Good morning, and welcome to our 2016 result presentation, the full year strategy update. 2016 was a year of records for Allianz in spite of a challenging scenario. We have met all our strategic milestones and delivered outstanding results, meeting our main operating targets in production, reserves and cash neutrality. We did it while enforcing a strong cost efficiency, reducing CapEx by 19%, OpEx by 14% and G and A by 10% versus 2015. In the Q4, we produced a record organic level of 1,860,000 barrels per day and notwithstanding the Valdez shutdown, disruption in Nigeria and initial downtime of Ooyal, we achieved our average production target for the year of 1,760,000 barrels per day.
We set another record with a sales replacement ratio of 193%, our best result ever and the highest in the industry. Over the last 3 years, our average replacement ratio is exceptional 115% organically. In exploration, yet again, we had remarkable results adding 1,100,000,000 barrel of resources at a very low cost of $60 per barrel. In the mid downstream, we can report that each business is now free cash positive for a cumulative €2,300,000,000 In operating cash flow, we generated €8,300,000,000 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.
And finally, our pro form a 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 3 years. Another record we are very proud of it 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 0.35% with a reduction of 21% versus 2015. This has been the 3rd 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 emission and reduction is mainly on 3 areas.
For methane emission and gas and gas failure reduction, as you can see on the chart, the trends are very positive. A third area is the increasing use of renewable as a substitute for gas consumption in our operations. And by the end of the plan, we target a capacity of about 500 megawatts. And now I focus on exploration, which is our center of gravity in terms of organic growth. Flexibilities in cost and time to market.
It is and it is an essential element to reach our profitable level of cash neutrality. Focusing on the last 3 years, we have found a 3,400,000,000 barrel of which 25% has already been transformed into proven reserves and 25% is under disposal. And for the part disposed has already generated EUR 2,200,000,000 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, 190 3% in 2016. And it's 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 door disposal, replacement ratio remained at 139%, many times greater than the industry average. This is all sources for us clearly is all organic. So 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 track our projects, reduce costs and risks and fine tune the plan of development. We changed our strategy on APC 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 4 main projects starting up in 2017 are really emblematic of this approach. Angola, his tab has been put in production in around 3 years, 5 months ahead of schedules and on budget. It is the 2nd deep offshore development in the Block 1506 in which we found 3,500,000,000 barrels of oil equivalent in place in 10 different fields. Block 1506 is producing above 100 1,000 barrels per day today and we are ramping up around 140,000 barrels per day during the year.
Another two main projects will start up in June, John Creek in Indonesia and OCTP in Ghana. OCTP is a giant oil and gas field development. We've identified near field exploration opportunity and that is very important. It's part of our model. We have already around our development prospects identified and tested.
So the first phase will be oil of this project. And next year, we'll start up the gas phase. So we have 2 projects in 1. So we give a contribution this year and we give another contribution just gas that we already sold next year. Jan Creek in Indonesia will deliver gas to the existing LNG plant of Gontang.
So we don't have any investment in the midstream. And we create a new hub of development for closer discovery such as Miracles, which will be sanctioned in the plan. That is another example of our model. Like in OCP, like in Ghana, also in Giant Creek, we have some prospects and we have already found and tested with 2 wells a prospect that we became a project with a very high internal return that we tie into the John Creek main cluster. These three fields will deliver a long lasting plateau of 130 5,000 barrels per day net to 80, sorry.
Now the 4th 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 our big projects.
In only 3 months, we presented the plan of development. 3 months after the first discovery, we present the plan of development and launched almost all the tender for a long lead items. So as you see, we did really in parallel. So one well, plan of development and we start with the long lead items that are the most critical issue. Only 6 months from the discovery while testing the second well, we took the FID, so 6 months.
Normally for a giant field in the industry, we talk about some years. And we continued the appraisal activity. So in part, we continued the appraisal activity with 7 wells drilled And that allow us to fine tuning 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, update with the result coming from the field, our project, our field, our conception.
In end, so that is not all what we have to get. In parallel, also we farm out 40%. So we made exploration. We made a product. Meanwhile, we are making the development and we add also the farm outs.
So we try to take all the advantage in increasing the time to market and we farm out 40% of these assets to 2 major companies that you know very well. And 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 Rosozneft during this accelerated phase as a data room due diligence, Technic due diligence and then they buy, If we have some doubt or any doubt about the positivity of this discovery now that is finished. Now the next question is, are you able to start production as you said in 2017? And the answer is yes.
And now I give to Massimo. I give the floor to Massimo. He's Juan, if he's ready to talk about mid downstream financial result and close to 2016.
Thank you very much, Claudio, and good morning to you. So some words about the midstream and downstream actual result, where we made major progress in each business. In Gas and Power, in line with expectations, full year EBIT was minus €390,000,000 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 costs for around €200,000,000 as well as the improvement our trading result in an highly volatile market. These improvements that did not release the full effect in 2016 will structurally halved the Gas and Power recurring losses on a yearly basis.
And together with ongoing negotiation and reduction to logistic cost will allow Gas and 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 and 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 Q1, 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 €3,000,000,000 On CapEx, we reached a reduction of 19% or 24% considering pro form a 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 structures thanks to near field exploration successes and consequent development and finally, a revision of supply chain through procurement.
