Hello, and welcome to the Repsol First Quarter 2014 Primarily Results Conference Call. Today's conference is being recorded. Today's conference will be conducted by Mr. Miguel Martinez, CFO. A brief introduction will be given by Mr.
Engel Bustier, Head of Investor Relations. I would now like to hand the call over to Mr. Bustier. Please go ahead, sir.
Good day, ladies and gentlemen. This is Angel Bautista, Director of Investor Relations in Repsol. On behalf of our company, I would like to thank you for taking the time to attend this conference on Repsol's 1st quarter results. This presentation will be conducted by Mr. Miguel Martinez, CFO.
Other members of the Executive Committee are joining us as well. Before we start, I invite you to read our disclaimer notes. We may make forward looking statements, which are identified by the use of words such as will, expect and similar phrases. Actual results may differ materially depending on a number of factors as indicated on the slide. I now hand the conference
performance, I would like to give you an update on the YPF compensation process that we expect to finalize this afternoon. Since March 28, when Repsol's Annual General Meeting ratified this agreement with a 99.75 percent acceptance, all the milestones and the present conditions will have been satisfied and the agreement will be fully effective with the signature and the delivery of the Argentine bonds with a face value of $5,317,000,000 We believe this is the best possible outcome for all the parties involved in the controversy we face because of the expropriation of YPF. Our intention is to monetize in no more than 2 years the bonds trying to maximize the value for our shareholders. Other than that, as you are aware, on Tuesday, we sold almost a 12% of YPF shares for $1,300,000,000 This transaction will generate an estimated capital gain before taxes of nearly $620,000,000 I'll now describe our operational activity during the quarter together with the main events since our full year results conference call. In the upstream business, as a summary, we can underline that we continue delivering our commitments and accomplishing the targets included in our strategic plan.
With the start up of Quinte Roni and the connection of the second well in Chapinhoa, in April we connected the third one. With Quinteroni on stream 7 out of the 10 key growth projects included in our strategic plan are already on stream. And we are expecting to have forecast from our Carradone project by year end. Starting with exploration, we maintain our expectations of reaching 31 wells spotted during the year. We are successfully finalizing our winter campaigns in Alaska and Russia.
In Alaska, with 2 appraisals and 1 exploratory well finished with positive results, we are working toward defining the most economical way to develop the area. In Russia, with 2 already encouraging exploratory wells and their evaluation, one finalized during the quarter, we continue adding volumes in place. And in parallel, we are drilling 2 horizontal wells from which we expect test results before year's end. Exploration continues in Brazil, U. S, Libya, Kurdistan, Mauritania and Namibia.
Production during the quarter was 340 2,000 barrels of oil equivalent per day, which means 5% less than in the Q1 of last year. On the one hand, we increased our production year on year in Brazil, United States, Russia, Bolivia and Peru. On the other hand, there were disruptions in Libya, which caused a reduction of 24,000 barrels of oil equivalent of average production per day and stoppages in Trinidad and Tobago due to drilling work in the Sabonet field during January. As we mentioned before, Kinteroni start producing at the end of the quarter initially with an average of 20,000 barrels of oil equivalent per day in gross terms, of which almost 25% are liquids. We will almost double our production from 20 16 onwards.
Taking into account Libya situation, if we compare 2013 2014 stripping out the production from Libya, we are expecting a growth in production in 2014 of around 7% this year. Other operational highlights of the quarter were the following. In Sapinghua, we have already connected the second and third wells and both are producing above expectations with a gross total production of the field above 100,000 barrels of oil equivalent per day confirming its excellent productivity. We expect to connect the 4th well by June reaching full capacity of our first FPSO. The second is already in Brazil and will be producing and ramping up before year's end.
The average net contribution of Sapinhoa to Repsol's production during 2014 will be around 15,000 high margin barrels of oil per day. In the U. S, we continue with the development of the fields and associated production ramp up in the Mississippi pen line. In Venezuela, Cardon continues its development on schedule and we are expecting to be on stream by the end of this year. We expect that this project will add 22 1,000 barrels of oil equivalent per day to our production from April 2015.
Moving to the Downstream division. First we would like to explain that from this quarter on, we include the Gas and Power business within this division. Starting with refining, although margins in Europe continued to decline, our margin indicator was $3.9 per barrel, the same as in the Q1 2013. The utilization rate was 74% as we still had some maintenance in January. The conversion capacity reached 97% of utilization.
