Good day, and welcome to the Repsol 4th Quarter and Full Year 2013 Preliminary Results Conference Call. Today's conference will be led by Antonio Braffel, CEO of the company. A brief introduction will be given by Mr. Angel Bautista, Director of Investor Relations. Please, Mr.
Bautista, go ahead.
Good day, ladies and gentlemen. This is Angel Bautista, Director of Investor Relations at Repsol. On behalf of our company, I would like you to thank you for taking the time to attend this conference on Repsol's 4th quarter and full year results, where we will also give an outlook for 2014. This presentation will be conducted by Mr. Antonio Ruffalo, our CEO.
Other members of the Executive Committee will be 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. Present results may differ materially depending on a number of factors as indicated on the slide. I now hand the conference over to Mr.
Ruffao. Thanks, Angel.
Thank you for attending this conference, where we will discuss our 4th quarter and full year results, review the main events which marks 2013 and give a general overview of what to expect in 2014. I will be addressing 4 topics during the call. 1st, the settlement with the Argentinian government for the expropriation of YPF. 2nd, the main events of 2013 marked by the delivery of the objectives of our strategic plan released in May 2012 3rd, the quarterly and full year results And 4th, an outlook for the year 2014. Yesterday, the Board of Directors of Repsol approved the terms and conditions of the settlement with the Republic of Argentina, which includes a compensation for the 51% stake of YPF and the 51% stake of YPF Gas expropriated in April 2012.
The terms and conditions were approved after a thorough internal analysis with the advice of independent experts. The settlement between the Republic of Argentina and Repsol consists of the recognition by the Republic of Argentina of a debt to Repsol amounting to $5,000,000,000 The Argentinian government will deliver Argentinian sovereign bonds with a face value of by $5,000,000,000 One of these bonds to be received carries $500,000,000 of capitalized interest. If the market value of these bonds does not reach $4,670,000 the Argentine government will deliver additional bonds with a limit of $1,000,000,000 These bonds have an average interest above 8% and will deliver a financial income between $400,000,000 $500,000,000 a year in case Repsol decides to keep them. Repsol is free to sell these bonds in order to monetize this agreement with the limit of the $5,000,000,000 debt recognized by the Republic of Argentina. The bonds will be delivered to Repsol Pro Solvedo.
This means that the debt of the Republic of Argentina will not be considered settled until the amount has been fully paid by the sale of the bonds or by any other transaction, which transfers the property of the bonds or the regular principal payment and maturity is collected. As a further guarantee, the Republic of Argentina recognizes that the compensation and the bonds used as payment of the compensation cannot be restructured while owned by Repsol, including any change in the agreed currency of reference. The agreement includes the withdrawal by both parties of all judicial and arbitration actions and the parties waive the right to any future claims. Moreover, this settlement will be protected by the bilateral investment treaty between Spain and Argentina. And if the Republic of Argentina fails to make any payment of any amount due under the bonds, Repsol will be entitled to accelerate maturity and claim full repayment of all outstanding bonds up to $5,000,000,000 in a specific arbitration conducted in accordance with the United Nations Commissions on International Trade Law Regulations.
This settlement must be approved by the Honorable Congress of the Republic of Argentina. It will also be submitted for approval by the Repsol's Annual General Meeting. All the details can be found in our official notice released yesterday afternoon. We estimate that the whole process will be completed in May. Now let us explain the rationale of this settlement.
Since the expropriation of the stakes in protect its rights from what we consider an unlawful act of the Argentinian government. However, Repsol has always expressed its willingness to speak to the Argentinian government in order to reach an agreement that could be satisfactory for all the parties implied. We have succeeded in making it happen in order to return the lost value to our shareholders. This is a fair and reasonable agreement, which we believe avoids the normal uncertainty of a long litigation process and returns value to our shareholders after the expropriation. As a consequence of the terms and conditions of settlement, Repsol has decided to book a provision of €1,300,000,000 after tax in the discontinued operation results.
