Good afternoon, ladies and gentlemen. Welcome to Eni's second quarter results conference call hosted by Claudio Descalzi, Chief Executive Officer. For the duration of the call, you'll be in listen-only mode. At the end of the call, you will have the opportunity to ask questions. I now hand over to your host to begin today's conference. Thank you.
Good afternoon. Welcome to our first half result presentation. Our long-term strategy of upstream growth and mid downstream turnaround delivered excellent results in the first half. In upstream, production was 3% higher year-on-year, 6% considering the adjustment for PSA effects and OPEC cuts. All the key developments have been executed ahead of schedule and on budget, delivering three major startups: Block 1506 East Hub in Angola, Jangkrik in Indonesia, and OCTP in Ghana. Zohr is progressing ahead of schedule toward first gas by year-end. Kashagan ramp-up continues with oil gross production above 200,000 barrels per day. The overall contribution of ramp-ups and startups has already achieved 200,000 barrels per day in the first half of the year.
In June, we took FID for Coral Floating LNG, the first offshore development in the country, which will give us a material contribution from the beginning of the next decade, opening up a new LNG hub. Eni has made important new discoveries in the shallow waters of Campeche Bay in Mexico. We doubled the Amoca hydrocarbon estimate from 500 million barrels to 1 billion barrels, raising Area 1 resources to 1.3 billion barrels of oil in place with further upside. In the mid downstream, we recorded an EBIT of around EUR 730 million. Gas & Power is on track to reach a structural positive result in 2017 for the first time in five years. R&M has continued the trend of strong result, with an EBIT growing by 110% year-on-year, refining breakeven expected below $4 per barrel in 2017.
Chemicals reached a new record, achieving the best half result ever and the highest return on capital employed among our businesses. Cash growth is the most remarkable result. We generate EUR 5 billion of cash flow from operation before working capital, excluding the negative effect of a large shutdown that amounted to EUR 150 million in the quarter. This, double the size of last year's cash generation, is well above the amount of EUR 4.34 billion of CapEx in the period. In the first six months of the year, we have already collected EUR 300 million of net cash in from the disposals completed in the past month. In the second half of the year, we expect to collect remaining amounts equivalent to EUR 3.7 billion. Before detailing our operational and financial results, I'd like to elaborate on our latest exploration success.
In Mexico, we were the first international company to make a discovery. We have drilled the Amoca-2 and Amoca-3 wells in the shallow water of Campeche Bay, confirming and discovering major multiple oil-prone reservoirs. The Amoca field is now estimated to contain a resource base of 1 billion barrels of oil. Amoca-3 has been successfully tested, delivering with high productivity oil with 25, 27 API degrees and low GOR. In Area 1, where Eni hold 100% stake, we will continue the drilling campaign with Mizton-2 and Tecoalli-2. On Amoca, we are preparing a plan of development targeting an early production with a plateau of around 50,000 barrels per day. We foresee low development cost due to the fact that Amoca is a shallow water field and just few kilometers from the shore. We are targeting the startup in the first half of 2019.
In addition, in June 2017, we won three more licenses, strengthening the presence in the emerging new oil basin with the aim of building a new core area in the country. For the first half of the year, we have already discovered about 500 million barrels, more than half of our target for the year. Furthermore, the Mexico success enhances the optionality of our model that is based upon the dual exploration model, which focuses on assets with high initial stakes and future disposal to accelerate cash in and reduce exposure, and the fast-track development to anticipate production, operational cash, and reserves promotions. Development is an area where we have made major efforts over the last years in order to increase cost efficiency and reduce time to market. The startups of 2016 and more recent ones in 2017 are a clear evidence that this model is working effectively.
In February, the East Hub project came on stream five months ahead of schedule. The overall Block 1506 is now producing around 150,000 barrels per day of oil, 50,000 barrels per day net to Eni. In May, we put more projects into production. Jangkrik And LNG development in Indonesia, and OCTP, an oil field in Ghana. The ramp-up of Jangkrik was already completed at the end of June, two months ahead of schedule, reaching a total production plateau of around 85,000 barrel per day, 45,000 per day in equity. On June 22nd, we delivered to Pertamina the first LNG for the domestic market. At the beginning of July, we lifted the first cargo for the export market.
