Good afternoon, ladies and gentlemen, and welcome to earnings 2017 First Quarter Results Conference Call, hosted by Massimo Mondazzi, Chief Financial Officer. For the duration of the call, you will be in listen only mode. However, at the end of the call, you have the opportunity to ask questions. I'm now handing you over to Joost to begin today's conference. Thank you.
Good afternoon, and welcome to the presentation of our Q1 2017 results. In the Q1, we continued to execute our long term strategy focused on upstream profitable growth and the strengthening of mid downstream businesses. The main achievement this quarter were the following: In upstream, production was 1,795,000 BOE per day, 6% higher than last year, adjusted for PSA effects and OPEC cuts. All key developments are on track, and we are close to start up production from Jank Creek in Indonesia and immediately after OCPP in Ghana, while Zol is progressing ahead of schedule towards 1st gas by year end. Cashagan ramp up continues with 32,000 BOE per day net to any in this quarter and more than 65,000 BOE per day expected in the 4th quarter.
In the Mid Downstream, we recorded over €500,000,000 of adjusted EBIT due to strong performance in Gas and Power, thanks to the successful execution of the turnaround and positive result in the Downstream sector, both in Finally, our disposal plan is well advanced. On the basis of the 2 deals already announced, Area 4 in Mozambique and retail in Belgium, we expect to cash in this year pretax proceed of around €3,000,000,000 over half of the lower end of the 4 year planned disposal target. In addition, this year, we expect to cash in around €1,000,000,000 related to the closing of the Zohr farm downs to BP, which has already been completed, and Rosneft, which is expected to complete in the second half of the year. And now before detailing the quarterly result, I would like to give you some color on the market environment affecting our results. Trends were positive with slightly stronger oil and constant European gas prices and refining margins.
In more detail, the average oil price were $54 per barrel, around 58% higher than the minimum of last year, following the OPEC cuts and the start of market rebalancing. Gas prices in Italy increased by 43% versus Q1 2016, thanks to a 9% increase in overall gas demand that was driven mainly by the power and retail sectors. Refining margins remained stable, whilst chemical margins, although up on the previous quarter due to shortages in U. S. And China, were lower than a year ago.
And with said that, now the review by business. Upstream production in the Q1 of 20 17 consolidates the exit rate of last year of 1,856,000 pb per day. We recorded an output of 1,795,000 boe per day. That is in line with the last quarter production. If we take into account the impact of Goliad 40 day shutdown, the OPEC cuts that affected our production in Algeria and Venezuela and PSA effects.
Versus the Q1 of 2016, our adjusted growth is close to 6%. For 2016 sorry, we confirmed a production rate of 1,840,000 BOE per day, thanks to the contribution of start ups and ramp ups in Egypt, Angola, Kazakhstan and Norway, and assuming that the Valdagli shutdown lasts for no longer than 90 days. The good result in term of EBIT of €1,400,000,000 was anyway affected compared with the first quarter 2016 by higher write off in exploration for around €100,000,000 Upstream operating cash flow of around €2,300,000,000 is in line with the full year guidance that we gave in the strategic plan. And now a brief outlook on the key start ups for 2017. In February, we started up Block 1506 stub, 5 months ahead of schedule, and the overall block is now producing gross 100,000 boe per day, 34,000 boe per day net 20.
All other main developments are also well advanced and close to reach first production. The Jan Creek floating unit is on-site. Hookup has been completed. Commissioning is ongoing, targeting an imminent startup. The ramp up will be very short and will deliver at plateau around 45,000 bpd per day net to Aene.
The OCTP FPSO arrived on-site last month. Hookup is ongoing to allow first oil within few weeks. This first phase of the OCTP project will deliver net 20,000 barrels per day of oil at plateau, and the further 20,000 boe per day from gas phase will start in the first half of next year. Both developments anticipate the delivery of production versus the original plan. Also, Zohr is progressing fast, and we expect to start up within December.
These three fields are expecting to deliver net to any volumes of 30,000 boe per day this year. And in 2018, 150,000 boe per day, with a cash contribution of €1,500,000,000 As 2016 numbers are now filed for the whole industry, upstream performance metrics. We continue to deliver amongst the lowest unit operating cost in the industry. In fact, we have delivered 1st quartile OpEx per boy for 5 years running. In the Q1 'sixteen 'seventeen, sorry, OpEx per barrel was just above $6 per barrel, continuing to be at the bottom of the sector.
