Good afternoon, ladies and gentlemen, and welcome to Eni's 2016 first quarter results conference call, hosted by Massimo Mondazzi, Chief Financial and Risk Management Officer. For the duration of the call, you will be in listen only mode. However, at the end of the call, you will have the opportunity to ask questions. I'm now handing you over to your host to begin today's conference. Thank you.
Thank you very much. Good afternoon, and welcome to our first quarter result presentation. Economic result and cash flow are presented as we did at the end of 2015 on a standalone basis. This means that Versalis is excluded both in '15 and '16, and Saipem is excluded in '15 and equity accounted in the first quarter of 2016. In this quarter, we continued to perform in line with our strategy, progressing in all our businesses and delivering positive operating result in each of them. In particular, in E&P, we achieve as planned the startup of Goliat in Norway, Heidelberg in U.S., Fungo in Block 15/06 in Angola, and Meleiha Deep in Egypt. This, together with the contribution from ramp ups, contributed to a volume growth of 3.4% versus the first quarter of 2015, or 1.3% net of PSA effect. Development activities are progressing well.
We confirm all the startups we planned this year, including Kashagan, which is expected on stream within the last quarter of this year. Talking about Zohr, after the final investment decision taken in February, we are preparing the fourth well while speeding up the award of main construction contracts, both on and offshore. As far as exploration, we drilled three successful wells, and other positive results are expected in the second quarter. In terms of guidance, we are very well on track to exceed the early guidance of 400 million BOE of additional resources at the cost of around EUR 900 million or less.
In mid downstream, all segments were profitable, achieving around EUR 350 million of EBIT, thanks to, in Gas & Power, a good quarter in a weak scenario that confirms the turnaround pace of this business that was driven by the improved competitiveness of our gas contracts and good result in retail. In Refining & Marketing, good performances in both Refining & Marketing, the former confirming the expected 2016 breakeven at the margin of $4.5 per barrel. Overall, the company generated an operating cash flow of EUR 1.3 billion at the very depressed scenario of $34 Brent, and kept the leverage almost flat at 23%. Before entering into the performance of the quarter, I would like to focus once more on our upstream portfolio, taking advantage of our peers group complete set of numbers already issued either through the 10-K or 20F files.
The specific subject is the disclosure named Standardized Measure of Discounted Future Net Cash Flows. The reserves value disclosure, together with its comparison with the peer group, provides some very powerful information about expected cash inflow, outflow, and net value of the different portfolios. When the scenario drops dramatically, as it did in 2015, the variations give a comprehensive view of portfolio resilience and reflect the action taken to cope with this depressed scenario. Looking at the reported numbers in USD per barrel terms, Eni's portfolio was the second best last year, when a $101 per barrel oil scenario applied, just behind one U.S. major. In 2015, with the reference oil price halved at around $55 per barrel, our portfolio becomes the first one, confirming the strength, both in high and low environments, of our conventional and low-cost assets exposed to PSA.
Thanks to this, in terms of absolute EUR value, our portfolio now ranks fourth among our peer group, coming ahead of companies with proved reserves volumes which are much bigger than ours. We expect further announcement in this metric looking forward, either in the short and medium term, thanks to projects that will contribute highly valuable additional reserves in 2016, such as Zohr in Egypt, and other recently made giant conventional discoveries later on. Now a few comments on the quarter's economic and financial results. Our adjusted operating profit amounted to EUR 472 million, around EUR 1 billion lower than last year. This drop was driven by the negative scenario mainly referred to upstream, which accounted for around EUR 1.6 billion, partially compensated by our stronger industrial performance that improved by EUR 0.6 billion.
