Good afternoon, ladies and gentlemen, and welcome to the Eni 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. At the end of the presentation, you will have an opportunity to ask questions by pressing star and one on your touch-tone telephone. I am now handing you over to your host to begin today's conference call. Thank you.
Good afternoon, and welcome to our first quarter 2018 presentation. It was a positive quarter for the upstream and Gas & Power sectors, which benefited from the execution of our strategy and the positive market environment. Downstream results confirmed their resilience. In upstream, production was 1,867,000 barrel per day, at 4.4% higher than last year, adjusted for PSA effect. Reported production was 4% higher. During the quarter, we started up the fifth field in Block 1506, extending the plateau of this block. We continue to progress with the remaining startups planned for this year. First gas from OCTP is confirmed in June, while the Libyan project, Bahr Essalam phase 2 and Wafa Compression, will be delivered between June and September. We recently obtained the approval of development from Merakes, which will be tied in to Jangkrik.
Finally, in exploration, we delivered two main discoveries, Calypso, offshore Cyprus, and Tecoalli-2 in Area 1 in Mexico. In the mid downstream, we recorded EUR 400 million of EBIT due to a strong performance in Gas & Power with an EBIT of EUR 322 million, 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 capital grew by 22% to EUR 3.2 billion, significantly exceeding the growth of the oil price that has been 8% on a EUR 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 volume sold.
CapEx were in line with the guidance amounting to EUR 1.8 billion net of the acquisition bonus for the Abu Dhabi field that you know amounting in the range of EUR 700 million. Now a quick look to upstream. Production, as I already said, reached 1,867,000 barrel per day, a growth of 4.4% versus last year, boosted by the start-up and ramp-up contribution of 238,000 barrel per day. The main contribution were from Jangkrik in Indonesia, Zohr and Nooros in Egypt, OCTP Oil in Ghana, Ochigufu West Hub in Angola, and Kashagan. Goliat 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 EUR 2.1 billion, 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 startups.
Excluding the impact of the Abu Dhabi one-off bonus, the upstream free cash flow was more than EUR 814 million in the quarter. A brief outlook at the key main startups and ramp-ups that will drive our 2018 growth. In Block 1506 in Angola, we started up the Ochigufu project in 2018 at West Hub FPSO that achieved the first oil in less than 18 months from the presentation of the plan of development. On Zohr, we recently started up the second onshore train, allowing the production to double to 800 million scf 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 barrel per day. OCTP oil contributing 19,000 barrel per day in the first quarter and will double with the gas volume at plateau starting from next June.
Finally, Jangkrik, that has smoothly reached the plateau and delivers gas to Bontang LNG at a rate of more than 600 million scf 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 startups and ramp-ups will be 310,000 barrel per day. Looking now at the key future project, the Merakes development received approval from the Indonesian Authority one week ago. We completed the appraisal campaign at the beginning of 2017, in less than two years, we'll be able to take the FID, planning to deliver the first gas in the second half of 2020.
The estimated two TCF of gas in place will be developed by six subsea wells tied into the Jangkrik floating production unit, where the gas will be treated and connected through the existing pipeline to the liquefaction plant of Bontang. This field, with a plateau contribution of 60,000 barrel per day and 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. 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 Eni's proved reserves to $48 billion, very close to peers 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, Eni recorded a remarkable increase testifying the value retention in an improving scenario. Now let's move to mid and downstream. In this quarter, we deliver 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 million, driven by the LNG and power operations and without the one-off contribution that had enhanced the 2017 result.
LNG sales grew 35% at 2.7 billion cubic meters. Thanks to the successful integration of Gas Upstream project in Indonesia, whilst retail gas recorded a result substantially in line with first quarter 2017, excluding the sale of Belgium asset and the lower regulatory margin in Italy. This performance strengthens the Gas & 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 EST and the Gela conversion to biorefinery will further enhance, 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 EUR 59 million, confirming its resilience in a weaker scenario.