Equally important is capital efficiency as measured through the funding and development costs. Through a combination of our continued leadership in conventional exploration and focus on development efficiency Rolling 3 year finding a development cost average has been lower than any other company. Rolling 3 year finding and development cost average has been lowered down to $13 per barrel, while the industry moved up to an average of $33 per barrel. We believe that given the near FID project inventory and the exploration prospect that we have currently identified, we will be able to continue delivering organic fine development cost at the bottom of our peers range. Eni's portfolio is competitive not only in term of cost but also in term of reserves value.
Any improved reserves are worth $31,000,000,000 according to the PV-ten analysis. This continued to be an outstanding result, considering that our barrels have the same absolute value of portfolios much larger than ours. In terms of unitary value, we ranked 3rd in the peer group. And this is notwithstanding the larger presence of undeveloped reserves in our portfolio, any 43% of undeveloped reserves versus an average of 34% for the competitors, that generated by the recent additions and the long production plateau of these reserves that affect their discounted value. This is the result of our strategy to continue to invest throughout the cycle, growing the reserve base as confirmed by our Life Index.
Since 2014, we kept any Life Index above 11 years, notwithstanding the growth production by 10%, whilst peers fell by 2 years. These figures prove that our reserves are really valuable and resilient in the long term. And now let's move to mid downstream. In this quarter, we delivered positive result in all our midstream segments. Gas and Power Business confirmed the progress of the ongoing turnaround with an EBITDA of €338,000,000 of euros plus €53,000,000 versus last year.
This increase, even more remarkable, if you consider the impact of lower retroactive effect for £56,000,000 compared to 2016, is mainly driven by recent renegotiations, cost savings and trading performance. This result consolidates the prospect for a structural breakeven of Gas and Power Business in 2017. Refining and Marketing performance was in line versus last year despite the upsets in San Lazaro. The improvement is related to optimization in crude supply and good performance in wholesale market. In refining, Benisangela plants turnaround is proceeding, while the plants in operation to reduce their breakeven margin below $4 per barrel.
Finally, Versalis, our chemical unit, that had a strong quarter, thanks to the lower downtime and production mix highly exposed to those products, which benefited from good margins. This proves the capability Versalit had developed from its new portfolio configuration to capture market opportunities. Overall, in the quarter, the company generated €1,830,000,000 of EBIT, an improvement of €1,250,000,000 versus last year. This result is driven by the improved scenario that accounted for €1,350,000,000 and growing efficiency action for €0,100,000,000 net of negative impact of the unplanned OLED shutdown and the negative effect of 1 off and OPEC cuts for around €200,000,000 We generated net profit of €744,000,000 the highest level in the last 2.5 years. The average tax rate in the quarter was 57%, a level that should increase to a full year average of around 70 percent, reflecting the growing weight of upstream contribution to the overall results.
Moving to cash. Our cash generation highlights the effectiveness of our strategic plan. Before changes in working capital and valuing stock at replacement costs, cash generation amount to €2,600,000,000 an increase of over €1,000,000,000 compared to last year when oil and gas prices were lower. But if we compare cash generation in the Q1 2015, which had a similar oil price but higher gas prices in Europe, higher LNG prices worldwide and higher refining margins, we can see that the increase is about €400,000,000 proving the effect of mid downstream turnaround and EAP valuable growth. Cash flow from operation, including working capital changes, was around €2,000,000,000 this quarter or €2,200,000,000 if adjusted to neutralize the sale of mandatory oil stock cumulated in this quarter as sold early April.
2017 will be a year of strong cash recovery. In the last strategy presentation, we announced to reach organic coverage of dividends at around $60 per barrel, and we continue to pursue that goal. In the Q1, stock adjusted cash flow from operation substantially covered CapEx assuming our post disposal in interest in Mozambique and Zohr. The quarter's CapEx level reflected the effort to put into production 2 Giant Feed by midyear and the strong effort on Zohr. In the coming quarters, we expect to generate higher cash flow from operation, thanks to the production growth coming from the plant startup and ongoing ramp ups and the seasonal contribution from Mid downstream.