Since 2013, we have lowered CapEx by 35%. OpEx has been reduced by 14% versus 20 15 and 23% versus 13% keeping us at the best in class level of $6.2 per barrel. Overall, procurement delivered this year saving of €570,000,000 on CapEx and OpEx. Finally, we reduced G and A by €800,000,000 versus 20 14 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.
And now before Claudio's final remarks on our actual results, a few comments about debt and leverage. Despite the worst scenario in 2016 with a minimum oil price, remember, of $27 per barrel Q1 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 €13,000,000,000 considering on a pro form a basis 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.
And now, Claudio, I give you the floor for your final remarks about the Acthar Advance. [SPEAKER JACQUES
VAN DEN BROEK:] Thank you, Massimo. And now I'd 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 €8,300,000,000 of organic cash flow an outstanding result that put Eni at the top of our industry in term of cash resilience. And including cash from this proposal, we fully cover the dividend at a price of $50 per barrel. This result is just the last step of journey we started 3 years ago, allowing us to rapidly reduce CapEx breakeven from $127 per barrel in $27.3 to $46 per barrel today.
And this is the foundation for our future growth. And now we're going to see a very short video summarizing all the milestones in the transformation part over the last 3 years. So now after the video, we talk about the our strategy. That is an update on our strategy. So we start reiterating our main point that is to streamline our company to be leaner and more reactive to face market dynamics.
We continue to minimize risks and optimize costs. We aim for long term high margin growth base and exploration. We will continue to explore material and conventional prospects in near field play in synergy with the existing facilities that has been one of the main theme of these last 2 years that allowed us to be so good in reducing cost and increasing 15% our production. And also in frontier placed, in this case, frontier place 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. So 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 and power. So from being a leading European operator integrated with retail, Gas and Power will become a global gas and LNG player integrated with upstream. Moreover, we will further enhance the downstream completing the restructuring.
So we are going to continue to finalize and we'll talk later about that, the downstream Another point, active portfolio management will fast track value generation of our discoveries with our unique de exploration model. So that remains a characteristic of our strategy looking forward. And finally, we complete our transformation process to an integrated oil and gas unlocking additional value. So that are the main points, conceptual points of our strategy looking forward. And now look at our 4 year plan targets.
So the final goal of our action plan is to keep CapEx cash neutrality below $45 per barrel on average in the period. So that is the new target for the next 4 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 FIDs, we confirm a growth rate of 3% per year despite the disposal of door. New start ups, pubs and production optimization will deliver an overall contribution of about 850,000 barrels per day by the end of the period. So what happened in this target, we last year we said we want to grow 3%, you remember, but that was before our disposal. Now we disposed 40% of Dror.
That was a big contributor. We confirm so we fill the gap of Dror and we confirm our growth rate of 3%. That's for the 4 year plan. Then in the long term 2025, we plan to have the same growth rate of 3%. So we are going to make a very strong take a strong commitment after 2020.
And we read that up to 2025, but we are talking about projects that are very long plateau. This is founded so 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 FAD. Exploration, that is the new target on exploration. Exploration will continue to be the source of our future production. Clearly, we said in the last page that we wanted to continue to grow organically using our exploration.
So the target in exploration is in the range of €2,000,000,000 to €3,000,000,000 in the period. So we saw a target a little bit more aggressive that we set normally in our 4 year plan that is less than €2,000,000,000 In mid downstream, we complete the turnaround we launched 3 years ago. We confirmed the breakeven of Gas and Power that is another very important point in 2017. And EBIT growing for Gas and Power to more than €6,000,000 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. Inefficiency, 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 lite motif and the main result of the last 3 years, minus 35% our CapEx and growth of 15%. We want to continue.
In this case, we improve. 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. And finally, we will continue to we will continue our strong financial performance growing forward. Disposal, we generate around €5,000,000,000 to €7,000,000,000 And the operating activity will deliver a cumulative cash flow of €47,000,000,000 in the period.
And now I 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 2,000,000,000 to 3,000,000,000 barrels during this period and drilling around 120 wells in more than 20 countries. As we said, our main objective is selecting our prospect is to find assets that allow us to have a short time to market, low development and operating cost and a fit with the final market.
So that are the main objective when we select our exploration asset because our cost saving or our capability to reduce CapEx, increased production is coming from the exploration selection because we are growing organically starting from our exploration. So 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. So we're not working in a greenfield. And that is another big upside when you want to be fast in your time to market because you can run faster like the Egypt, Asia or Angola or Congo, Uganda when you know exactly your legal frame, your commercial frame, your economics and calculation in a very strong way, in a robust way.
So that is very important point. All these areas are areas where we have a good understanding of all the different parameters. Our main activities will be conventional and mainly concentrated in the East Med, West and East Africa, the Barents Sea and the Far East. All wells and 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. So the wells are short in timing, very low risks and so very low costs. And that is we maintain what we did in the last 2 years. And finally, our exploration expenditure will be in line with the previous plan. So we are not increasing our exploration expenditure.
And now we talk about our FIDs that is our present and mid and long term future. So as a result of our exploration, we have a huge amount of opportunities in the full year plan and beyond. Overall, these FIDs represented in the map count for more than €80,000,000,000 of 2P equity reserves, so our equity. They are mostly giant fields, which underpin long term growth of around 3% per year. So that are the main pillars of our long term growth.
