Good afternoon, ladies and gentlemen, and welcome to the NE's 2018 First Quarter Results Conference Call hosted by Mr. Massimo Mondazzi, Chief Financial Officer. For the duration of the call, you will be on listen only mode. However, at the end of the presentation, you will have an opportunity to ask questions. I am now handing you over to your host to begin today's conference call.
Thank you.
Good afternoon, and welcome to our Q1 2018 presentation. It was a positive quarter for the Upstream and Gas and Power sectors, which benefited from the execution of our strategy and the positive market environment, whilst downstream results confirm their resilience. In upstream, production was 1,867,000 BOE per day, a 4.4% higher than last year, adjusted for PSA effect, whilst reported production was 4% higher. During the quarter, we started up the 5th field in block 1506, extending the Plataudis block. We continue to progress with the remaining start ups planned for this year.
1st gas from OCTP is confirmed in June, while the Libyan project, Barresalam Phase 2 and Wafaa compression will be delivered between June September. We recently obtained the plan of development the approval development from Merakes, which will be tied in to Jump Creek. And finally, in exploration, we delivered 2 main discoveries: Calypso Offshore Cyprus and Teocale II in Era 1 in Mexico. In the mid downstream, we recorded €400,000,000 of EBIT due to a strong performance in Gas and Power with an EBIT of €322,000,000 thanks to the growth in LNG sales and improved midstream structural performance and positive result in Refining and Marketing and Chemical despite a weaker scenario. Cash flow before working grew by 22 percent to €3,200,000,000 significantly exceeding the growth of the oil price that has been 8% on a euro per barrel basis.
This result is mainly driven by the response of our highly profitable upstream portfolio to the improved scenario as well as the growing LNG volumes sold. CapEx were in line with the guidance amounting to EUR 1,800,000,000 net of the acquisition bonus for the Abu Dhabi field that amounting in the range of
EUR 700,000,000
And now a quick look to upstream. Production, as already said, reached EUR 1,867,000 per day, a growth of 4.4% versus last year, boosted by the start up and ramp up contribution of 238,000 bb per day. The main contribution were from Jank Creek in Indonesia, Zor and Nourous in Egypt, OCTP Oil in Ghana, Ochingufu West Ab in Angola and Kashagan, whilst Goliath benefited from a better uptime. We confirm our full year production growth of 4% in a $60 per barrel environment. In terms of EBIT, we recorded €2,100,000,000 a 47% jump versus last year as an effect of the higher scenario and production growth, partially offset by higher depreciation costs mainly related to recent start ups.
Excluding the impact of the Abu Dhabi one off bonus, the upstream free cash flow was more than EUR 840,000,000 in the quarter. And now a brief outlook at the key main start ups and ramp ups that will drive our 2018 growth. In Block 1506 in Angola, we started up the Ochimgufu project at Aydin to Westaff FPSO that achieved the first TOI in less than 18 months from the presentation of the plan of development. On Zohr, we recently started up the 2nd onshore train, allowing the production to double to 800,000,000 scaf a day. We are planning to start the next three trains within the end of the year, reaching an equity production peak above 100,000 boe per day.
OCTP oil contributed 19,000 boe per day in the Q1 and will double with the gas volume plateau starting from next June. And finally, Jan Creek that has mostly reached the plateau and delivers gas to Bontag LNG at a rate of more than 600,000,000 scaf a day. This field will be an important hub for future development as we will see in the next slide. Overall, this year, the contribution from start ups and ramp ups will be 310,000 bill per day. Looking now at the key future project.
Merakes Development received approval from the Indonesian Authority 1 week ago. We completed the appraisal campaign at the beginning of 2017 and in less than 2 years we'll be able to take the FID, planning to deliver the first gas in the second half of twenty twenty. The estimated 2 Tcf of gas in place will be developed by 6 subsea wells tied into the John Creek floating production unit, where the gas will be treated and connected through the existing pipeline to the liquefaction plane of Bontangue. This field with a plateau contribution of 60,000 barrels per day in share is a material element of our integrated LNG strategy. Furthermore, the block contains additional structures that will be targeted by further near field exploration.
