Good afternoon, ladies and gentlemen, and welcome to Eni's 2015 fourth quarter and full year results conference call offered by Claudio Descalzi, Chief Executive Officer, and Massimo Mantovani, Chief Financial and Risk Management Officer. For the duration of the call, you will be in listen-only mode. At the end of the call, you will have the opportunity to ask questions. I'm now handing you over to your hosts to begin today's conference. Thank you.
Good afternoon and welcome to our fourth quarter and full-year results presentation. In 2015, we successfully delivered important milestones for our strategy, exceeding all our main targets for the year. In the upstream, we had the highest production growth rate among peers. We replaced 148% of produced volumes and confirmed all our standing exploration track record. In the mid downstream, we accelerated the turnaround of all our businesses. Gas and Power is close to breakeven, confirming that we are on track to hit full year plan targets. R&M is both EBIT and cash flow positive. Refining as a standalone has achieved EBIT breakeven two years ahead of plan, thanks to the reduction of our breakeven margin to about $5 per barrel. A major milestone of 2015 has been the dilution of the Saipem stake and the related debt repayment, an operation that has been completed this week.
This, together with the total exit from NAM and Galp and the ongoing negotiation aimed at reducing our ownership in the chemical sector, confirms Eni transformation strategy to an oil and gas company. The efficiency program, which we started well ahead of the decline in prices, delivered better than expected results. CapEx was reduced by 17% against the original guidance of 14%. OpEx by 13% against the planned 7%. G&A cost savings amounted to EUR 600 million, versus the guidance of EUR 500 million. All these results led us to reduce our organic coverage of CapEx to $50 per barrel in 2015 versus the $63 per barrel anticipated in our 2015-18 strategic plan. Due to the deconsolidation of Saipem's debt and our operating cash generation, we managed to cut the leverage to 22%, the lowest value in the last 10 years.
Let us now focus on cash, the most important target in a downturn cycle. With an operating cash flow of EUR 12.2 billion, we managed to keep our cash generation only 15% lower than in 2014, despite the 50% decline in the oil price. This cash performance, coupled with the reduction of CapEx to EUR 11 billion, generated a net cash flow of EUR 1.2 billion. Along with the disposals, this substantially covers our cash needs, including dividends. Compared to 2014, we offset almost two-thirds of the scenario impact by increasing cash generation thanks to production growth in E&P, operating cost savings, exposure to production sharing contracts, better performance in downstream segments, and further improvement of working capital. Now we will give you additional details and guidance for 2016 on the main factors that underpinned these dynamics: production growth and cost efficiency.
In production, we grew 10% in 2015, doubling the initial target. Thanks to the flexibility of our portfolio, we brought forward to 2015 part of the production growth that we planned in the four-year plan. This performance was due to 10 main startups in West Africa, the Americas, Italy, and the North Sea, the fast tracking of near-field discovery in Egypt, the contribution of Libyan gas fields, the one-off contribution from Iran and Libyan cost recovery that account for 42,000 barrels per day, and PSA assets that account for 3.8% of this growth. For 2016, we will maintain the same production level as last year, excluding the contribution of one-off factors. The key startups will be Goliat, Kashagan, and other main fields in Angola, Egypt, and the Gulf of Mexico. Let's now turn to cost.
On CapEx in 2015, we achieved a reduction of 17% thanks to the large optionality of our portfolio. We rephased more expensive and longer-term projects in favor of the development of near-field exploration successes, we leveraged the negotiation on rates and tariffs of services, reducing the total cost by EUR 500 million. In 2016, leveraging the same drivers, we will further reduce CapEx by 20% versus last year, even including Zohr, which is set to become a major contributor of additional production to the [Korea] plan, replacing longer term development. After two years of strict spending control, thanks to our focus on conventional and low-cost plays, we have materially reinforced the resilience and competitiveness of our upstream portfolio, while preserving our profitable growth target.
Upstream investing for barrels produced remains at the lowest level of our peer group. This will be further reduced by 43% by the end of this year versus 2014's level, to $14 per barrel. Moving now to operating costs, during 2015, we reduced OpEx to $7.20 per barrel, down by 13%, doubling the original target. Contract revisions, optimization of maintenance, lower energy feedstock prices, and logistics costs are at the basis of these savings. In 2016, we plan to further improve and deliver an OpEx per barrel down to $6.40 per barrel, 23% lower than in 2014. Our commitment to cost efficiency has also strongly impacted on G&A costs. In this area, we beat July 2014's target of EUR 500 million of savings by 20%. Main reduction has come from communication, logistics, and ICT. These savings will be confirmed in the [Korea] plan.