In chemicals, we reached the breakeven point once we restart our Tarragona plant, which had stopped for maintenance during the Q4 2013. Turning to our commercial business. In marketing, we are seeing a market with stable volumes. We also increased margins in the LPG division, offsetting the decrease in sales due to the mild winter we had in Europe. Therefore, our commercial businesses continue to deliver profitable results and healthy positive free cash flow.
Moving to Gas and Power and due to low temperatures in North America and taking advantage of the flexibility of our Canapord facility, we managed to obtain very good results reaffirming our expectation of reaching at least breakeven in the year. Moreover, we are increasing our trading activity in the region and capturing additional value. I'll now explain our first quarter earnings performance. This quarter, we have decided to modify our reporting criteria, providing more information for each business segment. The main aspects are the following.
We will report operating and net operating income per business segment. As a result, we will report corporate taxes and results from associate companies and minority interest in every business segment. Our Gas and Power business will be reported included in the Downstream business segment. Gas Naturalfenosa will be reported as an equity investment. The financial result will be reported with incorporation.
In the quarter, the adjusted net income was 5.30 €1,000,000 slightly above that on the Q1 last year. The net income was €807,000,000 27% higher than in the Q1 2013. Starting with the macro environment, we saw weaker Brent prices year on year together with a weak dollar. We also saw declining refining margins throughout Europe. In our case, we were not impacted by this decline, thanks to the configuration of our refining system.
On a business by business basis, starting from the upstream, the adjusted net income was €255,000,000 27% lower than in the Q1 2013. In Libya, we suffered disruptions equivalent to around 50 days of stoppages, which resulted in a reduction at the operating at the net income level of €145,000,000 respectively. We increased production in Brazil, the U. S, Russia, Bolivia and Peru that offset the lower volumes in Trinidad and Tobago due to the drilling work during January. Both FX have a positive impact of €2,000,000 Lower crude and gas prices had a negative impact of €19,000,000 Increased depreciation charges had a negative impact of €22,000,000 mainly because of the additional investment in the Shenzi water injection project.
Higher exploration cost had a positive impact of €35,000,000 mainly due to the better tax rate mix. Other items such as exchange rate, minority interest and equity affiliates and other costs explain the remaining differences. Turning to our Downstream division, the adjusted net income was €290,000,000 28% higher than in the quarter of 2013. By business line, in refining, our margin indicator was $3.9 per barrel, in line with the margin achieved in the Q1 of 2013, despite the fact that we had a lower utilization as we were finishing the maintenance works undertaking during the Q4 of 2013. We remain profitable at the EBIT level even in an European environment where margins have reached historical lows.
The premium margin due to the upgrades reached $2.6 per barrel, which compares to the $1.8 per barrel obtained during the same period last year. Lower volumes as a result of lower utilization had a negative impact of €24,000,000 In the Chemicals divisions, higher volumes allow us to reach breakeven in the quarter. This effect plus stability in margins had a total positive impact of €15,000,000 In the commercial business, the LPG business partially offset the lower volumes with higher margins, while in marketing, we were able to increase margins in service stations and in the wholesale segment. All in all, we had a positive impact in the commercial businesses of €8,000,000 Moving to Gas and Power, the increase in results of the quarter were €19,000,000 due to different aspects. The winter has been very cold in the Northeast coast of North America, the same as last year.
Therefore, the Algonquin benchmark reached extraordinary high price levels during short periods of time during the quarter. We were able to take advantage of this situation, thanks to the enhancement flexibility of our Canaport plant. We're also increasing our trading and marketing activity in the region in order to capture additional value by filling our available capacity in the pipelines. Finally, we had lower depreciation charges after the provisions booked in the Q4 of 2013. The effective tax rate in the Downstream division was in line when compared to the Q1 of 2013.
Minority interest and equity affiliates and other effects caused a positive impact of €9,000,000 In gas natural FENOSA, the €123,000,000 adjusted net income in the Q1 of 2014 was 2% lower than the €125,000,000 reported in the same period last year, mainly because of the lower income from power generation and distribution activities in Spain and in Latin America, partially offset by better electricity commercialization results underpinned by lower fuel prices. In Corporate and Other Businesses segment, we had a net expense of 136 €136,000,000 which is lower than the €177,000,000 posted in the same quarter a year ago. This reduction derives mainly from the lower cost of debt, the variations in the exchange rates and the higher valuation of the CO2 rights. Turning now to our financial situation. We continue maintaining the robust financial position we had at the end of 2013, enhanced by the collection of the last proceeds from the LNG disposal in January.