14% of them are close to the F2O 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 regime and long contractual market experience. So 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 Olli project and the only country where we had to work in the last couple of 3 years, 4 years was Mozambique, was a greenfield, a green project greenfield. The other so these FID are coming from countries that we know very well and they are from from a process engineering process very mature one. And so they are close to take the sanction. And now production growth. New project start ups and ramp ups will account for around 650,000 barrels per day by 2020.
And if we include 200,000 barrel action optimization, we will ensure a production growth rate of about 3% per year. So that is the composition, the breakdown of the production growth of the 3%. On Cascagano, we are progressing well. Now we talk about some projects. On Cascagano, we are progressing well.
And production is today 242,000 barrels per day oil equivalent, of which 180,000 barrels per day are liquid. And within the Q2, the plant will be fully completed, including the 3rd oil train and the 2nd 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 Cascagao. Mongolia, we have stabilized production between 9,100,000 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. And now some impacts of so as a result of our model, new projects coming on stream during the plan will increase the value of our production. Over the 4 year plan, start ups and ramp ups will contribute significantly with a high cash flow per barrel, reaching $29 per barrel in the last 2 years of the plan at an average price of $67 per barrel. So that is quite impressive because you see that our legacy projects are at $67 at $60 per barrel cash flow.
And you see the add value that the new projects are bringing in our basket. So increasing the average and bringing the average at $20 per barrel of cash neutrality at $67 So that are very creative. And they are very creative because the cost of these projects are low cost, higher reserves, high production. So the value that they are bringing in is quite impressive. And being long live assets, the positive contribution of the Freer brand startups or the startup we talk, also underpins our long term growth.
So there these fields are more or less so the field that start in the full year plan, we talk about 22 fields, have about 50% of them have a plateau that is continue well after mid so well after 25. So it's really something that is going to give a long term production stability, a base lot that is going to remain. And now gas. And our focus on the gas business. Our view on gas is positive.
It is the fastest growing energy source among fossil fuels. And 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 oversupply as you can see. We expect a rebalance early next decade when demand catches up. Then there will be a need of new LNG projects, opening huge opportunities for our gas asset coming on stream.
Our gas and power business will grow. And our plan is built on the following actions. The first action is the full realignment of gas supply contract to the market. And 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 conclude November December.
And 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 200,000,000 versus 2014, and we confirm a further reduction in the range of EUR 200,000,000 by 2019. That is rising our previous target. And the 3rd, so we have the short that is made up on the restructuring on the long term contract, we are very close.
And the logistics, we still have something to do. But the 3rd point is really the future. And the 3rd point is improving our business model with a further focus on equity gas and energy monetization. Leveraging integration with Upstate is the new model. This action will allow us to reach breakeven as we said in 2017 and to continue growing in the medium long term, reaching an EBIT of more than €600,000,000 per year in the last 2 year of the period, as we said in our target.
And 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 EUR 2,600,000,000 sorry. So our new gas and 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 2 pillars. The first one is the domestic market, where we traditionally have an important role in the energy development of the Austrian countries.
That is something that we already tested was very positive. We can expand and without the competencies of our gas and power units, I'm sure that will succeed. And the second point is LNG, where we built on our own competitive even sizable portfolio. So we can create a strong portfolio. You see that we passed from today 3,500,000 ton per year with all the gas we fund recently and discovering from Indonesia, Mozambique, we talk about Egypt, we talk also about Ghana, We talk about Gabon, Congo, Angola.
So really, we are a huge range of gas discovery ready to and we can't give value to this gas discovery. So our target is to expand our portfolio and reach using our equity gas 10,000,000 ton per year by 2025. So filling the gap of the period in which we are going to add strong need of LNG. And now I look to our dynamics, so R and M and Chemicals. So in R and M, we reduced our breakeven margin from $7.5 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. And that will be achieved by leveraging many optimization of the existing plants. The second and then the second phase of Venice Green Refinery and startup of Gela, where we target overall 1,000,000 ton of production. We are working a lot on the logistics in thermal pipes, in thermal tanks, rationalization and that is going to cut drastically again our cost and then growth in the market results. Through our action, we'll double EBIT.
And if we include our scenario assumptions, EBIT will triple to €900,000,000 by the end of the period. So considering this at the same condition, we are going to double. But if you put our scenario, we triple. The cumulative operating cash flow will contribute €3,300,000,000 in the plan period. So it's going to be a very strong contributor.
In chemicals, we target EBIT of around €300,000,000 per year. So it's steady, very high, very good, very positive. And a cumulative operating cash flow of €1,200,000,000 in the period that will be free cash positive. And that despite a deteriorating scenario that we assume for our chemical 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 margin specialties, since we are covering already 40% of our product. That means that we are going far from the effect of the change in prices of the feedstock. So it's a protection and we are on the value chain. Then we have the green chemicals and international expansion.
We are working and we are expanding our international business. And now Massimo, again, to talk about some remarks on financial.
Thank you, Claudio. So first of all, maybe some words about the overall CapEx maneuver. The 4 year CapEx program shows a reduction as has been anticipated by Claudio versus previous plan by 8% or €2,800,000,000 details as follows. As far as €1,000,000,000 relates to portfolio, mainly ZOAR, as the disposal will discharge more CapEx than expected. As far as 2.3 relates to rescheduling upstream project and procurement.
