Good morning, ladies and gentlemen, welcome to Eni's 2015 interim update and second quarter results conference call, hosted by Claudio Descalzi, Chief Executive Officer, and Massimo Mondazzi, 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 morning, welcome to our first half result and strategy update presentation. Before opening the Q&A session, I would like to give you a brief update on the status of the strategic plan. Last year, we launched a deep transformation of the company by focusing on the upstream business, restructuring the mid downstream, and delivering an extensive program of cost efficiency. The strength of today's result confirms that we are well ahead of the plan. In the first half of the year, Eni increased production by 9%, the highest growth rate since the early 2000s. It is thanks to the timely startups, the steady contribution from legacy assets, and contract renegotiation driven by the oil price drop. In mid downstream, results were positive and further improving. R&M and chemicals return to profits after eight years, this is a major milestone in our turnaround plan.
CapEx is in line with target, OpEx per barrel is reduced by 10%, exceeding our guidance of 7% savings. This will further enhance the efficiency of our operations end result. The most significant achievement of our action plan has been cash generation. Despite the 50% reduction in the oil price in the first half of this year, we generated the same amount of cash flow from operations as in the first half of 2014, EUR 5.7 billion funding almost all our CapEx. In Eni, first half production was 1,726,000 barrels per day, 9% higher compared to 2014. This is thanks to production optimization in the existing fields, startups in the Gulf of Mexico, Congo, Angola, U.K., and Norway, and contract renegotiations. On this last point, I would like to highlight the agreement reached in Egypt.
This agreement brings immediate benefits in terms of production growth and improved gas pricing for new projects, such as the fast-track development of the recent Nooros discovery, which will start up in the few months. In the second quarter, production indeed remained steady. In early July, we started up the Perla gas field in Venezuela. It is currently ramped up and will contribute 40,000 barrels per day in the first stage of the project. In few weeks, we'll complete the commissioning of Goliat, which will add 65,000 barrels per day. The 2015 startups, together with the ramp-ups from 2014, will contribute 170,000 barrels per day to our production. Considering the strong performance, we upgrade our production guidance to over 7% growth versus the original target of 5%.
In exploration in the first six months, we drilled 15 wells and discovered 300 million barrel of resources in Libya, Egypt, and Indonesia, and in the pre-salt plays of West Africa. These results confirm our strategy of focusing on near-field activity and appraisals. The unit exploration cost of $1.70 per barrel reinforces Eni industry leading position in this core sector. This first half has been successful also in reloading our exploration opportunities with more than 25,000 square kilometers of new acreage in Myanmar, U.K., Norway, Ivory Coast, Egypt, and we signed an important agreement for the Isatay block in Kazakhstan. These results make us confident to exceed our original target of 500 million barrels of discovered resources.
In the mid downstream, we recorded positive results in gas and power, R&M, and chemicals for the second quarter in a row as a result of the execution of the restructuring plan and the better scenario. EBIT improvement is clearly visible with an increase of EUR 900 million versus the first half of 2014. The EBIT improvement represents around one third of the strong cash performance amounting to an overall EUR 3.4 billion. The remaining two-third comes from further optimization of working capital, including recovery overview, factoring, and other items. Thanks to the restructuring plan and considering current market conditions, we're further enhancing two parts of our guidance. We will bring the breakeven chemical business forward by one year. Furthermore, we will anticipate the economic breakeven of our refineries, originally planned in 2017, to this year.
This is a consequence of the improved breakeven margin from $7.5 per barrel to $5.3 per barrel, which is halfway toward the 2010 target of $3 per barrel. For gas and power, a positive economic result in 2015 is due to the conclusion of the ongoing arbitration, and we will confirm the structural breakeven of this segment from 2016. As stated during our last presentation, cost efficiency is one of the major objectives, and we are fully committed to this. The results here are already showing very encouraging progress beyond the initial targets. We lowered our upstream OpEx by 10% to $7.3 per barrel, exceeding our original guidance on the back of structural initiatives in logistics, contract renegotiation, maintenance, energy efficiency, and also more highly efficient production.