The group's net financial debt at the end of Q1 2014 amounted €4,700,000,000 approximately €630,000,000 lower than at the end of 2013. Our liquidity position cuts and outstanding credit line shows showed at the end of the quarter a coverage ratio of 3.7 times in relation to short term debt. Summing up with the signature of the agreement between the Republic of Argentina and Repsol this afternoon, together with the sale of the YPF shares nearly completed, we are certainly starting a new chapter. Our P and L performance with the results of our gas and power assets and the increasing contribution from our growth projects. And now we will be pleased to answer any questions you may
may
Thank you very much. We have enabled a chat in the webcast in order to post questions. Please use it only You can identify it by a tab called Ask a Questions. We will address these questions at the end. And now, we'll start with the Q and A session.
First, we have Haitham Rashid from Morgan Stanley. Please, Haitham, go ahead with your question. Hello, Haitham.
Hi, Angel. Thank you very much. Good afternoon, gentlemen. Thank you for the presentation and congratulations on the agreement with Argentina. Just first question on that actually.
If you could just talk a little bit about how we should think about your prioritization in the portfolio management process now going forward? Is your plan still to use proceeds from the sales to invest in upstream assets? And also is your sort of investment dependent on how much you eventually sell from the bonds that you receive? Or do you have a sort of size in mind of any upstream sort of acquisition, which would then be funded by either sales of the bonds or potentially a gas sales of the gas not stake? A little bit about that would be helpful.
My second question relates to the downstream. In the just a quick question on the numbers. You talk about in the release, a 4% increase in sales year on year in Spain. But I look at total product for the group and they're down 3% year on year. Could you perhaps clarify just where the delta is there between the 2?
And then final question, again, on the Downstream within the Gas and Power segment. You mentioned, Miguel, that guidance has sort of reaffirmed a breakeven overall for the business for the next year. Should we therefore expect, I mean, the losses in the business later on the year, obviously, given the strength in the results in this quarter? Or has the strength you've seen recently sort of changed your view on profitability from that business? Thank
you. Thanks, Hafen. Let's start with the second one, which I think is the easiest. Well, the figures you look at when you see all the sales volume refers to the sales from the whole system, okay? In that sense, as we have reduced the distillation capacity, we are reducing the sales as a whole thing, Then you have the 4% increase, which is the sales that our commercial part has delivered in the Spanish market.
Right.
This 4% also can be a split a growth in the wholesale system, okay? In both cases with higher margins in the wholesaling and in the network, okay? Going to the first one, I'll have to say that we keep attached to what we have mentioned several times. I mean, it's true that after the expiration of YPF and the sale of the LNG division, we need some how to rebuild the P and L of the company and this will imply acquisitions or 1 or several acquisitions and we are looking for companies or assets. Do I have to refer that to the magnitudes of the proceeds from the bonds?
Well, I'll say first, we'll have to grab the bonds, I mean probably this afternoon first step. 2nd step would be how to monetize those and we are not in a hurry over there. We want to maximize value and look for a reasonable way to monetize those bonds. For sure, we are not a pension fund. So we are not going to keep those bonds forever.
And probably within the next year, we should get rid of these assets. But I will not imply directly the acquisition with the sale because the acquisitions will require several things. First, we're looking for something in OECD. 2nd, we are looking for areas in which we have extra growth capacity, not only with the acquisition, but developing the area. So we are looking for a growth platform.
And also we are looking to increase our capabilities. So and all that in not in a hurry and knowing that at least we should recover the our walk. So if we found it, we will go for it. If not, we will keep attached to our organic growth, which is what we have right now. And in relation with the third one, I mean, normally we expect some losses in the 2nd and third quarter Q4, it would depend on how the weather how tough the weather become in the East Coast and how tense is the market in the U.
S. But normally I mean, for us, the goal was initial goal was 0 as a result for this for the Gas and Power division. This quarter has been good, so perhaps we can make some profit. But originally, and our objective was 0 results. Did I answer you, Haytham?
Yes, very clear. Thank you very much, Miguel.
You're welcome.
Okay. Thank you, Haizam. Now let's move to Alejandro De Michelis from Exane. Hello, Alejandro, go ahead with your questions.
Yes. Good afternoon, Angela and Miguel. Thank you for taking my question. Just following up to the answer about the use of proceeds from the bonds and the divestment of the YPF stake. Given that there seems to that Pemex may be looking to dispose some of their stake, would the profits that you have taken so far be potentially used to buy back some of those shares at some point?