Finally, I would like to highlight how we will continue to fuel our future. Last year, we discovered 1.4 billion barrels, two-thirds of the 2015 and 2018 plan target, at a unit cost of $0.70 per barrel. We achieved these results through a very well-balanced exploration activity that focused on specific targets, limiting our investment to EUR 800 million. These resources, which were mainly discovered in North and Sub-Saharan Africa, are highly synergic with existing production hubs. Thanks to these discoveries, we will maximize the opportunity of our portfolio through the optimization of the development plan and the potential disposal of stakes where we have a high participating interest. In terms of reserves replacement, we achieved a ratio of 148%, with around seven billion barrels of entirely conventional proved reserves. We have kept our reserves life index at around 11 years.
This result does not take into account the contributions of Zohr and Coral, which will be sanctioned in 2016. Now Massimo will give you the highlight of 2015 economic and financial results.
Thank you, Claudio. First of all, let me remark that the pro forma group figures exclude Saipem and Versalis contribution, as they have been reclassified as available for sale. While the effect of the Saipem transaction, now closed, by the way, this morning we cashed in the latest part of the raw proceeds, are in this representation anticipated at December 31st, 2015. Anyway, in the press release, you can find all detailed information to reconcile the reported versus the pro forma figures. Passing now to the numbers, adjusted operating profit in 2015 was EUR 4.1 billion, down 64% versus last year. The deterioration of scenarios, estimated at EUR 8.8 billion, and some 2014 retroactive benefits in Gas & Power of EUR 0.7 billion, were partially offset by EUR 2.2 billion of positive performance, mainly volume growth and increased operating efficiency and flexibility.
In detail, Upstream accounted for the vast majority of this result with an EBIT of EUR 4.1 billion. This was actually strong performance pulled by higher production and lower OpEx and exploration cost, counteracting a very negative scenario that weighted minus EUR 9 billion. Gas & Power was close to breakeven, notwithstanding the worse than expected outcome of one commercial arbitration. Yet this result is in line with our guidance of being close to breakeven despite the delay of GasTerra arbitration now expected by the second quarter of this year. Excluding the positive contribution in 2014 of retroactive effects implied in some gas renegotiation, 2015 results were much better than the previous year, thanks to the rollover of revised gas contracts, including one-off items. R&M recorded a strong year with EBIT adjusted improvement of around EUR 450 million over 2014. Refining breakeven was achieved thanks to better scenario and refining optimization.
Adjusted net income in 2015 was EUR 336 million, down 91% versus 2014. It was affected by 93% tax rate, mainly driven by the larger weight of some trends, mainly PSA effect in E&P, that recorded an 81% tax rate. PSA are in fact much more resilient in economic terms than concessions, but with higher tax rate. Second, the overall group losses of other sectors, mainly in Italy, with no deferred tax asset associated. Third, non-deductible costs such as exploration, that in 2015 represented a higher percentage of the depressed pre-tax profit. On the latter effect, it's worth saying that the adoption of successful efforts method would reduce the Eni tax rate by five percentage points. This, combined with the normalization non-deductible cost I mentioned before, would reduce the Eni tax rate to around 70%.
Finally, to complete my comment about taxes, let me highlight that from a cash perspective, in 2015, we paid Eni a cash tax rate of around 34%, slightly lower than in 2014. Now I would like to highlight that these days we completed the Saipem deal, and we are now cashing in the full proceeds. The deal, you might remember, was composed of three main steps. First, the sale of 12.5% of Saipem to the Italian Strategic Fund occurred the 22nd of January 2016, which implied a cash-in of EUR 463 million. With the say, we entered in a 50/50 shareholder agreement with FSI, representing 25% combined shareholding. Second, the pro quota subscription of Saipem capital increase for slightly more than EUR 1 billion. Third, the full repayment of Saipem intercompany net debt amounting to EUR 5.4 billion. As a result, the Eni net debt reduction has been EUR 4.8 billion.