In Ghana, the OCTP project was completed in three months ahead of schedule, and is now in the ramp-up phase, reaching a full production level of 45,000 barrel per day by the end of the year. The second phase will produce gas and will start in the first half of 2018, allowing us to achieve a production plateau of about 85,000 barrel per day. Finally, Zohr is progressing very positively, with the progress of 80% at the end of July, and we expect to start up within December. We have already drilled six wells and almost completed the laydown of the offshore pipelines. The new offshore control platform installed in June is under commissioning, while the onshore gas plant is 70% completed. These four fields are expecting to deliver 75,000 barrel per day of equity this year, and more than 190,000 barrel per day in 2018.
Thanks to this development, Upstream production in the first half of 2017 was 1,783,000 barrel per day. That represent a 3% growth. Factoring in OPEC cuts and PSA effect, first half production would have been 1,836,000 barrel per day, resulting in a 6% growth. In the first half, we had remarkable contribution from ramp-ups and start-ups of 200,000 barrel per day. For the full year, we confirm our guidance of 1,840,000 barrel per day, thanks to the contribution of around 270,000 per day coming from the project in Egypt, Angola, Indonesia, Ghana, Kazakhstan, and Norway. The good Upstream EBIT result of EUR 2.3 billion was related for around 80% to an improved scenario and the rest to better performances and cost efficiency. Upstream operating cash flow was around EUR 4.2 billion, with a cash flow per barrel in line with the guidance given at our strategy presentation.
In the first half of 2017, we delivered positive results in our Midstream segment, confirming the effectiveness and the turnaround program. In Gas & Power, we recorded a positive EBIT of EUR 192 million, EUR 136 million more than last year. Net of one-off contribution, the first half result was EUR 184 million higher compared to 2016, confirming the material improvement of the underlying performance. This achievement consolidate the prospect for a positive and structural result of Gas & Power business in 2017. In Refining and Marketing, we achieved a positive EBIT of EUR 231 million, 110% more than last year. This remarkable improvement is related to the optimization in crude supply and good performance in the retail marketing. Refining result were in line versus last year, despite the upset of Sannazzaro, and this year we expect the refining breakeven margin below USD 4 per barrel.
Finally, Versalis reached excellent result, achieving the full-year target in only six months. This achievement has been possible thanks to lower downtime and an optimized production mix, and proves that Versalis is now in the position to capture market opportunities. Overall, in the first half, the company generated EUR 2.9 billion EBIT, an improvement of EUR 2.1 billion versus last year. This result is driven by the improved scenario for EUR 1.9 billion, mostly in the Upstream sector, growth and efficiency action for EUR 400 million. One of effects on an OPEC cut for around EUR 200 million. We generate a net profit of EUR 1.2 billion, the highest level since 2014. The average tax rate in the first half of 2017 was 55%, respect at our scenario of USD 55 per barrel to have a tax rate of 65% on a full year basis, reflecting the growing weight of Upstream to the overall results.
During the first half, we invested EUR 4.3 billion, a reduction of 14% against the first half of 2016. The project which start up this semester and the Zohr development have been the main drivers of the first half CapEx. In the second half, investment will reduce their pace, amounting to around EUR 3.5 billion as major development are completed. We confirm the full year CapEx will be below EUR 8 billion, representing an 18% reduction versus 2016 at the same exchange rate in line with our guidance. 2017 will be a year of strong cash recovery. In the first half, notwithstanding a volatile oil price environment, we generated EUR 5 billion of operating cash flow, which allow us to entirely cover our CapEx, which reached a level of EUR 4.3 billion.
In particular, in the Q2, we confirm an accelerated trend of cash flow generation reaching a level of EUR 2.3 billion, compared to a CapEx amount of just EUR 1.8 billion. In the coming quarters, our cash flow will benefit from a larger contribution from production growth, and we will reduce the pace of our investment, reaching a level of EUR 3.5 billion in the second half. Finally, before the end of the year, we will cash in EUR 3.7 billion, mainly due to the Mozambican zone disposals and the Belgian retail gas sales already collected in July. On a year basis, we confirm an organic coverage of dividend at about $60 per barrel, dropping to $45 per barrel, including the organic contribution of the dual exploration.
