the year end were 7,200,000,000 barrels, of which 51% is cut.
Major organics revision were recorded in Egypt with progress in the development of Dror and FIDs in Mexico Area 1, Meraki's Indonesia in Indonesia and Angola. Including the positive contribution of portfolio we recorded in all sources reserved replacement ratio of 124% and around 11 years of life index. In the past 5 years, we have been able to organically replace 130% of our reserves. Let's now move to the upstream economic results. 20 eighteen's EBITDA was €10,900,000,000 more than doubling last year's results with an oil price growth in euro of just 25%.
Better performance in terms of production mix and volumes contributed more than €1,000,000,000 to the EBIT growth of €5,700,000,000 Upstream operating cash flow was €12,900,000,000 55% higher than in 2017. Our generation per barrel, thanks to an improved production mix, was $22.5 per barrel, a level that we had expected to reach at the end of the planned period. Thanks to the efficiency of our investment, which allow us to keep CapEx flat, we generated a cash flow after CapEx of €6,300,000,000 This excess cash fully cover more than twice our distribution needs. Mid Downstream contributed more than €900,000,000 EBIT and around €1,000,000,000 of cash flow from operations. Gathering power with €544,000,000 had its best performance since 2010, proving the competitiveness of midstream and capturing high value from LNG, where we increased our contracted volumes by 70%.
In particular, retail gas contributed to this result with €201,000,000 Thanks to greater operating efficiency, the continuous growth of the customer base, which now numbers 9,200,000 clients, 6% more than last year and thanks to an improved offer of new product. Refining and Marketing had a good performance, notwithstanding the reduction by 23% of the refining margin. EBIT was driven by an excellent marketing performance with the result close to €500,000,000 While the refining system was impacted by the appreciation of sour crude due to the U. S. Sanctions on Iran and the recent OPEC cut.
In Versalis, where we're very close to breakeven, it was a difficult year due to the growth of cost of goods in NAFTA by 25%, the weaker euro dollar exchange rate and an effect of supply in the polysilent market due to the strong growth in Middle East and U. S. Export. In 2018, Eni improved its financial performance, reaching its best results in the last 12 years. Eni's organic cash neutrality covered all cost CapEx and full cash dividend at $52 per barrel, an improvement in last year's result of $57 per barrel and on our target $55 per barrel.
Even if we exclude the deferred cash in from Zoro disposal, our cash neutrality remained below $55 per barrel. If we do take into account the net cash flow from portfolio activity, we generated a free cash flow after portfolio and dividend of EUR 3,800,000,000 the highest since 2006. This has allowed us to lower our net debt to €8,300,000,000 and to reduce the leverage to 16% and the gearing to 14%. Finally, I would like to highlight the exceptional result we have reached in the years of industry downturn. We have been able to reshape our business quickly so that today Zeni is more flexible, faster, more efficient and more valuable.
Thanks to the large contribution from Inspirational Success and the fast track development of our discovered resources. 70% of the projects we sanctioned in the last 3 years come from the discovery of the last 5 years. By leveraging the quality of our portfolio and the low cost development, we have increased our production by 15% while reducing overall CapEx by around 35%. The result of this is an improvement in organic cash generation and reduction in net debt. Vergenics free cash flow now has reached €6,500,000,000 more than double of what we had in 2014 with a brand price that was 30% higher.
And the net debt has dropped by 40%. Thank you. Now together with our top management, we are ready to answer your questions.
Ladies and gentlemen, we will now begin the question and answer session. The first question is from Mr. Henry Tarr of Berenberg. Please go ahead, sir.
Hi, thanks for taking my question. Could you potentially talk about the options on the exploration blocks, 1 in the UAE and the Middle East? So when are you hoping to start drilling activities? And perhaps if you could talk about the potential fiscal terms agreed for the blocks and how happy you are with the arrangements there? And then secondly, following the investment into the refinery in the UAE, are you now happy with the balance of the portfolio?
Or do you think there's potentially more rebalancing to do as you look across the group? Thanks.
Okay. Thank you. Luca, can you answer for the exploration in Middle East?
Yes. Our plan is to start exploring in Abu Dhabi offshore next year. So we have a plan for start drilling in Q2 2020, and we'll follow-up with a string of exploration wells.