Saipem will be equity accounted for by Eni starting from January 2016. Now I would like to stress our positive financial performance. Pro forma net debt at year-end was down to EUR 11.7 billion, implying a leverage at 22%. This significant improvement versus 2014, in spite of the challenging scenario, was achieved mainly thanks to a resilient contribution from operations sourced by lower cost, PSA, as well as further improvement of working capital. It's worth mentioning that the working capital contribution is partially due to non-recurring action amounting to EUR 2.2 billion, EUR 1.6 billion more than 2014, benefiting from take-or-pay recovery, cash-in of fiscal credits, recovery of commercial overdue, and liquid destocking. Second, the Saipem transaction I just commented.
Third, a EUR 2.1 billion of cash from disposals, including the proceeds from Galp and Snam, the latter only partially cashed in in 2015, as well as from the sale of non-strategic upstream and R&M assets. Now I will hand it over to Claudio for his final remarks.
Thank you, Massimo. 2015 was a crucial year for the implementation of our transformation plan. Eni is now more focused on core business and more resilient to deal with the lower oil price environment. In summary, we beat all our main targets and lowered our cash breakeven. Now we have a leaner, less leveraged company with a higher degree of optionality and positioned to overcome a longer downturn. In 2016, we will maintain our current production level without the contribution of one-off factors recorded last year. We will further reduce CapEx by 20% and OpEx by 11% and confirm the organic coverage of CapEx at $50 per barrel without the contribution of the working capital recovery that we had in 2015. On the basis of this result, I am pleased to announce that the 2015 final dividend proposal is confirmed to EUR 0.40 per share.
Now, together with the management team, we will be happy to answer your questions. Thank you.
Ladies and gentlemen, the Q&A session is now open. I'd like to remind you that if you want to register for your questions, please press star followed by one. To cancel the reservation, press star followed by two. Thank you. First question comes from Mr. Hamish Clegg from Bank of America. Mr. Clegg, please.
A few quick questions. First of all, I was wondering if you could tell us a little bit about the precise timing of Saipem cash hitting your balance sheet. I assume it's going to be in Q1. Secondly, on Gas & Power, there were a few slight sort of bumps in the road. Could you give us a little bit of an update on where we are with that? Are you still considering a disposal of the retail side of the business? Also, could you tell us a bit more about the sale and the disposal you've alluded to in this set of results that's led to you treating it as a discontinued item?
If you're in the updating mode, Goliat would be nice to have a bit of an update on as well in terms of how things are progressing there with meeting those safety standards and producing first oil. Thank you.
Okay. In terms of cash in the first quarter from Saipem transaction, the overall cash in amounting to EUR 5.8 billion. Starting from a EUR 5.4 billion net debt of Saipem, this is the net value. Plus EUR 0.6 billion of liquidity, total EUR 6 billion. EUR 200 million was the third-party debt. We cashed in EUR 5.8 billion, out of which EUR 0.6 billion is being utilized to complete the Saipem transaction. I mean, to subscribe the capital increase in the range of EUR 1 billion, as I just said before, minus EUR 460 million in terms of price we cashed for the shares. As far as the remaining part of the proceed cash in, we utilized, or we will utilize EUR 3.5 billion in terms of debt repayment, and the remaining EUR 1.7 billion is in additional liquidity.
Retail gas?
For retail gas, what we said in July 2014 was that Gas & Power retail business is not a typical business of an oil and gas company. We want to fully unlock the value in this segment. For the near future, we will focus on enhancing retail gas performance. We are focused on this segment to enhance and create more efficiency. That is what we are focused at that moment.
Okay.
Goliat? Roberto.
We can do Versalis and Goliat were the last two I was wondering about, yeah.
Okay. I continue on Versalis. You know that Versalis is a part of our transformations, and to go toward an integrated oil and gas company. As you know, what we are doing now is to dilute our position, our interest in Versalis. There are ongoing negotiations. Before we started a two years turnaround, and we got very positive result. We got a positive result after 20 years. Now we are discussing, because it's a commercial negotiation ongoing, I cannot say more than that.
Okay.
About Goliat, the consent to put in service has been obtained around mid-January, in addition to other important permits from the environmental point of view. Now according to the Norwegian procedures, there are five weeks for public hearings. Immediately after, we will prepare the platform for the startup.