Finally, some information about the cash flow from operation. With almost EUR 3.2 billion of cash flow from operation pre-working capital, we increase our cash generation by 22%. It is the highest result since the third quarter of 2014. E&P contributed EUR 2.6 billion, whilst the other businesses, largely Gas & Power, contributed the rest. Reported cash flow amounted to EUR 2.2 billion, a 13% increase versus last year, impacted by the seasonal working capital cash absorption, mainly in Gas & 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 1.8 billion, this allow us to confirm the EUR 7.7 billion guidance for the full year. Leverage remained at 23%, equivalent to a gearing of 19%. The full cash neutrality in 2018 is confirmed at $55 per barrel. Thank you very much.
Now, together with Eni top management, I'm ready to answer any question you may have.
Excuse me, ladies and gentlemen. Let's begin the question and answer session. The first question is from Mr. Oswald Clint 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 first quarter? Maybe remind us of the seasonality of the marketing for this business as we look into the second quarter and third quarters. Is there a big marketing earnings step up? Perhaps give us a bit of insight into how refining margins are behaving for you in the second quarter so far? That's the first question. 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 Thailand and European natural gas. Are those declines in line with your plan? Perhaps you could talk around the kind of European natural gas production side, please. Thank you.
Okay. Thank you very much, Oswald. In term of trading losses, no, we did not record any trading loss in the quarter. About seasonality in marketing, the best quarter as far as marketing is the second one. Anyway, we record a strong performance even in the first quarter, among the others taking, I would say, a solid market share in the range of 25% in a stable margin business. In term of refinery No, we do not 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 break-even at $3 per barrel. The progress as far as the EST rebuilding and the conversion of Gela refinery are progressing in line.
We really expect that by the end of this year, we will be in the position to match even a tight scenario as the one that you are living in. In term of gas production, no, we are just defining exactly the depletion that we expected. No big differences on this.
Okay. Very clear. Thank you.
The next question is from Jon Rigby of UBS. Please go ahead, sir.
Hi, Massimo. Yes, just one question. On Gas & Power, you obviously referenced the good LNG results, also the adjustment from last year in the traditional supply business. On LNG, are you able to characterize either the absolute EBIT contribution from LNG or the delta non-Q to one Q, just so that we can assess how you're progressing? The level of disclosure in that segment isn't great, clearly the first quarter result is significantly ahead of what we'd have expected, I guess, given your full year guidance.
Yes, Jon. I'm going to give you some more detail, maybe I leave the floor to Massimo Mantovani to add some information about the quality of the LNG business we are conducting. We recorded EUR 322 million in Gas & Power EBIT first quarter. I would say retail is EUR 140, mid gas is EUR 180. On this EUR 180, LNG contributed more or less half of this value. That definitely is a significant increase versus what we recorded in the first quarter 2017 with, I would say, this one-off that we recorded that time that has been in the range of €50 million. Then maybe I leave the floor to Massimo to give you some more detail.
Okay. Good afternoon, Jon. Just to add, as Massimo anticipated before that, the increase of volumes was about 35% in terms of LNG. That brings us overall along our plan to go a little bit more than 6 million tons in the year. Of course, we took the opportunity of the very good prices in the Asian market in particular. 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. That is where we are going. In terms of increase of value we got from LNG, it was significant in the first quarter as compared also to the first quarter of last year. We are talking of around 40% more in terms of value, which we took out.
It's looking pretty good, and there is where we are going. We increased the equity production. This year we expect to go around 2 million tons from Jangkrik. It's well positioned. It's looking good.
Just to follow up, given our expectation is, I guess with oil prices where they are and also decent 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?
Just of course, the price, we are not expecting them to be as they were in the first quarter. That is a market analysis. It's going to be a robust contribution this year.
Right. Thank you. Thanks very much.
Jon, in the longer term, we definitely remain very positive on the LNG market, and that's the reason why we are pushing very much even on the additional Merakes project in Indonesia. This is really a very strong project because of the big synergy that we could have with Jangkrik. We are definitely fully focused on the development of this field as soon as we can. Now we are announcing a first production by the second half of 2020. We are going to present the FID, I would say, in one, two months, and we will keep on studying the future development in order, if possible, to accelerate this startup.