And now to conclude the upstream section and leveraging on the proved reserves data now published by the entire peer group, let me present a discounted net cash flow view of reserves value. In unitary terms, we share the top of the scale with $6.8 per barrel, pushing up the value of any proved reserves to $48,000,000,000 very close to Pearson with much larger volumes of reserves. This is the result of our high realization prices under the valuation scenario that you know has been in term of Brent $54 per barrel and lower production cost, including royalties that lead by far the group. With an increase of $2.6 per barrel versus the value of 2016, second only to one peer that in 2017 performed a material reduction of its proved reserves portfolio to the benefit of its unitary value, and he recorded a remarkable increase justifying the value retention in an improving scenario. And now let's move to mid and downstream.
In this quarter, we delivered strong result in Gas and Power and positive result in the oil and chemical mid downstream. Gas and Power confirmed the progress made so far, achieving an EBIT of EUR 322,000,000 driven by the LNG and power operations and without the one off contribution that had announced in 2017 result. LNG sales grew 35% at 2,700,000,000 cubic meters. Thanks to the successful integration of gas in Indonesia, whilst retail gas recorded a result substantially in line with Q1 2017, excluding the sale of Belgium asset and the lower regulated margin in Italy. This performance strengthens the Gas and Power guidance we provided for the full year.
Refining and marketing is in line with the plan, taking into account a weaker scenario that impacted on the refinery result, counterbalanced by a positive market performance. The action we are developing in 2018 related to the restart of ESTA and the Gela conversion to BioPlane will further announce by the end of this year the resilience of our refining system, lowering its breakeven at $3 per barrel. Finally, Versalis maintained a positive quarter with an EBIT of €59,000,000 confirming its resilience in a weaker scenario. And finally, some information about the cash flow from operations. With almost EUR 3,200,000,000 of cash flow from operation pre working capital, we increased our cash generation by 22%.
It is the highest result since the Q3 of 2014. E and P contributed EUR 2,600,000,000, whilst the other businesses, largely Gas and Power, contributed the rest. Reported cash flow amounted to EUR 2,200,000,000 a 13% increase versus last year, impacted by the seasonal working capital cash absorption, mainly in Gas and Power Business, which is expected to be more than reabsorbed in the coming quarters. CapEx in the quarter were in line with budget at EUR 1,800,000,000 and this allow us to confirm the €7,700,000,000 guidance for the full year. Leverage remained at 23 percent equivalent to a gearing of 19%.
The full cash neutrality in 2018 is confirmed at $55 per barrel. Thank you very much. And now together with any top management, I'm ready to answer any questions you may have.
The first first question is from Mr. Oswald Flint of Bernstein. Please go ahead, sir.
Massimo, thank you. Just really two quick ones around the quarter, please. The first one, refining, obviously, good to see that still positive here. Any trading losses or supply optimization negative impacts in the Q1? And maybe remind us of the seasonality of the marketing for this business as we look into the Q2 and Q3?
Is there a big marketing earning step up? And perhaps give us a bit of insight into how refining margins are behaving for you in the Q2 so far? That's the first question. Secondly, I was just looking at the volume growth and some of the regional breakdown and curious about the declines, pretty heavy declines you're seeing in the Thailand and European natural gas. Are those declines in line with your plan?
Or perhaps you could talk around the kind of European natural gas production side, please? Thank you.
Okay. So thank you very much, Oswald. So in terms of trading losses, Nod, we didn't record any trading loss in the quarter. About seasonality in marketing, the best quarter as far as marketing is the second one. But anyway, we record the strong performance
in even in
the Q3 among the others taking, I would say, a solid market share in the range of 25% in a stable margin business. And in terms of refinery, no, we don't have any specific seasonality on this respect. I would say what is the most important information that we are progressing in line with the plan in taking our breakeven at $3 per barrel. So the progress as far as the rebuilding and the conversion of JLR Refinery are progressing in line. So we really expect that by the end of this year, we'll be in the position to match even a tight scenario as the one that we are living in.
And in terms of gas production, no, we are justifying exactly the depletion that we expected. So no huge, no big differences on this.
Okay. Very clear. Thank you.
The next question is from John Rigsby of UBS. Please go ahead,
sir. Hi, Matt. Just one question. On Gas and Power, you obviously referenced the good LNG results and also the adjustment from last year in the traditional supply business. But on LNG, are you able to sort of characterize either the absolute EBIT contribution from LNG or the delta 1Q to 1Q just so that we can sort of assess how you're progressing.