All our businesses recorded positive adjusted operating profits, reflecting the progress of our turnaround programs. The adjusted net loss amounted to EUR 77 million and was penalized by the already anticipated higher tax rate paid on positive results in PSA, mixed with some negative results in concessions, which are subject to lower taxation. In E&P, hydrocarbon production was 1,754,000 BOE per day, 3.4% higher compared to the first quarter of 2015. Excluding PSA and other minor effects, production increased by 1.3%, mainly thanks to the startup of Goliat, and production ramp ups in Angola, Congo, Egypt, Venezuela, USA, and Norway. Operating profit was affected by the decline in oil and gas prices, which accounted for EUR 1.5 billion versus first quarter of 2015, but partially counterbalanced by EUR 0.5 billion deriving from lower exploration, DD&A, and operating costs.
2016 production guidance is substantially confirmed, even if we assume a Val d'Agri shutdown due to the current legal investigation lasting for the full year. The negative impact in this hypothesis would be in the range of 50,000 BOE per day, but it could be substantially absorbed by the production contingency and the expected better performance in other fields worldwide. The timing of the legal procedure in Val d'Agri cannot be predicted today. In Gas & Power, the scenario was depressed. TTF and PSV were down both versus fourth quarter and first quarter of last year, the spread between the two hubs narrowed to around EUR 0.50 per million BTU. Gas demand in Europe was lower than in the first quarter of 2015, due to the mild winter and high output of renewables in the power sector, particularly in Germany and Spain.
In this scenario, the adjusted operating profit amounted to €285 million, almost in line with the first quarter of 2015, despite the warming weather and lower positive non-recurring items for around €100 million, inclusive of the effect of the Edison arbitration currently under further renegotiation. This improvement has been achieved thanks to the upgrade of our gas portfolio renegotiated so far, lower logistic cost, and trading activities. In terms of guidance, we confirm a positive adjusted EBIT in 2016, thanks also to the retroactive contribution of GasTerra arbitration forecasted by the second quarter this year, as well as the structural breakeven from 2017. Turning now to R&M. This business, excluding the effects, a significant decrease of refining margin from $7.6 per barrel to $4.2 per barrel, showed an improvement year-on-year with an adjusted operating profit of €66 million.
In particular, refining has benefited from the ongoing progress on-site turnaround with an adjusted operating result substantially breakeven. This is notwithstanding a capacity utilization rate, which was down 9% points versus first quarter of 2015, at 87%. This was due to higher maintenance activities triggered by a weak scenario, while marketing has been better than in the first quarter of 2015, benefiting from higher retail margin in Italy. We confirm our target for a 2016 refinery breakeven margin at around $4.5 per barrel, on track with our program of lowering it to $3 by 2018. Finally, our financial position. Net debt at the end of March was €12.2 billion, implying an almost flat leverage at 23%.
The €500 million increase in debt versus year end 2015 is attributable mainly to the capital expenditure of €2.5 billion, counterbalanced by cash flow from operation of €1.3 billion, cash in of EUR 340 million from the conversion of the latest Snam shares that occurred in January, and the effect of euro appreciation on the US-denominated debt of around €250 million. All businesses, apart from E&P, contributed a positive free cash flow in this quarter. For the full year, we confirm our guidance to cover CapEx at $50 per barrel with our cash flow from operation. Thank you very much, and now let's start the Q&A session.
Sorry. Ladies and gentlemen, the Q&A session is now open. I'd like to remind you that if you want to register for your question, please press star followed by 1. To cancel the reservation, press star followed by 2. Thank you. First question comes from Mr. Oswald Clint from Bernstein. Mr. Clint, please.
Yes, thank you very much, Massimo. Two questions. First one, just on the Val d'Agri oil field-
Sorry, Clint. Could you please speak louder, please?
Can you hear me?
Not very good. Speak louder, please.
Okay. Can I ask, please, about the Val d'Agri oil field? Can you say what is the cash flow per barrel, typically from that field? I imagine it's a high margin field, but if you can give us a sense of that. Kind of also, is the cash flow offset from that field going to be offset by the higher production that you were talking about with the rest of your portfolio? That's the first question. Second question, I wanted to know about your gas business in Italy. You talked about more spot sales in Italy. Can you give us an indication of the typical gas prices you get for kind of spot sales, please? Thank you.