Great. Thanks for the color. It's great.
The next question is from Ms. Irene Himona of Société Générale. Please go ahead, madam.
Thank you. Good morning, Massimo. I had two questions, please. Firstly, looking at the adjusted E&P. In Q1, your tax rate was 55%, and we had $67 Brent prices. A year ago, it was 58% at only $53 Brent. 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&P tax. My second question is on Q1 depreciation, EUR 1.83 billion. 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&A in 2018, 2019. I wonder if over the plan, over the four years, can we expect that to grow towards an annual level of around about EUR 9 billion? Thank you.
Thank you, Irine . Starting from your last question about the depreciation. Now our depreciation now is in the range of EUR 11 per barrel. That is the level that we expect will be stable all along this year and remain pretty flat also in the next 4-year plan. Do 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, we do not expect, looking forward, 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 startup, including a more constant production from Goliat, are contributing to come up with this EUR 11 per barrel amount, that anyway remain a very competitive DD&A in the industry. Second, you were commenting about the tax rate.
In the first quarter of 2018, we got 55, you are right. We expect on a full year, I would say, at a scenario of EUR 60 per barrel, we expect a number that will be pretty the same, between 55%-60%. Overall, we expect the same tax rate, 60% in a EUR 60 Brent scenario. Definitely, there are some seasonality on this. Definitely the first quarter has been a pretty positive quarter in term of tax rate for 2 reasons. First of all, because we got a full production from Goliat, having the same benefit that you very well know, looking at the Statoil results. The tax rate and the tax you pay in this quarter are related to the previous quarter scenario. You have this kind of advantage in having the tax rate.
Second, the first quarter is a strong quarter in our Italian businesses that are benefiting from a tax rate that is below the average. If you look at the cash tax rate is 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 Zohr. It looks like the field is ramping up nicely. Believe you should hit half a million barrel of oil equivalent next year. I was wondering if you have already explored opportunities for exports, and if you can give us a bit of color on where you are, basically, on that. 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 fair use transaction? Thank you.
In term of possibility to export, maybe I leave the floor to Massimo, then to give you some update on the technical point of view, I'll leave the floor to Antonio.
In respect of export opportunities, we do believe there is export opportunities from Zohr, Egypt. In particular, we are looking at trying to restart the Damietta plant, which is of our joint venture with Gas Natural Fenosa. That requires the settlement of quite longstanding litigation with the Egyptians, and discussion are ongoing. I think that is one opportunity. Then, the whole area is interesting in terms of gas production, and that may lead also in the future of opportunities different from LNG. What we are focusing now is really to have, as soon as possible, Damietta back on actually exporting. It's not an easy process. Requires some negotiation that requires time. I think that was also somehow announced by Gas Natural, that they are looking with us in trying to solve the problem.
When do you expect the settlement on the litigation?
It's difficult because as is a litigation, normally it's difficult to set the timeframe, but of course, the sooner the better. Normally this kind of a negotiation, they do require time. It's not an issue of weeks.
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 million standard cubic feet a day, and we're going to ramp up, as we mentioned in our press release, to 800.
Immediately, I think a week from now, we expect to start producing also through Train 2. The sequence, as we mentioned, Train 3 and Train 4, and reaching to over 2 billion by the end of the year.
I didn't catch very well your last part of the question that relates.
The reimbursement
the recovery of the purchase price for the dilution in Zohr.
Yeah, the share of the reimbursement for the CapEx.
The biggest part will be cashed in 2018, including the remaining 10% that we recently sold to Mubadala. That is, I would say, nowadays, close to completion.
Okay. The total amount?
The amount, it would be in the range of EUR 600 million.
Thank you.
The next question is from Lucas Herrmann of Deutsche Bank. Please go ahead, sir.