This value implies a full cash dividend and comes from the organic cash generation of our discovered reserves and production, while ensuring future growth and 100% reserves replacement. Based on this performance, I will propose to the board that we shall confirm an interim dividend of EUR 0.14 per share. Now together with Massimo and all the company management, we are now ready to answer your questions. Thank you.
Ladies and gentlemen, the Q&A session is now open. You can register for your questions by dialing star followed by one. To cancel your reservation, dial star followed by two. Thank you. First question comes from Mr. Oswald Clint from Bernstein. Mr. Clint, please.
Thank you. Claudio, can I just ask maybe about the discoveries, another half a billion barrels this year so far. You already had a pretty healthy outlook on production, I think well into 2025 from what you have discovered. How do you think about that 3% long-term production growth level? Is that the right number? Could you do more? If not, does it just means we're going to continue to see more and more of these divestments from the exploration side of the strategy? Thank you. Then the second question is more on Jangkrik. I see you have won a contract to sell LNG into Pakistan from next year. Was that the original plan? If you maybe tell us how much gas goes domestically versus LNG exports, and if there's any difference in the net backs between those two monetization strategies. Thank you.
The first question about production growth. We confirm our production growth as we gain the strategy of 3% in the 4-year plan, 3% long term, because it's based on existing reserves, existing projects, a very mature one. It's clear that this year is higher than the 3%, but on average, we can confirm. We are growing, we are production optimization, and other positive results that help us to compensate some offset we had this year. Overall, we can confirm. For the dual exploration, we are discovering like in Mexico with a very high stake because we own 100%. We are confirming the model, and after all this FID and project long term, we still have some billions of resources that we found that are ready and ready for the dual exploration. The model is absolutely confirmed.
For Jangkrik, contractually, we have a 25% that flow into the domestic market, and the rest is on the export market. We took in consideration these commercial aspects when we sanctioned the project, there is no surprise. On average, it gave a very good internal rate of return. I think that the model is quite robust, and Indonesia is quite robust countries, and the 25% is a reasonable amount, especially considering that Indonesia need a lot of gas for the internal domestic consumptions.
Okay. Very good. Thank you.
Next question from Mr. Biraj Borgohain from RBC. Mr. Biraj, please.
Hi. Thanks for taking my questions. I had a few. Firstly, on CapEx, 2017 is obviously very H1 weighted. I'm looking at the slide 8, but the reported figure for H1 is about €5 billion in the first half. Should we think about it as €8.5 billion CapEx for the year, and then the difference between the two is received as divestments? That would be my first question. Second question is slightly related to that, could you give any guidance on the Rosneft deal and when you expect that to close? Whether that's 3Q or 4Q. Finally, just going to your production guidance. Q2 production was a little weaker than we had expected, but you've maintained the guidance. Could you talk a little bit about any contingency you have within that 18.40 number and how much you have left there? Thank you.
About the first questions, I say a few things, then Massimo will take over to complete the answer. In terms of CapEx, what we presented is a very robust one, because we have a cash flow from operation that is quite higher than the CapEx. The CapEx of the second half will be lower because the major investment development being done in the first half, and now we have just Zohr. We have differences between CapEx and cash flow from operation. Clearly, what we said is that, considering the dual operation, we have $45 of cash neutrality, and the $45 cash neutrality is made by two main components. One is the operating cash flow coming from our production, and the second one is organic cash flow coming from the dual exploration. The answer is that the $45 is reached considering the two organic components.
You want to say something about Zohr M&A and the rest?
Well, I confirm that the number we are projecting by the end year in terms of investment is net of what we are going to recover through the disposal that we already signed, mainly Zohr. This is the overall effect. In terms of timing, is a bit long process. Very recently, we got the antitrust authorization. I'm talking about the Rosneft deal on Zohr. What is still missing some other bureaucratic papers to be prepared. Maybe the closure would happen in the 3Q as a second chance, I would say 4Q for sure, in 2017.
The last question was about production growth in 2017 because we confirm. What we can say that what we have in 2017, the second half, first of all, we have 100% of the Dakhlah that we recover starting from 19 of July. We have the Kashagan ramp-up. We have OCTP ramp-up. We have [start-up] ramp-up, and some fields in Egypt. Jangkrik is already ramped up. Overall, we can consider that we have in addition, 270,000 barrel per day coming from ramp-ups and new start-ups that will allow us to reach these targets. We still have some contingency, clearly, in order of some 10,000 barrel per day, something around more than that. We have also production optimization that is in a field, especially in Egypt and in West Africa that is going to help.