This reduction has been partially offset by the increased effort of around €500,000,000 in other businesses mainly renewables. Upstream spending remains by far the cornerstone of our investment strategy covering 86 percent of the total effort and assuring a really competitive return. We will operate return. We will operate 84% of the total development CapEx in Upstream. In 2017, we expect overall CapEx in the range of €8,000,000,000 down by 18% versus 2016 at the constant exchange rate.
In 20 nineteentwenty twenty, if required by negative scenario evolution, the uncommitted CapEx of around 55% will give us the flexibility to adjust the overall maneuver. And now let me talk about our announced disposal program. First of all, a quick review of what has been already done, mainly to streamline the group structure as went to the dual exploration model. In the last 4 years, we cashed in EUR 18,000,000,000 plus €2,000,000,000 signed last December to dilute our share in Zohr. This €20,000,000,000 is mainly composed by €10,000,000,000 from equity disposals our share in Zohr.
This €20,000,000,000 is mainly composed by €10,000,000,000 from equity disposals, Saipem, Snam, Galp and more than €5,000,000,000 from dilutions in exploration assets. In 2016, we disposed off assets for a total amount of €2,600,000,000 That means we already got 40% of the original €7,000,000,000 20 sixteen-twenty 19 target. And now the future. We will continue to streamline our portfolio to focus any around the core oil and gas activities and to fast track resource monetization. With these targets, in the period of 2017, 2020, we are projecting seventeen-twenty 18 with the transaction are expected are expected from additional dilution in exploration assets €1,520,000,000 from E and P marginal asset rationalization and finally EUR 500,000,000 to EUR 1,000,000,000 from mid downstream.
For the sake of clarity, disposal of our remaining share in Saipem, retail gas and power and chemical are not included in this amount yet. And now let me summarize the effect of what we described on our cash flow. Our cash generation is growing in the 4 year plan even in a stable scenario and will be further amplified by the recovery in the oil price. In 20 seventeen-twenty 18 at the average $57 per barrel Brent, we a cash flow from operation of €10,500,000,000 25 percent higher than in 2016. €9,500,000,000 will come from Upstream, boosting their contribution by more than 50% versus 2016, thanks to the strong pipeline of 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 €2,900,000,000 at around $60 per barrel. In 20 seventeentwenty 18, we expect disposals in the range of 3 €1,000,000,000 to €4,000,000,000 In addition, we will cash in around €2,000,000,000 from Zohr already signed. And this together will provide additional resources for our cash allocation policy. In 20 nineteen-twenty 20 at the constant $57 per barrel scenario, cash flow is expected to increase by €1,300,000,000 to a total average of €12,000,000,000 This will be the result of the additional production increase that will raise the upstream cash generation up to 10.5 percent.
And this level will be maintained 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 20 nineteentwenty twenty. On top of this, 3 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 2nd portfolio.
We expect contribution of at least EUR 1,000,000,000 per year in 20 nineteentwenty 20 without any contribution from Saipem, Retail Gas and Power and Chemicals. 3rd, CapEx flexibility, leveraging on a 55% uncommitted CapEx in 20 nineteentwenty 20. Finally, our shareholder remuneration policy remains unchanged and even more 2016, we reached the coverage of dividend of around $50 per barrel, assuming the effect of the 40% sale of Zor. In 2017, we confirmed 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 proved CapEx flexibility.
On this basis, we confirm our commitment to pay a 2017 full cash dividend of 0.8 per share and later on to a progressive distribution policy in line with our underlying earnings, cash growth and scenario evolution. And 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%. And now back to Claudio for final conclusion.
Thank you, Massimo. Just a few words to conclude. So after over the past 3 years, we have transformed Eni into a leaner and stronger company focused on EN and P business. We reached structural low cash neutrality, which position us to capture any positive upside. We have built a 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. We believe in the future of gas. And thanks to our upstream position, we will become a global integrated gas and LNG players. The transformation process is still in progress and there is much additional value to unlock.
So I thank you for your attention. Now before going to the Q and 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 and A. It will take 40, 40 5 minutes. Kvaal, please yes, Michele?
Thank you. Two questions, if I may. The first one is, you've done more than any other company rebuilding your pipeline of future projects. Could you discuss the profitability of these projects at different oil price assumptions for the future? And then secondly, a clarification.
On your targets for production and for CapEx, do you include a farm out of Mozambique?
Okay. I'll talk about the projects and then I ask Marcelo to talk about the rest. So you saw that our cash flow per barrel is creative. So we are really with this set of projects, we are increasing our value and also increasing the value of our basket. The annuator return is good also at the present level.
So we talk about double digit and really above our other rail for each countries. And so what we can say that with this kind of cost, when you talk about exploration cost last year was 60 dollars per barrel. And now we have $60.2 operating cost on average, and that would be also for the future project on average, clearly. And then we have a development cost that were 11 that are lower than 11 inspired a new big giant. So that means that we have a giant in our end that have a cost of a small project, onshore projects.