Yeah. Good afternoon, gentlemen. Thanks very much. Massimo, 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 as tax, or is it just by a barrel? Secondly, I just wonder whether you could remind us, in terms of the volumes produced from Jangkrik, 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.
I didn't catch very well your first question that relate to the payment to the government or what?
Sorry, Massimo. The first question, what's the tax 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 Zohr or the results of Zohr, is it effectively without tax? It's a nominal comment. It goes back to Irene's observation around the movement in taxation this quarter. Again, thinking forwards, as the portfolio shifts away from Libya and more towards Egypt and Asia.
To Zohr is 30%, is a corporate tax rate.
Okay.
Thank you.
As far as the share of, Massimo could give you some detail.
As Eni, we do buy around 40% of the production. You were mentioning spot market. We do have sales which are somehow linked to Jangkrik, but of course, we do have a lot of trading around the floor. 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.
Massimo, just to understand that better, Eni upstream sells to Eni G&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&P selling to Pakistan or elsewhere is accredited or is taken in the G&P business. Is that correct?
Please, 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. 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 margin.
Okay. I'm really sorry to push. One final quick question. Just when you say market price, it's a long-term contract price that you negotiated, which is whatever it is, I guess. Can you add any more color on what the contractual terms are between upstream and G&P on LNG deliveries?
Long-term oil link contract.
Great. Thank you.
The next question is from Theepan Jothilingam of Exane BNP Paribas. Please go ahead, sir.
Hi, Massimo. A few questions, please. Firstly, just on the financials, you talked about the working cap being reabsorbed. I was just wondering whether you may be able to give us a bit of guidance how through the year we should model that reversal 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? 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 six months. Thank you.
Okay. Theepan. I'll give you an answer to the first question, then I leave the floor. As far as Mexico and Luca, as far as Cyprus. In terms of working capital, I said that we expect the reabsorption of the working capital absorption that we recorded in the first quarter. The reabsorption will start definitely by the second quarter, as the most important phenomenon underlying is the gas and power seasonality. Gas and power seasonality definitely will turn starting from the second quarter, as it did always in the past. The reabsorption will be progressive, as we expect by the end of the year, a positive contribution from working capital. The guidance on this respect remain the same guidance we gave representing the four-year plan, in particular the budget, where we announced a slight positive contribution from working capital.
I leave the floor to Antonio to talk about the Mexican FID.
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. We are waiting now and expecting a receival of approval in May. Immediately after, we're going to do the FID, probably on the third quarter of 2018.
Luca bound 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 the first quarter of next year.
Any color in terms of a farm down in Mexico?
Yes. Definitely Area 1 is a good candidate for future farm down. I would say some discussion are ongoing, we will let you know as something is, I would say, more mature on this.
Okay. Thank you.
The next question is from Marc Kofler of Jefferies. Please go ahead, sir.
Oh, hi there, everyone. Thanks for taking my question. I just wanted to have two, please. Firstly, I was hoping you could give us a bit more color about current production. I suppose linked to that, can you say a little bit about how your volumes from offshore U.A.E., from Abu Dhabi currently stand? Then also perhaps, how you feel the broader relationship with the U.A.E. is progressing and any kind of future opportunities there? Thanks.
Some color on current production. What I could say, that definitely the second quarter interval maintenance will be the harder one. We expect the most important maintenance stop in second quarter, while in third and even less in fourth quarter, we expect a stronger ramp-up. As far as the relationship with U.A.E., we acquired the stake. Our relationship with them is, I would say, quite strong. They are thinking about a new collaboration. Really, we are very keen to pursue such an opportunity. Again, it's premature now to talk about this. Definitely the relationship are very well.
Great. Could I just follow up on that? 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. Good afternoon. One quick question from me. In Q1, the realized gas price in E&P division was $4.5 per million BTU, quite a sharp improvement versus Q4 and Q1 last year. Could you give us some color on realized gas price over second quarter, considering the European gas prices and LNG are still pretty strong?