Okay, Clint, I give you the answer to your first question, then I leave the floor to Umberto to answer the second one. You can imagine, I won't like to give you a precise number about the cash flow from Val d'Agri, because of some reason. Yes, I agree with you that on a quantity terms, we are substantially confirming the production guideline. What I could say that certainly, the value of oil produced in Val d'Agri is a bit higher than the average. All in all, we expect a sort of penalization that will last as long as the stop in Val d'Agri will take place. Then I leave the floor to Umberto to answer the second question.
Thank you. As Mondazzi said, we had a positive performance in the quarter on the commercial activity, both in trading and in managing control of our logistic cost. To answer directly to your question, when you refer to spot sales in Italy, I think that you refer to two possibility. One, that are the sales to the hub, therefore the sales are linked to the PSV price. Of course, the flexibility is not an element attracting more value if we can offer it being a sale at hub level. When we do spot sales to other customer like industrial, like commercial customer, we structure our price around the product where the flexibility that is embedded in our portfolio potential is certainly of the value, and this is where we extract a premium compared to the hub.
Okay. Thank you.
Next question come from Mr. Biraj Borkhataria from RBC. Mr. Borkhataria, please.
Hi. Thanks for taking my question. I had a couple. Firstly, on Gas & Power, obviously a strong quarter. I was wondering if you could break out the moving parts, one-offs and sustainable parts, between your logistical improvements, the renegotiations, and importantly, the trading part and any benefits you had there in the quarter. Any color on that breakdown would be appreciated. The second thing was on your resource additions guidance, you were hinting to an increase. I was wondering if you could just remind us what the key wells are to be in the next couple of quarters that you're going to drill. Thanks.
Thanks. I'll give you the answer to the first question, and maybe I leave the floor to Antonio Vella to answer the second one. I would say the majority of the contributors to the current Gas & Power result are structural, are stable. What we are talking about are lower logistic cost. Definitely, we are benefiting from a better performance of the gas portfolio that has been renegotiated, starting from 1st January 2015, or so, recorded in the first quarter 2015. I would say, the only non-stable contribution should be considered the trading part of this result, because definitely the stronger variability we have seen in the first quarter definitely contributed to a better result. Just to give you an idea, we are talking about a contribution, in our case, of around EUR 40 million.
We are not talking about a significant, extraordinary component of this result. At the same time, we had a negative comparing the first quarter 2016 versus the first quarter 2014. Definitely, we recorded something in the range of EUR 100 million of negatives in term of higher retroactive effect we recorded in 2015 versus 2016. One of these, I said during my speech, relate to the Edison contract. You remember we had the final judgment, the arbitration, end of 2015. The contract today is again under renegotiation, and we expect an outcome in the second quarter of this year. Second quarter should benefit from the negotiation of this contract, the effect of which should begin 1st October 2015.
Always talking about the negative, the LNG market is, I would say, less strong than it was in 2015, and this penalized the result in the comparison 2016/2015. All in all, the positive and negative has been balanced, and the positive, with the only exception, trading, are structural one. I think I gave you a comprehensive answer, I leave the floor to Antonio to answer the second question.
We have an average of production on new project of 275, where 187 are coming from ramp-up and 88 from the startup. Within the startup, as Massimo mentioned to you, we have Kashagan and Goliat, which has been already achieved. In addition, that recent week, we introduced additional well in production in Egypt, in Nooros, which we expect an additional ramp-up of production for the second quarter.
Sorry, I was more wondering about the discovered resources target and the upside there.
In fact, Nooros is one of that and Goliat also, because as you know, the ramp-up in Goliat went up quite quickly and will confirm our production. The appraisals on Nooros are growing up. Also Zohr, as you know, we successfully concluded a third well, and the fourth is already in drilling, and probably by May, we'll have additional resources on that.
That's great. Thanks.
Next question come from Mr. Hamish Clegg from Bank of America. Mr. Hamish, please.