Investment will reduce that pace as major development are completed, and we confirm that 2017 CapEx will be below €8,000,000,000 representing an 18% reduction versus 2016. Finally, we will cash in in including disposal, is around $45 per barrel. And now together with the company's stock management, we are ready to answer any question you may have.
Ladies and gentlemen, the Q and A session is now open. Thank you. First question comes from Mr. Clint Oswald from Bernstein. Mr.
Clint, please. Mr. Osois?
Thank you. Thank you. Massimo, hi. Thank you. Can I ask about Kashagan, please?
The 32,000 barrels of oil production that that kind of chunk of oil production or at least the cost recovery percentage that you might be getting against that cash flow, please. And then secondly, I just wanted to add a little bit of an update on Cypress. You're building quite a substantial acreage position there. I think there's some wells being drilled in the second half of the year. Can you just talk about the well program and also potentially maybe the prospect size that you're actually targeting there?
So, Oswald, as far as the cash flow contribution from Cashagon, we don't release such detail in our information. But you remember, we gave a guideline in term of cash contribution when we presented the overall plan. We are still on this forecast. So nothing can change in this respect. And even the ramp up is growing as planned, and we are projecting the full production as far as the first phase by the end of this year.
As far as Cyprus, I would say Luca Bertelli could give you the answer.
Regarding Cyprus, we plan to start drilling campaign in the last quarter 2017, drilling 1 well inside the 2017, another well back to back. And we are shooting the seismic, so we have more clear idea about the size of the prospect in the second half of the year.
Next question comes from Mr. Thomas Adolff from Credit Suisse U. K. Mr. Adolff, please.
Good morning. Thanks. A few questions, please. Firstly, you tend to go into any given year with a good contingency buffer as far as upstream production is concerned. And then you quickly eat into it.
And in recent years, this year and last year, these outages actually happened in regions where you think if you have maybe proper standards acceptable to the regulator, you wouldn't and shouldn't happen. But last year, you had a field called Doros in Egypt that surprised on the upside to offset these unexpected losses in production, but not in cash flow. And I wonder whether there's anything like Novos that we're not aware of in your portfolio this year that can surprise on the upside. And then I have 2 smaller questions. 1 on the LNG contract you signed with Pakistan, which looks to have a progressive step up in the slope.
And I wondered whether you can talk about this progressive step up and why this offering. And then another very small question around a little random, but around the press report earlier today that talked about ENI looking to build a refinery in Nigeria. And I just wanted to double check with you whether that's accurate or whether that's just factually
wrong. Okay. So I'll give you the answer about the production, then I'll let Massimo Antovani to give you the answer about the LNG and maybe Antonio Vela to give you some color about Nigeria. So as far as production, I understand what you accounted
for
as
far as
the accounted for as far as the Q1 in term of production, not very far from the guidance we gave in term of the plan because the plan already, as far as 2017, projected growth. So just to give you an idea, the first quarter in our budget was 1,815,000 bp per day. So the 1,790 5 is not so far from that. By definition, we had some accident, including Goliath, but we have already some contingencies included in our projection. So we had enough room to compensate significantly the accident that we had.
Having said that, the new start up, Creek and the ramp up of the major project up to now is definitely confirmed. We are still retaining some contingency. And definitely, we have some potential upside in term of production that, I would say, are not completely represented in the number that we are disclosing. All in all, Thomas, we are confident to confirm the 1,000,000 8 140,000 bp per day that we gave as indication. So maybe certainly, including included in the positive contingency, we say, Giancreek and CTP up to now are forecasted to start up some days in advance versus the expectation we have when we perform the budget.
Maybe Roberto Casula could, at the end of this, I would say, the answer could elaborate, giving you some more detail about the 2 projects. But this is the sense of what I'm saying. So I give the floor to Massimo Montovani to give you the answer about LNG. This is Massimo. Massimo.
The offer we made for Pakistan is obviously, 1st of all, consistent with our portfolio of LNG, which we have that includes also Jen Creek. And you are quite correct, we do have a sort of progressive offer, which we made in respect of pricing for the 1st years. That's consistent with the analysis we made always on the portfolio. And overall, obviously, the offer we made as an average is well below the 5 year tender that they awarded recently.