In the first half, we reduced our overall capital expenditure by 10% compared to last year, and we confirm the original guidance of cutting CapEx by 14% for the full year, excluding the impact of the recent Egyptian renegotiation. In G&A, we delivered EUR 500 million of structured cost saving, truly benefiting from the cost-saving program we launched in May 2014. These actions give us a cash improvement of EUR 1.4 billion. In the first half of 2015, we significantly improved the industrial performance of all the sectors. Without considering the scenario in the Saipem portfolio reassessment, we have achieved an EBIT improvement of EUR 800 million. In E&P, we increased our results by almost EUR 600 million, thanks to higher production and lower OpEx development costs and exploration expenditures. In mid downstream, as a result of the restructuring, all segments improved their performance.
In the first half, we generated EUR 5.7 billion of operating cash flow, which is the same as in the first half of 2014, a remarkable result taking into account the $50 fall in Brent and the lower performance in the engineering and construction business. This strong operating cash flow, almost funding the current capital expenditure, makes us even more confident in confirming the target to fully cover our CapEx during 2015 and 2016 in a price environment of around $60 per barrel. EUR 600 million of disposal have already been cashed in during the first half of the year, and further negotiations are underway. We confirm the overall target announced in March. In June, leverage was 26%, including the 2014 dividend payment and well under our limit of 30%. Based on the first half robust operating performance, we are upgrading our 2015 targets.
In E&P, we raised our production growth from 5% to 7%. We will be EBIT positive in gas and power. We anticipate the breakeven in refining by two years at the current scenario. In chemicals, given the current market trend, we will reach breakeven one year earlier. We are well on track to achieve cash neutrality in the 2015-2016 low price environment. Finally, thanks to these positive results, I will propose to my board an interim dividend of EUR 0.40 per share. Thank you very much. Now we are ready with the CFO and the company management to answer your questions.
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. Theepan Jothilingam from Nomura International. Mr. Jothilingam, please.
Hi, good morning, gentlemen. Firstly, congratulations on the progress in refining and chemicals. I had three questions. Firstly, just working capital. We saw another release there. I was just wondering if you could clarify how much is left in terms of the benefits from the gas prepayments. Secondly, could you give us any indications on how the negotiations are going with GasTerra?
Thirdly, Claudio, I think you've talked about deconsolidating the debt with Saipem as a priority. Clearly, the more recent update suggests that there is more stretch on Saipem's balance sheet. I want to know how you would think about potentially having to participate in a potential rights issue at Saipem. Thank you.
Thank you. Gaz?
In respect of our take-or-pay position, first of all, thanks to our closed agreement, we will not incur any more in take-or-pay, and we will continue to recover the advance paid for contractual volume that were not collected in the past. Regarding this, at the end of 2014, the value of the take-or-pay gas was, on a cash basis, EUR 1.3 billion, and we expect to reduce it by the end of this year to EUR 300 million. This remaining value will be also easily recovered during the remaining plan period.
GasTerra.
For what relates to GasTerra, on the GasTerra arbitration, that is in relation to two of the three contracts we have with them. The first arbitration award is expected by the end of this year or early next year.
Thank you. Now, on Saipem. First of all, let me say that after the presentation of yesterday, I think that today, Saipem management is taking the right steps with a very strong action in terms of cost efficiency, a refocalization, a restructure in term of industrial activities. As you know, we have to wait in September to have a full vision of the business plan. Then, we'll see. I think that Saipem remain one of the first strong contractor in the sector and covering engineering, construction, offshore, onshore. I'm really confident that it can recover very quickly. On our position as a shareholder, you know that our target is to deconsolidate the debt, and we are working on that. I don't want to make any additional comment. Thank you.
Next question comes from Mr. Oswald Clint from Sanford Bernstein. Mr. Clint, please.