Okay, thanks.
Okay. I don't know if my first answer has been clear in terms of timing. All the numbers I just mentioned will be cashed in, or been cashed in these days. Starting from the 22nd of January, about the shares to today. Everything will be recorded in the first quarter.
Excellent. Thanks a lot, guys.
Awesome.
Next question comes from Mr. Clint Oswald from Bernstein. Mr. Clint, please.
Thank you. Just on the CapEx reduction for 2016, it's kind of split between the rephasing of projects, the exploration selectivity, and contract renegotiation. Can you say which of those was the key toggle that allowed you to reduce CapEx? Is it all of them, or is it one of them? Which one could be used further, if prices stay below your $50 scenario for this year? Secondly, just a quick one on, obviously your liquids production strong last year. You mentioned Iraq and Libya contributing to that. Can you give us some indication of what you expect for those two countries for 2016, please? Thank you.
Okay, thank you. First of all, 2015, the flexibility and capacity reduction is clearly that concern all the three points you said, I think that there are optionality that Eni has because of the large amount of reserves that we found, gave us the possibility to move from complex and longer and expensive project to projects that are simpler and that we can put in production faster with less costs. That was a very important component, and that is something that we are going to continue and give benefits also in the next years. With also a reduction in the supply chain, that we can account for some percentage because mainly we have reduction in drilling rigs, for example, and in some materials. That are the two components. Clearly, the supply chain for the future will improve.
We are negotiating a lot of contracts, That will be a very important part of our cost reduction for the next period. For production, during the presentation, we talked about Iraq and Iran. We were talking about I'm sorry, in Libya, there are different things. We are talking about past costs that we recovered and increase in production, for example, in some Libyan gas field. Some of this production is a one-off, there is a little cost in Iran and some cost in Iraq, The other production is also for the future, is in the continuing organic production growth.
Okay, perfect. Thank you.
Next question comes from Mr. Jason Kenney from Santander. Mr. Kenney, please.
Hi there. Good afternoon, and thanks for hosting the call. I'm very excited about Zohr in Egypt, as I'm sure you are. I don't know if you put a CapEx number in place specifically for the project, but I'm thinking EUR 7 billion-EUR 8 billion for the project. I'm wondering-
Sorry, can you repeat? I imagine you said?
EUR 7 billion-EUR 8 billion.
Okay.
I'm wondering if that displaces particular spend on other assets and which regions we should be looking at for displaced spend or deferred commitments. Maybe just break out the ins and outs on where CapEx could be medium term. I'm not looking for a very specific number on CapEx on a 2018-2019 basis, but just which projects are going to be falling by the wayside so that Zohr can be focused on. Then maybe just on the back of the Zohr focus, any commentary on the domestic gas price outlook in Egypt would be much appreciated.
Okay. It's clear that we are using our CapEx, and Zohr is a new one. It's entering the end user place in the other long-term project, as I said, that are maybe more expensive or longer in terms of first production. We are replacing a project that is going to deliver production for our plan in a couple of years, and we are displacing out our other projects that are longer and more expensive. I can talk about Iraq, I can talk about Venezuela, some project in Indonesia that we are not operating, and some projects in Norway that we're not operating. We found a place replacing the other, pushing our other project. We found place for Zohr also with the cost reduction exercise.
Our plan is more efficient than before because we took advantage of the supply chain that improved in terms of cost efficiency. That is the reason.
Excellent.
The second question was about?
Egypt gas prices.
Egypt gas prices, domestic gas. Most of the gas as well will be delivered to the domestic gas. For that domestic gas, we negotiate securitization agreements, not just in terms of CapEx, but also in terms of payment. We negotiate a new format for price to stabilize the value and give stability to the return of these projects.
Okay.
Thank you.
Next question comes from Ms. Irene Himona from SG. Ms. Himona, please.
Thank you. Good afternoon. I had two questions, please. Firstly, on Coral's floating LNG. Can you clarify what percentage of the capacity you have either pre-sold or are about to pre-sell? Because according to BP, you're still in negotiations with them, which may or may not reach agreement. Are you prepared to discuss the issue of CapEx for launching the project? My second question on refining. You mentioned that refining broke even in 2015. Obviously, that was partly thanks to record high margins, which are unlikely to be sustainable. Can you clarify where you are in terms of the restructuring? What has been achieved so far on cost and capacity, importantly, what remains or needs to be done in an environment where margins are likely to weaken? Thank you.