Okay. Concerning Nigeria, I would like to recall that E and I have signed in January 2017, an MoU with the Minister of Oil in Nigeria, where several item has been tackled and on the relationship between ENI and Ministry and NNPC. Within the items, we agree to support NNPC and the ministry to study and upgrading of Port Harcourt refinery, and the study are ongoing. But meanwhile, we are being requested to add additional studies to identify new locations eventually between BRASS and Port Harcourt to evaluate an additional expansion while the upgrading of the existing refinery is going to be implemented. This is what as a what I can clarify to you on the discussion that happened yesterday.
Okay.
That's great. And you and I would take a stake in this expansion?
First of all, we have to conclude our feasibility. And then the issue of stake, I think, is going to come later for sure.
And maybe Roberto Cazula could give you some additional color about the 3 major projects ongoing this year.
Thank you, Massimo. Well, I'll start from Jang Creek in Indonesia, which is now very close to start up. The floating production unit is on location. We are just completing the UCAP of the subsea wells. We already drilled and complete all wells envisaged in the project.
As a good news, we were able to save some money as in terms of overall CapEx in addition to increased reserves. I remember that the production is 450,000,000 standard cubic feet per day. Similar case for OCTP project. In Ghana, all wells have been drilled. We continue the completion of the first wells to start up production, again, expected really shortly.
FPSO is already on location. Everything is progressing in advance compared to the plans we had. In both cases, we can talk about 1 to 2 months of anticipation for these two projects. Then ZOAR, ZOAR, all the offshore activities are ongoing. We almost completed the laying laying activities for the pipes.
The platform the control platform, as you probably remember, will be installed by June and will be ready in September. Onshore, all activities are progressing, both for the startup and the ramp up. Therefore, we confirm, as Marcin already said, the startup of Zuora by December.
Next question comes from Mr. Birajos Boccadaria from RBC. Mr. Boccadaria, please.
Hi, thanks for
I had a few. So the first one was on the divestments you've agreed. Your release today states that 50 percent of the proceeds from the BK deal will be paid in installments. And I was wondering if you could just talk us through when the rest of the proceeds are to be received and also whether this is the same structure as for the Rosneft portion and it was Mozambique? The second question is on the production guidance.
Obviously, with production a little bit lower, you've eaten into the contingency. But also in the release, you state that there's some initiatives of production optimization, which were not included in the initial plans.
So I
was wondering if you could talk about those initiatives and why they weren't necessarily included in the plans at the start of the year. And then just finally going back to the final slide on Slide 11, you've got the cash flow plus disposals figure. And I just wanted to clarify, was I right in hearing you said you're expecting €3,000,000,000 in proceeds to be cashed in this year? And is, if I take that off, is that a fair reflection of your underlying cash flow generation for this year?
Okay. So I'll give you the answer about divestment, and I'll leave the floor to Antonio Vela to give you far additional detail on the production and production guidance. So in terms of divestment with reference to the ZOOR divestment, yes, payment will be through installment. Cash in expected cash in 2017 is €1,000,000,000 That represents more or less 65 percent of the overall divo price. At the back of the remaining 35 percent, the largest part of the remaining 35 percent will be cashed in 2018.
And the remaining few money to be cashed in will be in 2019. And in term of overall Cushing, making reference to the latest slide, we said that we expect to cash in a net of 2.7 out of Mozambique net of tax. Probably, you know because it has been reported by the press that we got the agreement about the tax treatment of the gain in Mozambique. That is in the range of €300,000,000 So the net will be €2,700,000,000 plus the overall €1,000,000,000 that we cash in from Zohr. So the overall amount is €3,700,000,000 expected to be cash in 2017.
So I'll leave the floor to Antonio to answer your question about production.
Okay. Thank you, Massimo. So the production optimization, it's an allocation of CapEx within our budget, but the contribution expected in 2017 budget was 50,000. Definitely, this allocation of wells is moving in different circumstances. For example, Nidoko, as it was mentioned some of you mentioned, Nourous.