Yes, thank you very much. Two questions. First one, just on the contingency that you have inbuilt into your production guidance, for this year and the next couple of years, seems to be obviously in excess of what's playing out. Can you just remind us what types of factors you build in there and on what could, certainly if they don't play out in the second half, seems like there might be scope for volumes going up much higher. Would that be fair to say? Secondly, on Venezuela, Perla clearly becomes a bit more material to you over the next few years. Can you just talk about ensuring payment, the gas sales, or what's the mechanism for ensuring you get paid there? Obviously, Saipem this week speaking about not being paid in Venezuela.
Just want to know how Eni expects to get paid there for that gas. Thank you.
Thank you. Contingency in production. We took at the very beginning of the year a very high contingency. We released part of this contingency, not all, because we are still possibly geopolitical issues. It's clear that if everything continue like now with the new entry, new startups, and ramp-ups from 2014, we have still some good quantity of production that we're going to release by the end of the year with some possible upside potential also in term of cash and EBIT. For Venezuela, Perla is doing very well. We are in a ramp path and a very positive ramp path in term of production for each well. The production is doing very well. A payment, until now, I have to say that we don't have any outstanding payment in Venezuela. We are being repaid by our Gas del Sur project.
We have a securitization, not only a guarantee. Normally, what it works, that payment or they pay cash payment, or they pay through crude. I think that Perla Gas is an essential step for Venezuela because Venezuela bought gas from Colombia, and now they have all the gas they need for the domestic project. I am confident because we put in place the right mechanism, and I am confident because until now, Venezuela has been always punctual in payment.
Very clear. Thank you.
Next question comes from Mr. Thomas Adolff from Credit Suisse. Mr. Thomas, please.
Hi. Thanks for taking my questions. I have three, I'm afraid. The first one on your legacy assets. Remind us how much you spent to maintain your base business in E&P. Presumably you haven't really cut it year-on-year, and you stated earlier on that your portfolio decline rate is actually improving, and I believe your target before was about 5%, now you're seeing 4%. Perhaps if you can talk about how you're achieving that and with some details. Going back to Oswald's question on contingencies. Wanted to get a sense for how much it is. Is it 80-100 KBD, and how much of that did you actually produce in the first half of the year? Sticking to production, I wonder whether you can quantify the benefits from the Egyptian contract renegotiations in terms of volume and cash uplift.
Finally, if I may, on the disposal target, over the full four-year plan, you aim EUR 8 billion, which obviously doesn't factor in the potential gas retail sale or Saipem. I wonder whether from a seller's perspective, what you're seeing on the bid to ask, whether that's actually narrowing, and whether that's actually a function of the seller making some concessions. Thank you. What progress you're making on those targets. Thanks.
Thank you. We start from legacy asset that I think that you touch a very important point because we got a lot of improvement and also satisfaction about these assets. That is part of our strategy. When we talk about legacy asset, and we talk about production optimization, is a continue working on existing asset and also continue working not just from a production point of view, but also from an appraisal and exploration point of view. When we have an asset, we don't stop looking at it just as a producer unit, but something more. That is an example in Egypt where we increase drastically all our shares, the same in Angola, the same in Congo, in Nigeria, Algeria. I think that we have so many examples where we can increase production from the existing asset. That is really our philosophy, is our culture.
About the cost, I think that investing in the existing asset is one of the secrets of our low OpEx. We succeeding also in a reduction of our OpEx, and we reach $7.6 per barrel. That I think is the best in the industry. That because working on these assets means that you can use synergy with the existing facilities, infrastructures, knowledge, and you can be faster to have your production, and also much less expensive. You ask me the secret, I tell you part of the secret. I cannot disclose all the secrets. In term of contingency, I already answer. I don't want to say more than what I said. I said that we released 50% of our contingency, and we are still a huge amount of production.
I want to disclose now, clearly that is something that we hope that we can release at the end of the year. Maybe we are going to release partially at 20%-25% in the third quarter and the rest at the end, but we want to be very prudent on that. On Egypt, I ask Antonio Vella to answer to your question.