The level of disclosure in that segment isn't great. And clearly, the Q1 result is significantly ahead of what we'd expected, I guess, given your full year
guidance. Yes, yes, John. So I'm going to give you some more detail, and maybe I'll leave the floor to Marcio Montovani to have some information about the quality of the LNG business that we are conducting. So we recorded EUR 322,000,000 in Gas and Power EBIT 1st quarter. I would say retail is $140,000,000 and mid gas is $180,000,000 On this $180,000,000 LNG contributed more or less half half of this value.
That definitely is a significant increase versus what we recorded in the Q1 2017 with, I would say, this one off that we recorded at that time that has been in the range of €50,000,000 And then maybe I'll leave the floor to Massimo to give you some more detail.
Okay. Good afternoon.
Just to add, as Massimo anticipated before that, the increase of volumes was about 30 5% in terms of LNG. And that brings us overall around our plan to go a little bit more than 6,000,000 tons in the year. Of course, we took the opportunity of the very good prices in the Asian market in particular. And just to give you an idea, we are also targeting by the end of the year to have at least half of the volumes sold on the Asian market, and that is where we are going. In terms of increase of value we got from LNG, it was significant in the Q1 as compared also to the Q1 of last year.
We are talking of around 40% more in terms of value, which we took out. And so it's looking pretty good, and there is where we are going. We increased the equity production. And this year, we expect it to go around 2,000,000 tons from Jen Creek. It's well positioned.
So it's looking good.
So just to follow-up, given I mean, our expectation is, I guess, with oil prices where they are and also decreased demand for LNG, there's no obvious reason other than maybe some shoulder season effects in Q2 and Q3 that the contribution from LNG across the whole year shouldn't be pretty robust, right?
Of course, the price, we are not expecting them to be as they were in the Q1. That is a market analysis, but it's going to be a robust contribution this year.
Right. Thank you. Thanks very much.
But John, in the longer term, definitely, we remain very positive on the LNG market. That's the reason why we are pushing very much even on the additional Meraket project in Indonesia. So this is really a very strong project because of the big synergy that we could have with John Creek. So we are definitely fully focused on the development of this field as soon as we can. So now we are announcing a first production by the second half of twenty twenty.
We are going to present the FID, I would say, in 1, 2 months, and we will keep on studying the future development in order, if possible, to accelerate this startup.
Great. Thanks for the color. That's great.
The next question is from Ms. Irene Himona of Societe Generale. Please go ahead, ma'am.
Thank you. Good morning, Massimo. I had two questions, please. Firstly, looking at the adjusted E and P, in Q1, your tax rate
was 55%
and we had $67 Brent prices. Now a year ago, it was 58% at only $53 Brent. So I don't know, there's something counterintuitive. I wonder if you can just give us a little bit of guidance as to what we can expect in the current $70 scenario on E and P tax. And my second question is on Q1 depreciation, EUR 1,830,000,000.
I mean despite the strong production growth, year on year, it is a flat number. I wonder if you can give us any sort of guidance for the evolution of that DD and A in 2018, 2019. And I wonder if over the plan, over the 4 years, can we expect that to grow towards an annual level of around about EUR 9,000,000,000? Thank you.
Thank you, Irina. So starting from your last question about the I would say that is the level that we expect would be stable all along this year and remain pretty flat also in the next 4 year plan. You remember that when we commented during the strategy presentation our portfolio, we said that the CapEx embedded in our new development are in this range. So we do not expect, looking forward, a significant change on this. Definitely, we are having a slight increase versus 2017 because of the slight change in our portfolio shape.
For example, the new start up, including a more constant production from Mongolia, are contributing to come up with this $11 per barrel amount. But anyway, we may have very competitive DD and A in the industry. And second, so you were commenting about the tax rate. So in the first three for Q1 of 2018, we got 55%, you are right. And we expect on the full year, I would say, at a scenario of $60 per barrel, we expect a number that would be pretty the same, between 55% 60%.