That is real contingency, because without any issue, we have all the barrels that we need to reach this target.
Thank you very much, sir.
Next question from Mr. Brendan Warn from BMO Capital Markets. Mr. Warn, please. Next question from Mr. Christyan Malek from J.P. Morgan. Mr. Malek, please.
Hi. Good morning, gentlemen. Just two questions. On Zohr, if you could just elaborate more in terms of just the development plan. I know you talked about it being on track in terms of just sort of the CapEx associated with it. You sort of to the extent you've de-risked that CapEx, what are sort of key milestones that you're looking for to ensure it sort of speaks to market by the end of the year? The second question, this comes back onto cash break-even. To what extent do you want to sort of lower this cash break-even? I know you've talked about mid-40s, in terms of that for target.
Over the medium term, do you feel comfortable that you can get your cash break-even post-dividend into sort of the $40-$50 range with the CapEx burden that you have, particularly developing the areas that you've discovered, and so on? Just understand how you've calibrated that in the context of your $8 billion CapEx.
For Zohr, Antonio Vella will answer, and then Massimo for cash break-even.
Concerning the situation of Zohr of today, let's start from the offshore. We completed already two wells, the rig is on the third one.
We confirm the rate of production above 250 million scf/d per well. We may estimate also 300 million. We are going to complete all the well within November. The sea line has been completed. We have just the last 9 km of the 26-inch pipe. Onshore, we have already a progress of 80%. We are intending to start gas in December with the first train of 350 million scf/d, Immediately after, we grow with the second train and third, and so on, as planned at the beginning. Thank you.
In term of future cash break-even, we never gave an exact number looking forward. What we said, presenting our strategy, that we are starting from EUR 60, and we are going to decrease the break-even all along the four-year plan. The result that we said, the result that we are reaching in this quarter, this semester, comforting us that the future decrease is absolutely likely and available to us.
CapEx for it all.
At CapEx, we gave the numbers around EUR 12 billion for a full development. Part of them devoted to the first phase. We are definitely fully in line, even slightly lower than what we announced in this respect, because we are recording a very good performance from one side, the activities. Second, the latest contract we signed with the contractors.
That's brilliant. Thank you very much.
Next question from Mr. Brendan Warn from BMO Capital Markets. Mr. Warn, please.
Yeah, thank you. Hopefully, this is connected okay. Two questions, if I may. Just firstly, you mentioned Kashagan a couple of times. Can you just talk about what sort of level we should be expecting it to reach plateau in 2018 in terms of the ramp up? If you can just touch on what activities need to be done. I guess, moving to chemicals, obviously, you've had a great result from the Versalis, obviously showing your benefits of your transformation program. How do you think about that asset still in terms of, you obviously tried to offload a stake back in 2015. Is it something that you still now see post-transformation to put to the market, or do you consider it as a part of your core operating business, please?
Okay, the first question on Kashagan, Antonio will answer. Daniele Ferrari and myself, we talk about chemicals.
Okay. As Claudio mentioned, 200,000 barrel and 210, it's a normal rate of production those days. The commissioning of the gas injection is in sour at this moment. We expect any moment from now to start gas injection as scheduled. Thank you.
In terms of the chemical business, the results that you see appearing today are essentially the effect of the work which has been done over the last two or three years. The combination of restructuring and closure, unfortunately, portfolio and geography modification, a lot of efficiency on existing assets. We are clearly in a positive scenario like that. We are capturing the maximum benefit of it. There was a peak in the first half of the year due to some unexpected maintenance on other crackers. In spite of that, we will continue to benefit of these results for the rest of the year in a normalized way and expecting to be well above our forecast. In terms of the future of this business, I'd like to leave it to Claudio for comment.
For chemicals, I think that is very interesting story, the work we have done in the last years now is paying a lot also because if we consider the average price of 2016, it was lower. Normal chemicals with a lower commodity price is getting better. Now we got an increase of about EUR 10 with a so more expensive commodity, now Versalis is doing better. That mean that what we have done in term of specialties or reduction of capacity that were not very efficient, but especially changing products and increasing the pseudo specialties, allow us to stay far from the commodity cost and became more structurally strong. Versalis is not at the end.