The contribution of the renegotiation in Egypt year-to-date is going to be 24,000 barrels.
I am going to elaborate a little bit more on the answer. I think that the Egypt agreement is a crucial one, because open up something that is new. I mean that the price is low. We are able, in a very proactive and friendly way, to reopen some contracts in term of gas price, and that is essential to give value to all our discoveries that we did in the past. With a different price, we can develop without any problem, and that was part of the achievement, and I think that we can say that this kind of achievement of the gas can open up about 1.52 TCF for additional gas to be produced there. That is good for us, but it's good mainly for Egypt, that is really seeking for gas. The other point is also on the oil part.
We were able to also increase some parameter in the contract to be able to invest more and recover the investment also at a very low price scenario. Disposal, Massimo Mondazzi will answer on the disposal.
Hi, Massimo speaking. As far as disposal, as said, we are confirming our overall target of EUR 8 billion in the four-year plan. Up to now, we got EUR 600 million, mainly in Nigeria. We are going on disposing the NAM and Galp remaining shares, please keep this position, as I would say, with a high level of certainty.
As far as the E&P assets, a certain number of discussions are going on, and we are quite comfortable about the final expectation. That is the reason why, as I said before, we are confirming the overall guidelines.
Thank you very much.
Next question comes from Mr. Jon Rigby from UBS. Mr. Rigby, please.
Oh, hi. Yeah, thank you. I just wanted to ask a question about your CapEx and the activities around it.
Sorry, can you speak aloud? Sorry, can you speak aloud because we are the hearing sorry.
Sorry, Claudio. It's not often I get asked to speak louder. Just to repeat, I wanted to ask a question about CapEx. I think about one or two years ago, maybe two years ago, you began to talk about how you were pulling in more engineering expertise back into the business of Eni, and that you wanted to take more responsibility for greater portions of the development supply chain and the development of projects themselves. I wonder whether you could just update on that. In the context of your experience in that, and also what you're seeing in the contractor market and the general cost to the industry, where you see potential for the four-year CapEx number you spoke about earlier this year. I recognize we're only a few months after that, clearly the market is moving very quickly.
I just wonder whether you could talk about both your own self-help around CapEx spending or CapEx and also the market impact on your projections of six months ago. Thanks.
Okay, thank you. I am going to answer the first question, then Roberto Casula, who is in charge of development, engineering, and technology, will answer the second one. For improvement and how we are moving on the restructuring on our engineering department, I think that we are practically at the end. We have three big hubs of engineering. We are running also the FEED for engineering, and we are also participating in detailed engineering. Especially, we got the first big result of this change in the contractual structure, because the first big example is the Block 1506, the West Hub, and very, very soon, the East Hub, where we run practically as the main contractor with different packages.
That creates the condition not only to respect the budgets but also to develop a deep offshore, ultra-deep offshore field developed in less than four years, starting from the sanction of the project. The second example is Congo, that we put in production, and we ran practically directly all the different phases in 11 months after the discovery. We are going to continue to work like that. Really, we are putting our people in the driving seat as the main contractor, and most of our projects are run like that. Also we see in the first half of this year, 11 project startups. It means that in a timely manner, that is an impact of the last three years of refocusing and restructuring our development sector. Roberto can answer on the cost and CapEx.
Yes. Thank you, Claudio. Well, the answer is yes. We do see a reaction in the supply chain. As you probably remember, we started an intense renegotiation activity of many contracts. Actually, the basket is 1,400 contracts, and the main savings are in particular in the area of the rigs, offshore drilling rigs, with operating rates which are 30%-35% lower. Also for the logistics services associated with. This clearly has been captured in our plan. We can say that the value we have given you on the occasion of the leadership meeting is definitely confirmed and is already applied into our 2015 investment. I remember for you that the overall plan is in the range of EUR 1 billion, and this activity has been combined also with re-tendering activity, which gave us outstanding results, for instance, on the occasion of the development of Ghana oil and gas project.