And maybe you can update us on how do you see the gas natural stake at this moment?
Thank you, Alejandro. Well, first in relation with Pemex, I have to repeat what Antonio Ruffao has mentioned to Pemex several times. I mean, we are totally open and to collaborate with them and we are totally open to any suggestions agreement they may put on the table. So our position is totally friendly. And for sure, this is something that also our CEO, Josue Jon Imaf has in his between his duties to really reestablish the situation that for many years has been quite stable and fruitful for both companies.
In relation with the buyback, well, first, I don't know if they want to sell. So it doesn't make much sense to make hypothesis over hypothesis. And this is what I can tell you in relation with Pemex. In relation with Gas Nut that I didn't comment in Haytham's question. Gas Nut for us, it's 1st a very good assets.
It give us optionality and this is it. I mean if at the end the proceeds from I mean, or the we need the gas natural stake to make an acquisition that really generates value in the Absinthe division, we'll go for it. But right now, the situation is quite stable. We are happy with the asset. It's I think that Gas Natural is a company that is very well managed and it's in the right direction.
So we are happy with the asset. And only if we see something that really deserves a try on our side in the upstream level, we'll go for it. Okay, Alejandro?
Okay. Fantastic. Thank you.
Thank you very much, Alejandro Mucharbratias. Now let's move to John Rigimi from UBS. Hello, John. How are you? Please go ahead with your questions.
Hi. Thanks, Angel. Hi, Miguel. Two questions, please. Can you just go a little bit more detail about the mechanics of your Gas and Power business now with the Canaport operation, obviously.
And you've alluded to some increased trading opportunities. So I guess now we can just focus on that business whether you can just talk a little bit more about what it is that will drive earnings in a bit more detail. And also just referring back to the very good results that you got this quarter, how much of that is a legacy of some sort of preferred LNG pricing that you had from your old position that you can't repeat going forward? And the second question is can you just talk a little bit more about any sort of tangible changes or aims that you have from the or the Board has from the appointment of the CEO or the insertion of a CEO into the management structure and what that will likely do as an outsider as we look at it in terms of the way you work and maybe the benefits you would see accruing from it? Thanks.
Starting with the first one. I think that the basic difference with what we had before is that before the selling we had our own gas. Right now we do not. So basically what we have done in Canapord is really to flex obtain the maximum flexibility there to use it in order to trade with gas and electricity in the U. S.
Basically. So I would say it's exactly the main situation we had before, but only with the minimum send out we are able to use it as a trading facility if you want, okay? As far as I know, there's no any legacy impact on P and L from the prior existing assets. The only thing is that we signed within the agreement with Shell, we had some a contract for some gas with them. And it's the only thing I can remember right now that is impacting the Q1 results.
So basically no impact and only the 10 year
sale benefit from it because you've taken it under a previously sort of cheaper LNG contract, which you'd have to replace with a market contract or market supply going forward?
That's totally correct. What we can do right now is to look at the market, see when it's the moment to buy a cargo spot, send it to Canapord and then commercialize it after a month or 2 or when our trade is considered appropriate. But basically, we have lost that difference. Have made some gains with the sale, but for sure the counterpart is the one you correctly pointed out, okay? And in relation with the appointment of the CEO benefits, I think that first that governance is quite clear in these days that the split between the Chairman position and the CEO position, it's totally in line with the best corporate practice.
And I would say that's it, somehow to have a counter power in a company and this is what we have done. Why right now? Well, I think that the company had in the last 2 years a real stress situation due to the YPF expropriation and the Board analyzed it and thought that it was about time. So I think that basically that's the reason behind it. Did I answer you, John?
Yes, I think so. Thank you.
You're welcome. Thank you, John, for your questions. Now let's move to Irene Imona from SocGen. Hi Irene, how are you? Please go ahead with your questions.
Good afternoon and congratulations on a strong set of Q1 numbers. I had three quick questions. So firstly, group capital expenditure year on year year? Secondly, Venezuela. Again, your upstream spending is up about 12% and you mentioned that Cordon is due to start up by year end.
I just wonder if you can say a quick word Miguel on the upstream economics of those barrels in Venezuela. What sort of dollar margin should we be looking for? And my final question just to clarify something on the cash flow statement. You show cash from operations just under 1,100,000,000 dollars cash on investment $1,340,000,000 but that includes a $912,000,000 cash outflow which is not classified as CapEx. So I just wonder what that item is and were you actually cash negative in Q1?