I think that we still have a huge upside, it's becoming a very important business, where I was not a few years ago because for years, we lost money. Now the very good work that our people are doing in Versalis, changing completely the picture, it's helping also the main business, the upstream business. If you consider that this semester, also with the EUR 10 more respect 2016, we had the result in the downstream
Versalis Chemicals and Refinery, more than EUR 730 million. That is a very important, more than EUR 600 million of the cash flow that helped a lot our consolidated result to reach the EUR 2.9 billion. Versalis is the present, and will be absolutely the future. At the moment, we want to continue talking about the future to increase and consolidate this upside. We think that we can grow, especially in green chemicals, where we have patent and a lot of proprietary licenses. Is an area where we can increase the quality of our product, also the resilient respect to the commodity, making Versalis more robust looking forward. Going back to Kashagan, just to complete your question about the ramp-up, Antonio said that now we are in the commissioning and we are injecting. We are really close to inject this gas.
That means that after this injection, we can start a full ramp-up that can bring us from the 200,000, 210,000 of today by the end of the year to reach the full production in the plateau.
Appreciate the comments.
Next question from Mrs. Irene Himona from SG. Mrs. Himona, please.
Thank you. Good afternoon. I had a couple of questions. Firstly, on capital expenditure. You guide to no change this year, Claudio. Thinking about the four-year plan, the EUR 31.6 billion over the years. Given your targeted production growth, in the event that we stay at EUR 45 to EUR 50, rather than improve towards your EUR 60, EUR 65 scenario, how much CapEx flexibility is there to reduce that number, as I say, should the macro remain below your assumptions? My second question was about working capital specifically. Obviously, in Q2, you had a reversal of a lot of the Q1 increase. Can you talk a little bit about the quarterly seasonality in that working capital, particularly as it relates to downstream gas, and perhaps what we can expect in Q3 and Q4? Thank you.
Thank you. I answer the first question, then Massimo answer the second. For flexibility, in the four-year plan, in the second half of the four-year plan, we have 50% of not committed CapEx. We have this 50% flexibility. The flexibility is due not just to the fact that we don't have commitment or final commitment of the CapEx, but also to the fact that we found, discover very interesting resources. Mexico is one, but we have also in other countries, especially in North Africa and Sub-Saharan Africa. As we did in the past, when we have been able to reduce, in the last three years, 38% of our CapEx expenditure, but increasing about 15% our production rate. That have been the highest increase in the industry. That because not only we reduce CapEx, but we move CapEx to a less expensive asset.
That is clearly has a huge range of opportunity in front of us, especially in the last three years of the plan. I talk about 50%. In talking about 2018, what can happen tomorrow, this flexibility in term of CapEx volume can be reduced of about 20%. We have a 20% flexibility on our plan that can be reduced completely or reduced partially, moving to asset that very quickly can increase production, creating value, and improving our cash neutrality. Mexico is an example, because we presented and we said we want to put Mexico in production in 2018. Clearly, we moved CapEx from one side to another side because is a fast track with a very high internal rate of return. Just to talk about numbers, 50% of flexibility in the last period and 20% next year. Now I give the floor to Massimo.
Irene, definitely our working capital is exposed to a seasonal effect. The worst quarter in this respect is the first one in the year. The second worst is the third one. This is related mainly to the mid and retail Gas & Power business as far as the first quarter because of the delay in payment of the gas sold at the end of the year. November, December, January, February, respectively. The third quarter because of the storage of the gas in advance waiting for the seasonality. Having said that, we had, you remember, an absorption in working capital the first quarter
Three months ago, I said that this effect would have been fully reabsorbed along the year, I'm confirming what I said. Now we have an absorption of around EUR 300 million. We will keep on reabsorbing this effect in third quarter, maybe with a lower pace because of the storage effect I just mentioned, and fully in the fourth quarter.
Thank you very much.
Next question from Mr. Alessandro Pozzi from Mediobanca. Mr. Pozzi, please.