Overall, we expect the same tax rate, so 60% in a $60 scenario Brent scenario. Definitely, there are some seasonality on this. So definitely, the Q1 has been a pretty positive quarter in term of tax rate for two reasons. First of all, because we got, I would say, a full production from Goliad, having the same benefit that you very well know looking at this total result. So the tax rate and the tax that you pay in this quarter are related to the previous quarter scenario.
So you are at this kind of advantage in having the task rate. And second, the Q1 is a strong quarter in our Italian businesses that are benefiting from, we say, a tax rate that is below the average. And if you look at the cash tax rate, it's even nil, thanks to the losses carry forward we have in Italy.
Thank you very much, Massimo.
The next question is from Mr. Alessandro Pozzi of Mediobanca. Please go ahead, sir.
Thank you. I have two questions on ZOOR. It looks like in field is ramping up nicely. I believe we should hit 500,000 barrel of oil equivalent next year. I was wondering if you have already explored opportunities for exports or and yes, if you can give us a bit of color on where you are basically on that?
And also second question is staying also on Zohr. Can you remind us what is the share of the CapEx that will be reimbursed this year and the timing of the next installments from the previous transaction? Thank you.
Okay. In terms of possibility to export, maybe I'll leave the floor to Massimo and then to give you some
respect In respect of export opportunities, and we do believe there is export opportunities from Zoro, Egypt. And in particular, we are looking at trying to restart the Damietta plant, which is of our joint venture with the Gas Natura Romeo of Enozagaz. That requires the settlement of quite long standing litigation with the Egyptians and discussion are ongoing. And I think that is one opportunity. And then the whole area is interesting in terms of gas production, and that may lead also in the future of opportunities different from LNG.
But what we are focusing now is really to have as soon as possible the meter mid on back on actually exporting. And it's not an easy process, requires some negotiation, but requires time. I think that was also somehow announced by Gaz Natural that they are looking with us in trying to solve the problem.
When do you
expect the settlement on the litigation?
Well, it's difficult because as is a litigation, you normally it's difficult to set the time frame. But of course, the sooner the better. But normally, this kind of negotiation, they do require time. It's not an issue of Wix.
Okay. Concerning the project development in Zohr, we are progressing very well as planned. As you know that we have already Train 1 in ramp up. At this moment in time, our rate is above 700,000,000 100 cubic feet a day. And we're going to ramp up as we mentioned in our press release, to 800.
Then immediately, I think, a week from now, we expect to start producing also through Train 2. And then the sequence, as we mentioned, Train 34 and reaching to over EUR 2,000,000,000 by the end of the year.
So I didn't catch very well your last part of the question that relate the recovery of the purchase price for the dilution in Zohr.
Yes, the share of the reimbursement for the CapEx.
The biggest part would be cash 2018, including the remaining 10% that we recently sold to Mubrala that is, I would say, nowadays close to completion.
Okay. The total amount?
The amount it would be in the range of €600,000,000
Thank you.
The next question is from Lucas Herman of Deutsche Bank. Please go ahead, sir.
Yes, good afternoon, gentlemen. Thanks very much. Bassem, just some points of clarification or understanding, if I might. On Zohr, it's a profit share. Do you pay tax?
Or do you treat any level of payment to the government's tax? Or is it just by a barrel? And secondly, I just wonder whether you can could remind us, in terms of the volumes produced from Jan Creek, how much goes to Pertamina? And how much do you take into your own portfolio for sale to customers on a spot or other basis? Thank you.
So I didn't catch very well. Your first question that relates to the payment to the government? Well,
sorry, Massimo. The first question, what's the position on Zohr? It's a PSC. Effectively, you contribute production to them. Is there a tax rate applicable to the cash flows that you receive?
Or when you consolidate the numbers from ZOOR or the results of ZOOR, is it effectively without tax? It's a nominal comment. It goes back to Irene's observation around the movement in taxation this quarter and again, thinking forwards as the portfolio shifts away from Libya and towards and more towards Egypt and Asia?
To Zoro's 30% is a corporate tax rate.
Thank you.
And as far as the share of Massimo could give you some detail.
And as he and I, we do buy around 40% of the production. And you were mentioning spot market. We do have sales, which are somehow linked to Jean Creek. But of course, we do have a lot of trading around the flow. So we do have long- or medium term sales like to Pakistan and China.
