Good morning. Welcome to our 2016 results presentation, the full-year strategy update. 2016 was a year of records for Eni, in spite of a challenging scenario. We have met all our strategic milestones and delivered outstanding results, meeting our main operating target in production, reserves, and cash neutrality. We did it while enforcing strong cost efficiency, reducing CapEx by 19%, OpEx by 14%, and G&A by 10% versus 2015. In the fourth quarter, we produced a record organic level of 1.86 million barrels per day, notwithstanding the Val d'Agri shutdown, disruption in Nigeria, and initial downtime of Golar, we achieved our average production target for the year of 1.76 million barrels per day. We set another record with the reserves replacement ratio of 193%, our best result ever and the highest in the industry. Over the last three years, our average replacement ratio is an exceptional 115% organically.
In exploration, yet again, we had remarkable results, adding 1.1 billion barrels of resources at the very low cost of EUR 0.60 per barrel. In the midstream, we can report that each business is now free cash positive for a cumulative EUR 2.3 billion. In operating cash flow, we generated EUR 8.3 billion, enabling us to reach a record of CapEx cash neutrality of $46 per barrel. Considering cash from disposals, we fully covered the cash dividend at $50 per barrel. Finally, our pro forma leverage was 24%. We are the only major that reduced its debt since the beginning of the downturn. This is a clear evidence of the effectiveness of the transformation process we carried out in the last three years. Another record we are very proud of is our achievement in HSE, beating our long-term trend of outstanding results.
Talking about safety, in 2016, we reached a total recordable injury rate of 0.035, with a reduction of 21% versus 2015. This has been the third consecutive year that we have improved our results and beaten our targets. Emission intensity in the upstream decreased by 9% versus 2015. This confirms that we are well on track on our long-term target to reach a 43% reduction in 2025 versus 2014. Our focus on CO2 emissions and reduction is mainly on three areas. For methane emission and gas flaring reduction, as you can see on the chart, the trends are very positive. A third area is increasing use of renewable as a substitute for gas consumption in our operations. By the end of the plan, we target a capacity of about 500 megawatts. Now a focus on exploration, which is our center of gravity in terms of organic growth.
Flexibility is in cost and time to market. It is an essential element to reach our profitable level of cash neutrality. Focusing on the last three years, we have found 3.4 billion barrels, of which 25% has already been transformed into proven reserves, and 25% is under disposal, and for the part disposed, has already generated EUR 2.2 billion through our dual exploration model. The quality of our assets and discoveries and the flexibility of our model allow us to promote an exceptional level of proven reserves, reaching an outstanding, as we said, 193% in 2016. It is very important to highlight that 70% of these discoveries are long-life production assets, so they give beyond the plan. Even including the effect of 40% of those disposals, replacement ratio remains at 139%, many times greater than the industry average. This is all sources for us, clearly is all organic.
That confirms the strength of our model and our focus on accelerating and maximizing the value creation. 2016 was an outstanding year in terms of discoveries and replacement ratio. 2017 will be marked by the number of projects that will come on stream. All these projects come from our exploration, which starts from the appropriate exploration asset selection, which is the base of the rapid conversion of resources into production. Exploration is carried out in parallel with a phased development process that fast-tracks our projects, reduces costs and risks, and fine-tunes the plan of development. We changed our strategy on EPC contract. We took the leadership of all the phases, managing all the contract packages from the conceptual phase through the front engineering to commissioning.
This way, we are always in the position to adapt the projects, the development step by step, following the different activities which are carried out in parallel. The four main projects starting up in 2017 are really emblematic of this approach. Angola East Hub has been put in production in around three years, five months ahead of schedules and on budget. It is the second deep offshore development in the Block 15/06, in which we found 3.5 billion barrels of oil equivalent in place in 10 different fields. Block 15/06 is producing above 100,000 barrels per day today. We are ramping up around 140,000 barrels per day during the year. Another two main projects will start up in June, Jangkrik in Indonesia and OCTP in Ghana. OCTP is a giant oil and gas field development. We've identified near field exploration opportunity. That is very important.
It's part of our model. We have already, around our development, prospects identified and tested. The first phase will be oil of this project. Next year, we'll start up the gas phase. We have two projects in one. We give a contribution this year. We give another contribution, just gas, that we already sold next year. Jangkrik in Indonesia will deliver gas to the existing LNG plant of Bontang. We don't have any investment in the midstream. We create a new hub of development for closer discovery, such as Merakes, which will be sanctioned in the plan. That is another example of our model.
Like in OCT, like in Ghana, also in Jangkrik, we have some prospects. We already found and tested with two wells a prospect that will became a project with a very high internal return that we tie in to the Jangkrik main cluster. These three fields will deliver a long-lasting plateau of 135,000 barrels per day net to Eni. The fourth and the most impressive project we will start in 2017, Zohr. It's the largest discovery ever in the Med Sea of 30 Tcf in place, found, discovered in August 2015. After the first well, we moved very fast. We progressed in parallel with exploration and development. That is what we are doing now on all of our big projects. In only three months, we presented the plan of development.
Three months after the first discovery, we presented the plan of development and launched almost all the tenders for the long-lead items. As you see, we did really in parallel. One well, plan of development, and we start with the long-lead items that are the most critical issue. Only six months from the discovery, while testing the second well, we do the FID. Six months. Normally, for a giant field in the industry, we talk about some years. We continued the appraisal activity.
In parallel, we continued the appraisal activity with seven wells drilled, and that allow us to fine-tune the plan of development because we are in charge of the conceptual phase, we are in charge on the front-end engineering, and we are able, with a strong flexibility, to go in parallel and update with the result coming from the field, our project, our field, our conception. That is not all what we have. In parallel, also, we farm out 40%. We made exploration, we made appraisal. Meanwhile, we are making the development, and we add also the farm-outs. We try to take all the advantage in increasing the time to market, and we farm out 40% of this asset to two major companies that you know very well.
That is not just a way to reduce our CapEx, cashing in, but it is also a way to confirm the quality of this project. Because if BP and Rosneft, during this accelerated phase, have a data room due diligence, technical due diligence, and then they buy If they have some doubt or any doubt about the positivity of this discovery, doubt that is finished. Now the next question is, are you able to start production as you said in 2017? The answer is yes. Now I give to Massimo. I give the floor to Massimo, if he's ready, to talk about mid downstream financial result and close the 2016.
Thank you very much, Claudio, and good morning to you. Some words about the midstream and downstream actual result, where we made major progress in each business. In Gas & Power , in line with the expectations, full year EBIT was EUR -390 million, lower than 2015, when we benefited from positive one-off items on long-term gas contracts and from higher LNG margins. In 2016, we reduced these negatives thanks to the renegotiation of some additional gas contracts, savings on logistic cost for around EUR 200 million, as well as the improvement of our trading result in an highly volatile market. These improvements that did not release the full effect in 2016 will structurally halve the Gas & Power recurring losses on a yearly basis.