Hi there. Thanks for taking my questions, Mr. Mondazzi. Couple of things. First of all, just one thing to notice is your realizations were a bit lower than normal this quarter, trading at a 16% discount. Was there any reason bar PSAs for that? Can we see it normalizing to the sorts of realizations we've seen previously? Also, secondly, on a similar vein, your refining margins appear to be sort of slightly tighter to my benchmark than they've been previously as well. Is that a function of the continued efficiency? Thirdly and finally, on Kashagan, you reiterated the startup by the year-end. I've read in some places that certain sources think that Kashagan is more likely to start up next summer just because of the implications of starting the field up during the winter months.
I wondered if you could share with us what gives you the confidence that despite the winter months, it would be good to start the field up at the time you plan?
Okay. Starting from the last question. Yes, we are confirming our projection, that is the projection of the old joint venture. I would like to say that the news that appear on the, I don't remember, on the web or on the papers, was the declaration released by a Chinese guy that has been withdrawn later on. I would say it's been a mistake. Definitely the joint venture is stuck in the affirming the startup foreseen end of this year, fourth quarter this year. In terms of realization, no, there are no particular effects, neither related to the PSA. As well as, I don't have any kind of specific information about the refining throughput. Maybe Alberto from R&M division could elaborate a bit more on this.
Our refining benchmark, as you know, is a refining reflecting our exposure to the throughputs of our refineries. 80% of our refineries in the Med, 20% is in Germany. When you compare this benchmark to the other majors, obviously, you have to take into account that other companies have a higher exposure to the U.S. or for Eastern areas, where in general, margins have experienced a higher level. In terms of general exposure of our downstream refining business.
Yeah. Thank you very much for your answers.
Okay. Thank you.
Next question come from Miss Irene Himona from SG. Miss Himona, please.
Good morning. Massimo, I had three questions, please. Firstly, in changing the accounting from full cost successful efforts, obviously, you revalued the assets in the uptick. Can you give us some guidance on the new basis, what annual DD&A charges can we expect, please, in E&P and for the group total? Secondly, if you can please update us on asset disposal sort of progress. You had about EUR 800 million in Q1. Are you on track, do you think, for the full year targets on disposals? Finally, can you say if the R&M results includes any material trading profit, please? Thank you.
Okay. I'll start answering your question about the successful efforts. The most important numbers I have in mind to qualify the application of new accounting principle are the following, Irene. First of all, the increase in the net equity, that 1st January 2016, is in the range of EUR 3.5 billion. That's because the capitalization of the past exploration fully expensed following the previous accounting principle, and now capitalized waiting for the final assessment. In term of effect on the P&L, it's quite difficult because it depends on your rate of success in the exploration you are performing. Our projection this year should be something in the range of EUR 100 million of an advantage, as a mix between the incremental DD&A and, I would say, the exploration capitalized as incurred.
As far as asset disposal, I would say yes, we feel we are on track in implementing the disposal plan that we just announced during our strategy presentation. We said EUR 7 billion. We said front-end loaded. It means more or less EUR 5 billion in the first two years. As I said during the presentation, negotiations are underway. Some of them are very well advanced, no reason to modify the guidance on this respect. Third, in refining the margin result in the first quarter, maybe I leave the ground to Alberto again to give you the answer.
Yeah. No hedging strategy was implemented in 2016 up to now. As you remember, there was a strategy of hedging activated in 2015, and in the first quarter, the impact of that strategy was a negative EUR 45 million.
Yes, the trading. She asked about the trading.
No trading results contribute to the numbers of R&M.
Thank you very much.
Next question comes from Mr. Massimo Bonisoli from Equita. Mr. Bonisoli, please.
Thank you and good afternoon. Massimo. Two question. Back on Val d'Agri. Could you give us some color on the effect of the production suspension on your refining business profitability? Taranto refinery should be the one affected. Also, if you are evaluating any countermeasures, both for upstream and downstream. The second question is on Versalis. If you could give us some update on the disposal process and some color on the timing, please.