Okay, thanks. Umberto Gherghella will answer for gas.
Thank you. We are in these days in the final stage of a binding sales and purchase agreement with BP. As a matter of fact, the negotiation is finished, and we are through the document finalization. BP is sole buyer of all the production from Coral, and this for a contract lasting 20 years.
This includes also any upside production that the vessel will be able to produce. Continue with this monopoly question, about the timing. All right. The turnaround strategy in our refining business is a three-pillar strategy. First of all, the rationalization of the weaker assets. Second, the optimization of processes and costs. Thirdly, the continuous improvement in efficiency. What we have done so far, the rationalization has been achieved on 33% of our original refining capacity through the conversion of Venice Refinery, in between 2012 and 2013. In May, we started up a new plant. Secondly, we shut down at the end of 2013, the Gela Refinery, a milestone in our turnaround strategy. Thirdly, we sold the CRC stake, and the refinery was done in April 2015, and we also closed some minor lines like the visbreaking thermal cracking in Taranto, 3% of our capacity.
In terms of efficiency, last year only, we reduced the fixed cost of refining per barrels by 25%, $1.50, and this means that the breakeven margin of our refinery has been lowered from $6.50 to around $5 per barrel. Now, what is still to be done, we will focus on our current assets to further enhance the profitability. The drivers of this enhancement in profitability is the ramp-up in full deployment of the EST technology in Sannazzaro. That is a really strong competitive advantage in view of the bunkering specification change occurring in 2020. Secondly, the conversion of the refinery of Gela, and we are working to complete the mechanical completion of the plant by 2017. Finally, we continue with efficiency cost.
Thank you very much.
Thank you.
Next question comes from Mr. Dario Michi from Banca Akros. Mr. Michi, please.
Hi, good afternoon. Thank you for taking my questions. The first one refers to the growth. You are the only company sanctioning new projects in this context, and this is sustaining your growth in the coming years. As regards 2016, and the flat guidance you have provided for, what's the level of contingencies embedded in your guidance? The second question is on the leverage. Even in this case, you have a quite unique approach in the sector, pointing to reduce it. The pro forma leverage is among the lower in the sector at 22%. What's the theoretical value factoring in the deconsolidation of Versalis, if possible? Thank you.
Thank you. I'm going to answer to the first question and Massimo to the second one. I'd like to specify and remind that we said that we are going to produce the same amount of barrels in 2016, but it's not a flat production. Why? Because in 2015, we had a one-off production coming, as we said, from Iran and from Iraq for 42,000 barrels per day. That means that this one-off will not be present this year. That means that we are going to increase this year about 42,000 barrels per day because we are going to keep the same organically, so we keep the same production. That is an additional contribution. We have contingency. We have contingency, and we have contingency for the full year plan.
We don't want now to disclose contingency today, but clearly, we have a good range of contingency to capture all the possible situations that we can face in the next full year plan, geopolitical and others. We are growing first, and secondly, we have contingency that we will be in a better position to disclose or describe during the strategy presentation in March. Okay, Dario, I cannot reveal the exact number about Versalis because you understand it's a sensible number. Having reclassified Versalis as available for sale by the end of this year, you may understand that the advantage could be, I would say, there would be an advantage, but not so much after this reclassification.
Thank you.
Next question comes from Mr. Harry Tarr from Goldman Sachs. Mr. Tarr, please.
Hi, thanks for taking my question. Just a couple of quick questions. Firstly, what visibility do you have on the OpEx reductions at this point? You're talking about sort of 11%, I think, on a per barrel basis. Is there potential beyond that? Secondly, please could you give a quick update on the outlook in Libya? Thirdly, obviously your balance sheet is
Significantly strengthened now with the Saipem cash coming in, et cetera. Have you any comment on or interest in talking about potential acquisitions at this point? Thanks.