Likewise, we no longer have any legal constraints to keep the remaining 12% stake in YPF. Therefore, we will analyze all available options. This settlement enhances our sound financial position together with the proceeds of the LNG disposal and the option to potentially sell the remaining 12% stake in order to continue our sustainable path of growth in the upstream business. We hope that with the help of this positive step, Argentina finds the path to prosperity, growth and energy independence. Now coming to the operational activity of the core business of the company.
During 2013, we have been delivering the objectives of our strategic plan presented in 2012. In the upstream, our growth engine, we achieved an increase in production of 4% compared to 2012, reaching an average level of 300 and 46,000 barrels of oil equivalent per day. Thanks to the delivery of the key growth projects in our strategic plan that started production during 20122013, even after suffering interruptions in Libya. With Libya at normal levels, the growth in production would have reached 8%. The projects that come on stream during 2013 that contributed to this year's growth are in Brazil, Saphinha, where we began production in January.
The first well is behaving very promisingly, producing more than expected. Last week, we connected the second well and it is producing right now 33,000 barrels per day. The next two wells are expected to be connected in March and in May with the first FPSO reaching plateau by June. The second FPSO is already in Brazil and will be producing and ramping up before year's end. The net contribution of Sapingo during 2014 to the total production will be around 15,000 barrels of oil equivalent per day, compared to an average production in 2013 of 4,000 barrels of oil equivalent per day.
In Russia, the SK field has been in production since February. In the United States, we have continued with the development of the fields in the Mississippian line. In Bolivia, the 2nd phase of Margherita Wakaya project come on stream at the end of September, 1 month ahead of schedule and on budget. Another piece of good news coming from Brazil is that we have submitted at the end of 2013, the declaration of commerciality of Lapa, formerly Carioca, confirming the great potential of the FBMS9 block in the Brazilian pre zone. We expect to have first oil by the second half of twenty sixteen.
Regarding our reserve replacement ratio, we achieved a 2 75%. This year is the 4th year in a row in which we surpass our target of 120 percent per year in average during the period 2012 2016, cementing our future growth beyond this period. We ended 2013 with more than 1,500,000,000 barrels of proven reserve, increasing substantially the reserve life of the company. Turning to our exploration activity, we were able to add more than 300,000,000 barrels of oil equivalent to our contingent resource base, surpassing the target of the strategic plan. During 2013, 24 wells were drilled and 9 of these wells located in the United States, Brazil, Colombia, Algeria, Libya and Russia were positive and one of which is currently being tested.
In relation to the exploratory acreage, we have acquired additional acreage in order to secure a sustained future growth. We have strengthened our portfolio by acquiring more acreage in OECD countries such as Canada, the United States, Portugal and Norway, operating further carbonates opportunities, mirroring the Perla play in Aruba and Colombia moving into new acreage in West Africa, in Namibia and working on final negotiations in Gabon to take advantage of our pre sold expertise. These new areas comply with the stated strategy of building a balanced portfolio with more oil concentration and focused on our geological expertise. Moving to the Downstream division, despite having the toughest macro environment in recent years, we were able to maintain a positive free cash flow. We achieved positive results in all of the quarters, confirming the resilience of our downstream system, thanks to the upgrades in our refineries and our commercial strength.
In refineries, we saw a decrease in margins from $5.3 per barrel in 20.12 to $3.3 per barrel in 2013 due to the general weakening of the spreads of products, mainly middle distillates, partially offset by lower energy cost and the opening of the light heavy crude oil differential. The premium obtained in the whole system, thanks to the upgrade of Cartagena and Bilbao rose from $1.6 to $2 per barrel. The decrease in margins was compensated by the increase in the distillation capacity utilization from 74% to 78% and the increase in the utilization of our conversion units from 90% to 99%, allowing us to almost reach the breakeven point in 2013. Regarding our Petrochemicals division, we again had a difficult year, mainly due to maintenance activity in the Tarragona plant, the most profitable site in our Petrochemical business. During the outage, which has to be done every 5 years, we took the opportunity to change the turbines of the cracker in order to increase the efficiency and improve future margins.