Overall, the answer is yes, in particular, as I said, for the drilling activities.
Okay. Thank you very much.
Next question comes from Ms. Irene Himona from SG. Ms. Himona, please.
Yes. Good morning, gentlemen. I had two questions. Firstly, on the downstream, if you can give us a sense of the cost reductions resulting from your restructuring, or alternatively, the benefit to EBIT excluding the higher industry refining margin? That would be very helpful. Secondly, on Mozambique, and apologies if you referred to it already. My question was, in light of the cost deflation going on the contractor side, are you prepared to perhaps delay FID to see where ultimately costs will settle? Thank you.
Thank you. Massimo is going to answer the first question, Roberto, the second one.
Hi, Irene, Massimo. Just to give you an idea about the cost saving and the better performance in the second half of 2015 versus second half 2014 refining. The improvement is in the range of EUR 200 million, out of which half is related to the scenario, so the better refining margin. The remaining half is related to, from one side, the EST plan in our Sannazzaro refinery that now is working, giving a significant benefit to the overall EBIT. The effect of the overall synergies and cost intervention we have made starting from May 2014.
Roberto.
Yes. About Mozambique, our plans are going ahead very well. There are no changes in terms of plans for FID. Actually, in terms of cost, you should know that we are running, at the moment, all the major EPC contract tender, and in both cases, I mean, onshore and offshore, we have a very good level of competition with three major consortia running in both cases. In this area, cost, through the competition, we are quite confident that we will be able to reach the level of cost that allow us to sanction the project. In terms of size of the project, clearly we are talking firstly about Coral after the summer. The plan is to sanction the project, and the good news just received is the approval of the environmental impact assessment.
That means that also the Mozambique authorities are really proactive toward sanctioning of this project. For Mamba, as we already declared, we are targeting 2016 for FID of the onshore development. Maybe in terms of offtake.
Not offtake, commercial.
Commercial, right. Sorry.
Regarding the offtake of the LNG, of the floating LNG of Coral, we are in advanced discussion with a potential buyer, and we are confident that Coral FID can be reached according to the schedule. Practically, a key term agreement for the offtake has been finalized, and this agreement is now the basis for the ongoing negotiation for a binding sales and purchase agreement.
Thank you very much.
Next question comes from Mr. Dario Michi from Banca Akros. Mr. Michi, please.
Hi, good morning. Thank you for taking my questions. The first one is a follow-up on the disposals you announced in the business plan. I was wondering if you could confirm the EUR 3 billion target for 2015, and could you please detail the still missing EUR 2.4 billion to reach the announced target? The second one is on Iran. If you could please tell us your view on the country, the role Eni may have in the future, and according to your perception, which is the role the country is going to play in the world oil production in the coming years? Thank you.
In terms of disposal, yes, I confirm that the plan we announced is a front-end loaded plan. The majority is expected by 2015, 2016. I wouldn't announce specific numbers for there as far as 2015 and 2016. Negotiations are ongoing, and I cannot anticipate if what is under negotiation will be finally closed by the end of 2015 or beginning of 2016. Please take the overall guidance with some flexibility.
Iran, as you already mentioned before, Iran, we believe that is a very important country in the oil and gas sector, and potentially can play a strong role. I said potentially because as I said before, they need to invest EUR 100 more billion to recover a very strong production. It's a question of, as I said, contractual conditions and rapidity in setting up new projects. We are trying to understand the time frame. I think that in any case, if you look at what is happening now, that the industry is cutting 30% of the investment, we are still in a very low scenario, but in a couple of years or three years
These cuts will impact the imbalance between demand and supply, also because of very low energy now, demand is growing gradually, but it is growing. I think that in the future, we will need the Iranian production. Now we have got to understand that it is a potentiality, but we don't know now exactly how much they can increase production.
May I go ahead with the next question, sir?
Yes, sure. I see you.