The gas price we recorded in the first quarter is a sign of how, I would say, strong is realization 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 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 hub 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. This is the natural, I would say, wave as far as our production linked to the hub. While in the fourth quarter, we see how cold is the season and the level of the price we can get at that time.
As far as the rest, definitely the number you mentioned are a sign of how flexible and reactive are our additional gas sales around the world, on top of the European one. On this respect, we expect that this price will remain high even the next quarter.
Thank you.
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? 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. The cash tax guidance as far as 2018 in this scenario would be in the range of 25%. Now I leave the floor to Luca to elaborate on exploration.
On exploration, we have a majority of our activity in the second half of the year. The countries where we'll be more active will be Angola, Ghana, Indonesia, and Egypt.
Just to follow up on the cash tax guidance. Is the 25% you refer to at a $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.
Morning, afternoon. Three questions, please. Firstly, on Indonesia, I was wondering, are we talking about similar sizes to Merakes? And maybe you can comment around the risk prospective upside you see across your licenses. I am trying to better understand whether Eni Indonesia, after Merakes comes on stream, will have a longer plateau than we think or potentially even a higher plateau. Secondly, going back to Egypt and Damietta, you talked about Damietta, obviously you have a stake in there, but there are other idle facilities in country. I wondered whether, I am 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 is the 1P versus 2P reserve life? What was it in 2017 and what was it in 2016? Thank you.
Regarding Indonesia, I confirm that apart from Merakes, we have other prospectivity in the area nearby in the range of 50 kilometers from the FPU of Jangkrik. This prospectivity will be drilled in the coming 2 years. The size of this prospectivity is in the range of Merakes size, so from one to two TCF of gas for each prospect. Of course, in first phase, this will be used to maintain the production and to elongate the plateau of FPU of Jangkrik. In case of additional significant discoveries, we may also increase our deliverability up to 1 BCF per day in the future.
In respect of Damietta, let me say two things. One is that, for what concerns to us, considering that we are partners in Union Fenosa Gas, there is not only the use of Damietta as planned but there is also a gas supply agreement which needs to be fed by the Egyptians, that is where we are aiming. 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 Damietta issue before they can actually export. That is also an issue of reliability of what is happening on Damietta. I think that is in the interest of all parties. 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. We're 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. Second question, later 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 my second question. 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&L tax for the majority of the year? Thank you.
As far as the third question, if I have well understood.
Will the dollar payment or the euro payments of cash tax be lower than the P&L tax you book on the income statement?
Yeah. As far as the cost, before leaving the floor to Alessandro Puliti to have, we say, a market view on this, I'd like to confirm that we expect in 2018 an OPEX per barrel that will be in the range of $6.5-$6.7 per barrel, remaining pretty flat, while I already commented about the DD&A in the range of $11. We confirm our technical cost well below $20 per barrel. I leave the floor maybe to Alessandro Puliti 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 first Q this year, in the sector of the offshore drilling rig, we see substantially steady situation with respect to the previous year. While for umbilicals, line 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, now this seems to be stabilized. Also for turbomachinery cost, we see a slight increase. With respect to our development cost, being 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 Sonatrach. In addition, we have a large implementation of studies for solar panel activity in our fields. In addition also, we are evaluating blocks surrounding to our existing production facilities, focusing gas reservoir. This is the main relationship we signed recently, anything is going to come require the FID of development. On this four-year plan, we have just part of that cooperation agreement activity. Thank you.
Thank you. Helpful detail.
The next question is for 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 Zohr and gaining access to those Abu Dhabi concessions. Perhaps you can give us a hint, not just in terms of streams, but also in terms of the free cash flow generation that you're swapping. Should we assume that that's neutral? 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 Goliat? 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. In term of what you call the swap between Zohr and Abu Dhabi, definitely, the value that is being paid by both parties testify that we are talking about something that in term of NPV is very similar. 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. 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. 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. The ramp-up is expected to complete by this year.