Nourous has performed much, much better than any expectation, and we are continuing drilling wells of more or less 5,000,000 cubic meter a day. And while we are improving our expenses in wells, which are not complying with the breakeven that we request. So the 50,000 barrel plus will be confirmed. Meanwhile, we have all the anticipation of Jan Creek, Istab and OCTP that will contribute additional production to make robust our 1,840,000,000 Thank
you.
Next question comes from Mr. Josh Stone from Barclays.
I've got two questions, please. Firstly, on Gas and Power, very strong performance in 1Q. It appears to be running ahead of the 2017, 2018 guidance. So I wonder if you could talk a little bit about more detail on the drivers of that performance here, perhaps giving some contribution, how much is from trading, how much is from costs? And then how sustainable you think that is for the rest of the next 18 months or so?
And then secondly, on Mexico, the recent discovery there, can you just update us how the discussion is going with the government and how soon you think you'll be able to start up production?
Okay. Massimo Montano give you the answer about Gas and Power and Antonio about Mexico.
Okay. For Gas and Power, the guidance we gave in respect, in particular, is in relation of the gas negotiation, which are ongoing. They're on a positive track. We already managed to close some of them and are still discussing on others. The positive result of this negotiation, I think, are underlying from, as Massimo said, the operating profit results of quarter 1 as compared to quarter 1, 2016, €50,000,000 more.
But in particular, if you take away the retroactive effect in both quarters, then you do have in this quarter, in 2017, an increase of the operating profit of €100,000,000 That is mostly coming from gas renegotiation and also some trading activity. There is a portion of trading. In particular, of course, we optimize some trading activities in January in respect of the high price for the weather.
Okay. Just to clarify, the 50 the advantage from GasLog negotiation that Massimo mentioned relate to previous negotiation that happened in 20 16. So this is the benefit the normalized benefit of this negotiation that we are benefiting from now on. So this is a stable contribution. So we are not talking about the benefit that our retroactive effect of renegotiation happened this year.
So this is a quite positive result that Massimo, remember, amount to €100,000,000 if we take this retroactive effect out of the calculation. And then, Antonio
Okay. So Mexico is the result are very positive. We are discussing with the authority recently visit with our CEO for an early production implementation. However, we are going to drill additional 3 wells in 2017. And then immediately after, we will proceed with a plan of development at least for Amoco early production.
Next question comes from Mr. Ian Reid from Macquarie.
Two questions, please. 1 on the gas business again and then one on asset sales. Just on the gas, now you're at a kind of more normalized level profitability. Is it possible to give us the sensitivity of the overall earnings in the business to European and Italian gas prices. So presumably when those prices rise a bit, your profits will fall somewhat given the fact you're a net price catered in that business.
Also a question on asset sales. You obviously completed some of the big ones now. I just wondered if you could give us some indications generally, obviously not talking about specific assets, about where the next wave of your asset disposal program is coming from to meet your longer term target?
Okay. So in thermal gas, no, I confirm that now the results are much more stable, but it's difficult to identify, say, sensitivity because the nature of different businesses inside is so different. And we say the fact that we are not related directly to a specific, say, uprise, but we work taking into into account the differential between different hub or whatever. So it's really it's difficult. So I'm not able now and probably even in the future to give you, as we do talking about the E and P production sensitivity.
As far as the disposals, certainly, as I said, we are quite ahead if compared to the targets we gave performing the full year plan. We are working on additional divestment on the same wave of disposal that we already achieved, so mainly targeting from one side the so called dual expression model. So we still retain significant discovery, already achieved, retained with a very high interest that could be subject to a dilution. First of all, maybe I would like to mention West Africa among this. But other assets are retained from 80% to 100%.
For example, Mexico is retained today 100 percent. Cyprus, very high stake. And even new prospects that are going to be drilled in 2017 are retained with a very high percentage. So definitely, this would be a source of additional disposition looking forward as well as some other minor asset even in business other than E and P, mainly targeting logistic and other assets that are no more focused on our strategy.
Next question comes from Mr. Amish Kleg from Bank of America. Mr. Kleg, please.
Good afternoon. Thanks for taking my questions. Just a couple. First of all, just wondered if you could clarify that slide on where you talk about dividend cash neutrality at $45,000,000 That looks very much like it's sort of including your disposals for this year. And is that very much for just this year?