Okay. Next question comes from Mr. Martijn Rats from Morgan Stanley. Mr. Rats, please.
Yeah. Good morning. Two small issues I just wanted to ask you about. With regards to Egypt, could you give any sort of idea about what type of gas price you're now getting for domestic gas? I know it's improved, but to what level? And also perhaps a quick word on Kashagan, not a project that we're talking much about lately, but I assume some of the pipelaying is probably ongoing by now. Still confident in that late 2016 restart?
Okay. Egypt, I cannot disclose the gas price. I just can tell you that the gas price is not just one gas price because we have different projects and different kind of cost of projects. We have deeper shore, we have shallow water, we have onshore. For each project, we discussed and agreed a gas price that make this project economic. There is an improvement, an improvement that can give an acceptable internal rate of return, and then, as I told you before, can free up about 2 TCF of gas, and that is a huge quantity that Egypt needs. For Kashagan, I leave the floor to Antonio Vella that can answer.
On May 15, one month ahead of schedule, Saipem started the offshore pipelaying activity. Progressing quite very well until now. The welding on the offshore section is also started in May, and we are also here ahead a month. As you know that the expectation is fourth quarter 2016, pipeline ready for startup. Thank you.
Okay, sounds good. Thank you.
Next question come from Mr. Alastair Syme from Citi. Mr. Syme, please.
Yeah. Hi. Can I ask two questions, please? One about the mid/downstream cash flow you show on slide five. I think you're showing about EUR 3 billion in contribution through the first half. If you look at the financial statements, there's about EUR 400 million in net income and EUR 400 million of depreciation. What's the balancing item in that cash flow? Secondly, just on the statements on CapEx, I'm just slightly confused about the reduction in CapEx, about what the reference point was. Was that last year, first half of 2014, or the budget plan? Thank you.
Okay. As far as the EUR 3.4 billion increase in cash flow, I would say that majority of this come from the midstream gas and power. That is, I would say, increasing the level of return from the gas sales, either in the midstream and retail. Then we are benefiting from, as far as the refining and marketing, the turnaround in the refinery. We are stopping the refineries losing money, and we are increasing also, thanks to the scenario, the cash produced from the existing facilities. On top of that, as I just remembered, the EST plan increased significantly the level of cash produced by the refinery system.
Sorry, my question was more about the balancing item on operating cash flow, though. If you take the statements, income plus depreciation, you're only getting to around about EUR 1 billion versus the EUR 3 billion you show on the chart.
Yeah. Okay. If we target the working capital contribution, if I well understood, definitely the recovery of the take-or-pay in gas, that is in the first semester concentrated in the second quarter, is a significant part of that. Then we are cashing in in the second quarter, we are cashing in the sales of gas made by the retail system. Retail concentrated the amount of gas sold end of, say, the previous year, beginning of the incoming year. In the second quarter, we are cashing in a significant part of these sales. Then we are cashing in the increase of product in the refinery. You remember that in the first quarter, we said that we increased the level of stocks in refinery because of the high level of margin.
Now we are cashing in what has been additionally produced in the first quarter, and this cashing is in the second quarter. As far as the CapEx change over semester, if we take the exchange rate effect out of the comparison, so like for like, and we exclude, I would say, what has been paid to sign the Egyptian agreement, that is not an overall cash item because we compensated this cash with the existing credit we have in country, the decrease is at 10%.
14% year-on-year.
Definitely 14% is a confirmation of the existing guidance for the full year.
With respect to the last year, with respect to 2014 against 2015, 10% half and 14% full year. That is the summary.
All right. Thank you very much for that clarification.
Next question, sorry, come from Mr. Massimo Bonisoli from Equita. Mr. Bonisoli, please.
Thank you. Good morning, gentlemen. Only two clarification left. Actually, the one is regarding Nigeria. You already made divestments there. Could you elaborate on the strategy for the remaining assets in that country following some speculation on the press regarding further divestments? Then clearly the strategy there. The second clarification is back on refining and marketing. You mentioned before the improvement from restructuring, but the operating income was lower quarter-on-quarter, despite the higher refining margins, maybe as a result of production stoppages. Could you just elaborate on the underlying profitability at second quarter refining business? Thank you.