Thank you.
Thanks, Helene. CapEx for the year would be around €3,500,000,000 from which €2,700,000,000 would be in the upstream division. Okay?
Okay. Thank you.
In relation with Venezuela, I'll say that first the price we are going to obtain from the gas is $3.69 per 1,000,000 BTU. And then there's some inflation regarding some Industrial American Index or something like that. So basically it's 3.69%. And if we talk about the return of the project, we are in the mid teens as of today, okay? Okay.
And probably what you are somehow missing in is that within investments we have €900,000,000 which are financial investments. Part of the liquidity we have put it at 3 at the term of 3 6 months. So it had to appear as investment and that's probably the reason why we are there. Other than that, it's true that we are tight and we knew that that in 2014 2015 the cash generation is going to be tight. And but that was clear since we sell the LNG division.
Though the liquidity position of the company allowed us in the case that we do not have any inorganic transaction will help us to cross these 2 years. Other than that by 2016 really the cash generation in the upstream division will fly. So
And sorry, just yes, thank you. But just a very quick supplementary. So by 2016, I presume you assume Libya is back up to normal levels?
I would say that by yes, I mean by 2016, you will have all the 2 projects in Santos IX at full speed. So basically this is one important factor. U. S. Will help as well.
So the whole thing would be flying clearly at least in our projection by 2016. But your comment is totally right. I mean 2014 and 2015 without the LNG division, we are going to be tight in cash terms.
Okay. Thank you very much.
You asked also for Libya?
No, no, that's fine.
Okay. Sorry. Someone passed me a paper. Sorry about that.
Thank you.
Thank you, Irene. Now let's move to Bruno Silva from BPI. Hi, Bruno. Please ahead with your questions.
Good morning, everyone. Thank you for taking my questions. The first one, just a clarification regarding the potential acquisitions of companies or assets in upstream, as you have mentioned today. Can you please add more color on your approach considering the relevant opportunity costs you may have looking at the return on capital employed from organic from the organic strategy you have been pursuing in Upstream until now. And I guess this can be particularly important if you consider the alternative to use it to remunerate shareholders through an extraordinary dividend or a more aggressive buyback in the coming months or even boost CapEx, as I think you have mentioned, to acquire new exploration acreage and basically continue the strategy we've been deploying over the last years?
And the second question regarding the bonds from Argentina and in terms of its monetization. As the context and or your mindset evolved since the last conference call in terms of the timing and the possibility to sell it down in a tighter timeframe than you were thinking before? And finally, a clarification on results and the guidance you have given regarding production growth for this year of 7%. I believe that in the full year conference call, you had mentioned that you will be growing more or less in line with the annual targets you had, so the 7% already considering Libya. So if we are excluding Libya and you already knew at the time that Libya was facing these stoppages.
It looks like, correct me if I'm wrong, it looks like that there is lower estimate for ex Libya production growth. Can you please clarify that? Thank you very much.
Thank you. Thank you, Bruno. I mean, in relation with the potential acquisition, really I cannot give you more color other than any acquisition should return above 8%, which is our work. The alternative of the dividend is in the hands of the Board. So it's a Board decision whether or not it would be an extraordinary dividend.
So I don't have any comment there. In relation with the bonds, if you remember, Antonio, in the last call, indicate that 2 years was the limit somehow. So my indication of a lower time is simply that. I mean, we have to clear these bonds before 2 years. And my estimate is that if we found a window of opportunity, we'll go for it.
Right now, no more to say, but there is not any change in the idea. I mean, the shorter the better. Well, I would say the best price the better. And if we found a good window, but for sure we will take it. And in relation with the production growth, let me give you that because I don't want to make any assessments of Libya because at the end it's really difficult to know which the output will be.
But for you to know, I mean Libya implies approximately a 12% of our last year production in a normal basis. So it's 40,000 barrels a day. And on that, you can make any assumption as good as I can do it. So it's 40,000 barrels that also if you want each of this day each day of stoppage implies 3,000,000 euros of at EBIT level and €1,000,000 after And I think that with that data you can make as good as a guidance for production as I can do it with the 7% growth in the ex Libya situation. Okay, Bruno?
Okay. Thank you. But just very quickly, so excluding Libya and looking at your expectations at the beginning of the year, there is no deviation so far. So Exlivia production is growing in line with your expectations. Is that correct?
That's correct. And even the fall in the Q1 of Trinidad and Tobago was in our budget. Okay. Thank you very much.