First of all, OpEx. We have a clear vision about our production because we declared that. It's clear that we're going to continue, as we said, on the same track, on the same pace we had in 2015. That is mainly due to logistics and other specific items linked to the, for example, the global maintenance of our different plants and also the fuel, so that we have different kinds of renegotiation that we already closed and some ongoing for the operating costs in the different places. That will allow us to work on about $6.40 per barrel. That is really a very low value. That is something that we can consider closed in terms of supply chain and in terms of activities, in terms of downturn of some plants.
For Libya, the environment, I think that you heard that in the recent days, in the past days, we had some issues, not far from our facilities. Our facility has not been touched, so our colleagues are working without any problem. From an environment point of view, I think that we can remark some progress in the negotiation, in the positive, concrete, pragmatic talk between the different parties. They are talking, they are working to complete and approve the government. What we noticed that is very positive, that the different militias, now we can call no more militia, but the Libyan army is reacting very positively, and they are defending their territory. What happened in Sabratha, I think that has been a clear example that different militia from different parts and different camps work together to create and stabilize the situation. That was very positive.
We have a strong protection, also passive protection, because in the last year, we had time to create a strong defense to all the installations. We have a clearly very important security emergency plan to evacuate our people, and there will be strong defense on our installation as in Mellitah. We can have all the time to put our people in a safe position. The situation, respect to one year ago, also, if there are some trouble in the recent past, the situation is improving, is much better, and creation and discussion are progressing, and from what I understood, are progressing positively. Acquisition? Okay, Harry, about acquisition. As Claudio indirectly explained, talking about our project portfolio, we don't need any acquisition to perform the production growth we promised.
We are even in the position to select, Zohr is just an example of this, select the best project to start in this environment to keep as low as possible the cost and to perform the better project. Unless for, we do not envisage anything like this opportunistic occasion on this, again, acquisition are not in our radar screen today. I'd like Massimo to add a few things about that, just reinforcing this point why we don't think that we need. If you look at our costs, and we work a lot in the last couple of years on our costs. Now we reach an exploration cost per barrel of $0.70 per barrel. We have an OpEx of $6.40 per barrel and a CapEx per barrel over $14. You can see that in our assets, we are reducing drastically the break-even price.
I think that there is no other better opportunity than to develop our assets. That is what we are going to do.
Very clear. Thank you.
Next question come from Ms. Kim Fustier from HSBC. Ms. Fustier, please.
Oh, hi. Yeah, good afternoon. I had a couple of questions, please. The first one is just a clarification question on CapEx. Just wanted to confirm that the 20% reduction for this year is from a 2015 base number that includes only the continuing businesses, i.e., that excludes the CapEx on Saipem and Versalis. The second question is just around the definition of your free cash break-even. Could you just clarify whether you expect to cover CapEx with cash flow from operations at $50 or also to cover dividends, but with help from disposals? What would that free cash break-even be without the disposals? Thanks.
In term of cash projection, I think that the better opportunity to talk about this kind of projection forward is our strategy presentation mid-March, in the coming days. What we could anticipate, talking about 2016, as Claudio highlighted, is that what we succeeded to do in 2015, that we can confirm in 2016, even without significant contribution from working capital that we highlighted during our presentation, we can match our CapEx at around $50 per barrel. In this way, we will anticipate by $13 per barrel the target that we set when we presented our strategy last March. On the longer term, I'll be back on this issue, talking about the strategy. Yes, I can confirm that the 20% reduction in CapEx is without Versalis and without Saipem, this is what we call a continuing operation in this presentation.
Thank you.
Next question comes from Mr. Massimo Bonisoli from Equita. Mr. Bonisoli, please.
Thank you and good afternoon, gentlemen. Two quick question. Regarding Zohr field again, could you give us some color on the OpEx level in 2019 when you target to produce 500,000 barrels per day? I imagine they are pretty low in the first development phase, so just to understand the profitability contribution in that year. The second question, at $50 oil price in 2016, what would be the underlying tax rate and cash taxes implicit in the guidance of free cash flow break-even?
The first answer, quick question is $2.50 per barrel. Now Massimo for the longer one. Okay. As far as the tax rate, I just commented that tax rate in 2015 has been high, I said 90% because of the reason I just explained, the low level of Brent that emphasized some non-taxable, non-deductible items. In 2016, when we are projecting $40 per barrels, by definition, this phenomenon would be emphasized some way. Turning on the cash perspective of this issue, I just said that on a cash basis, we recorded in 2015 a cash tax rate in the range of 34%. What I could say that in 2016, this cash tax rate would be in the range of 30% or even slightly lower than 30%.