But that goes in the portfolio with all the other supply we have in terms of optimization of shipping and deliveries.
So And Francois, just to understand that better, ENI Upstream sells to ENI G and P at a contracted or at some arranged price and any excess that is taken or any excess I'm going to say that is taken or margin that's taken between G and P selling to Pakistan is or elsewhere is accredited or is that taken in the G and P business? Is that correct?
Let me specify. We do buy from, let's say, upstream or the joint venture at market price for that kind of contract, which is a long term contract. Then of course, we do sell on a different basis, including also spot market And the margin, which we get from that, of course, stays with us. It's our LNG portfolio, Maher.
Okay. And I'm really sorry to push one final question. Just when you say market price, it's a long term contract price that you negotiated, which is whatever it is, I guess. Or can you add any more color on what the contractual terms are between Upstream and G and P on LNG deliveries?
Long term oil linked contract.
Great. Thank you.
The next question is from Seapan Jaffillingham of Exane BNP Paribas. Please go ahead, sir.
Yes. Hi, Massimo. A few questions, please. Firstly, just on the financials. You talked about the working cap being reabsorbed.
So I was just wondering whether you may be able to give us a bit of guidance how through the year we should model that reverse of the working cap, if that's possible? Is it back end loaded? Or is it evenly across the next three quarters? Secondly, could you just reconfirm plans on an FID in Mexico and whether you can give any color potentially in a farm down? And my third and final question is just on Cyprus and Block 6.
Perhaps you could just clarify what activity we should expect going forward in the next 6 months? Thank you.
Okay, Keith. I'll give you an answer to the first question, then I'll leave the floor to Antonio as far as Mexico and Luca as far as Saicco. Q1. The absorption will start definitely by the Q2, has the most important phenomenon underlying is the Gas and Power seasonality. So Gas and Power seasonality definitely will turn starting from the Q2 as did always in the past.
The absorption will be progressive as we expect by the end of the year, a positive contribution from working capital. So the guidance in this respect remain the same. Guidance we gave representing the full year plan, in particular, the budget where we announced that positive contribution, slight positive contribution from working capital. And then I leave
the floor to Antonio to talk about Mexican FID. Okay. The Mexico situation that we have been working with the authority to conclude the final POD, which has been submitted as a final form in December. And we are waiting now and expecting a receivable of approval in May. Immediately after, we're going to do the FID probably on the Q3 of 2018.
And look about Cyprus? Yes.
About Cyprus, we plan in the second half of the year to carry out all the necessary environmental impact assessment for an appraisal program of Calypso starting sometime in Q1 of next year.
Perfect. And any color in terms of a farm down in Mexico?
Yes. Definitely, Mexico Area 1 is a good candidate for future thumb down. I would say some discussions are ongoing, and we will let you know as something is, I would say, more mature on this.
Okay. Thank you.
The next question is from Mark Koffler of Jefferies. Please go ahead, sir.
Hi, everyone. Thanks for taking my questions. I just wanted to have 2, please. Firstly, I was hoping you could give us a bit more color about current production. And I suppose linked to that, can you say a little bit about how the your volumes from offshore UAE, from Abu Dhabi currently stand?
And then also perhaps how you feel the broader relationship with the UAE is progressing and any kind of future opportunities there? Thanks.
So some color on current production. What I could say that definitely the 2nd quarter in terms of maintenance will be the other one. So we expect the most important maintenance stop in Q2, while in 3rd and even less in 4th quarter, we expect a strong ramp up. As far as the relationship with EU, so we acquired stake and our relationship with them is, I would say, quite strong. And they are thinking about new collaboration.
And really, we are very keen to pursue such an opportunity. Again, it's premature now to talk about this, but definitely the relationship are very, very well.
Great. Can I just follow-up on that?
Would it with those relationships, are they exclusively in the Upstream?
No. Maybe the discussion could be open even on business other than upstream, I mean, mid downstream.
Great. Thank you.
The next question is from Mr. Massimo Bonisoli of Equita. Please go ahead, sir.
Thank you and good afternoon. One quick question from me. In Q1, the realized gas price in E and P division was $4.5 per 1,000,000 btu, quite a sharp improvement versus Q4 and Q1 last year. Could you give us some color on realized gas price over the Q2 considering the European gas prices and LNG are still pretty strong?