Okay. As far as the effect on downstream related to the shutdown of the upstream production, definitely, while in upstream, there are no countermeasures that could be applied because the stop in production doesn't allow us to produce even one barrel. As far as the refinery, we can change the oil supplied using our supply system worldwide. We can buy oil and keep the refinery running with just minor dis-optimization in economic terms. Definitely, the bigger issue relates the upstream. As far as Versalis, we said during the strategy presentation that Versalis is in the disposal plan we announced. Again, negotiation are running, sorry, but I can't give you any color on this.
Okay. Thank you anyway.
Next question comes from Mr. Marc Kofler from Jefferies. Mr. Kofler, please.
Hi, everyone. Thanks. Make my question. Just one please, on the upstream. I noticed the gas production from the Americas continues to ramp up, which I assume is largely driven by Venezuela. I was hoping you could offer a bit more color, both in terms of the receipts, in terms of payments, if there's been any change there in Venezuela. Also maybe if you could add any color to what you're actually seeing on the ground given what we've been hearing from some of the service providers in country. Is it still possible to continue with business as usual there? Thanks.
Certainly the situation in Venezuela is critical. You see also on the newspaper. Up to now, we have been paid by the country. The production just, I would say, started up, and we are now testing the securitization tools that has been agreed to have certainty about the payment. I'm talking about securitization that relate the liquid production from the field, together with the possibility to export to Colombia part of this gas being paid in USD. Definitely, what we expect is a tough period in country. On top of what we negotiated, maybe there could be some delay in payment. We are envisaging some delay in payment. We are not talking about huge numbers because we are only in the first phase of production. Numbers we are talking about are not numbers that could jeopardize our expected cash flow.
I think I answer your question.
Yeah, that's great. Thank you.
Okay.
Next question come from Mr. Thomas Adolff from Credit Suisse. Mr. Adolff, please.
Hi, thank you very much. Two questions, please. Just one on going back to disposals, obviously key to right-size your exposure to certain projects. My question isn't really on what progress you're making there, but more specifically on a potential structure in Mozambique. I guess my question is, since you're committed to lower it from 50% to whatever, I can't remember whether it's 25%-30%. On the structure, my question is, if you were to keep operatorship for Coral FLNG, would you be happy to give up operatorship for the main Mamba development to whoever you may farm the project out to? If that's really the case, it would imply that the equity stake you consider selling is actually more than the 15%-20% you talked about. That's question one. Question two, again, more specific to a country, that's Iran.
I understand the past has been far from pleasant, the future there is quite unpredictable. Eni seem to have been one of the few Italian companies that has not signed an MoU when Prime Minister Renzi had a meeting with Rouhani. Is that a reflection of your appetite towards Iran or the opportunity that you see in Iran being not so attractive? Thank you.
As far as Mozambique, I would say, Thomas Adolff, part of your question is part of the ongoing negotiation, I cannot give you specific detail on this. Let me comment, and please understand what I am saying. This contract is so big, so huge that I would say, I guess we could definitely take advantage from the contribution of a strong additional partner, not only stronger on a financial point of view, but even on, I would say, capability to run such a complicated project. We see it as an advantage, definitely not a constraint to get the final result, I would say, the disposal that we are projecting in our plan. Second, Iran. You are right. We didn't sign any MoU. Two comments on this.
First of all, generally speaking, we commented a lot of time that we discovered so many resources all around the world that definitely the appetite must be measured on this amount of additional resources that has been found in terms of quantities and in terms of, I would say, contractual terms. On this respect, we cannot comment about Iran because we don't know the contractual terms of the new mineral contracts in Iran. We, together with all the other oil and gas companies, are waiting for these, I would say, main terms. I guess that it will take some time in order to understand and possibly negotiate. Any decision on our side will be measured with what we already retain in our portfolio.
Perfect. Thank you very much.
Next question comes from Mr. Neill Morton from Investec. Mr. Morton, please.