Okay. Thank you, Bruno. Let's move now to Matt Lofting from Nomura. Hi, Matt. How are you?
Please go ahead with your questions.
Hi, thanks for the presentation. Miguel, a couple of quick questions. Just on exploration firstly, coming back to some of the comments you made at start. It sounded like sort of the comments around Alaska were reasonably encouraging. I wondered if you could give us a sense of the resource additions there.
And then sort of secondly, some of the higher impact wells that are currently drilling in the likes of Angola and Kurdistan, if you could give us a sense of when you expect to get towards completion of those prospects as we sort of move through the year? And then secondly, on a sort of a separate topic, I wondered if you
could just update us on
the credit side in terms of sort of where you are, whether you've sort of engaged with the credit agencies recently and how they're thinking and whether there's sort of any input from their side that affects how you guys think about the extent to which you can sort of reinvest from a capital perspective going forward? Thanks.
Thank you, Matt. Well, in Alaska, we need to evaluate the results of the 3 positive wells, the 2 appraisals and the exploratory one. I mean, it's way too early for us to make any comment, though we are positive. Talking about interesting exploratory wells this year, I think that we have a good collection. We have several Gulf of Mexicos, which are important.
We also have the Angola campaign, which also could be of interest. In Kurdistan, we are already drilling the second well and we will see. And then we have somehow the bread and butter with more Libya's, more Russia, more Namibia, more Itania. So but to me at least Angola and the U. S.
Are the critical one other than the appraisals in Brazil. And yes, the other question refers to the agencies. Well, the agencies were positive first because we have delivered in the last 2 year every step and all the actions we put on the table after the expropriation of YPF. That is our first comment. I think that right now they are waiting for us to monetize the Argentine bonds as a first step.
And then to see if we will acquire any asset or combination or group of assets. But I would say the comments of the 3 agencies were really positive on us. Having said so, do we expect to increase a notch our rating? I'll say not short term. Okay.
Very clear. Thanks for the comments.
You're welcome, Matt. Okay. Thank you, Matt. Now let's move to Lydia Rainforth from Barclays. Hi Lydia, how are you?
Please go ahead with your questions.
Hi, Angel. Thank you very much. Two quick questions if I could. Well, you talked about the premium for the downstream margin being for $2.6 a barrel this year versus 1 $800 a year ago. Can you just talk about how you expect that to evolve during the rest of the year and whether there was anything specific for the Q1?
And then secondly, just on the share repurchase program, can you just talk through I know you were talking about buying back up to €500,000,000 per share. Is that sort of not that's still the intention? Or is there anything that could change the amount of share repurchase that you'd be looking to do? Thanks.
Thanks, Lydia. Well, basically in the Q1, what we had and I think in comparison with other European refiners is that the spread between heavy and light oils had increased approximately $4 $4.5 And this is what has helped us because in the other side the spread of the product really has shrinked versus last year. Expectation for the rest of the year, I mean difficult to say, difficult to say. And to me the refining system in Europe is really dependent on closing of facilities more than any other thing. So positive because of our system, negative because of the refining situation in Europe.
In relation with the buyback, I cannot change it. It was an AGM decision and we haven't bought yet a single share. Okay?
Perfect. Thank you very much.
Thank you, Lydia. Now let's move to Thomas Adol from Credit Suisse. Hi Thomas, how are you? Please go ahead with your question.
Hi, thanks for taking my question.
You've got
a new CEO. Your strategy update is now some 2 years ago. Obviously, the outlook was provided to 2016. When can we expect the new update from the CEO and if there's any change obviously to the strategy? And then the other question is just some numbers if possible on Libya.
Where do we stand right now in terms of production? And on your comments on Sapinhua where you said 15 kilobytes d on average in 2014. Is that just oil or oil and gas? Thank you.
Well, we have talked about it and probably by the year end Q1 next year we would be updating our strategic plan. This is part of the new task of the CEO and probably would be in the market at the same time that the 2014 final results as a first approach. In relation with Libya, actual production is 0. Thin ton has blocked all the production And I mean for us it's quite difficult to assess any output in Libya today. I mean, my guess would be as bad as anyone.
And in relation with the Xapinghua production, I would say that approximately 3% of it is cash, 97% is oil. So basically, I'll say it's all oil. Okay, Thomas? Okay. Thank you.
Welcome. Thank you very much, Thomas. Please, Ennis Chappadhyay from TPH.