Because it's not quite the same as the $60 neutrality you talked about. And my second question is regarding gas volumes as part of the mix. One of the things I noticed in your results is a big uptick in gas volumes has basically offset some of the down movement in oil. Is this something that we're going to see reverse in the mix in terms of percentage of your volumes coming from gas in the coming quarters.
Okay. I'll give you the answer to your first question. So the aim of the last slide was just to say that as far as 2017, we are saying 2 major things. First of all, that we are confirming the guidance to cover CapEx and dividend at $60 per barrel organically. And second, that definitely, we will leverage on a significant amount in from disposal.
I mentioned €3,700,000,000 That will allow us to drop from €60,000,000,000 to around €45,000,000,000 at year end. So no more than that. This is the message we would like to pass to you through this slide. And gas volume production mix. Okay.
Certainly, targeting the overall production of 1,840,000,000 at average 2017. We will have some reduction in oil, and we will have some increase in gas. So we are talking about more or less 2 percentage points in term of growth gas versus declining in oil. This percentage has been a little bit higher in the Q4 because of the stop of Goliad. So the difference in the Q1 has been higher.
But with the recovery of Goliath, notwithstanding the shutdown of Valtagri, we expect that this difference will be much less will be reduced, as I said, as a nearly average.
Okay. That's great. And I just had one follow on question actually because I don't know about everyone else, but I was very pleased to see you guided on reporting cash flow on a in cash flow on a pre working capital replacement cost basis. It makes our lives a lot easier. Could you confirm that your full year cash flow guidance
that you gave earlier in the
year is whether or not that's also on a pre working capital taking cost basis as well to be in line with what you told us this quarter.
So the guidance that we are giving now probably would be, I would say, repeated from now on. The guidance we gave performing the full year plan was the guidance, the cash flow from operation, including working capital. What I could say that we do not expect significant changes in working capital all along this year. So at the end of the story, at year end, as an average, the two numbers will be very, very close.
Next question comes from Mr. John Rigby from UBS. Mr. Rigby, please.
Hi. Thank you. Just two quick ones. The first, can you just update on the Este plant and where you are on bringing that back into service and maybe some kind of estimates of if it had any economic effect on your earnings in the Q1? And the second, just to come back to a piece of guidance I think I heard Massimo refer to in the opening remarks about tax rates.
I think you said that you expect the tax rate to move towards 70% for the full year or for the remainder of the year. I mean, that would be significantly ahead of both the corporate and the upstream tax rate in the last couple of quarters. And I just wonder whether you could maybe sort of articulate further what the moving parts are to move us back towards what is a significantly higher tax rate than we've seen in the last 6 months. Is that possible?
Okay. I'll try to do my best to answer your question about the S plan. So S plan, the refurbishing is ongoing. The overall amount of CapEx to be injected is in the range of €200,000,000 I would say, covered by the insurance, except for the retention that is quite limited. And we expect to have as planned back in production by the end of 2018.
Yes, definitely, we are suffering a loss of EBIT because of the stop that is in the range of, for example, this quarter, €15,000,000 of euros So it's from one side, it's definitely a pity. On the other side, we say, show how strong is the recovery in term of efficiency in our refinery plan, our refinery system that, as I said, reached breakeven below $4 per barrel. That is including the negative effect of the as planned stop. So this just to give you the major values. As far as tax rate, yes, definitely, I confirm the 70%.
Why 70% as an average? Because as far as the Italian contribution to EBITDA, that is the that is opposed to the lower tax rate in our portfolio. It reached the maximum in the first quarter and then declined, mainly reference to the Gas and Power business, while the upstream is expected to increase. And you know the tax stream is carrying a very a much higher tax rate. Why 70% versus a tax rate that has been much higher in the past?
Because as we explained and tried to explain even in the past, at this level, 70% is the, I would say, the average of tax rate. It was much higher before because when we are exposed to much lower prices, oil prices, the amount of undeductible cost, I would say, exploration, the structural cost, are so significant that the tax rate resulting from this equation is much higher, in some cases, even more than 100%. But tax rate with $55 would be in the range of 70%. And we said that targeting the 4 year plan, while we expect, I would say, brand price growing up to $70 per barrel, we expect a slight decrease in tax rate in the range of 60%.