That is a big step to be resilient. So it's clearly that a cash flow of 20 dollars cash flow per barrel of $29, dollars 0.67 per barrel of oil is really a good one. So they are very resilient. Clearly, we run different kind of tests and stress tests on the package. But I think we never had a so strong set of projects in our history, not in the recent, but in our history.
So as a number of projects, 22 projects that are going in production better. All the other projects really to be FAD. So 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 project that is covering not for 4, not for 8, but really for the long run. We are talking to about 25, but we are project because we are inside we have all the big projects you saw that are going with a steady plateau. And 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 of Africa that have a plateau that is lasting for the last 30 years at the same level, same level.
We talk about North Africa, we talk about also West Africa. So now we are again in this new positive way or and we have rebuilt something that is going to last for the next 30 years. Now if you can answer about CapEx and Very fast answer.
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. It's been we had to be very patient.
And also on the I
have, will you have.
Also linked to disposal, you've just mentioned as part of your new plan that gas retail, Versailles and Saipem is not included. But let's say and these are assets in your own definition. But let's say you are confirmed for the 2nd term. Could we see an acceleration of the disposal of maybe gas retail at least? And the second question I have is on Kashagan.
I wondered whether you can give an euros Your share may be around $10,000,000,000 The government isn't going to see much money. So I wondered whether there is a risk of certain changes to the structure of the contract. Okay.
Thank you. So I'm going to talk about Mozambique. I'm going to talk about what is not in our M and A, so chemical advancement power. I just see a few comments on what you said at the end, and then Castigliano would be passed to Antonio Bela, the I yourself is there. So you have to talk about cash again.
So first of all, see, I'm serious, don't laugh. So Mozambique, everybody must be very passionate. But I think that recently we made very good progress. So I think Massimo said in the coming weeks, Massimo, the CFO, say coming weeks are coming weeks. So I think that we have been passionate, but I think it's a big project, it's a big deal, it's a big choice.
We cannot disclose yet who will be with us. So don't answer because I cannot answer. Don't answer because I so I think that we are not far. So unfortunately, we are not able to do the big shot today. That was wonderful.
But the results are so good that we can also leave without for the moment. So gas and power chemicals, we didn't put it because we are working on it and the chemicals are it's doing very well. So chemical is getting value, really getting value, free cash flow. And from an industrial point of view, very robust. And I think that the CEO, Daniel Ferrari, is here and maybe later can give you some disclosure about this.
I'm really satisfied about what they are doing. So is there we'll see. We have a big option. So is that we confirm the strategy. We confirm the fact that we are 1 oil and gas integrated.
We'll see the development. It's not there because we are still thinking. Retail gas, we are creating a subsidiary, so a company. Here, there is the CEO, Alberto Fiorini. So he's going towards this way.
And we'll see in the next month. We were ready, I think, next month to make some disclosure. It's clear that it's not an additional value. So for cash again, the last what you said lastly, we have any risk. I don't think that we have risks.
They are with us. 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 these.
And they have been supportive, present in Airbus. And so now that we are in production, what they ask is really to complete the first production, go to 370, and then go fast to the CC01 to get additional 100,000 barrels per day and go fast to the 2nd phase. That's what they want, and that's what we want. So I think that has been a project very important. We have EUR 30,000,000,000 of oil reserves P1 there.
So it's really a huge, huge discovery. I think that the future will be is going to compensate us for the past. Now if you want to give some update on cash again. Thank
you. So 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, 1,000 barrel oil.
Next step, as Claudio mentioned, that is the gas injection is going to be done in June, July without Schraun. We have done all the network in place and COC have completed all the job. The system of the gas injection is under commissioning at the moment. And the cleanup of the island A and D has been completed. D is cleanup.
And very soon after that, we start to APC3. So the plant is working very well and the engineering has been well performing through the commissioning. Thank you.
Thank you, Antonia. Antonia.
Irene Simonette, Societe Generale. I had two questions, please. First, Lily, on the back to the 3% production growth target. I think you mentioned, Claudio, you need 650,000 of start ups and 200 and 50,000 production optimization. Wonder if you can elaborate on what production optimization actually means and if there are any contingencies factored into that target?
And 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.
So the gas optimization that has been also our is our accelerator or we accelerate always going on. That is really peculiar to our company because when we look at the long life of our projects, all projects start in the 60s or in 70s. They're still there producing some 100,000 barrels per day because we do what we call that is really E and I terms a production optimization, because it's a set of work that is mainly work over sidetrack, smaller development inside the contractual area, Some application of new technologies in terms of smart completion or multiple completion, so we go back and we reopen. Sometimes in the past, we had wells with different layers. And before because of technology, we are going to complete all commingled, so putting together all the layers that is the worst thing to do because they have different pressure.
And you can produce only the higher pressure, the lower pressure, that but the higher oil. So now we go back and we use smart I'm giving you an example, smart completion. So you can complete you have 5 layers, you complete 5 separately. You can give to each one the opportunity to talk because they have different voice, different pressure, and they can give contribution. Also layer that has been silent for 20 years.
And that is very important because not only we are going to increase production, but we are going also to add reserves. So 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 reservoir and petroleum engineer point to go and revisit all these wells. Completion is very important way things. And then we have sidetrack because we reprocess through the 4 d seismic. So there is the 2 d, the 3 d, the 4 d maybe you heard about the 4 ds.