Thank you. My first question is on Mexico. You had great success there. I think there are a couple of other structures in the block. I was wondering if you can maybe give us more color on the potential upside in the block over on top of what you've found already. I believe you talked about Mexico as a part of your dual exploration model. I was wondering whether to maybe talk about potential disposals there. Second question on Gas & Power, you upgraded the guidance. I was wondering what gave you the confidence to upgrade the guidance now compared to three months ago? As we move closer to 2018, just wondering if there is any visibility on what Gas & Power can produce next year. Thank you.
Thank you. With Luca, we answer to the first question. Massimo Mantovani will talk about Gas & Power. Luca.
Thank you, Claudio. Yes, we have two other wells that will be drilled in the second half of 2017 in Mexico, these are on two different structures than Amoca, where we drill so far. We do believe that we may still have some additional upside in their Contract Area 1 , we should see the result from these wells.
As I said, Mexico is an ideal target for a dual exploration because we are 100% we are creating a big value, we want to go fast to the FID for the first project. Clearly, is not now the time to talk about that because we want to create and build up additional value on these assets before talking about dual exploration, it is one of the future targets.
For Gas & Power, you are correct. As it was anticipated, we are now aiming a structural positive result from 2017. This improvement is mainly due also to the renegotiation of the gas supply long-term agreement, which is undergoing, also, of course, on an improvement on the optimization of the logistic cost. Therefore, actually, these improvements are looking good for 2017 as compared to what we were expecting. Please also note that some of these negotiation, like the Sonatrach we recently closed, will have also impact on 2018 as the contract is for the gas year until September 2018. We are moving on the right track, we are, of course, looking at the further negotiation which is undergoing.
Do you have better visibility on next year earnings for the Gas & Power at the moment?
Can you repeat, sorry, because they
Just wondering if next year, you can give maybe an idea of what Gas & Power can produce in terms of EBIT?
We are targeting an improvement of what we were expecting, and this is actually already been proven in 2017. Of course, the negotiation are ongoing, so we can't really give figures about that.
All right. Thank you very much.
Next question from Mr. Massimo Consoli from Equita. Mr. Consoli. Sorry, Bonissoli, please.
Thank you. Good afternoon, gentlemen. A couple of questions. One on the retail gas and power business. Following your recent statements, could you share with us your thoughts on how would you create value on this asset going forward? Also considering the recent carve-out, could you share some relevant figure of this business like revenue, EBIT, or earnings? The second question is on Val d'Agri. What is the remaining impact on the third quarter, if any, of the production stop at COVA?
The first question will be answered by Alberto Chierici, the second one by Antonio.
Thank you for the question. The way to extract value for our retail market in Eni gas e luce is going along two main lines. One is to extract more value from our current customers. I remind you that we have close to 9 million customers in Europe. This has to do with the improvement and introduction of all the services through the partnership we have with some of our partners. We are introducing insurance services, lead boilers, maintenance, and all these new products that should allow us to extract more value from our existing customers. The second line is to increase customers. We are mainly targeting power market in France, where we are entering into the power market. We have already reached 100,000 customers, thanks leveraging on the existing gas customers. The power market in Italy.
Power market in Italy is going through a liberalization process. Believe that we can play a big role in this liberalization path.
As far as the remaining effect in Val d'Agri, because I would like to remember that production really started up the 17th, 18th of July. In term of EBITDA or EBIT, the effect would be, I would say, marginal. We are talking about something in the range of EUR 30 million. A bit higher in term of cash because we cash in the oil we sold with a delay of one month and a half. The effect in term of cash that we had in the second quarter would be more or less replicated in the third quarter. I'm talking about something less than EUR 100 million.
Thank you.
Next question from Mr. Thomas Adolff from Credit Suisse. Mr. Adolff, please. Mr. Adolff, could you please rebook for your question, please? Mr. Adolff, can you please rebook for your question? Thank you. Okay, Mr. Adolff, you can talk.
Can you hear me now?
Yes. Thank you.
Great. Thank you. Apologies for this. I have three questions, if I may. Firstly, just on CapEx. Your earlier comments alluded to 20% flexibility for 2018. Now, let's say this CapEx goes from EUR 8 billion per annum to EUR 6.5 billion, and it stays there for a few years. Can you perhaps talk about what that means in terms of medium term upstream growth versus your 3% per annum target? The second question I have is just some thoughts around the dividend, maybe not the right time to ask, since you tend to give these updates in March. The strengthening in the euro is obviously leading to a higher U.S. dividend. I'm just thinking how you think about managing this dividend. I'm thinking about priorities is, in case the oil price stays low for a little longer.