But, Maximo, can I just follow-up
on that? Is that I mean, the oil price for 4Q and 1Q was low to mid-50s and the upstream tax rates and not even the corporate tax rate, the upstream tax rate was less than 60% in both those quarters. So why would the upstream move so significantly upwards over the balance of this year?
No, the I would say the I didn't comment on this because I would say it's a minor issue, but I would say the normalized E and P tax rate has been in both quarters in the range of 60%. It's been reported a bit less than 60% because we had some, I would say, unrepeatable income in both quarter that caused this slight decrease below 60%. But we are talking about for a quarter, 3%, 4 point percentage in the tax rate of E and P.
Next question comes from Mr. Michele Della Vigna from Goldman Sachs. Mr. Della Vigna, please.
Marcelo, thank you for taking my questions. 2, if I may. The first one, could you give us a bit more visibility on what drove the operating working capital outflow in the quarter and whether you expect it to fully reverse by the end of the year? And then secondly, given the cost inflation we're seeing broader in the industry, could you tell us which projects you're ready to FID in the next 12 months?
Okay. Michael, I'll give you the answer about the working capital. I'll leave the floor to Roberto to answer your question about the market cost and inflation. So about the working capital. So you have seen that we absorbed, as far as the working capital, cash amounting €900,000,000 So the explanation that talking about the major issue is the following.
So 0.2 is a difference in factoring. So we discounted less receivable than we did in Q4 2016, but I would say is a movement that definitely will be recovered in full year. So we do not expect any difference on this respect. As far as 0.2%, as I mentioned during my speech, we better the refining and marketing business bought some stock of oil in the 1st 3 months to be sold to the Italian organization that take care of the mandatory stock at the system level. And this disposal happened formally at the beginning of April.
So we incurred the cost in the Q1, and we cashed in the disposal, if I remember well, the 5th April. So as far as an additional €200,000,000 is something that's already been recovered. As far as €300,000,000 is just the stock revaluation driven by the scenario that the effect of replacement cost that neutralize the price effect from 2.9 to 2.6 cash flow in the quarter. And as far as 0.2 percent is just a seasonal dynamic of our working capital, mainly related to the Gas and Power business and partially to the Refining and Marketing. So the majority is very specific for this quarter, and we definitely expect that every negative effect accounted in the Q1 will be fully recovered by year end.
So as far as the inflation, I leave the floor to Roberto.
Okay. Thanks, Massimo. Well, as you certainly remember, we had an intense activity of contract renegotiation during the past couple of years. From what we see today, well, for instance, drilling units, we think that they reach levels just sufficient now to cover operating and depreciation costs. So difficult to see further signs of cost deflation.
About equipment on silicon and lined pipe, all these items are mainly driven by raw material cost, which have increased, in particular, the steel. So the decrease compared to the prices we had 3 years ago now has been partially offset. And about installation vessels, EPC contract, well, in this case, the price is mainly driven by the workload of the service companies. There are no much projects around the world. So for a certain period of time, the prices will continue to be low.
And then we will see when the activities will restart. But about FID, we have this year, first of all, the by the end of 2017, the FID of Argo Cassiopeia, which is a gas development offshore Sicily. Then we have a couple of FID in Egypt, in the area of Nidoko and Baltim. I have to mention also that in a couple of weeks, there will be the launching ceremony for Coral South Floating LNG. Next year, we do see Johan Castberg in Norway.
But between 2017 2018, we have also a number of projects under maturation. And I'm referring to Deepwater Nigeria. I'm referring to Indonesia, Merakes, which Tain to Giant Creek, Congo and as already Antonio said, Mexico.
Next question comes from Mr. Massimo Bonizoli from Equita. Mr. Bonizoli, please.
Thank you, and good afternoon, gentlemen. A couple of questions left. One on asset sales again. Earlier you mentioned $3,700,000,000 proceeds from disposal in upstream from up over 2017. Will you have any contribution from the disposal of the retail gas and power in Belgium over this year?
And one question on Valtagari. Could you give us an update on Valtagari? And when do you expect to restart production there? Earlier, you mentioned 90 days off assumption in your guidance, if I go correct.