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 and how your layers are. And on this basis, we are going to catch with a standard reach or horizontal well all the different beds or the different reservoir that we left behind. And we can see through this 4 g seismic. So there is a huge amount of work, a very high internal over term because we have everything, 9, we have the plant, we have everything is there. You drill it differently.
So we and that is very helpful in the future to increase our average internal return. We are talking about 200,000 barrels. And we talk about internal loan return at this price of today that are bigger than 20%. And it's good also for the 1st party. Why?
Because the costs are low. So there is a big profit also. So it's based on technology, competencies, keep the same people constantly on the same reservoir, so know everything because the reservoir is a human being. If you have your doctor, it's much better because it knows everything about you. And the reservoir is the UMB.
Maybe sometimes it's it died before, sometimes it's much longer. But in any case, we need a good doctor. So that is the production optimization. 2nd, the gas breakeven. For the gas breakeven, we have the new COO and expert on gas present, Massimo Antovani, that can we'll be happy to answer to your question.
I'm the new one.
No, it's okay.
I just have 23 years of E and I, but and then of course with Claudio even more actually. And that was one of the focus in respect of Gas and Power Business. And I have to say that in the last months, we were really busy on gas negotiation. Claudio mentioned that we closed 4 of them. And more importantly, we closed Sonatrach for 2017.
And we do have the break in. And I think that now
we are working for a positive result. So this is a clear
positive message. We will result. So this is a clear positive message. We will continue negotiating, but we have a good negotiating table suite to also other suppliers. So it's going well.
Thipan?
Thank you. It's Thipan from Exane BNP. Could we have a deep dive on ZOOR, please? A deep dive on Zohr, please. Could you just give us an update in terms of what you assume for capital spend in the current program?
Then the process in terms of the start up and how we think about the ramp up to plateau on Zohr, please? My second question comes back to sort of capital allocation and capital return back to shareholders. I wanted to sort of 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 breakeven. So 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.
So Zohr, as I said, we are absolutely convinced and determined to have Zohr in production this year. Zohr is going to give also after the disposal is going to give us for the first part for the first phase for us in term of equity, 75,000 barrels per day on equivalent. Then when we go to the after 2019, we pass about 175,000 barrels per day. And then after 2020, between 240,000 barrels 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 12,000,000,000 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 is very good in terms of loan lead items.
So we think that we are going to buy off to reduce. Our exposure is less because now it's being reduced by the 40%. I think that in the plan is something about 200 percent. 60%, sorry. The 60% without the 40%.
So that is the in terms of returns, you asked also about the return of Zohr as acceptable, double digit, much above our hardware for the country. We negotiated all the contracts before starting and help us also to recover our working capital. I think that in this very critical year, Egypt has been the 1st year for what I remember that we closed 2016 with our outstanding. And EGP is participating in terms of Egyptian pound, 25% in the investment. Normally, we put all upfront and then we recover.
So they are. So it's really strong and well protected because it's the main is a priority, the main project for Egypt. So normally, I have to give the pass give the floor to Massimo to answer to our question. But your question and the starting point is very reasonable with what you said. It's clear if you are adding value and with 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're going to see. At the moment, our policy say that we are going to increase our dividend considering the earning growth and the when you see scenario. When we talk about earning in scenario, because clearly that we don't want to pick up and then go down. So we need some stability.
But especially the stability now is linked also to the capability with what we said, we have a very low breakeven. So that is very helpful. And for sure, it's going to give good and positive result, not just from an operating point of view, but I think I'm sure also for our shareholders. It's premature, but your point is very clear. And I don't think that not reasonable.
John and then Hamish.
Thank you. It's Jon Rigby from UBS. Two questions. First is on going back to Kazakhstan. I noticed you've got 2 Kashagan projects going into FFID, CCO1 and then Phase 2.
So I just wonder whether you could just talk me through some of the more details around that. And 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 EP 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. And then 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 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? Thank you.
Okay. On Kashagan, Antonio is going to explain where we are. When we talk about these projects, say, the CEC-one, the Phase 2 and the and Karajaganak, is clearly is 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. So now is a very good moment because you see in perspective your oil that is going up, but the market is still waiting moment.
They are waiting. There are not a lot of projects because it's not easy to start a project. So we have a wonderful opportunity. We can bet on a growing price, and we have a market that if you are able to close your contract now, you have a very, very good discount and that is going to impact on cost and recoverability. So it's good for Kazakhstan.
I'm not saying it's also what I think. It's good for Kazakhstan to be able to have contracts signed in these years, in this year, when we are still in 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. So we think that we have to consider this balance.
And when you consider this balance, you see that it's very positive. And now we have a strong opportunity. So Antonio, if you want to talk about these projects.
So let's talk about Carahachacana expansion. As you know Carahachacana, it's a steady plateau over 260,000 barrels in 5 years, and the objective is to extend it longer. So the main expansion is compressor of the gas. One stage is going to be in FID soon this year. And then, sequentially, 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 projects are very nice. Concerning Cascagun. The next FID of Cascagun, as Claudio mentioned, is the CC01, which will allow us to increase the injection of the gas and jumping up from $370,000,000 to $250,000,000 which is the end of the experimental project of Cascaghan. Definitely ending this project, we have to start additional phases because the oil in place of Cascagane is huge and we have to ramp up the plateau above $450,000,000 And this is has been a wide remarkable project within the 4 year plan and after.