But the gas price we recorded in the Q1 is a sign of, I would say, strong Israelization price in our portfolio even in gas. Definitely, the number has been some way pushed by the seasonality of the market. If you refer to the, I would say, the production, the gas production we sell in Europe, so the Libyan gas, the Norwegian gas, the Italian gas by definition, some way as we sell the gas to the up price, some way this gas benefited from the peak because of the seasonality, a peak that definitely will drop in the second and third quarter. So this is the natural, I would say, wave as far as our production linked to the hub, while in the Q4, we see how cold is this season and level of the price we can get at that time. As far as the rest, definitely the numbers you mentioned are a sign of how flexible and reactive our additional gas sales around the world on top of the European one.
And on this respect, we expect that this price will remain high even in the next quarter.
Thank you.
The next question is from Biraj Borkhataria of RBC. Please go ahead, sir.
Hi, Massimo. Thanks for taking my question. I have a couple of questions. The first one, you talked a bit about tax. Could you just update us on the cash tax guidance for 2018?
I know you typically talk about the $60 reference scenario, but could you also provide a bit of color on how that could evolve in today's environment? And then the second question is, could you provide an update on the key exploration wells for 2018 and what we should be watching out for? Thanks.
Okay. So the tax the cash tax guidance as far as 2018 in this scenario would be in the range of 25%. And now I leave the floor to Luca to elaborate on this.
On exploration, we have the majority of our activity in the second half of the year. And the countries where we'll be more active will be Angola, Ghana, Indonesia and Egypt.
Just a follow-up on the Castex guidance. Is the 25% you referred to at $60 reference scenario? And should we expect that to be roughly similar in a $70 or $75 scenario?
We expect a slight decrease in case of $70 scenario.
Okay, great. Thank you.
The next question is from Mr. Thomas Adolff of Credit Suisse. Please go ahead, sir.
Good morning, afternoon. Three questions, please. Firstly, on Indonesia, you talked about additional structures. So I was wondering, are we talking about similar sizes to Miracas? And maybe you can comment around the risk perspective upside you see across your licenses.
I'm trying to better understand whether ENI Indonesia after Miracus comes on stream will have a longer plateau than we think or potentially even a higher plateau? Secondly, going back to Egypt and Dermietta, you talked about Dermietta. Obviously, you have a stake in there, but there are other idled facilities in country. So I wondered whether I'm presuming the other facilities don't have this dispute going on that you could actually use the other facilities to export some of your gas. And thirdly, just a very random question.
I wondered whether you can provide the spread between 1P and 2P in terms of reserve life. What's the 1P versus 2P reserve life? What was it in 2017 and what was it in 2016? Thank
you. So regarding Indonesia, I confirm that part of Merakes, we have other prospectivity in the area nearby in the range of 50 kilometer from the FPU of Jan Greek. And this prospectivity will be drilled in the coming 2 years. The size of this prospectivity is in the range of the Meraki size, so from 1 to TTCF of gas per each prospect. And of course, in 1st phase, this will be used to maintain the production in Querangate of the plateau of Pio or Jan Greek.
In case of additional significant discoveries, we may also increase our deliverability up to 1,000,000 BCR per day in the future.
In respect of Demeter, let me say 2 things. One is that for what concerns to us, considering that we are partners in Oferonca Gas and there is not only the use of Dermietta as planned, but there is also a gas supply agreement, which needs to be feed by the Egyptians. That is where we are aiming. And the solution for export from us will pass through there. In addition, as a second point, I want to underline that I believe that in general, the Egyptians have to solve the Dermietta issue before they can actually export.
That is also an issue of reliability of what is happening on the Miata. And I think that is in the interest of all parties. So there are arbitration, but I think there is willingness from all parties to try to find a solution in the next weeks or few months.
As far as the 2P reserves index, I'll give you the number. Just a second. So we are talking about something in the range of 17 years.
17 years. Okay. Perfect. Thank you very much.
The next question is from Rob West of Redburn. Please go ahead, sir.
Thank you very much. Can you make some comments on your underlying upstream costs during the quarter? We don't see those. And I guess there's some questions in the market about reinflation or if there are any one offs in the upstream costs from 1Q? 2nd question, late in the quarter, there was some press around plans to increase investment in Algeria in the next few years.