Okay, thank you for the questions. First of all, I answer on Nigeria. Massimo is going to answer on R&M. On Nigeria, it's clear we don't elaborate or we don't comment on press speculations. What I can say, that we are focusing on the offshore. We are developing the Nigeria offshore, where we have resources. On the onshore, what happened in the last three, four years, we are selling, we are disposing assets with Shell, and that is what is happening. We are disposing assets where we are not operators. That's what I can say at the moment.
As far as refinery, yes, you are right. The result in the second quarter has been lower than the first one. The reason here is some maintenance we had in Milazzo, significant maintenance in Milazzo, and some maintenance in Sannazzaro. If you take this maintenance result out of the result and take into consideration that you remember, we put in place some edge on the refining margin that will be over in August with the attempt to anticipate the break-even of our refinery. If you take all this action out, the break-even is the real result of our refinery in the second quarter.
Okay, thank you.
Next question come from Mr. Neil Morton from Investec. Mr. Morton, Neil, please.
Thank you. Good morning. Two questions, please. Firstly, just going back to Alastair Syme's question. I still get confused on the CapEx. Perhaps just give us what the dollar CapEx number is going to be for 2015, please. I assume most of that CapEx is in dollars. Maybe just secondly, just from a strategic perspective, I'm a little bit uncertain as to what Eni's view is with regards to North American shale. Do you want to increase your exposure in the medium term or not? Thank you.
You talk about CapEx.
Projecting CapEx. When we refer to the 14% reduction, the exchange rate implied in our assumption is 1.12. That is significantly lower than the average we got in 2014. That's the reason why I mentioned the exchange rate you have to take out in order to make a comparison like for like.
For the question about shale oil and North America. First of all, I have to say that I like a lot North America and also shale oil. At the moment, we have other priorities. Our priority is to continue our restructuring. We want to really to finalize all the points, all the targets we had in terms of projects, in terms of production growth, and we are there. In terms of cash neutrality, in terms of payout, where we have a very strong target. We want also to give value to all the aspiration we made. We have some end, and as we said, we want to continue to keep at a good and positive level R&M, chemicals, and gas and power. That are our priorities in the next months.
We want to fulfill this. We'll think about the future. I think that our future at the moment are these priorities.
That's very clear. Thank you.
Next question come from Mr. Biraj Borkhataria from RBC. Mr. Borkhataria, please.
Hi, thanks for taking my question. It was just on exploration, obviously a very successful H1. I was wondering if you would expand a little bit on your exploration activities for the second half of the year on any color on wells to watch. Thanks.
Luca Bertelli will answer to this question.
The second part of the year, we will be mainly active in Congo, Gabon, Angola, and Egypt. These are the main activities where we expect results coming in the second half.
Thanks.
Next question come from Mr. Rob West from Redburn. Mr. West, please.
Hi there. Thanks for taking my questions. This morning's release says, retail sales in Italy are expected to be a slight decline compared to 2014. Last quarter, I think the wording was that they would remain relatively stable. I just wonder, can you disaggregate the change for us there? Is that an indication that there's really not any demand elasticity coming through for driving the demand for products in Italy? Or is another part of it, any specific effect connected with comments about market share last quarter? That was my first question. Just secondly, maybe a quick rundown would be quite useful, just 3Q, the big fields in Libya, so Wafa, Mellitah, El Bouri, just how's the integrity of those holding up? Can you just give us some reassurance there? It'd be great. Thanks.
Okay. Thank you for your question. Regarding the sales in the oil sector, retail sector, you're right, we experienced some reduction in sales, this is due to the fact that during this period, there has been an increase in refinery runs in the country, therefore, there's a higher competition for the product. In the end, what we had is a lower sales in the retail, but increase in market share in the wholesale, protecting our margins in the refinery.