Okay. So Massimo, the 3.7% include the sorry, sorry, sorry, correct. The $2,700,000,000 I just mentioned does not include the price. We are going to collect any way in 2017 from the disposal of the Retail Belgium business. We didn't disclose because of the agreement with the counterparty, we didn't disclose the number.
So I cannot give you the value. The number that are around is, I would say, very close to the reality, but I can't give you the right number now. And I'll leave the floor to Antonio about Valladagri.
Okay. So in Valladagri, we are currently refurbishing the tank, which has been already completed, and we are currently sandblasting and painting. So the availability for us to start up is between end of May, early June, providing all the necessary authorization by the competent authorities going to come. So the this is the situation as of now.
Next question comes from Mr. Marc Koffler from Jefferies. Mr. Koffler, please.
I just wanted to come back to the capital spending guidance for this year in the context of the run rate in Q1, Massimo. Even if you adjust for asset sales, it still looks a little bit higher versus that annual guidance. Could you talk about how the capital spending trajectory is expected to evolve over the course of 2017? And then secondly, just moving on to Venezuela in the upstream, could you talk about operationally how you're finding the situation there? And then any comments around receiving payments and sort of taking cash out of the country and the measures that you've taken to aid that process?
Sorry, I didn't got clearly your first question. Could you repeat, please?
I was just asking about the run rate on the capital spending,
Q1 versus the full year guidance?
Okay. So as far as the capital spending, as I said, we confirmed the guidance that we saw slightly less than €8,000,000,000 as overall. So again, what we are spending what we spent in the Q1, so the 2.47 €1,000,000,000 adjusted for the quarter will be reimbursed in Zohr mainly in Zohr and in Mozambique, too, as we get the closure of the deal, is something, I would say, higher than the average that is more or less in the range of €2,000,000,000 per quarter. And as far as payment, as I well understood, payment from critical countries around the world, probably Venezuela is in your mind. So situation in Venezuela is the following: we are still definitely producing in normal status from PERLA.
And activity in Ruling 5 are stopped because of two reasons: 1st of all, because the environmental situation in term of prices and second, because of the OPEC cuts. And we intend to resume production only if there will be the there will be the condition to do so. As far as the cash in from the gas sales from Perla, the cash in, I would say, is quite normal. The issue, if I could say, is related to the outstanding that we have in the beginning of this year that you remember is in the range of €300,000,000 So this understanding is growing a little bit but is, I would say, under control, and we are not deeply worried about this. So this is the situation.
Any production from first phase in parallel is going ahead. Any kind of additional investment in Venezuela will be incurred only if there will be all the condition necessary to do so, including the recovery of the existing outstanding. Situation in other countries in Iran, we are going to recover any outstanding that we have, and it will happen in 2017. We don't have outstanding in Iraq at this moment. And this is the situation.
So there are no significant outstanding that are that I'm worried about. Definitely, the level of activity in Egypt is so high that the money that we expect from Egypt is ongoing looking forward is an element of
tension.
The last question comes from Ms. Irene Imona from SG. Ms. Imona, please.
Thank you. Good afternoon. I had three questions, please. Firstly, going back to tax, Massimo, and that is the cash tax rate. In Q1, it was around 10.7%.
Should we expect that to increase over the rest of the year this year, in line, in other words, with the P and L? Secondly, if I can go back to Mexico, you're drilling the second well. You're talking about early production start up. What I mean, can you talk about your current estimate of the resource size that you're looking at? And my third question is just a quick one on DD and A.
It was €1,800,000,000 in Q1, flat year on year. I mean for the full year 'seventeen, Massimo, should we expect a higher level of DD and A versus last year?
Okay. So Irene, as far as the cash tax rate in the full year, we expect something in the range of 25%, 27%. In term of DD and A, yes, DD and A has been a little bit depressed in the Q1 because of the stop of Goliath, and we expect full year DD and A slightly higher than the DD and A we recorded in the Q1. As far as the resources in Mexico, I'll give the floor to Luca.
As you understand, we are drilling. So what I can say is that results for the first well were pretty positive. And also, we had encouraging results from the well we are drilling now. So we foresee an upside to the original reserve estimate. But of course, we are working for a proper assessment.