Together with ongoing negotiation and reduction to logistic cost, will allow Gas & Power to reach the structural breakeven in 2017 and positive results later on. In refining, we already lowered the breakeven margin from 5.2 to $4.2 per barrel in 2016, in advance on our original plan, keeping the breakeven in 2016 tougher environment anyway. In Chemicals, we continue to execute our restructuring that deliver a stable and strong result in a weaker scenario. Moving to cash, we recorded another year of excellent generation as working capital optimization has progressed strongly. In particular, Gas & Power working capital was robust thanks to the optimization of stocks, the reduction of credit positions, as well as further take or pay recovery.
As the optimization is nearly completed, cash flow from working capital is expected to decrease during the plan, while the profit and loss cash generation will grow as a result of the turnaround. In 2016, each business was free cash flow positive. In 2016, our cost optimization program underpinned all our business decisions, contributing to an overall reduction of EUR 3 billion. On CapEx, we reach a reduction 19% or 24% considering pro forma the effect of Zohr disposal. This result has been obtained mainly through portfolio flexibility boosted by our recent major discoveries, engineering optimization through phase development, modularization, and standardization, synergies from existing structure thanks to near field exploration successes and consequent development, and finally, a revision of a supply chain through procurement. Since 2013, we have lowered CapEx by 35%.
OpEx has been reduced by 14% versus 2015, and 23% versus 2013, keeping us at the best-in-class level of $6.20 per barrel. Overall, procurement delivered this year saving of EUR 570 million on CapEx and OpEx. Finally, we reduced G&A by EUR 0.8 billion versus 2014 baseline, setting a structural saving of 38%. In conclusion, it's worth saying that this result, bolstered by our superior portfolio flexibility together with the benefit of our recent reorganization, have been achieved without jeopardizing our organic production growth by 2020 and beyond. Now, before Claudio's final remarks on our actual results, a few comments about debt and leverage. Despite the worsened scenario in 2016 with the minimum oil price, you remember, of $27 per barrel first quarter 2016, and the average European gas prices lower than in 2015, we continue to keep a very strong balance sheet.
At year-end, the net debt amounted to EUR 13 billion considering on a pro forma basis the Zohr 40% dilution, corresponding to a leverage of 0.24. Since 2013, while our peers have increased their leverage by more than 20%, we succeeded in reduce it. Now, with a leverage of 24%, we are at the lower level among our competitors, and we are ready to capture all potential upside from the expected recovery of oil and gas markets. Now, Claudio, I give you the floor for your final remarks about the actual results.
Thank you, Massimo. I would like to end 2016 result presentation stressing the importance of the result we obtained in the area of cash neutrality. In one of the most difficult years in many decades, we were able to reduce our CapEx cash neutrality to $46 per barrel, beating our original target of 50. We covered 95% of our CapEx with EUR 8.3 billion of organic cash flow, an outstanding result that put Eni at the top of our industry in term of cash resilience. Including cash from disposal, we fully cover the dividend at a price of $50 per barrel. This result is just the last step of journey we started three years ago, allowing us to rapidly reduce CapEx breakeven from $127 per barrel in 2013, to $46 per barrel today. This is the foundation for our future growth.
Now we are going to see a very short video summarizing all the milestones in the transformation path over the last three years. Now after the video, we talk about our strategy, that is an update on our strategy. We start reiterating our main point, that is to streamline our company to be leaner, more reactive, to face market dynamics. We continue to minimize risks and optimize costs. We aim for long-term, high-margin growth based on exploration. We will continue to explore material and conventional prospects. In near-field play, in synergy with existing facilities, that has been one of the main theme of these last two years, that allowed us to be so good in reducing cost and increasing 15% our production, also in frontier plays. In this case, frontier plays that are not close to our facilities but are close to the final market.
That is another form of synergy. We will capture the full value of our gas resources, leveraging the integration all along the gas chain. That is a new message in the update of our strategy. We really try to link our strong gas discovery in the upstream with the Gas & Power . From being a leading European operator integrated with retail, Gas & Power will become a global gas and LNG player integrated with upstream. Moreover, we will further enhance the downstream, completing the restructuring. We are going to continue to finalize, and we will talk later about that, the downstream restructuring. Another point, active portfolio management will fast-track value generation of our discoveries with our unique dual exploration model. That remain a characteristic of our strategy looking forward. Finally, we complete our transformation process to an integrated oil and gas, unlocking additional value.
That are the main points, conceptual points, of our strategy looking forward. Now a look at our four-year plan targets. The final goal of our action plan is to keep CapEx cash neutrality below $45 per barrel on average in the period. That is the new target for the next four years. We want to improve, we want to do better. This will be the basis to capture all the possible future upside and increase free cash flow generation. Clearly, we talk about upside in price, keeping the line steady. To ensure this, in upstream, thanks to our discoveries and FID, we confirm a growth rate of 3% per year despite the disposal of Zohr. New startups and production optimization will deliver an overall contribution of about 850,000 barrel per day by the end of the period. What happened in this target?
Last year we said we want to grow 3%, remember? That was before our disposal. Now we dispose 40% of Zohr. That was a big contributor. We fill the gap of Zohr, and we confirm our growth rate of 3%. That for the four-year plan. In the long term, 2025, we plan to have the same growth rate of 3%. We're going to take a strong commitment after 2020. We read up to 2025, but we are talking about projects that are very long term. This growth after the plan is founded on a diversified material set of projects in Libya, Kazakhstan, Mozambique, and West Africa, where we have different countries with projects that are going on stream on FID. Exploration, that is a new target. Exploration will continue to be the source of our future production.
We said in the last page that we wanted to continue to grow organically using our exploration. The target in exploration is in the range of 2 to 3 billion barrels in the period. We set a target a little bit more aggressive than we set normally there for our plan, that is less than 2 billion. In mid downstream, we complete the turnaround we launched 3 years ago. We confirm the breakeven of Gas & Power , that is another very important point, in 2017, and EBIT growing for Gas & Power to more than EUR 600 million in the last two years of the plan. In refining, our main target is to lower the breakeven to $3 per barrel in 2018. We are not far from that, and that is the main target.
In efficiency, cost discipline and operating efficiency are still our main objectives, as Massimo said. We have demonstrated that we can deliver growth even by reducing CapEx and controlling project breakeven. That has been the leitmotif and the main result of the last 3 years. -35% our CapEx and growth of 15%. We want to continue. In this case, we want to improve our CapEx guidance reduction target to reducing our target of our CapEx of 8% versus the previous plan. We will keep our project breakeven at around $30 per barrel. Finally, we will continue our strong financial performance growing forward. Disposal will generate around 5 to EUR 7 billion, and the operating activity will deliver a cumulative cash flow of EUR 47 billion in the period. Now a focus on exploration, our engine room.