So I think that you asked also if you are happy with the commercial contractua and contract that we signed. Clearly, we are happy. Otherwise, we didn't sign it. And it's clearly considering that it's not diluting our package of exploration initiatives. It's not diluting our in the future, our package of development.
So it's good conditions. Clearly, we have to be good also in exploring and finding sources. For R and M, so I think that now we are very focused on this big initiative and big acquisition we made. You know that we had planned our development already defined. So we by 2022, we are going to increase our capacity from 900,000 barrels to 1,100,000 barrels per day.
We are also improvement also in Italy because we restart in ESTE. So our refinery in the north of Italy will start also jail now. So I think that it's going to be a good period for refinery. If you ask if we are happy and now we think to we are in a good balance between upstream and downstream, I think that now we improved our position. Clearly, we don't have any other thinking front of us.
Really something that we're going to see in an opportunistic way. But considering that we are in the biggest refinery that has a lot of possible future development, I think that we are happy with what we have now.
Great. Thanks.
Next question is from Mr. Rafael Butaj of Bank of America Merrill Lynch. Please go ahead, sir.
Thank you. Good afternoon. I've got a few, please. First one, just coming back to the ADNOC Downstream acquisition. So when that transaction closes in the Q3 this year, your leverage will likely go up by around 5% or so.
Can you just illustrate what that might mean for the timing and level of additional shareholder returns over and above your current dividend strategy? Second question, just in upstream, you had a 100,000,000 barrel write off. Could you just give us a little bit of color around where that is and what are the assumptions underlying that reserve impairment? And then finally, jumping back to downstream, just a bit of housekeeping on the Milazzo refinery in the Q1. Can you give us how long that refinery was out due to weather issues in the Q1?
Thank you.
Okay. About ADNOC investment in the refinery, I think the following is expected by the Q3. So first of all, it's not impacting or impacting in our capital allocation in respect to the our dividend policy or our return to investors. So they are not in conflict because also with this acquisition now, our leverage will be below the 20%. So from that point of view, there is no problem.
Massimo, if you want to answer that for the
Yes. So the net write down we made in E and P asset amounts substantially to €470,000,000 net of taxes. More or less half of this value is due to the write down we are performing on UNIN 5, our oil heavy oil asset in Venezuela because we have written down all the proved on debt resources resources, sorry, due to the current situation in country. So we have written down also the value. So the issue is related to the difficulty to operate such asset in country right now.
So you remember, we made a write down of Cardone IV, so the Perra field in 2017 because of, I would say, the uncertainties in countries or the difficulties to inject additional money in Venezuela. Today, we are performing this write down because of the technical issue in country. So the current production is going ahead, while the development of the undeveloped resource is difficult, and that's the reason why we are doing so. And the rest of the write downs relate to other assets and may relate to technical issues and a slightly reduction in the scenario we are projecting looking forward.
Really, the long period of bad weather produced some problem in our south refineries, not only in Milazzo but also in Taranto because the bad weather was very long. This was a rebalanced reposition with the repositioning of our product coming from other depot and refinery. And in Milazzo especially in Milazzo for a couple of weeks, we had to slow down some plant but without any shutdown.
Thank you.
Thank you.
The next question is from Mr. Alessandro Pozzi of Mediobanca. Please go ahead, sir.
Thank you very much for taking my calls. I have 2. The first one is on ADNOC, the refining unit. It looks like it's going to have a meaningful contribution to your R and M division. Just wondering if you could potentially quantify for us the impact on either earnings or cash flow?
The second question on the upstream, gross realizations in the upstream have been again very strong. Just wondering if you can give us a bit more color there. I was also wondering maybe if there is a lag between oil price and gas realizations in the upstream. Thank you.
Okay. So as far as the return expected from ADNOC refineries, definitely, we don't we can't be deterministic on this, but some numbers have been spent even by the operator and the other partners in the initiative in the range of 10% to 10% yield from this investment. And broadly speaking, we can confirm definitely the cash flow expected from this investment will be a growing one. As we said, as Claudio said, we expect a growth in our capacity in the refinery capacity up to €1,100,000 So the return would be in line with this growth with an average that would be in the range of 10% or even slightly higher than 10%. And the second question, the realization of gas.