Very clear.
What I just mentioned is the E&P, because my comment during the presentation related to the E&P tax rate.
Yeah.
If you would like to have some guidance on the corporate and the overall tax rate, the trend is exactly the same. What you should do is to add just very few percentage points.
Very good. Thank you.
Welcome, Judith.
The next question comes from Mr. Biraj Borkhataria from RBC. Mr. Borkhataria, please.
Hi. Thanks for taking my questions. Sorry, excuse me. Just thinking longer term, you lowered your oil price outlook to $65 a barrel. I was wondering, what kind of return on capital can you generate at that oil price in, let's say, 2017 or 2018? That would be my first question. The second question, just going back to one of the previous questions, but asking it in a slightly different way. If you're covering your CapEx organically from cash flow at $50 per barrel, I know previously you've given sensitivities on your free cash flow for each dollar move in Brent. Using that, it would imply your free cash flow post dividends would be around $70 a barrel.
I'm just wondering, would there be any reason that those previous sensitivities would no longer be valid or would have changed since the last time you gave them? Thanks.
No. Sensitivities remain substantially the one that we previously mentioned. In term of, as I said before, our, I would say, coverage, including dividend in the longer term, what we would like to do maybe is to postpone this kind of treatment during our pre-strategy presentation in March.
65, yes. Return of 65.
65. In terms of return, I cannot give you the overall internal rate of return. Following what Claudio just said, every project that now we are performing, I would say, has a breakeven that is well below the scenario that we are projecting. The 65 longer-term Brent price we are projecting in the new scenario do not have any kind of effect in the portfolio project we are performing. Every project will remain higher than the weighted average cost of capital we have in place.
That's for everybody. We have to keep something for the strategy day. We already tell you everything completely empty. We are going to really elaborate on this issue, price, and returns at different kind of price in our scenario during the strategy presentation. Thank you.
Understood. Thanks for the color.
Next question comes from Miss Lydia Rainforth from Barclays. Miss Rainforth, please.
Thank you. Thank you very much for taking the questions. Just two on the cost base, if I could. The first one on the G&A reduction of 30%, which has clearly been impressive since last year. It does look like 2016 impacted it. It is flat year-over-year. Is that a reflection of just being conservative in terms of the guidance, or do you now think that the headquarters and that corporate's cost center is as efficient as it possibly can be? The second one was on the OpEx side, and again, I suspect some of this might get pushed to the [strategy] presentation. The last time that we were at an oil price of $50 a barrel, which is where, actually, where you are looking to be cash flow breakeven at, the OpEx barrel was about $4, from memory.
Is it possible to actually get back to that sort of level of cost, do you think, over the next two to three years? Has its portfolio changed significantly from that? Thank you.
I can answer about G&A.
On the OpEx, honestly, because we couldn't hear you very good. If you can maybe repeat the question on the OpEx.
Sorry. The question on the OpEx was, if I'm looking at the company being cash flow breakeven at $50 a barrel. The last time you were at $50 a barrel was back in sort of 2005, 2006. The OpEx per barrel was about $4, roughly from memory. I'm just wondering whether or not over the next two to three years it's feasible to think about us getting back to that sort of level of OpEx or whether the portfolio really is slightly different now to where it was then.
Okay. I give you the answer about G&A. You mentioned maybe that we're being a bit conservative in giving the guidance. We entered this G&A cost saving project one half year ago with some target, and we recognize performing this exercise, that day by day we can do more. This EUR 100 million is exactly the result of what is being achieved in addition versus the original target. This is what is envisaged in existing project that are already in place and relate to savings that has been already achieved. Now Claudio said that this level is definitely confirmed for the four years to come. I cannot exclude that presenting the strategy presentation may be completed. Having completed some more exercise in terms of potential cost saving addition, we will have something more to say.
About the $4 per barrel in term of OpEx, sincerely, I don't know. Sincerely, we don't have right now a projection to come back to the $4 per barrel, really. Maybe, as Claudio said, we can elaborate a little bit more, maybe mid-March, Lydia.
Thank you very much.
It was the last question.
Okay. Thank you.
Ladies and gentlemen, the conference is over. Thank you for calling Eni.