Our value creation starts, as we said, from exploration because it ensures organic growth, low cost, flexibilities, and early monetization of our discoveries. On the map, you can see our drilling plan in the period. Our target, as I said, is to discover 2 to 3 billion barrels during this period, and drilling around 120 wells in more than 20 countries. As we said, our main objective in selecting our prospect is to find assets that allow us to have a short time to market, low development operating cost, and a fit with the final market. That are the main objectives when we select our exploration asset. Our cost saving or our capability to reduce CapEx and increase production is coming from the exploration selection because we are growing organically, starting from our exploration.
That is something that our exploration have clear in mind when they select all the different prospects coming from the different subsidiaries. All these basins we are going to explore are well known, and that is another important fact in terms of geology, contractual structure, operations, and fiscal terms. We're not working in a green field, and that is another big upside when you want to be fast in your time to market. Because you can run fast like the Egypt case or Angola or Congo or Ghana, when you know exactly your legal frame, your commercial frame, your economics and calculation in a very strong way, a robust way. That is a very important point. All these areas are areas where we have a good understanding of all the different parameters.
Our main attributes will be conventional and mainly concentrated in the East Med, West and East Africa, the Barents Sea, and the Far East. All wells. That is another critical point. All wells will be low cost and low risk. We are talking about conventional assets. We are not talking about challenging wells. The wells are short in timing, very low risks, and so very low costs. We maintain what we did in the last two years. Finally, our exploration expenditure will be in line with the previous plan. We are not increasing our exploration expenditure. Now we talk about our FIDs, that is our present and mid- and long-term future. As a result of our exploration, we have a huge amount of opportunities in the four-year plan and beyond.
Overall, these FIDs represented in the map account for more than 8 billion barrel of 2P equity reserves, so our equity. They are mostly giant fields, which underpin long-term growth of around 3% per year. That are the main pillars of our long-term growth. 14% of them are close to the F-- with the biggest in West and East Africa, they are the yellow one, Indonesia, Kazakhstan, and Norway. All these projects have an intrinsic maturity, both from a technical and operating point of view, and are in areas where we have a major engineering and long contractual market experience. That is again, another important aspect that sometimes we don't highlight enough. First of all, the maturity.
All these projects are mature from an engineering point of view, but also are mature because as for the exploration, they are in area where we don't have to invent anything new. The only project in the only country where we had to work in the last couple of three years, four years, was Mozambique, was a greenfield. A green project, greenfield. The other, these FID, are coming from countries that we know very well, and they are from a process, engineering process, very mature one. They are close to take the sanction. Now production growth. New project startups and ramp-ups will account for around 650,000 barrel per day by 2020. If we include 200,000 barrel optimization, we will ensure a production growth rate of about 3% per year. That is the composition, the breakdown of the production growth of the 3%.
On Kashagan, we are progressing well. On Kashagan, we are progressing well, and production is today 242,000 barrels per day, oil equivalent. Of which 180,000 barrels per day are liquids. Within the second quarter, the plant will be fully including the third oil train and the second raw gas injection compressor. During 2017, our budget is to have an average equity production of 49,000 barrels of oil equivalent per day. That is our budget for Kashagan. On Goliat, we have stabilized production between 90,000 and 100,000 barrels per day. In 2017, we expect an average equity production of 59,000 barrels per day. We will operate more than 80% of our production. As a result of our model, new projects coming on stream during the plan will increase the value of our production.
Over the four-year plan, startups and ramp-ups will contribute significantly with very high cash flow per barrel, reaching $29 per barrel in the last two years of the plan at an average price of $67 per barrel. That is quite impressive because you see that our legacy projects are at $67, at $60 per barrel cash flow. You see the add value that the new projects are bringing in our basket. Increasing the average and bringing the average at $20 per barrel of cash neutrality at $67. That are very accretive, and they are very accretive because the cost of these projects are low cost, high reserves, high production. The value that are bringing in is quite impressive. Being long-life asset, the positive contribution of the four-year plan startups or the startup we talk, also underpins our long-term growth.
The field that start in the four-year plan, we talk about 22 fields. About 50% of them have a plateau that is continuous well after mid to well after 2025. It's really something that is going to give a long-term production stability. A base load that is going to remain. Now gas. Now a focus on the gas business. Our view on gas is positive. It is the fastest-growing energy source among fossil fuels. For the future, we assume a demand growth driven by power generation, and particularly strong in developing countries. Today, in LNG market, we have a situation of oversupply, as you can see. We expect a rebalance early next decade when demand catches up. There will be a need of new LNG projects, opening huge opportunities for our gas asset coming upstream.
Our Gas & Power business will grow. Our plan is built on the following actions. The first action is the full realignment of gas supply contract to the market. That is the short term. In 2017, some 90% of our long-term supply contract are hub related already, thanks to the recent negotiation that we concluded November and December. This will have a positive impact from this year. The second is reducing logistics cost to align them to the current volume. In 2016, we cut EUR 200 million versus 2014, and we confirm a further reduction in the range of EUR 200 million by 2019. That is raising our previous target. The third, we have the short term that is made up on the restructuring. On the long-term contract, we are very close, and the logistic, we still have something to do.
The third point is really the future. The third point is improving our business model with a further focus on equity gas and LNG monetization. Leveraging integration with upstream is the new model. This action will allow us to reach breakeven, as we said, in 2017. It will continue growing in the medium long term, reaching an EBIT of more than €600 million per year in the last two year of the periods, as we said in our target. We expect to grow further in the longer term, mainly through the expansion of our LNG business. The accumulated cash flow from operation in the period will be €2.6 billion. Our new Gas & Power model aims to better integrate the gas marketing with upstream to maximize the value of our equity gas, that now is huge, with a worldwide marketing capability.
This will be based on two pillars. The first one is the domestic markets, where we traditionally have an important role in the energy development of the host countries. That is something that we already tested, was very positive. We can expand, and with the competencies of our Gas & Power units, I'm sure that we'll succeed. The second point is LNG, where we built on our own competitive and sizable portfolio. We can create a strong portfolio. You see that we pass from today 3.5 million ton per year with all the gas we found recently, and discovering from Indonesia, Mozambique, we talk about Egypt, we talk also about Ghana, we talk about Gabon, Congo, Angola. Really, we can give value to these gas discovery.
Our target is to expand our portfolio and reach, using our equity gas, 10 million ton per year by 2025. Filling the gap of the period in which we are going to have strong need of energy. Now a look to our Downstream, so R&M and Chemicals. In R&M, we reduced our breakeven margin from $7.50 per barrel in 2013 to $4.2 in 2016, reshaping our downstream oil business. Our main target, as said before, is now to structurally lower the breakeven to $3 per barrel by 2018. That will be achieved by leveraging mainly optimization of the existing plants.
Then the second phase of Venice Green Refinery and start up of Gela, where we target overall 1 million ton of production. We are working a lot on the logistics in terms of pipes, in terms of tanks, rationalization. That is going to cut drastically, again, our cost. Then a growth in the market result. Through our action, we double EBIT, and if we include our scenario assumptions, EBIT will triple to EUR 900 million by the end of the period. Considering these are the same condition, we're going to double, but if you put our scenario, we triple. The cumulative operating cash flow will contribute EUR 3.3 billion in the planned period. It's going to be a very strong contributor. In Chemicals, we target an EBIT of around EUR 300 million per year. It's steady, very high, very good, very positive.