The realization of gas has been growing in 2018. Taking into consideration the increase in the gas realization prices in Europe when we sell the Italian production and the part of the Libyan production. So and the mix, the change of the mix in our portfolio in terms of gas is contributing to this. Among the new project, the gas project entered into production, I would like to remember Zohridge and Creek and definitely are increasing significantly the overall realization on gas price in our portfolio.
That's a
lot of questions. I believe the sensitivity of cash flow to the oil price has come down a little bit. I guess, that's a function of the new projects coming online. Yes, slightly,
but you are right.
The next question is from Mr. Alastair Syme of Citigroup. Please go ahead, sir.
Thanks very much. Can I just ask what you think will be the sort of the key final investment decisions you take in 2019 in the upstream? And my follow-up was just really on reserves. Eni has shown itself to be very different to the rest of the industry in terms of reserve replacement in recent years. At the same time, some of your peers say reserve life and reserve replacement doesn't really matter that much anymore.
I would be interested in your perspective on how the strong reserve position gives you visibility on the future. What do you think of that comment?
So clearly, our position on the reserves, replacing the ration is quite I don't know what they think of the other, but it's really one of the main priorities because we our strategy is to grow organically. So our strategy is to grow organically through exploration and be fast in developing our field. So we reduce our inactive capital. We have exploration. So we start from our exploration that is as around $1 per barrel unit cost.
So that is the only way to be able to keep and to travel overheat. So exploration, development, that is a key. And a key is to replace our shares and our production. Now if you don't replace our production by organically, you have to buy. And if you have to buy, you have to spend much more.
And that means that you reduce your cash flow, your profit, and that is not our business to reduce our profit. Our business is to increase. So clearly, the reserve replacement ratio is a key point, is clearly a key point of our strategy. For that reason, we are investing in technology. For that reason, we are also so selective in finding good exploration prospects close to existing facility in area where we have already some operational existing facility also, if I'm not our facility, to be able to go fast.
And the average now, the average tank market that is 2.7 years, that is 1 third of the average industry, show that our focus is at the maximum. So for the FAD, the FAD that we think to put in production as a number, then we would be more clear during our strategy presentation because if we talk about 2019 now, we don't have anything to say in 1 month. But we are going to deliver about between 7 9 new FIDs that with the aim really to replace more than replace our sales.
So Cloty, can I ask where you think the commercial resource base of the company is as distinct from SEC reserves where you You
can go through it because Francisco was talking to me? So
My question was where you think the size of the company's commercial resource base is as distinct from SEC proven reserves?
It's about R14 $1,000,000,000 I think, yes, yes, that should be no, there's a little bit more, but okay, we can say around between EUR 14,000,000,000 and EUR 15,000,000,000 if we can put the 2 period shares. And clearly, just to conclude what I was saying before, the organic growth and the replacement of our reserves is a matter of to be low cost. And that is one of the reasons why we can't keep our CapEx flat. That is the reason why also for the future, the only side that I can the only disclosure I can do about the future is that really we can keep our capital flat because we are all our assets, we are going organically, we can phase out and phase in new projects. And that is really one of the reasons why we have been able to reduce our debt and to increase our free cash flow.
And sorry, just a final point of clarification. The $14,000,000,000 to $15,000,000,000 would be consistent with your scenario planning, so based on sort of $70 oil, something like that? Yes, exactly. Yes. Okay.
Brilliant. Thank you very much.
The next question is from Mr. John Rigby of UBS. Please go ahead, sir.
Yes. Thank you. Sorry to labor the point on Abu Dhabi. But can you just go through the how we should think about this going forward and particularly in the context of the calculation or the indication you gave on profitability because I'm a little puzzled because you talk about accounting for this in the associate line item. So do you, as we go forward, unpick the associate structure to look at a sort of fully consolidated refining and marketing business to calculate the breakeven?
Or is that breakeven calculated on the basis of the dividend inflow that you're getting? Just to clarify, please. And then secondly, I take your point, Thadio, about not wanting to reveal everything about March 15. But just to think about the context in which you will speak on March 15, you've talked about the $55 cash neutrality figure, dollars 52 achieved in 2018. There's a lot of moving parts with the disposals, additions, etcetera.
And you've increased the perimeter of the business with the Abu Dhabi acquisition. So the way to think about it getting into March, would it be to think about whatever the moving parts end up is something in that $50 to $55 range is kind of where we would should expect sort of ENI's net performance to be? Thank you.