Did something change there? And was that in the plan you presented to us back in March? That's the second question. And if I could sneak a third one in quickly, just going back to Biraj's question and Irene's question before me. Do I infer from your comments that you're expecting cash tax to run below P and L tax for the majority of the year?
Thank you.
So as far as the third question, if I well understood, so below
Will the dollar payment or the euro payment of cash tax be lower than the P and L tax you book on the income statement?
Yes. The answer to your question is yes. And as far as the cost, before leaving the floor to Antonio, Alessandro to have, say, a market view on this, I would like to confirm that we expect in 2018 an OpEx per barrel that would be in the range of $6.5, 6 point $7 per barrel, so remaining pretty flat, while I already commented about the DD and A in the range of $11 So we confirm our technical cost will below $20 per barrel. Then I'll leave the floor maybe to Antonio, Alessandro to elaborate a little bit on what they see on the market in terms of new cost.
Good afternoon. In terms of cost environment that we have seen during the Q1 this year, in the sector of the offshore drilling rig, we see substantially a steady situation with respect to the previous year, while for umbilical, slime pipe and subsea production system, we see these categories that are mainly driven by raw material cost, we start to see a slight increase on the supply of this equipment. The same can be said regarding risers and flow lines that after a period of very low market and now this seems to be stabilized. Also for Turbomachinery cost, we see a slight increase. With respect to our development cost being more of our most of our development activities being already awarded, we don't see any impact by this kind of cost rise in the market.
I leave the floor to Antonio. Okay. Concerning the cooperation agreement that we have signed with the Algerians, This is a cooperation agreement starting from subject relating the exploration activity and technology with the Sonatrack. In addition, we have a large implementation of studies for solar panel activity in our fields. And in addition, also we are evaluating blocks surrounding to our existing production facilities, focusing gas reservoir.
This is the main relationship we signed recently. And anything is going to come require the FID of development. Definitely, on this full year plan, we have just part of that cooperation agreement activity. Thank you.
Thank you. That's helpful detail.
The next question is from Mr. Christopher Kuplent of Bank of America. Please go ahead, sir.
Thank you very much. Just two questions left. I wonder whether you can help us a little bit outlining the impact on your financials from the, I'm going to call it asset swap, I. E, selling 10% more of ZOAR and gaining access to those Abu Dhabi concessions. So perhaps you can give us a hint, not just in terms of beams, but also in terms of the free cash flow generation that you're swapping.
Should we assume that that's neutral? And secondly, a wider question, just want to understand across your many different projects, how much spare capacity is left in your system in places like Venezuela, Libya, Kashagan and Goliad. How far are you away currently, not in Q1, but currently from what you would consider a business plan run rate in these projects? Thank you.
Okay. So in term of what you call the swap between Zohr and Abu Dhabi, definitely, the value that is been paid by both parties, justify that we are talking about something that in term of NPV is very similar. And then you can't say that this proportion is in place every year, but definitely the start up and the production contribution is different year by year. So Zohr is ramping up right now, while I would say one of the license we acquired in Abu Dhabi will ramp up later on, but the contribution today in term of production is higher from Abu Dhabi than Zohr. So it's difficult to have this kind of comparison.
As far as the spare capacity, we still have, but we are ramping up in the places that you mentioned. So the ramp up is expected to complete by this year. So talking about John Creek, talking about definitely Goliad is not a ramp up, but we say a stable uptime. Even in Kashagan, we expect, I would say that the ramp up or the larger part of the ramp up would be achieved by this year. And then what you call spare capacity will come through maybe some additional project as we are doing in Libya.
So the projects we mentioned, so Baras Alam Phase 2, an additional phase in WAFA are additional phases that will add some production to production that's already exist.
The next question is from Christian Malek of JPMorgan. Please go ahead, sir.
Good afternoon, guys. Thanks for taking my questions. I have three questions. First on Egypt, the new gas law that's been put in place. Do you anticipate sort of with that sort of fiscal regime change and the improvement in gas price terms?