The cumulative operating cash flow of EUR 1.2 billion in the period, then it will be free cash positive. That, despite a deteriorating scenario that we assume for our Chemicals business. We're going to reach these targets through a greater integration, optimization, and flexibility. That means putting together all our product and our plant to increase the synergy and the flexibility in term of product with among them. Refocusing the portfolio on high margins specialties, which we are covering already 40% of our product. That means that we are going far from the effect of the change in price of the feedstock. It's a protection. We are on the value chain. We have the green Chemicals and the international expansion. We are working, we are expanding our international business. Now Massimo, again, to talk about some remarks on financials.
Thank you, Claudio. First of all, maybe some words about the overall CapEx maneuver. The four-year CapEx program shows a reduction, as has been anticipated by Claudio, versus previous plan by 8% or EUR 2.8 billion, details as follows. As far as EUR 1 billion relates to portfolio, mainly Zohr, as the disposal will discharge more CapEx than expected. As far as EUR 2.3 billion relates to rescheduling upstream project and procurement. This reduction has been partially offset by the increased effort of around EUR 0.5 billion in other businesses, mainly renewables. Upstream spending remains by far the cornerstone of our investment strategy, covering 86% of the total effort and assuring a really competitive return. We will operate 84% of the total development CapEx in upstream. In 2017, we expect overall CapEx in the range of EUR 8 billion, down by 18% versus 2016 at the constant exchange rate.
In 2019-2020, if required by negative scenario evolution, the uncommitted CapEx of around 55% will give us the flexibility to adjust the overall maneuver. Now let me talk about our enhanced disposal program. First of all, a quick review of what has been already done, mainly to streamline the group structure as went the dual exploration model. In the last four years, we cashed in EUR 18 billion, plus EUR 2 billion signed last December to dilute our share in Zohr. This EUR 20 billion is mainly composed by EUR 10 billion from equity disposals, Saipem, Snam, Galp, and more than EUR 5 billion from dilutions in exploration assets. In 2016, we disposed off asset for a total amount of EUR 2.6 billion. That means we already got 40% of the original EUR 7 billion, 2016-2019 targeted. Now the future.
We will continue to streamline our portfolio to focus Eni around the core oil and gas activities and to fast-track resource monetization. With these targets, in the period 2017-2020, we are projecting additional sales in the range of EUR 5 billion-EUR 7 billion, of which around 60% in 2017-2018, with a transaction now mature expected weeks to come. In detail, EUR 3 billion-EUR 4 billion are expected from additional dilution in exploration assets, EUR 1.5 to billion from E&P marginal asset rationalization, and finally, EUR 0.5 billion-EUR 1 billion from mid downstream. For the sake of clarity, disposal of our remaining share in Saipem, Retail Gas & Power , and Chemicals are not included in this amount yet. Now let me summarize the effect of what we described on our cash flow.
Our cash generation is growing in the four-year plan, even in a stable scenario, and will be further amplified by the recovery in the oil price. In 2017-'18, at the average $57 per barrel Brent, we expect a cash flow from operation of EUR 10.5 billion, 25% higher than in 2016. EUR 9.5 billion will come from upstream, boosting their contribution by more than 50% versus 2016, thanks to the strong pipeline of our accretive ramp-up start-up, already described by Claudio. The resilient contribution of our legacy long plateau asset will complement the growth. It means that we expect to cover organically our current cash dividend of EUR 2.9 billion at around $60 per barrel. In 2017-'18, we expect disposals in the range of EUR 3 billion-EUR 4 billion. In addition, we will cash in around EUR 2 billion from Zohr, already signed, together will provide additional resources for our cash allocation policy.
In 2019-'20, at the constant $57 per barrel scenario, cash flow is expected to increase by EUR 1.3 billion to a total average of EUR 12 billion. This will be the result of the additional production increase that will raise the upstream cash generation up to EUR 10.5 billion. In this level, we maintain longer, supported by the significant contribution from long-lasting plateau projects. Other businesses will contribute as well to cash flow growth as a result of turnaround activity, then fully in place. The overall cash improvement will reduce our organic cash neutrality well below $60 per barrel in '19-'20. On top of this, three further upsides: scenario, portfolio, and CapEx flexibility. First, scenario. As an example, should the oil price be $10 higher, we would improve average annual cash flow by an estimated two. Second, portfolio.
We expect contribution of at least EUR 1 billion per year in '19-'20, without any contribution from Saipem, retail Gas & Power , and Chemicals. Third, CapEx flexibility, leveraging on a 55% uncommitted CapEx in '19-'20. Finally, our shareholder remuneration policy remains unchanged, even more substantiated by the actual result and updated targets. In 2016, we reached the coverage of dividend of around $50 per barrel, assuming the effect of a 40% sale of Zohr. In 2017, we confirm we will fully cover organically our dividend at $60 per barrel as the growing cash generation from upstream and CapEx optimization will balance lower working capital contribution from midstream. In 2018, we confirm our cash neutrality well below $60 per barrel, leveraging on our increasing performance as well as our approved CapEx flexibility.
On this basis, we confirm our commitment to pay a 2017 full cash dividend of EUR 0.8 per share, later on, to progressive distribution policy in line with our underlying earnings, cash growth, and scenario evolution. What we have shown in the previous cash flow chart gives you the order of magnitude of extra cash we expect from organic portfolio flexibility and additional upside, which will be available to progress our distribution as well as to expand our core business through new accretive initiatives, maintaining a strong balance sheet with a leverage target in the lower 0.2. Now, back to Claudio for final conclusion.
Thank you, Massimo. Just few words to conclude. Over the past two years, we have transformed Eni into a leaner and stronger company focused on E&P business. We reach structural low cash neutrality, which position us to capture any positive upside. We have built high-margin portfolio made of a large number of mature projects coming on stream, which will ensure our production growth in the medium and long term, and a huge amount of reserves still to be converted into project, which will give us flexibility and value. Exploration will continue to be the basis of our long-term organic growth. We will keep concentrating our effort on development projects to fast-track production and maximize cost efficiency. Thanks to our upstream position, we will become a global integrated gas and energy players.
The transformation process is still in progress, and there is much additional value to unlock. I thank you for your attention. Before going to the Q&A section, we have a very fast video to summarize the main step of our strategy. Thank you. Okay. Thank you. Thank you very much. We are now ready to start with the Q&A. It will take 40-45 minutes. Claudio, please. Yes, Michele.
Thank you. Two questions, if I may. The first one is, you've done more than any other company in rebuilding your pipeline of future projects. Could you discuss the profitability of this project at different oil price assumptions for the future? Secondly, clarification on your targets for production and for CapEx. Do you include a farm out of Mozambique?