Okay. And Nassem will answer the first question and the second.
So John, technically, you are right. So the participation will be accounted based on the equity method. So you will see the result pertaining the 20% that we acquired. And in the cash flow, you will see the dividend. So the number I mentioned before in the range of 10% in term of yield refers to the dividend.
That has been part of the negotiation we put in place, so how to structure the dividend policy of the company. But let me say that this investment is a bit more than just an equity investment because we negotiated with ADNOC for more than 1 year about the technical assessment of the refinery and the way forward about how to increase the capacity, how to increase flexibility and the efficiency of this refinery. So we definitely from a accounting point of view, it is what it is. But from a business point of view, we really believe that our contribution would be much, much higher and will be part of the decision taken in Hamburg Refinery. And definitely, we will give you every quarter while significant information about the contribution of this investment to our full result.
So bridging from this answer to the following one relating to the cash neutrality. Definitely based on this respect, we expect that the cash neutrality will take some advantage from this investment because definitely we are talking about a significant rebalancing in our refinery capacity. We said 35% increase. More than this, definitely, the Perkian industrial refinery is much, much lower than the average that we have in Italy, basically in Italy, considering the historical asset base that we have. So based on this, we expect a positive contribution.
Definitely, we have moving parts, as you said, in our cash neutrality, €55,000,000 in 2018 does not include any disposal contribution. And we do not believe that even considering no contribution from disposal, we definitely would not believe that our cash neutrality would be higher than $60 looking forward. We believe that our cash neutrality will remain definitely below this number.
Right. Thank you.
The next question is from Mr. Michele Della Vigna of Goldman Sachs. Please go ahead, sir.
Thank you. Claudio, one question. When you took over as CEO in 2014, you had a strategic imperative to improve the business and geographical balance of E and I. And since then, you've materially grown the LNG business, refining biofuels. You've created, as you highlight today, a major business in the Middle East.
You've entered Indonesia and Mexico in scale. Is there any other part of your business that you think still needs to grow to provide a better balance and where you see attractive entry opportunities at the moment? I'm thinking particularly in areas like Asia or North America. Thank you.
So we have you have to do I think that we did a lot and we did a lot very quickly and rapidly also because we have we had to fight the downturn and also because we had a good opportunity. And as I said during the presentation, we'll be able to enter most of these new country thanks to the technology and the know how that we put in place. Middle East, in Middle East, when the Gulf is not clearly not finished. We just started. So I think that we have to develop, to continue to work and there are huge important opportunity to grow and rebalance further our portfolio.
And that area is quite important, and it's important in terms of from a contractual point of view, from a good asset point of view, from facility maturity of area. We are growing in Asia, so the gas in Asia is another target. We have Indonesia, but we have Australia that is growing, and we have to remember that we have Myanmar still under exploration and Vietnam. So there are area that in exploration, especially on the gas side, will go. And we have also we are drilling an important well in Pakistan.
In North, in the U. S, we are growing in Alaska, and that is the area where we are, but where we are increasing production. And that is an additional target, a main oil target for us. And so it's not finished yet. I think that we have to do much more to be able to be more resilient, more balanced.
Clearly, all this effort is also based on our target to grow but looking at our carbon footprint. So clearly, we are working and from a technological point of view also to be able to grow, but reducing our carbon footprint. And clearly, I think for the scope 1 to became cargo neutral. That is another important target. So there are many things that are helping also to be more efficient, more effective and also to have a better package to sell to the new country that we want to enter.
Thank you.
The next question is from Ms. Irene Himona of Societe Generale. Please go ahead, madam.
Madam. Thank you. Good morning and congratulations on these results. I had three questions, please. Firstly, in July, you merged and in August with Point Resources.
Can you tell us the impact in 2018 on your cash flows and cash balances of that deal? And perhaps remind us of the benefits you expect from this merger going forward? Secondly, could you talk a little bit about cost inflation pressures? I mean, I noticed from your disclosures, the full year operating expense increased about 7%. Are you recruiting more people?
Or is there wage inflation? It would be helpful if you can clarify. And then finally, your full year capital expenditure was €9,400,000,000 your net CapEx €7,900,000,000 If you just remind us of the bridge or the components between those two numbers. Thank you.