Good afternoon. Thank you. I have two questions, please. Number of companies have reported a slow CapEx start to the year. Yours seems to be running ahead of guidance. I know you've reaffirmed a 20% reduction for the full year. Can we still assume around EUR 9 billion? Number in terms of modeling. Just secondly, I think there's been a little bit of confusion this morning around the sort of deconsolidation of Versalis. I was looking at page 28 of the press release. Can you perhaps explain why there's little difference in the revenues in terms of intercompany transactions, and yet there seems to be a big difference in the profit of Versalis? Thank you.
Okay. In terms of CapEx, yes. We recorded EUR 2.5 billion first quarter, slightly more than the average per quarter to come up with EUR 9.5 billion that remain our guidance by year-end. We are confirming the reduction by 20%, we announced during the strategy presentation. Reduction 2016 versus 2015. As well as, Neill, we are confirming our guidance to cover this amount of CapEx with a cash flow from operation based on $50 Brent. As far as Versalis, probably I need a bit more time to address correctly your question. Maybe Francesco could give you a detailed answer. Talking about the content of the press release, probably if you go to page 22, you will have a very straightforward answer. Page 22, you see the real chemical contribution that now is recorded as discontinuing operation.
I'm talking about, you see the EUR 119 million as adjusted operating profit, recorded by the chemical business in the first quarter of 2016. Looking at this report, you probably understand better what's confusing some people, because the way the IFRS 5 requires a representation of this discontinued operation definitely is not easy to be understood. You understand, about the consolidation adjustment that creates some confusion. You see EUR 399 million that are the intercompany cancellation of items that relates mainly Versalis. That reason why I mentioned this, because this number relates to mainly the virgin naphtha, all products that Eni buy on the market and sell to Versalis. That IFRS 5 requires to be canceled in the representation between continuing and discontinuing.
We sum up again when we represent the so-called standalone representation, because in the assumption that Versalis would be sold in the future, the revenue we are canceling today in this way we represent the number, will be definitely a net revenue for Eni. I hope I answered your question.
Just to confirm, there's no transfer pricing between Versalis and the rest of the Eni group. Is that?
No, there is a transfer price, but it's a fair value transfer price. We assume exactly the same result, if and when Versalis will be sold in the future.
Great. Thank you.
Okay.
Next question comes from Mr. Rob West from Redburn. Mr. West, please.
Oh, hi there. Thanks very much. Can I ask three? One is-
We can't understand you.
If I talk slower, is that a bit better?
Louder.
Okay. Question one, what is the receivables balance from Venezuela today? Question two, when will you reach 100,000 barrels a day of production at Goliat? What are the challenges or bottlenecks on the FPSO to get there? I think there's been some questions around gas injection and some of the electricals. I was hoping, please could you comment on that? The third one is, between last time you reported and today, we've had the 20F release. In that, I always look at the development wells drilled. It runs about 190 wells in 2013, 190 wells in 2014, and then a quite big pullback to 130 wells in 2015. My third question is that 130 wells per year a sustainable number? Do you need to increase that to avoid your decline rate going up? Thank you.
Okay. The outstanding today in Venezuela, if I remember well, is less than EUR 100 million. As far as the number of wells, I would say, this is the plan we are pursuing. It is fully coherent. We said that out of the development CapEx, more or less EUR 2 billion each year are devoted to counterbalance the natural depletion. The overall effect is the production growth that we declare, that we are confirming today. I guess it is not just a matter of how many wells we are projecting, or we drill in 2015. I think that the relationship is much broader than this to measure the final effect. Then I leave the floor to Antonio to answer about the Goliat ramp-up.
Thank you.
The ramp-up of Goliat is ongoing. As you know that we just been working on the gas injection, which recently working very well. In fact, yesterday we reached the production of 74,000 barrel with full injection gas. Definitely tuning is ongoing, but definitely the ramp-up will proceed, as you know, up for 100,000 barrel constant.
Thanks. Can I just ask, just to make sure I understood you correctly on that prior question. Do you think you can maintain drilling at 130-ish wells per year as an ongoing number?