Thank you. So Libya's situation from a our operation point of view is quite steady. We are in developing. We are developing offshore. We are developing also developing onshore in Wafaa, and we are also exploring.
So we are quite active in this period. It's clear that from a political point of view there is some instability. And we are falling And our first priority in this situation is clearly the security of our people. Our people is not just TAN, our people in general. So our local people, everybody.
So that is a question, big attention and that is our priority. The gas demand is increasing. And 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. It's, I think, a positive signal.
It means that there are people, they are cooking, they are eating, there are sound dynamics because we are delivering a lot of gas and we are reducing also our exports to able to help Libya in terms of gas demand. So what we are following, it's clear that Libya is a huge potential for us because we are in the position what we have found without considering the last disclosure, what we have found, we are in the position in Libya to double our gas production and condensate production without considering Alfil or Guatifo. We leave that, but we can double. That means that it's 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 and to explore additional reserves in Libya.
And the Levantein Basin is really a huge amount of gas that can really help Europe for diversification, very low cost, very, very low cost. Libya is another case that we love because Yuzhiv is our model. So we have everything. We have just the drill wells. We have platform, network, pipes, everything.
That is going to be a very, very interesting and positive opportunity for Libya and for Europe. So 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 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 full year plan at $53 Does that number resonate with you, sound right? Is there a risk to the downside on 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 sort of volume moves across the world? And what gives you conviction in a rebalancing of world oil markets? That's really one for you, Claudio. And 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. So Marcin want to answer to the first one. I'll answer about OpEx sensitivity and then Luca about nothing.
So the question about the cash neutrality, yes, cash neutrality is expected to decrease all along the full year plan. Just to recall, the cash neutrality calculated including, I would say, ZOOR and mean the takeout of the 40 percent CapEx already incurred in 2016 is in the range of $61 per barrel. So 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 and 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.
So it will in the range of 55%, 56%, something like this, but with this sense. So the number is going to decline all along the plane.
Luca?
[SPEAKER CARLOS ALBERTO PEREIRA DE
OLIVEIRA:] So 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. And we had a continuous reload of our portfolios during these troubled years and we have good opportunities coming also in East Africa and also in Norway in the future. And that's what we are going to do.
So this year will be still a year of finalizing our appraisal campaigns mainly and few exploration shot next year we will start with a more aggressive exploration campaign on new plays.
Alastair?
It's Alastair Syme with Citi. Two questions. On your gas plan, you talked about getting to 10,000,000 tonnes 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? And the second question is, would you hazard a guess on where return on capital or return on equity would get to under the 4 year plan for profitability return.
Talk about LNG or Overall. No, for LNG, it's not just Mamba or Coral or Zor. Is really that we find lots of gas. So it's really huge amount that's not just there because we have a with gas that we are injecting, but we can increase production a lot in Congo, for example, and we have projects to start. LNG is not in our investment there from other company, but selling there.
We have need for gas for Angola LNG, and we have lost gas there. So that is another huge amount of gas that we can consider stranded now at the moment, and we have to develop for them gold LNG. So it's gas that we have to develop for existing LNG. And then surely, we have to 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. So we have our equity, and I think that it's quite wise to stay along the chain and increase our equity. Instead of buying gas, buying LNG from other producers, I think that our LNG must work I mean, sorry, our gas and power must work with E and P to from the very beginning because the gas when you open a new gas or you have to market in 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. And then there is another element that is quite important that we have a strong position in these countries as E and P and a lot of investments. And we have to renegotiate at times with the same countries the gas price. And I think that it's 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, European monopoly player and was a long time ago, but also we say a company in a company because they own gas, sell their own gas in Europe, mainly linked to the retail gas.
And that a very but for the in eye culture is a revolutionary new model that put together the 2 entity 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. Then gas and power can be really useful with the competence to work on the contract definitions definition in the country where we deliver gas for the domestic market. We are, I think, one of the we are, I think, the first company in term of delivering gas to the domestic market. And where is the E and P gas?
So that, I think, is going to give a tremendous advantage and a 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. So we are not just looking for something like Mamba to deliver all the 10,000,000 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 add trading. So the diversified and as Claudio said, we are from Australia, Indonesia, where we closed this year first contract. We will start deliveries from Giant Creek in the summer. Then 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 10,000,000 tons at least.
Thank you, Matt. No, it's a return, yes. Entirely to return, always what you want. Massimo, it's for you. If you want, I can answer.
So the is the starting level, as you know, has 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 results of all actions that has been described so far, including a significant reduction in 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 comment very comment an additional comment on this. Now we characterize ourselves as quite pure upstreamer. So our capital employed you're seeing is 85% now invested in upstream. And I don't know really if to measure through ROACE, the return for by 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 maybe currently is producing significant return without the need of significant investment. So for us, using this kind of metric is, I would say, a little bit different versus the others that usually you compare with us.
And also talking just about the internal regulatory tariff, on average, on all our packages will be higher than with this price, this price is higher than 15% price of today. That is it's a good point.
Oswald, Clinton 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. And I don't think anyone's asked Roberto a question, so maybe it's for him. But is things like East Hub coming in 5 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. And then secondly, kind of related to the gas and LNG as you focus on LNG. But in the midstream, we still have 90,000,000,000 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?