As a follow-up on that, am I right in thinking that your wholesale refining margins are generally higher dollar per barrel than your retail margins? It seems to vary company by company. I don't know if there's any breakdown, rule of thumb you can give around typical marketing margins. Not something we can break out from your disclosure. Sorry for the follow-up, but that'd be useful.
Well, I'm sorry that we don't break out the results from the marketing side. Nonetheless, let me say that after years of slump, of reduction in consumptions in Italy, in 2015, we are actually seeing steady and flat consumption. We can see the elasticity in demand is actually reflecting the lower quotations in the market.
Okay, thanks.
Thank you. Okay. Now an easier question. Libya. So far so good, we can say. I said that we are steady in terms of production. We're not just watching our production. In this period, with NOC, with MOG, so the two Libya companies, we are protecting all our activities. What about the future? I think that recently, in the last two weeks, at the international levels, has been put in place a big effort. Libya, after one month of negotiations, reached the first agreement, so has been signed. Our hope that other party can join this agreement, that I see as a very positive point, a willingness to find a solution to this conflict.
In our positions, just to give you a perspective about how we can keep our production on is that, first of all, we are in the western part of the countries, and we are in the north and in the south, but most of our production is coming from offshore. Part of our production, a substantial part of our production, is feeding the Libyan power plant. It's really feeding all the country and give power and electricity to all the country. That is one of the main reason why all the main onshore installations are on. In this area, we experienced, until now, touch wood, a peaceful, we can say, environment. I think that I have to say that the state company, NOC, is very proactive in maintaining the installation, controlling the production, and are really doing very well.
I really hope that we can continue, as we did in the last one and a half year, and we can continue with the steady production. That will help us to release, finally, at the end of the year, the remaining contingency.
Thank you.
The last question comes from Mr. Hamish Clegg from Bank of America. Mr. Clegg, please.
Hi there. Thanks for taking my questions. I think I had a small issue registering it. I think it was a Nordic thing. The three questions I had for you were, first of all, on your volume guidance, which is great to have a beat and raise. It implies that the second half, however, will be potentially a little bit lower than what we've seen so far in the first half, or at least the average in Q2. You've mentioned contingency a lot. Is there anything bar contingency there that is planned downtime? It strikes me that your guidance is maybe a little bit low. Could you quantify the sort of PSC impact in raising your guidance and how that's made a difference? The second question, I appreciate the sensitivity around Saipem. You did mention that it was in your plan to deconsolidate.
Could you confirm if, or at least give us an idea, if you expect there to be a debt refinancing at Saipem as part of their restructuring plan? Just finally on Coral LNG, I know Irene asked about it already. The bids must be sitting on your desk. Does this accelerate your ability to negotiate with the buyers, and can we expect to hear something in the third quarter on that?
The first point, as I think that you remarked, that in our new guidance, we say above or over 7%. We increase our guidance, we don't say 7%, it's above 7%. We have in the second half, we have some maintenance. As I said, all along the Q&A section, we are continuously. If we increase the guidance, we are keeping a conservative or a prudent view on that. That is the reason about your calculation of a lower production in the second half, in the second period. For Saipem, as I said before, I think that we are following Saipem. We have a clear objective that we declared to the market. We don't talk about financing or other stuff. It's not the moment now.
It's something that is also related to the listed company is also related to them to talk about that. We are talking about, we consolidated that, it's their debt. It's something that is related to Saipem. I don't want to make any comment on that. On Coral, from a commercial point of view, I ask Umberto Vergine to elaborate a little more on that.
As I said before, we are now in an advanced stage of negotiation for the binding sales and purchase agreement. Our target is to complete this activity by the 3rd quarter, of course, the final outcome will depend on the ability to quickly progress on this negotiation with the counterparty.
Very good. Thank you so much.
Okay. Thank you.
Ladies and gentlemen, the conference is over. Thank you for calling Eni.