Okay. I'll talk about the projects. I ask Massimo to talk about the rest. You saw that our cash flow per barrel is accretive. We are really, with this set of projects, we are increasing our value and also increasing the value of our basket. The generator return is good also at the present level. We talk about double digit and really above our hurdle rate for each country. What we can say that with this kind of a cost, when you talk about exploration cost last year was $0.60 per barrel. Now we have $60.20 operating cost on average, and that would be also for the future project on average, clearly. We have a development cost that were 11, that are lower than 11, despite the new big giant.
That means that we have a giant in our end that have a cost of a small project, onshore project. That is a big step to be resilient. It's clearly that a cash flow per barrel of EUR 29, EUR 67 per barrel of oil is really a good one. They are very resilient. We run different kind of tests and a stress test on the package. I think we never had a so strong a set of projects in our history, not in the recent, but in our history. As a number of projects, 22 projects that are going in production, but all the other projects ready to be FID.
Really from a reserves project FID point of view, we never had a so strong, from economic and from an operational point of view, set of projects that is covering not for four, not for eight, but really for the long run. We are talking to about 25, but we have projects because we are inside, we have all the big projects you saw that are going with a steady plateau. That has a demonstration because Eni is one of the few companies that own assets, not in the Gulf, that are really long-term, outside the Gulf, Africa, that have a plateau that is lasting for the last 30 years at the same level. We talk about North Africa, we talk about also West Africa.
Now we are again in this new positive way, and we have rebuilt something that is going to last for the next 30 years. Now, if you can answer about CapEx.
It already includes the disposal program, net of disposal program.
Very fast answer.
Hi, Thomas Adolff from Credit Suisse. Also two questions. The first question, I wanted to go to disposals, and I wondered whether you can say something about your disposal program in Mozambique. We have to be very patient.
I am or you are?
Linked to disposal, you've just mentioned as part of your new plan that gas retail, Versalis, and Saipem is not included, and these are assets in your own definition. Let's say you are confirmed for the second term. Could we see an acceleration of the disposal of maybe gas retail at least? The second question I have is on Karachaganak. I wondered whether you can give an update on where things are, how things are performing, how wells are doing. The project has cost a lot of money. I think in total, EUR 60 billion. Your share may be around EUR 10 billion. The government isn't going to see much money. I wondered whether there's a risk of certain changes to the structure of the contract.
Okay.
Thank you.
Thank you. I'm going to talk about Mozambique. I'm going to talk about what is not in our M&As or Chemicals, Gas & Power. Just a few comments on what you said at the end, then Kashagan would be passed to Antonio Vella. Irene herself is there, you have to talk about Kashagan. First of all, Mozambique. I'm serious. Don't laugh. Mozambique, everybody must be very patient. I think that recently we made very good progress. I think Massimo said in the coming weeks, Massimo, the CFO, he say coming weeks are coming weeks. I think that we're being patient. I think it's a big project, it's a big deal, it's a big choice. We cannot disclose yet, will be with us. Don't answer because I cannot answer. I think that we are not far.
Unfortunately, we are not able to do the big show today. That was wonderful, the results are so good that we can also live without for the moment. Gas & P ower, chemical. Well, we didn't put it because we are working on it, the Chemicals is doing very well. Chemical is getting value, really getting value, free cash flow, from an industrial point of view, very robust. I think that the CEO, Daniele Ferrari, is here, maybe later can give you some disclose about this. I'm really satisfied about what they are doing. It's there. We'll see. We have a big option. We confirm the strategy. We confirm the fact that we are one, oil and gas integrated. We'll see the development. It is not there because we are still thinking of. Retail gas, we are creating a subsidiary, a company.
Here, there is the CEO, Massimo Mondazzi. It's going toward this way, we'll see in the next month. I think in the next month, the next disclose, it's clear that is an additional value. For Kashagan, what you said last, say, we have any risk. I don't think that we are risk. They are with us. KMG is inside. We have very good relationship. The government of Kazakhstan has been very supportive in the last couple of years when we had to recover this, they have been supportive, present, and help us. Now that we are in production, what they ask is really to complete the first production, go to 370, then go fast to the CC01 to get additional 100,000 barrel per day, go fast to the second phase. That's what they want. That's what we want.
I think that it has been a project, very important. We have 30 billion of oil reserves, P1 there. It's really a huge discovery. I think that the future is going to compensate us for the past. Now, if you want to give some update on Karachaganak. Thank you.
Thank you. The commissioning phase has been well completed. As you know, we have already stabilized 180,000 barrel oil. Next step, as Claudio mentioned, that is the gas injection, is going to be done in June, July without shutdown. We have done all the network in place, and NCOC have completed all the job. The system of the gas injection is under commissioning at the moment. The cleanup of the island A and E has been completed. D is cleanup, and very soon after that, we start to APC3. The plant is working very well, and the engineering has been well-performed through the commissioning. Thank you.
Thank you, Antonio. Irene?
Thank you. Irene Himona at Societe Generale. I had two questions, please. Firstly, back to the 3% production growth target. I think you mentioned, Claudio, you need 650,000 of startups and 200,000 production optimization. I wonder if you can elaborate on what production optimization actually means, and if there are any contingencies factored into that target. The second question, you guide to gas breakeven in 2017. What, if any, specific contract renegotiations do you need to conclude this year to reach that level? Thank you.
The gas optimization that has been also our accelerator, or we accelerate with oil now. That is really peculiar to our company, because when we look at the long life of our projects, all projects start in the 1960s or in the 1970s. They are still there producing some 100,000 barrels per day, because we do what we call, that is really Eni terms, a production optimization, because it is a set of work that is mainly workover sidetrack, small development inside the contractual area. Some application of new technologies in terms of smart completion or multiple completion. We go back, and we reopen. Sometimes in the past, we had wells with different layers. Because of technology, we are going to complete or commingle, so putting together all the layers.
That is the worst thing to do because they have different pressure. You can produce only the higher pressure, the lower pressure, but they have oil. Now we go back, and we use smart, I am giving you example, smart completion. You can complete, you have 5 layers, you complete 5 separately, and you can give to each one the opportunity to talk because they have different voice, different pressure, and they can give contribution. Layer that has been silent for 20 years. That is very important because not only we are going to increase production, but we are going also to add reserves. When you see that we are going to increase our replacement ratios because of exploration, because of FID, but also because there is a detailed work from the reservoir and petroleum engineer point to go and revisit all these wells.
Completion is very important things. Then we have sidetrack because we reprocess through the 4D seismic. There is the 2D, the 3D, the 4D, maybe you heard about the 4Ds. That is the seismic that we do, and we compare during the production life of the field that give the advancement or the progression of your production, how your layers are. On this basis, we are going to catch with a standard reach or a horizontal well, all the different depths or the different reservoir that we left behind, and we can see through this 4D seismic. There is a huge amount of work, a very high internal rate of return because we have everything, we have the plant, we have everything is there. You drill it differently. That is very helpful in the future to increase our average internal return.