Talking about Jangkrik, talking about definitely Goliat 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. Then what you call spare capacity will come through maybe some additional project as we are doing in Libya, the project we mentioned. Bahr Essalam Phase 2, an additional phase in Wafa are additional phases that will add some production to production that already exist.
The next question is from Christyan Malek of J.P. Morgan. Please go ahead, sir.
Good afternoon, guys. Thanks for taking my questions. I've got three questions. First, on Egypt, the new gas law that's been put in place, do you anticipate with that sort of fiscal regime change, any improvement in gas price terms? With that, any potential sort of renewal around contracts on incremental investors that you put through? The second question is regarding your breakeven threshold for new FIDs. As you manage efficiencies and you've got your supercomputers and so on, what is that level or sort of threshold in which you will sanction your project, particularly in deep water? The third question is, it might be too early just after your CMD, but on cash return, given how 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 leave the floor to Antonio to talk about Egypt, I'll give you an answer about the second and third question.
I think I'd like to confirm you the existing contract in place are not related to this new law that you are mentioning today. Our contracts are fixed, tax is already in the agreement. We don't expect any changes from the actual situation.
In terms of breakeven in our project, you mentioned mainly the deep water. You know that our current portfolio for the new development project is in the range of $30, even lower than $30. That's a mix in a portfolio that is made by onshore, offshore, deep water, shallow water. Even talking about deep water, there are some different projects, for example, Zohr, that definitely has a breakeven that is much lower than $30 is a deep water. It's very difficult to give you an answer. What I could say that nowadays, when we decide to take an FID and to commit ourselves for a new project, definitely our aim is to take our overall cash breakeven at $30, even lower than $30.
In terms 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 and in April. We expect, following this phase, that the leverage will be at 0.2 or even lower than 0.2. I would say it's too early to think about an additional cash return. As I said, the threshold would be to have a leverage below 0.2 in a stable environment. A stable environment definitely could be evaluated at least in the second part of this year, or I would say even better, starting from 2019.
Brilliant. Thank you very much.
The next question is from Mr. Martijn Rats of Morgan Stanley. Please go ahead, sir.
Yeah, 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 your sort of broader thoughts about the operating environment in 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. 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 months. Now I'm actually not quite sure whether that crude makes its way into Eni refinery specifically.
I can imagine, given your refining position in the country is very large, it probably does. 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? Thank you.
Okay. Antonio will give you some color about Libya, and I will respond the rest.
Okay. On Libya, as of today, we continue our operation. We have a shutdown, as you know, in Mellitah for integrity on our facility to tie in our Bahr Essalam phase 2 wells, which immediately, I think in couple of days, we're going to ramp up again. The situation in all our sites are
Really nice. We are producing quite well with a good relationship with NOC. I cannot say that we have issues in place at the moment. As far as Venezuela, normal activity are running as far as Perla. We don't have any kind of constraint or trouble on this. As far as the recovery of out standing , as you know, it was in the range of EUR 600 million by February, when we announced the strategy. Now is some tens of million higher than this, in the range of EUR 650 million. I would like to remember that the overall revenues, 100% our share of revenues in a year is in the range of EUR 300 million. The maximum ramp-up in our exposure is in this range, and now we are at EUR 650 million.
We are engaged in negotiation with them, trying to restart the payment that now are, I would say, pretty low, close to zero. I would like to remember also that our expectation are, I would say, realistic on this respect. From one side, we stop any further investment in country, so now we are operating what we have, without any additional cash injection or whatever expansion for further phases. On the other side, we are trying to recover the outstanding. Our projection as far as 2018 and 2019 are very conservative.
When we are releasing numbers such as cash projections, cash neutrality, we are assuming, I would say, payment from Venezuela that are, I would say, just in the range of more or less 20% of what should be due, more or less equivalent to the cash cost we have to sustain in bolivares, no more than that.
Thank you. Anything on the crude side?
The last question about crude oil coming from the U.S., the answer is no. We do not project any kind of crude oil acquisition for our refineries today from the U.S.
Thank you.