Okay. Hi, Irina. So as far as your first question about the effect of water energy in 2018, I would say on the longer year during the year in term of cash flow economic terms, the effect has been 0 because we deconsolidated any Norge and created, from an accounting point of view, Vore Energy starting from the 31st December. So the only effect that we recorded are balance sheet affected effects. And the balance sheet effect has been the consolidation of EUR 1.9 €1,000,000,000 in term of net capital invested.
And looking forward, we expect definitely a positive contribution that's in line with what we announced. So a contribution to our cash neutrality decrease in the range of $2 per barrel. The integration activities are going ahead as expected or even better than expected. Even from an industrial point of view, new discoveries has been announced. The progress involved, that project that will be the next FID are going ahead in line with expectations.
So far, definitely so good. The CapEx split, So just to say saying that Page 15 in our press release, you can see all the so capital expenditure, including investment, dollars 9 point 3,000,000, dollars 9,400,000 net CapEx amounted to $7,94,000,000 and excluding the following items. So the entry bonus paid in connection with the entry in the new concession in the Emirates amounting to 869,000,000 and other nonstrategic acquisition in mid downstream businesses for approximately 100,000,000 dollars So this is the reconciliation between a 9.3% and 7.9%.
Okay. And Sandeep, you can answer about the inflection rate.
Okay. In terms of inflation and cost environment for the upstream, what we reckon through our market analysis is that offshore drilling rigs, we see some signals of recovery of the price, especially for jackups rigs around 5%, while for the powder activity, the prices, the rate, the daily rate are still steady.
For the
rest of the suppliers like umbilical, line pipeline and production system, we reckon substantially steady prices. And the same really also for Turbomachinery in this moment, there is still a substantial market oversupply. While services for drilling, we reckon a 3 percent cost increase. So all in all, there is no big, I would big changes in terms of cost inflation for the upstream costs.
Thank you. And in terms of your group operating expenses moving up during the year, 7%, is that linked to something specific? Is it wage inflation?
No, it is related to increased activity.
Thank you.
The next question is from Mr. Peter Low of Redburn. Please go ahead, sir.
Hi, thanks for taking my questions. The first one on refining and marketing. Your green fleet sorry, your green throughputs rebounded in the quarter, which coincided with a stronger than expected result. Can you give any indication of the financial contribution of those green refineries and perhaps how you see that developing moving forward? The second was just another quick one on Venezuela.
Obviously, the situation is pretty fluid at
the moment, but can you give us
an update on your operations there and the extent to which you actually think you can recover any outstanding receivables? Thanks.
If
I understood well, the question is the contribution of the green business in okay. In the last quarter, we have a good margin of green product and the Venice refinery increased EBIT and we closed the year with a good contribution of Venice even if the capacity of the refinery is not so high. In the next weeks, we will start also with the general refinery that more than double the capacity of green and the contribution will increase significantly.
Yes. Just if I can complete the answer about the new refinery. So they are positive. They are giving a positive contribution. Clearly, we are still that we are using we start using through our technology 2nd generation, also 3rd generation, so something that is not palm oil.
So the palm oil is something that has a cost because there is logistics, so we have to import. So with the upgrade that we are doing, looking for our green refinery, we'll use and that is our final target, a 2nd generation. So cooked oil or waste material, organic waste material that is going to reduce all the logistic costs. Clearly, there is no concrete with food and is going to increase drastically the really good performance of the green refinery.
Yes. On Venezuela, the average production during 2018 was 48. The majority of the equity is coming from Perla and then we have Corocoro and Kunin. The gas demand is lower than the capacity of our plant. And we expect it to have it lower also during 2019.
However the same ranges. However, the availability of the plant is there. In case of additional requirements, we are ready to deliver more gas.
Okay. So in terms of outstanding, the outstanding at the end of the year was in the range of $700,000,000 So more or less $100,000,000 more than what we recorded at the end of 2017. So during the year, we have been paid in the range of 35%, 40% of total revenues. That's definitely something more than expected at the end of 2018. We expect that the way we are recovering partially the revenues will continue in the future.
And what is much more important that the way we are recovering in euros outside United States is something that is not affected by the even the new U. S. Sanctions.
Thank you. That's very helpful.
The next question is from Biraj Borkhataria of RBC. Please go ahead.