So there must have been talk about. So in terms of organization, Roberto is going to explain because we prepared a big slide, but that was too long because we did so big work on this in the last 4 or 5 years. You ask is, do you have other example? Okay, we have other example. The first example is ISTA that has been 4 years on 2 months ahead of schedule and on budget last year.
Another example is Nene from the discovery 11 months, the production now is 25,000 barrels per day. Another example is Nourous discovered with Zohr is producing 170,000 barrels per day. Okay, we have Westaff and now we have John Creek and OCTP. And then we have other projects. So 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 3 years, we can say 3 years, yes, or 2.5 years, they are coming from the new model that are not just one example, 1, 2, 3, 4, 5 example.
And I think that the future will be like that because we change everything, but 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. All our projects are phased, and that increase the internal rate of return and covered the CapEx. And just to give you another example for because that is with the DUO aspiration model.
Zohr and Mozambique will be never during the execution of the project a negative free cash flow. So we have 2 projects that will be free cash flow positive because we cash in before starting production. So that I think worldwide example of efficiency where we had 2 giant projects that are not negative free cash flow. Never, never. Just a few wells at the very beginning then they are they start to be in green positive.
So I think that are the example. There is a strong commitment put in the last slide that we are our obsession is really the time to market. We don't want to leave slipping reserves that we have found that are easy to put in production. And that is an obsession of all our people, all our people. So now Roberto, show your obsession, please.
Well, let's simplify and talk about 2 main phases, design of a development and 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 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 explow well, appraisal well and then later on developing 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. So you can imagine that everything has been completely squeezed. And this is a key to achieve early FAD. 2nd 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 ZOOR has been done by us. We just subcontracted the extraction activities that were not part of our business. And the fact that you have your hands on the execution activities minimize also the risk of time slippage, cost increases, etcetera. So the key in this model is firstly working in a fully integrated manner, not in back to back sequence, but fully parallel in the integrated manner. And then by running engineering activities for the facilities by ourselves.
[SPEAKER CARLOS ALBERTO PEREIRA DE OLIVEIRA:]
Please, can you answer now?
On gas supplies is correct. Gas and Power is selling nearly 90,000,000,000 cubic meters of gas around mostly Europe. And we are on one hand working on the realignment of the supply cost to the market price and then on the rightsizing of the logistic cost. But 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 and 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. And because the future is really changing, as changing is the market. In the LNG, it's changing for the overall structure of the market. We're going short term, flexibility, smaller amounts and you need a big portfolio diversified. But also on the gas sector is actually changing and we'll have to change also the relationship with the main suppliers.
Just the last question because we are running out of time. There are 2 questions. We give Andrew. 1 and 2, yes. You can start.
Yes. Well, I'll keep it to 1 then, Claudio. I was going to actually congratulate the Italians on last weekend as well, but let's cross over that. So the question really is just on Mamba and Area 4. When we see this transaction in the next few weeks, will the E and I still be the operator of the block, particularly in the case of Mambo?
Because it 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. Any comments on this?
I have a comment. It's clearly that we didn't announce the deal yet, so I cannot disclose everything. What I can confirm that we remain operator of a part of the project. So we remain in charge of a part of the project. I cannot say more, but part of the project.
Mamba is not I mean, I'm not delaying Mamba. Please, any issues we are talking about. So we are not delaying Mamba because of this transaction. This transaction not delaying at all core our Mamba non. Mamba is really a link to what we said before The period of time where we think we are more in need of energy than we started from 2022, 2023.
So mom is not in this waiting list because of the transaction of other discussion. We are still working with Anadarko. We finalized the tender processes in 2016. They're ready for the 2 trends for us because, as you know, Mamba is developed separately. So we develop our train, they develop their train.
We have just a common facilities together. So I think that the best moment to have an FID will be by the end 20 18 or mid-twenty 18 or 2017 because there is no space in the final market. What we are doing, that is Gazan Parrot that is doing, is working actively in term of marketing the gas. So the trade our traders are working on that. They are working with our co ventures.
Clearly, it will be easier. Easier, why? Because as the first breaking eyes of the first in a new country, new projects, floating LNG. So the first moment was very important to create a market region from a buyer point of view on the country, on the companies, on the project that has been done. And that has been certified by one of the most important traders that is BP in terms of LNG.
So that has been done. It was a very important step. Now I think that we have a very good runway in front of us, and there is no any kind of reason of the market. Okay. Last question, Massimo.
Massimo Bonizoli from Equita. Two quick questions. Could you give us an indication of the current average depletion rate for the E and P and the assumption embedded in your guidance to 2020? And the second question on refining. You confirmed the $3 per barrel breakeven to in 2018 despite the accident of the EST plant in Sanazzaro.
Should we consider it an underlying improvement in the guidance? Or and how much is the underlying improvement, if any?
Yes. So the depletion rate is always between 5% to 6%. So what is independent is considered between that 5.5% of depletion and depletion rate. On the $3 per barrel, you can consider improvement of 0.2 because we confirm the $3 per barrel and that is an improvement because that is the weight of the test that is going to start production in 2018, but in our full year. So that is 0.2.7.
Okay. Thank you very much.