Are you simply going to continue to fund it using your successful dual exploration strategy while maintaining upstream spend to deliver that 3% growth? Looking at alternatives such as potentially introducing a temporary script. I mean, just your thought process around priorities. The last question for Claudio would be very simple. What keeps you up at night nowadays? What frustrates you the most? It can be internal things or even external things, but excluding the oil price. Thank you.
First answer to the last question, I sleep every night. I think that I have enough time during the day to do what I have to do, and the result and the restructuring of the last three years show that now we can sleep because things are going very well. That bring me to answer to the first question. The price remained $45 for three years, okay? What we have done or what we have built in the last years is really to be able to tackle this kind of situation. When we said that during the strategy presentation, that we projected our cash neutrality for four years at a level of $45 per barrel, considering just an organic contribution, operating contribution and coming from the dual exploration. We meant this kind of sensitivity. We meant this kind of situation.
The answer is that we built our strategy and our three-year plan to be resilient at a full year at $45 per barrel. If something like that happen, we have all the tools, with some flexibility, but without reducing our growth rate, to cope with the $45. Because that has been presented, and all the projects have been shaped for this kind of possible situation. We said we cannot do anything with the price. What we can do with our costs, and we work hard on our cost. That means not just cutting for cutting. I said we cut 38%, but we increased 15% our production. I think that Eni is really structured to face this kind of situation. On the dividend, no script. For the rest, Massimo can answer. There is no anything to add.
As you said, Thomas, the best timing to talk about the new approach eventually about the dividend would be the strategy. As far as the current situation, we are still projecting in line with what we said in March, so nothing structurally changed. As Claudio said, we definitely can survive with this level in the short period of time, and clearly, we can have a balance without a specific priority because our plan aiming at, I would say, give ground for the production growth and the remuneration to the shareholder at the same time with a good equilibrium. As Claudio said, without any kind of additional effort such as script or whatever.
Perfect. Thank you very much.
Next question from Mr. Mark Coffer from Jefferies. Mr. Coffer, please.
Hi there, everyone. Thanks for taking my question. I just wanted to come back to the commentary around the capital spending program and the flexibility in the medium term in the context of Mexico and looking to move forward there at Amoca. Can you talk about the types of development concepts you're considering at the moment? Following on from that, the CapEx associated with that and if that project is going to take priority over any other projects in the queue. Any commentary there would be really appreciated. Thank you.
Mexico, I cannot give you now a figure for CapEx for Mexico. What we plan really is to don't have any big upfront exposure in term of CapEx. For that reason, is a huge, is a giant project, and we'd like to go through phase by phase. Clearly, it's a shallow water, 20-meter water depth, six kilometers from the shore. You can use jackup. You can use very not expensive facilities. We really think that this kind of investment can have a breakeven, a technical breakeven that is much less than EUR 20. Now our technical breakeven, on average, is EUR 17. That is something that can improve these figures in terms of having a lower breakeven. Is very cheap, one with very small amounts of investment. The right question that you made is flexibility.
If you put Mexico, what other project can go out of your basket? I can say that at the moment, with the structure, with the price we have now, and with the flexibility of 2018, the 20% we discussed before, I think that this 20% can accommodate Mexico. We have flexibility where? We have flexibility in some big projects, but we have flexibility, especially in the production optimization. That take a big part, at least 30% of our investment every year. That is a production optimization, means in filling, means some de-bottlenecking to increase the existing production. Clearly, we have to put in front all the different possible projects, production optimization, some long-term projects, Mexico and other project we have.
We still have some billion of resources, as I said, that with the good optionality we can put in production, and this project normally compete in term of different kind of integrated risk analysis, but clearly the internal rate of return, the NPV are very essential KPI. I think Mexico is in a very good position to enter and maybe reduce some costs somewhere else. The aim is to create value. We try to keep the same level of production. There is no problem. We have big contingency, but we want to increase the cash flow per barrel. Our target is clear. We have a cash flow per barrel at about $65, of about $29 per barrel of cash flow per barrel.