Hi. Good afternoon. Just had a question, kind of looking through your portfolio, you're talking about acquisitions, but are there any disposals that you're still looking at in terms of any non core assets in the upstream or the down stream or have you kind of finished that process? 2nd question back on to the acquisitions. We've seen a number of takeouts or potential deals when you're looking at the E and P space, especially companies outside of the U.
S. Looking quite attractive. Would you potentially consider buying a company? Or are you more focused on looking at assets? And the final question, just kind of going back to the question I was asked earlier.
If you don't find suitable acquisitions, would you return the excess cash to shareholders? And what would be the time frame for thinking about doing that? When would you need to kind of make a decision on either making an acquisition or returning cash to shareholders? Thank you.
Thanks, Anish. Well, in relation with disposals, we don't have any plan to dispose any asset that has a significant materiality, okay? So nothing on that side. In relation with companies or assets, we're screening wherever it moves and we are looking for value. So to me, it's not an issue whether it's company, whether it's an asset or a combination of assets and companies or a combination of assets.
So it's more value. Until now, we have not found this the asset or the company that really suits in what we want, which I mentioned before was extra growth capacity, OECD, future growth within the acquisition and the taking new capabilities. But we keep looking for how long and which is the timeframe. Well, difficult to say, but we think that size despite what they say it's important and not only important for the sake of size. You have to think that in front of other companies in all the joint ventures to really have a sizable company allows you to get into better projects.
But it's also affecting the trading capabilities. It affects many other factors. It's not just a single one. So as mentioned before, we don't have a defined date in which we will do anything. And on top of that, for sure, the return to the shareholders is part of a Board decision, is not on us.
And this is all I can tell you, Anish. I don't have any other inputs to provide you. Sorry about that.
Okay. No problem. Thank you.
Thank you very much, Anish. Please, Peter Hulten from RBC. How are you, Peter? Please go ahead.
I'm very well. Thanks. It's actually following up again on the M and A discussions and the criteria that you use including the accretion candidates should return at least WACC of 8%, which we would frankly expect. Given the criteria that you've just laid out and the fact that you've not found any assets that meet all of those criteria in what a lot of people see as a buyer's market at the moment, Is there any particular one of those criteria which the assets or companies that you're screening are failing to reach the hurdle? Or are they is it fairly spread over different things?
Because I would have thought normally it's returns where candidates come under the most pressure. But if your criterion is returning whack, I would have thought you have maybe some advantage in the market over some of the other competitors. So what's where are they falling down so far? A couple of other quick questions again on Libya. Sorry to follow the consensus on this one.
But I know Marathon has decided to take out guidance on Libya. Any inclusion of their volumes in their guidance? Is that something where you're close to confirming given your inability to predict what the volumes are likely to be on Libya? And finally, you run through some of the high impact wells for 2014. I wonder if you could give us an update on Orca, which I think was when you spoke in the expiration date in January was due to spud in the Q2 of this year and was described as one of the most important or largest prospects in the Repsol portfolio 2014.
Is there any delays on that?
Peter, thanks for your question. Everyone is telling me this is a biased market, but I don't know why I don't find the clue or the key to really found something that fits. Probably we are too conservative in the approach. Probably there are some other reasons there. But really we don't we haven't found anything yet.
We will keep working and we will see. But right now there's no probably to me the interest rates are so low. If you look at the listed company listed companies, I mean, the Dow Jones moved from $6,000 to $15,000 and this everything at the end correlates. So to me, right now everything is quite expensive, but I agree with you that everyone told me that this is a buyer's world, but I don't get it. Okay.
In relation with Orca, Orca would be spudered in the 2nd part of the year. And it's true that I didn't mention it because normally there's some differentiation because between the opinion of the geologist and the opinion of the financial the CFOs. I mean, they look more for the money, they look for the geological concept. And this is the reason why I didn't mention it, but it will be spudted in the 2nd part of the year.
Understood.
Okay. Thank you.
And maybe not strip that out of the formal guidance or just leave us to do that with 40,000 barrels a day guidance?
Honestly, I do prefer I mean, with the data you have, you can make as good or as bad a guess as I can do it. So with Libya, it would be 7%. Libya at full speed is 40,000 barrels a day. And I don't have any hint there. I really don't know whether or not we would be producing tomorrow.
One thing is clear, the reservoirs are magnificent. I mean, they recover within 2, 3 days. And Libya desperately needs the oil, is the only income source. So let's cross the finger and let's hope they solve all the internal situation, which allowed us to work in a normal way. But I don't have any guidance to give you.
Sorry about that.