And with that, any potential sort of renewal around contracts on incremental investors that you put through? The second question is regarding to your breakeven threshold for new FIDs. As you sort of manage efficiencies and sort of got your supercomputers and so on, What is that level or sort of threshold in which you will sanction your project, particularly in deepwater? And the third question is, and it might be too early, just after your CMD, but on cash return, given competitive your cash breakeven has been this quarter, would you consider potentially expediting your buyback or whatever form of cash return this year? Thank you.
I'll leave the floor to Antonio to talk about Egypt and give you an answer about the second and third question. I think the I'd like
to confirm you the existing contract in place are not related to this new law that you are mentioning today. So our contracts are fixed and tax. It's already in the agreement. We don't expect any changes from the actual situation.
Okay. In terms of breakeven in our project, you mentioned maybe the quarter. So you know that our current portfolio for the new development project is in the range of $30 or even lower than $30 That's a mix in the portfolio that is made by onshore, offshore, deepwater, shallow water. Even talking about deepwater, there are so different projects that, for example, Zolt definitely has a given that is much lower than $50 is a deepwater. So very difficult to give you an answer.
What I could say that nowadays when we decide to take an FIB and to commit ourselves for a new project, definitely our aim is to take our overall cash breakeven at $30 or even lower than $30 In term of cash neutrality, definitely the level of cash production is running, I would say, well in line with the expectation that we presented when we present our strategy in March April. We expect, following this pace, that the leverage will be at 0.2 or even lower than 0.2, but we say it's too early to think about an additional cash return. As I said, the pressure would be to have a leverage below 0.2 in a stable environment. So a stable environment definitely could be evaluated at least in the 2nd part of this year or I would say even better starting from 2019.
Brilliant. Thank you very much.
The next question is from Mr. Martin Ratz of Morgan Stanley. Please go ahead, sir.
Yes. Good morning. I wanted to ask you two things. First of all, given your position in Libya and Venezuela, I know you've already commented somewhat about the projects you're doing there. But I was wondering if you could give us sort of broader thoughts about the operating environment of both of those countries and whether you see that improving or deteriorating and what that could mean for overall production from both these countries, that would be much appreciated given your sort of expertise in those particular countries.
And the second one I wanted to ask might be a little nitty gritty, but if you look at U. S. Exports of crude oil going to Italy, they've ramped up quite a lot over the last couple of And now I'm actually not quite sure whether they that crude makes its way into E and I refinery specifically. But I can imagine, given your refining position in the country is very large. It probably does.
And I was wondering how you think about the attractiveness of U. S. Crudes. Is it specifically shale crudes that you're taking into refineries domestically? And how much more of that you could still take?
Okay. So Antonio will give you some color about Libya, and then I will respond the rest.
Libya, as of today, we are continuing our operation. We have a shutdown in, as you know, in Melita for integrity on our facilities to tie in our Barisalam Phase 2 wells, which immediately, I think, in couple of days, we're going to ramp up again. And the situation in all our sites are really nice, and we are producing quite well with a good relationship with NOC. I don't see I cannot say that we have issues in place at the moment.
As far as Venezuela, normal activity are running as far as Perla. So we don't have any kind of constraint or trouble on this. As far as the recovery of our spending, that's you know, it was in the range of EUR 600 1,000,000 by February when we announced the strategy. Now it's some tens of 1,000,000 higher than this in the range of EUR 650,000,000. I would like to remember that the overall revenues, 100 percent, our share of revenues in a year is in the range of EUR 300,000,000.
So the maximum ramp up in our exposure is in this range. And now we are €650,000,000 We are engaged in negotiation with them, trying to stop the payment that now are, I would say, pretty low, close to 0. I would like to remember also that our expectation are, I would say, realistic on this respect. So from one side, we stopped any further investment in countries. So now we are operating what we have without any additional cash injection or whatever expansion for further phases.
And on the other side, we are trying to recover the outstanding. But our projection as far as 2018 2019 are very conservative. So when we are releasing numbers such as cash projections, cash neutrality, we're assuming, I would say, payment from Venezuela that are, I would say, just in the range of more or less 20%. So what should be due more or less equivalent to the cash cost we have to sustain in Volivares, no more than that.
Thank you. And anything on the crude side?
The last question about crude oil coming from United States, the answer is no. So we are not we do not project any kind of crude oil acquisition for our refineries today from United States.