We are talking about 200,000 barrels. We talk about internal rate of return at this price of today that are bigger than 20%. It is good also for the first party. Why? Because the costs are low. There is a big profit. It is based on technology, competencies. Keep the same people constantly on the same reservoir, know everything, because the reservoir is a human being. If you have your doctor, it is much better because knows everything about you. The reservoir is a human being. Maybe sometimes it die before, sometimes it is much longer. In any case, we need a good doctor. That is the production optimization. Second, the gas breakeven. For the gas breakeven, we have the new COO, an expert on gas, present, Massimo Mantovani, that will be happy to answer to your question.
Good morning to everybody. I'm the new one.
No, introduce your brother.
No, it's okay. I just have 23 years of Eni, of course, with Claudio, even more actually. That was one of the focus in respect of Gas & Power business. I have to say that in the last months, we were really busy on gas negotiation. Claudio mentioned that we closed four of them, and more importantly, we close some track for 2017. We do have the breakeven. I think that now we are working for a positive result. This is a clear positive message. We will continue negotiating, but we have a good negotiating tables with also other suppliers. It's going well.
Theepan?
Thank you. It's Theepan from Exane BNP. Could we have a deep dive on Zohr, please? Sorry.
I can introduce you as well.
That's all right. A deep dive on Zohr please. Could you just give us an update in terms of what you assume for capital spend in current program, then the process in terms of the startup, and how we think about the ramp up to plateau on Zohr, please. My second question comes back to capital allocation and capital return back to shareholders. Could you talk about the scenario in terms of when you would think about an increase in cash return to shareholders? The tension between what is undoubtedly a sort of impeccable balance sheet compared to your peers, and your break-even.
I try to.
I was wondering, when do we think about an increase in cash return? If, for example, you sold assets above your disposal target, do you think of special dividends, buybacks? That framework would be very helpful. Thank you.
That's very clear. Zohr, as I said, we are absolutely convinced and determined to have Zohr in production this year. Zohr, after the disposal, is going to give us, for the first part, for the first phase, for us, in term of equity, 75,000 barrel per day oil equivalent. Then when we go after 2019, we pass about 175, and then after 2020, between 240,000-250,000 barrel per day. That is the production growth of Zohr today. We have an overall expenditure that will go after the plan that, as you know, is more or less EUR 12 billion. Is going to be maybe a little bit less, I hope, because there are good performance from the contractors, and they are moving very fast, and the market's very good in term of long lead items. We think that we are going to be able to reduce.
Our exposure is less because now it's been reduced by the 40%. I think that in the plan is something about.
It's EUR 5.5 billion.
100%.
60%.
60%, sorry. The 60% without the 40%. In terms of returns, you ask also about the return of Zohr as acceptable, double digit, much above our hurdle rate for the country. We negotiate all the country before starting. Help us also to recover our working capital. I think that in this very critical year, Egypt has been the first year for what I remember that we closed 2016 without outstanding. Egypt is participating in terms of Egyptian pound, 25% in the investment. Normally, we put all up front and then we recover, so they are participating. It's really strong and well-protected because it's a priority, the main project for Egypt. Normally I have to give the floor to Massimo to answer to your question. Your question, and starting point is very reasonable, what you said.
It's clear if you are adding value because, clearly the dividend is our priority at the same level of the development, because we have to fill this dividend. It's something that we're going maybe to discuss, in our board. It's not something that I can disclose now, but it's something that we are going to see. At the moment, our policy says that we are going to increase our dividend considering the earning growth and the consistency scenario. Why we talk about earning and scenario, because it's clear that we don't want to peak and then go down. We need some stability, but especially the stability now is linked also to the capability with what we said, we have a very low break-even. That is very helpful.
For sure it's going to give good and positive result, not just from operating point of view, but I think, I'm sure also for our shareholders. It's immature, but your point is very clear, and I don't think that not reasonable. Jon and then Hamish.
Thank you. It's Jon Rigby from UBS. Two questions. First is on going back to Kazakhstan. I notice you've got two Kashagan projects going into FID, CC01 and then phase two. I just wonder whether you could just talk me through some of the details around that. Also, I noticed that the expansion project at Karachaganak is also in the FID list, and I was just wondering whether there's the capacity within country to be doing Kashagan, Karachaganak E&P, and also the Tengiz expansion, which is ongoing as well, and whether there's some tension between all those projects, and whether you can discuss that.
I guess given the developments over the last few months, I just also wonder whether you could give an update on your position in Libya, what you're seeing there, and then maybe some sort of risked view of what you could be doing depending upon how the country develops over the next few years, if that's possible. Thanks.
Okay. On Kashagan, Antonio is going to explain where we are. When we talk about these projects, the CC01, the phase 2, and the Karachaganak, it's clearly a strong will from the government to increase production, and especially now that we are in a positive trend, and still we are in a positive supply chain situation. Now is a very good moment because you see in perspective your oil debt is going up, the market is still in a waiting moment. They are waiting. There are not a lot of projects because it's not easy to start a project. We have a wonderful opportunity. We can bet on a growing price, and we have market that if you are able to close your contract now, you have a very good discount, and that is going to impact on cost and recoverability. It's good for Kazakhstan.
I'm not saying it's also what they think. It's good for Kazakhstan to be able to have contracts signed in this year when we are still a very good market condition. They wait when the price will be very high and means that we are going to increase cost for the same amount of production. It's true that we have a higher price, but all these costs are going to saturate the cost oil and reduce the profit for them. I think that we have to consider this balance, when you consider this balance, you see that it's very positive, now we have a strong opportunity. Antonio, if you want to talk about these projects.
Let's talk about Karachaganak expansion. As you know, Karachaganak is a steady plateau over 260,000 barrels since five years, the objective is to extend it longer. The main expansion is compression of the gas. Stage 1 is going to be in FID soon this year, then subsequently, we will go for the other expansion to keep always the plateau at the same time. At the moment, the relationship with the authority and the intention to proceed with all the project are very nice. Concerning Kashagan, the next FID of Kashagan, as Claudio mentioned, is the CC01, which will allow us to increase the injection of the gas and jumping up from 370 - 450, which is the end of the experimental project of Kashagan.
Definitely ending this project, we have to start additional phases because the oil in place of Kashagan is huge, and we have to ramp up the plateau above 450. This has been a wide remark on project within the four-year plan and after. Thank you.
On Libya. Libya's situation from our operations point of view is quite steady. We are in developing. We are developing offshore. We are also developing onshore in Wafa, we are also exploring. We are quite active in this period. It's clear that from a political point of view, there is some instability, we are falling. Our first priority in this situation is clearly the security of our people. Our people is not just Italy, our people in general, our local people, everybody. That is a big question, big attention, and that is our priority. The gas demand is increasing, as I said several times, when in a country that has some issues, big issues, gas demand, domestic gas demand, there is no industry. Domestic gas demand is increasing is, I think, a positive signal.