Hi, thanks for taking my questions. I had a few on Egypt. Could you
just comment on where you are in the restart of
the LNG plant? Because it looks like this oil continues to surprise me upside. And then also just related to that, can you walk us through the key deliverables in 2019 for the Phase 2 of the project? And then finally for Massimo, just a reminder, can you guide us to a cash tax rate for the group for 2019? Thank you.
I'm going to answer about the LNG, and Antonio is going to answer about the progress of the project at Masimo De Reza.
On the LNG plant in Egypt, that we are there through our participation in Neo Fenergaz, the joint venture that we have and that owns and runs the plant and buys the LNG. And you know that, of course, that there is an ongoing and there was an ongoing and there is still there is an ongoing litigation with the Jitsiyan government. The situation in the past months changed, in particular, through all the discoveries which were made. And we are now and we have been in this past period in a framework where it is in the interest of all parties to have the plan to restart it as soon as possible. And the parties are discussing on that basis.
They have been discussing. They are still discussing. And once there is the interest of everybody, you would expect that an agreement is found. But of course, the commercial discussion is ongoing.
Okay. Concerning the performance of our project at Zohr, we are producing currently, as you know, that 2 point 1,000,000,000 scaf per day as a gross production and our equity is 672,000,000 scaf. And the major achievement that we are working for 2019 is Train 5, 6 and 7 completion. So the first step of next growth is going to be 2,700,000,000 scaf in July, 6 months ahead of our schedule. And then we're going to complete in September the lay down of the 30 inches Subsea line to increase our additional production to 3.2 1,000,000,000 scafor, meaning that SEK 980,000,000 scaf of equity.
So the gross production that we expect in 2019 is going to be 450,000,000 barrel oil equivalent. And in end of 2019, we're going to reach 580,000,000, which we're going to be in September. So we are quite okay on our schedule and ahead of 6 months for all the projects. In addition to that, we have completed more or less the line that's connecting you remember, El Camil for Nourous production with Abu Madi. And this is going to give us debottlenecking on pressure, which we expect to grow up again on production of gas, which will give us additional EUR 200,000,000 scarfa from the previous EUR 1,000,000,000.
So these are the plan for the 2019 in Egypt. Moreover, we are concluding our extension of concession on the Western Desert in Egypt. And we expect to launch a large campaign of drilling on the oil discovery in Southwest Nelea. And this is will allow also to launch additional production on the Western Desert. Conclusion of now our negotiation is going to be in more or less in couple of months and then we kick off all the activity there.
Okay. And the as far as 2019, we expect a cash tax rate in the range of 30%.
Great. Thank you.
The next question is from Massimo Bonnetoli of Equita. Please go ahead, sir.
Good afternoon. Two quick questions left. 1 on the very positive marketing result in R&M division. 4 quarter is usually a low season period. Could you give us some more details on this result?
And the second on Versalis. At the start of today, the scenario forecast was for an operating profit of about EUR 300,000,000. Clearly, the scenario was much different. Are there any operating issues also? Or is only scenario related?
Okay. About the marketing, really in the last quarter of 2018, we had an exceptional performance. And even if this winter quarter is not really the best for the marketing for the MicroTine Resolute. And this is due to the very good performance of the retailer, especially the national retailer in Italy, but also in the retailer in the European country, Germany, Austria and France, especially. And this in addition, the result has been supported also to the increase in the result of the wholesale, maintaining a good margin even if in the quarter the consumption slightly decreased.
And Massimo, for the chemical side, there was a lot of good wind in the first half of the year. So unfortunately, this didn't happen in the second half. We are still very exposed in terms of polyethylene, in terms of the cracker margins, which in the second half of the year, particularly with the spiking of naphtha, returned to the level of being very uncompetitive in Europe compared to Middle East and U. S. Particularly.
So we didn't have really any issues on the operating side. In fact, the fact that we have less maintenance and good operational facilities helped us in mitigating some of the second half. But unfortunately, with the portfolio that we have today and continuing to try and to diversify and develop, we are still in the situation where the scenario had a big effect in the second half.
Very clear. Thank you.
Mr. Zizgalsi, that was the final question. I will turn the conference back to you, sir, for any additional comments.
It's okay. Thank you very much and good afternoon.
Ladies and gentlemen, thank you for joining. The conference is now over and you may disconnect your telephones.