130 well doesn't mean we have a production prediction per well. If we are better performing on those number of well, we will have a bigger ramp-up, and why not lower wells? Whatever is coming first. It's clear?
Fine.
Thank you.
Thank you.
Next question comes from Mr. Nitin Sharma from JPMorgan. Mr. Sharma, please.
Afternoon, gentlemen. Two questions. First one, Massimo, when you presented in March earlier this year, you flagged the distinction between tax rate on adjusted earnings and cash tax rate. I think you guided towards mid-30s for the cash tax rate. If I do a simplistic calculation for Q1, I end up with a slightly higher or significantly higher cash tax rate. Could you maybe confirm that guidance still holds and maybe give us what cash tax rate was in this quarter? The second question is on Libya. Clearly your performance in the country has been very good. Do you expect any further improvements in Libyan contribution if the conditions were to improve on the ground, i.e., national unity government formation? Maybe some thoughts on Libya, please. Thank you.
Okay. Talking about the cash tax rate, yes, you're right. In the first quarter, we recorded a cash tax rate a bit higher than the yearly guidance. We recorded something in the range of 35%, while the early guidance was lower than 30%. The early guidance is confirmed. We expect full year a cash tax rate below 30%. As far as Libya, the production contribution today is in the range of 340,000 barrels per day. We do not expect any increase, notwithstanding the better condition we see in place in country today.
Thank you, Massimo.
This is the last question, but if you like, you are allowed to register for other questions by pressing star followed by 1. Last question comes from Mr. Martijn Rats from Morgan Stanley. Mr. Martijn, please.
Hi. Hello. Thanks for taking my question. I wanted to ask you, Massimo, I just wanted to follow up on Neill's earlier question with regards to these reinstatement line items and elimination line items. I understand that if there are transactions between the standalone R&M business and the discontinued Versalis business, that there is some sort of revenue cancellation. It's not just that you're canceling revenues, you're canceling profits, and quite a lot of them. You make it sound like one part of the company buys something for another part of the company, and we're just canceling something out. There is a profit cancellation of EUR 399 million. I was hoping you could say a little bit more on that. The second thing I wanted to ask you relates to some press reports about the potential disposal of the retail gas business.
I was hoping you could give us an update on how that is progressing. Thank you.
Okay. Understanding the IFRS 5 reporting is quite complicated. I'll try to give you some detail on this. No, canceling the intercompany doesn't mean to cancel just the profit. It means, really, to cancel the revenues because the accounting principle required the cancellation of the intercompany, in this case, revenues between the continuing and discontinued. That's the reason why, if you see the continuing operations stand alone, because the reason to see just the continuing operation means to figure out the numbers as they will be after the disposition of what is under disposition. Saipem done and Versalis ongoing.
If you take just this way to represent and you ignore that Eni is buying, costs are recorded in Eni numbers, acquire virgin naphtha on the market to be resold to Versalis, and the reselling is canceled, definitely, you are piecing a quite important piece of the overall information. That's the reason why we created this, I would say, standalone way to represent the continuing operation, just to give you the full picture of what it will be after the disposition of Saipem and Versalis. The number you see, I mentioned this table, page 22 in the press release. This number, the EUR 399 that you see, is canceled under the discontinued operation, and then restated to create this standalone view, represents mainly exactly the effect I just told you. As far as retail gas and power, there is no process ongoing today.
All right. Okay. Perhaps I need to go back to some of my accounting books. Do you expect this to continue in the next couple of quarters then? As a separate line item.
I'm afraid yes.
Okay.
We'll do our best to give you, I would say, upfront a much better view in order to avoid any kind of confusion. We must cope at the same time with, I would say, the most clear and powerful representation and comply with the law, because we cannot ignore that we have to respect the IFRS 5, I'm afraid.
All right. Thank you.
Okay.
No more question at the moment.
Okay. Thank you very much, all. Bye-bye.
Ladies and gentlemen, the conference is over. Thank you for calling Eni.