Means that there are people that are cooking, they are eating. There are some dynamics because we are delivering a lot of gas, we are reducing also our export to able to help Libya in term of gas demand. But we are following. It's clear that Libya is a huge potential for us because what we have found, without considering the last discovery, what we have found, we are in the position in Libya to double our gas production and condensate production without considering El Feel or Wafa. We leave that, but we can double. That means that is another important element that we can add to the East Hub, because that is really in this area, you consider Cyprus where we are going to be very active in exploration. In Egypt, we are working to put in production Zohr and to explore additional reserve.
Libya and the Levantine Basin is really a huge amount of gas that can really help Europe for diversification. Very low cost. Libya is another A case that we love because it really is our model. We have everything. We have just the drill wells, we have platform, network, pipes, we have everything. That is going to be a very interesting and positive opportunity for Libya and for Europe. We hope that everything is going in the right direction.
Hamish?
Thank you very much. It's Hamish Clegg from Bank of America Merrill Lynch. I've sort of got a question for you, Claudio, one for Massimo, and one for Luca. Checking he's still listening. First of all, just on the breakeven. You've talked about a breakeven cash flow, kind of pre-dividend, and you've given us some good sensitivities in the back of the slideshow. Doing a sort of initial quick calculation, on my numbers, it looks like you'll be able to cover your CapEx and your dividend over the four-year plan at $53. Does that number resonate with you sound right? Is there a risk to the downside of that number, i.e. a lower breakeven? My second question is, you've got a fairly bullish longer-term outlook in oil prices. You're in countries that are OPEC, part of OPEC, I should say.
Could you tell us what you're seeing in some of the early volume moves across the world, and what gives you conviction in a rebalancing of world oil markets? That's really one for you, Claudio. Finally, for Luca, just what's the most exciting things in your exploration pipeline, please?
You're not going to say a lot about that. Massimo, want to answer to the first one? I answer about OpEx sensitivity, Luca about nothing, because I'm not going to say.
The question about the cash neutrality. Yes, cash neutrality is expected to decrease all along the four-year plan. Just to recall, the cash neutrality calculated including, I would say, Zohr and Nooros, the takeout of the 40% CapEx already incurred in 2016, is in the range of $61 per barrel. We are starting from $61 in 2016. This cash neutrality is going to decline all along the plan while we complete the turnaround in the business other than E&P, and the grow-up in production take place, as has been described by Claudio. In average, the number would be probably a bit higher than the one you mentioned, would be in the range of 55, 56, something like this, but with this sense. The number is going to decline all along the plan.
It's bad. Luca?
I'll not tell you what's the most exciting but we have good opportunities, you see. We have good opportunities in West Africa. It's mainly targeting oil prospects. We had a continuous reload of our portfolio, also during these troubled years. We have good opportunities coming also in East Africa, and also in Norway in the future. That's what we are going to do. This year will be still a year of finalizing our appraisal campaigns, mainly, and few exploration shot. Next year, we will start with more aggressive exploration campaign on new plays.
Alastair.
Hi, it's Alastair Syme with Citi. Two questions. On your gas plan, you talk about getting to 10 million tons per annum of LNG. Just to clarify, does that come from a willingness to take on equity gas through Mamba, as opposed to what you did in Coral? The second question is, would you hazard a guess on where return on capital or return on equity would get to under the four-year plan? For profitability return.
Talk about LNG or overall?
Overall.
Overall. For LNG, it's not just Mamba or Coral or Zohr. It's really that we find a lot of gas. It's really huge amount. It's not just there because we have gas that we are injecting, that we can increase production a lot in Congo, for example, and we are projects to start. LNG is not in our investment. They're from other company that's selling there. We have a need for gas for Angola LNG, and we have a lot of gas there. That is another huge amount of gas that we can consider stranded now at the moment, and we have to develop for the Angola LNG. It's gas that we have to develop for existing LNG. Surely we have Indonesia. Indonesia, we found gas. Now we have additional discoveries that were priced, and we have new fields.
New fields that are ready to go on stream. We have our equity, and I think that is quite wise to stay along the chain and increase our equity. Instead of buying gas, buying LNG from other producers, I think that our Gas & Power must work with E&P from the very beginning, because the gas, when you open a new gas or you have to market your gas, you have to start at the very beginning. You have to show the solidity of your project. You have to show the solidity of your presence in the country, because the buyer wants a lot of assurance and guarantee about your position. There is another element that is quite important, that we have a strong position in these countries as Eni and a lot of investments.
We have to renegotiate sometimes with the same countries, the gas price. I think that is not wise to keep the two things separated. We have really to go and discuss with the country as a unique company, and that is quite important because Gas and Power has been a European monopoly player, and was a long time ago, but I was always saying a company in a company because they own gas, sell their own gas in Europe, mainly linked to the retail gas. For the Eni culture is a revolutionary, new model that put together the two entities of the upstream, not in the downstream, because we have a lot of gas now. Also before, but now we have a lot of gas.
Gas and Power can be really useful with the competence to work on the contract definition in the country where we deliver gas for the domestic market. We are, I think, the first company in terms of delivering gas for the domestic market, and where is Eni gas. That I think is going to give a tremendous advantage and plus for us. You want to add something, Massimo? Please.
Just to underline something you say, is that one of the key factor for us in the LNG strategy is that we have competitive LNG and geographically diversified. We are not just looking for something like Mamba to deliver all the 10 million tons, of course. Because that has a huge value in terms of actually being able to add, not only valorize the upstream production, take the midstream margin, but also our trading. The diversified product, and as Claudio said, we are from Australia, Indonesia, where we closed this year the first contract. We will start deliveries from Jangkrik in the summer. You go to Mozambique, you go to Angola, Congo, Nigeria, Egypt. That is the value of the strategy, which is going to be at 2025 with 10 million tons at least.
Thank you, Massimo. hmm? Are you talking about ROACE?
Sorry.
Sorry. It is return, yes. Internal return on ROACE, what you want. Massimo, it's for you. If you want, I can answer.
The return, the ROACE, is the starting level, as all followed the industry is quite low in 2016. What we expect is a number growing. We expect to be at 8%-10% in 2019, 2020. It will be the result of all action that has been described so far, including a significant reduction in the so-called work-in-progress capital employed. That at the end of 2019 is. Sorry, at the end of 2016 is 29%, and it will be reduced down to 21%-22% at the end of this plan. Let me make an additional comment on this. Now we characterize ourselves as quite pure upstream. Our capital employed, you're seeing is 85% now invested in upstream.
I don't know really if to measure through a ROACE, the return for quite pure upstream is correct, because we definitely we don't have any kind of advantage from a significant amount of capital investment in downstream or in chemical that may be currently is producing significant return without the need of significant investment. For us, using this kind of metric is, I would say, a little bit different versus the others that usually you compare with us.
Also talking just about the internal rate of return on average on all our packages will be, with this price, higher than 15%, the price of today. That is a good point.