We want to create, we want to improve this $29 per barrel of cash that we create, that means that Mexico obviously have to compete with other projects. In term of CapEx, we have enough flexibility and space to introduce Mexico without increasing it.
Great. Thank you.
Next question from Mr. Steve Jottingham from Exane BNP. Mr. Jottingham, please.
Yeah. Thank you. It's Steve Pan here from Exane. Two questions, please. Firstly, just on Venezuela, could you perhaps just give us an update in terms of Eni's exposure Venezuela, both in terms of capital employed production and an update in terms of underlying operations in country? The second question
Perhaps for Claudio is just in terms of strategy, Eni has transformed its downstream business in the last two, three years. As you start to see gearing lowered with the successful dual exploration model, I was wondering, is there any appetite to add capital to the downstream business going forward? Thank you.
I'm going to give you a first answer, then I think that my colleagues can complete. What is happening in Venezuela is that we are producing, as you know, from an operational point of view, we are producing gas mainly. Our activity on the Orinoco Belt are practically have been reduced, we can say, because there is no investment anymore. We are producing, but it has been really reduced and we are no more engaged in the full field development. The gas production is flowing. We sell gas to the domestic market, and there is some small exports. This production partially is securitized by the condensate that we produce, then we can export. There are other form of securitization. Where as well is we're recovering, we still have an exposure. I think that nowadays it's the only country where we have a material exposure.
We talk about EUR 400 million of exposure. That is not a huge figure, but it is not a huge figure because on a monthly basis, we are able to recover something. There is no build-up that can exceed reasonable numbers. It's not a very easy situation. We are absolutely on top of it on a daily basis, not just for recovering money, but also for security reasons. Fortunately, our activity that we share with the Repsol is completely offshore. I'm talking about Perla. The second, I don't know if you have anything to add?
No.
Talking about the strategy, I think that we work a lot, we change, at least we change the trend and the path of our downstream business, now we are very happy. Honestly, we are happy about the good result, the EUR 2.9 billion of EBIT and more than EUR 700 million is due to our downstream business. They reacted very well also to an increase on the commodity price, we believe that we can do better. We have huge potentiality, we have really the right people to work on this business to improve it. We'll see. We are not now in the strategy presentation, but clearly we put in effort now we have some very good stuff in our hands. We want to really leverage the downstream business for our future growth, also to counterbalance our upstream business.
I think that for sure, we own this business and we want to grow and we want to invest. These businesses produce us more than EUR 600 million free cash flow. They have inside the potential and the resources to invest and to grow. I honestly believe that we can do very well on it.
Okay.
The last question from Mr. Iain Reid from Macquarie. Mr. Reid, please.
Hi, guys. Just looking for an update on your high-impact exploration wells, in terms of what's going on now and also the stuff coming out. Obviously, Cyprus is a key well. I seem to remember you were talking about drilling Zohr deep at some point. I'm just wondering whether you've drilled that and what the results of that were.
Luca is going to answer.
Regarding Zohr deep, we deepened one of our production wells in Zohr to the Jurassic. We didn't encounter in that part of the structures any hydrocarbon. Now we are reassessing the model, and we will reevaluate the deep potential in the future. Regarding Cyprus, as you know, we spud in with Total. Total is the operator in Block 11. That is the block just in front of our Shorouk block in Egypt. We spudded in the well just a few days ago, and the well is in drilling. This could be, I would say, an important information to understand the future of Zohr-like plays in the Cyprus water. Regarding our wells in Cyprus, we plan to restart a drilling campaign before the year-end with new wells, two additional wells to be drilled back to back.
Elsewhere?
Elsewhere.
Elsewhere. Sorry. I missed the second part of the question.
Sorry, elsewhere wells.
I'm a bit tired. Elsewhere, Cyprus I think is the most important activity in the second half of the year, but we have some near-field exploration wells in Norway to be drilled in the second half nearby Goliat. Also, we have a well in Ivory Coast again that we will drill together with Total. That's the main activity of the second half of the year.
Okay. Thanks very much.
Okay. Thank you very much. I think that we close our meeting. I thank all the people, investors, and the analysts that participate. Thank you. Have a good day.