Understood. Thanks.
Thank you very much, Peter. And now let's move to Jason Kenney from Santander. Hi, Jason. How are you?
Very well. Thanks and thanks for taking the question. A couple of tax rate questions if I can. Can you give me the tax rate on the capital gain from YPF? And then maybe some advice on where the tax rates could be upstream and downstream for 2014 and also at group level?
And then secondly, can you confirm if there's been any conversations with OHL regarding a core shareholder stake in Repsol at any point? And maybe the relationship your view of relationship with current key stakeholders at this time? Many thanks.
Well, tax rate in this quarter has been a 42% and on average and this is mainly due to Libya. I mean Libya it's 66%, 67% rate of corporate tax. So the lack of Libya reduced the effective. Upstream should be around 52%, 55%, 52%, 53%, while Downstream would be around 28%. Medium term, well, it's going to depend much on whether where the incomes come from.
So I would say 44,000,000 could be a data that could help us as a hint as a guidance for the rest of the year, okay? In relation with the tax rate of the gains in the YPF shares, first the shares were allocated in different countries. So it's not such an easy question. And still difficult to say, but corporate tax on average between the different countries would be between 30% 35%. And in relation with OHL, I don't have anything to comment on that.
At least they as far as I know, they have not approaches. So no comment on that. And in relationships between when you asked the question about relationship with main shareholders, you referred to Repsol with or OHL?
With Repsol, so obviously with La Caixa and Temasek and these kind of guys?
I would say that relations, I would say, perfect with Saphir, with Caixa and with Temasek. And with Pemex, as mentioned before, I mean, we are totally open to make any agreement to hear any proposal they may put. But apparently it's not working that well. And one of the tasks as mentioned before for the new CEO is really to improve that relationship. Okay, Jason?
Perfect. Many thanks.
Okay. We don't have any more questions to the best of our knowledge. Therefore, we finished this conference call. As you know, in the IR area from Repsol, we are at your entire service to clarify and to answer as soon as possible any further queries you may have. And thank you very much for attending this conference call.
And sorry, we have one more question, Felipe Rosa. Felipe, you have connected yourself very late. How are you?
Hi, good. Fine. I hope you are all well. Three questions, if I may. 2 of them are follow ups.
The first one on the strategy to monetize the bonds. Just Miguel, just for us to try to understand the strategy of Repsol. I know that you probably cannot tell much, but should we assume that every time that you manage to sell bonds in the market at the valuation around the €5,000,000,000 headline compensation number, you will come to the market? Or would you be willing to accept some discounts to accelerate the sale as you did for instance in the case of IPF stake? The second question relates to the exploration activity.
Just because Angola, I was seeing your map in the presentation and Angola the first well doesn't show up there. You already finished drilling. When could you announce the results? I know that you are not the operator, but when could you have the results from E and I on this first well, which is rather important? And my third question relates to this new Gas and Power division with the North American assets.
Should we assume that even your increased trading capabilities, even in a normalized weather conditions, you should be able to get some returns out of these assets? Or should we model this as a 0 EBIT operation over the long term? Thank you very much.
Well, in the strategy to well, thanks Felipe. Angel Baltista didn't want you to make questions. Yes. Okay. Well, in the strategy to monetize the bonds, accept discounts, well, you have to understand that one thing is the face value, which is what we have received, which is $5,300,000,000 face value.
The second thing is the market value. And the third one is the realization or the monetization price. And for sure, if there's some discount to be made there, we will do it. For sure, right now, over the face value, all of them are quote with discounts. And on top of that, if you handle €5,000,000,000 to be sold to the market for sure there would be some extra discount, okay?
In the Angola, sorry about that, is E and I the one that should ask should answer your question. We cannot tell anything right now. They have the operatorships and they are trying to finish some of the evaluation. I cannot give you more color about that, sorry. And finally, remember that in relation with Gas and Power, we accrued last year almost $1,800,000,000 $900,000,000 refers to the accruals will provide us a zero results for the following years.
Other than that, if we are able to really trade better as we did in the Q1, we probably will make some gains. But it will not be material in relation with the rest of the results of the company. Did I answer you Felipe?
Yes. Thank you very much.
You're welcome.
Well, Felipe, I always like to speak with you. Well, I believe that now we are finally over. And thank you very much again for attending this conference call. And any further queries, just service at the IR area from Rippsall. Thank you very much and bye.
Thank you. Ladies and gentlemen, that will conclude today's conference call. Thank you for your participation and you may now disconnect.