Thank you. Oswald Clint of Bernstein. I wanted to ask about the engineering comments and approach you're taking. Taking control of engineering, being involved in FEED all the way through commissioning. I don't think anyone's asked Roberto a question, so maybe it's for him. Things like East Hub coming in five months ahead of schedule. Are there going to be more examples of that? Or can investors start thinking about your projects on time, ahead of schedule from today onwards? Are the teams mobilized to actually deliver that? Is there any way that you're checking that? Would be my first question. Then secondly-
Kind of related to the gas and LNG as you focus on LNG, in the midstream, we still have 90 billion cubic meters selling in Europe, and a third of it going outside of Italy. Do you really need to have 30 BCM being sold into Austria and Germany and France and all of these countries? Could a big chunk of that go?
Yeah. That Massimo will talk about.
Thank you.
In terms of organization, Roberto is going to explain because we prepared a big slide, that was too long because we did so big work on this in the last four or five years. You ask, do you have other examples? We have other examples. The first example is East Hub, that has been four years, two months out of schedule, and on budget last year. Another example is Nené Marine. From the discovery, 11 months, the production. Now it is 25,000 barrels per day. Another example is Nooros, discovered with Zohr, is producing 170,000 barrels per day. We have West Hub, and now we have Jangkrik and OCTP, and then we have other projects. I think we have at least most of the production, at least 300,000 barrels per day, that now we are sitting on.
Otherwise, the depletion that are coming in the last three years, we can say three years, yes, or two and a half, they are coming from the new model that are not just one example. One, two, three, four, five examples. I think that the future will be like that because we change everything, especially we change this obsession to be absolutely perfect and spend all your money before starting your production because it's nice to spend all your money starting your production. We don't want to do that. We want to phase. Now all our projects are phased, that increase the internal rate of return and cover the CapEx. Just to give you another example. Because that is with the dual exploration model. Zohr and Mozambique will be never, during the execution of the project, in negative free cash flow.
We have two projects that will be free cash flow positive because we cash in before starting production. That, I think, worldwide example of efficiency, where you have two giant projects that are not negative free cash flow. Never. Just a few wells at the very beginning then they start to be in green, positive. I think that are the example. There is a strong commitment put in the last slide that our obsession is really the time to market. We don't want to leave sleeping reserves that we have found that are easy to put in production, and that is an obsession of all our people. Now, Roberto, show your obsession please.
Well, let's simplify and talk about two main phases, design of the development and execution, because clearly the result of it is the impressive schedule achievement you have seen today. In both cases, the key is the setup of an engineering group in-house. We set up a group of around 1,000 people out of the 3,000 people working on all these developments at the headquarter level. They're working fully integrated. That means that we start looking at possible development schemes since the very early stages of exploration and appraisal. We start building a reservoir model since the very early stages in a way that once we have the results coming from explore well, appraise well, and then later on development wells, we are able to immediately fine-tune both the reservoir behavior and the development scheme, and even the facilities design.
This is very important because in the past we were used to iterate possible changes with a third-party engineering company. Now all the activities is done in-house, you can imagine that everything has been completely squeezed. This is a key to achieve early FID. Second phase, execution. We have full control now of all the execution activities, including the not only engineering, but the procurement activities. Zohr is a key example because all the procurement of Zohr has been done by us. We just subcontracted the extraction activities that were not part of our business. The fact that you have your hands on the execution activities minimize also the risk of time slippage, cost increases, et cetera.
The key in this model is firstly, working in a fully integrated manner, not in a back-to-back sequence, but a fully parallel integrated manner, and then by running engineering activities for the facilities by ourselves.
Please, can you answer now?
On gas supplies is correct. Gas & Power is selling nearly 90 billion cubic meters of gas around mostly Europe.
We are on one hand working on the realignment of the supply cost to the market price, on the right sizing of the logistic cost. At the same time, you're also kind of discussing with some of the strategic partners what's the future. In particular, in respect of contracts we may be terminating or contracts which may be evolved. Someone which is not Gas & Power, but one of our partners say, is a modernization of the contracts. This is a discussion which we have to take place, in particular with the key big suppliers. Because the future is really changing as changing is the market. In LNG is changing for the overall structure of the market.
We're going very short term, flexibility, smaller amounts, you need a big portfolio diversified, also on the gas sector is actually changing, we'll have to change also the relationship with the main suppliers.
Just the last question, because we are running out of time, Massimo.
Two, the last two questions. We give one and two. Yes, you can start.
Yes. I'll keep it to one, Claudio. I was going to actually congratulate the Italians on last weekend as well, let's gloss over that. The question really is just on Mamba and Area 4. When we see there's a transaction in the next few weeks, will Eni still be the operator of the block, particularly in the case of Mamba? Because I don't know whether I'm reading this right, but if you look at your FID chart, which doesn't have any dates on it obviously, it looks like Mamba is kind of going slightly towards the back end of the FIDs over the few years now, rather than closer to the front as it was before.
Yeah.
Any comments on that?
I have a comment. It's clearly that we didn't announce the deal yet, I cannot disclose everything. What I can confirm that we remain operator of a part of the project. We remain in charge of part of the project. Cannot say more, part of the project. We are not delaying Mamba. Please, Eni is talking a lot. We're not delaying Mamba because of this transaction. This transaction not delaying at all Coral or Mamba, no. Mamba is really a link to what we said before, the periods of time where we think we are in more need of energy that will start from 2022-23. Mamba is not in this waiting list because of the transaction, of our discussion. We are still working with Anadarko. We finalized the tender processes, in 2016.
They're ready for the two trains for us because as you know, Mamba is developed separately. We develop our train, they develop their train, we have just a common facilities together. I think that the best moment to have an FID would be by the end 2018 or mid-2018 or 2017 because there is no space in the final market. What we are doing, that is Gas & Power that is doing, is working actively in terms of marketing the gas. Our traders are working on that. They are working with our co-ventures. Clearly, it will be easier. Easier why? Because the first breaking ice at the first in a new country, new project, a floating LNG. The first moment was very important to create a market adhesion from a buyer point of view, on the country, on the companies, on the project.
That has been done, it has been certified by one of the most important traders that is BP in terms of LNG. That has been done. It was a very important step. I think that we have a very good railway in front of us, there is no any kind of reason of the market.
Okay.
Last question. Massimo.
Massimo Bonisoli from Equita. Two quick questions. Could you give us an indication of the current average depletion rate for the E&P and the assumption embedded in your guidance to 2020? The second question on refining. You confirmed the $3 per barrel breakeven in 2018, despite the accident of the EST plant in-
Yeah
at Sannazzaro. Should we consider it an underlying improvement in the guidance or, how much is the underlying improvement, if any?
Yeah. The depletion rate is always between 5% and 6%. What is in the plan is considered between that 5.5% of depletion rate. On the $3 per barrel, you can consider improvement of $0.2 because we confirm the $3 per barrel, that is an improvement because that is the weight of the EST that is going to start production in 2018, but in a full year. That is $0.2. Okay.
Thank you.
Thank you very much.