In September, we approved a plan for the coming years to allow the Chemical business to reach the breakeven level even in a low margin environment. During 2013, our commercial business continued to show their strength supporting our results. During the course of the year, we have seen a change in the trend of continuously declining sales, especially in middle distillates. In the second half of the year, on the one hand, the drop in sales in our service stations has slowed. And on the other hand, the sales in our wholesales division is starting an encouraging recovery.
This is the 1st year since the crisis has started that we see an increase in total sales. Turning to our LNG business. In January, we completed the disposal of our LNG asset to Shell as planned. With these agreements, we received $4,300,000,000 in cash, dollars 4,100,000,000 from the sale of assets to Shell and $200,000,000 from the sale of BBE to BP and transmitted $1,700,000,000 of financial leases. The effective date of this transaction was September 30, 2012 and the final closing date January 1, 2014.
The transaction has generated approximately $2,900,000,000 in profit and capital gains after tax, booked in the following way: $831,000,000 of net operating income during the Q4 2012 and the year 2013, dollars 1640,000,000 as net capital gain in December 2013, and $448,000,000 to be booked in January 2014. At the same time, in line with the company's policy of financial prudence, we adjusted the book value of the North American assets with a provision of $1,500,000,000 after tax in the Q4 of 2013. We would like to highlight the good performance throughout the year of our North American assets, which were not included in the transaction, mostly due to the low temperatures in North America. During the Q1 of 2013, the impact of bad weather allowed us to achieve very good results and the same has happened this January. We continue to work on optimizing these assets and on bringing optionality in order to maximize the value of this business.
We also want to highlight the sale at the beginning of the year of our treasury shares amounting to 5% to Singapore's Temasek, which has now a seat in our Board of Directors. Moving to our financial situation, it remains very sound. At the end of 2013, our net debt plus preferred shares stood at €5,400,000,000 ex Gas Net Growth in Erza, representing a reduction of €2,100,000,000 as compared to 2012, mainly due to the LNG business disposal. This net debt will reduce by €500,000,000 with the proceeds paid in January 2014 due to debt disposal. Our liquidity position now stands at €9,300,000,000 which covers our shorter debt 2.7 times.
Let me start now with the results. Q4 2013 CCS adjusted net income was €251,000,000 and CCS adjusted operating income was €604,000,000 These results were 51% and 43% lower respectively compared to the same period of last year. 2013 CCS adjusted net income was €1,800,000,000 and CCS adjusted operating income was €3,700,000,000 a 7% and 14% lower compared to the same period of last year. In the upstream business, the adjusted operating income for the quarter was €211,000,000 57% less than what we obtained during the same period of previous year. This decrease is mainly due to the production disruptions in Libya, which could not produce for 64 days in the quarter and which affected the operating income by €166,000,000 Additionally, the increase in exploration costs has an impact of EUR 159,000,000 This increase is a consequence of the positive news about the declaration of commerciality of Lata, formerly Carioca, and the decision to exclude Abare, Abare West, Iguazu and Iguazu Mirim from the development plan.
Offsetting these effects, we had lower amortization costs due to the reduction of production mainly in Libya and in Trinidad and Tobago with a positive effect of €49,000,000 and better gas realization prices with a net positive effect of €16,000,000 The remaining differences are explained by the depreciation of the dollar and other minor effects. In the LNG division, the adjusted operating income was €218,000,000 a 99% increase compared to the same period of last year. The increase in results was mainly due to the higher margins on volumes commercialized during this period. The income of our North American business increased as a consequence of the cold weather, delivering positive result of €35,000,000 in this quarter. In the dulcene business, the CCS adjusted operating income was €18,000,000 94% lower than in the Q4 of 2012.
We remained profitable in the worst macroeconomic scenario since the refining low cycle at the European crisis started. The decrease in results arise mainly from the refining businesses due to lower margins. Our margin indicator stood at $4.1 per barrel versus $6.3 per barrel in the same quarter of last year. Combined with a low utilization rate of 72% versus 83% due to maintenance. Both effects caused a negative impact of €207,000,000 in the operating result.
The premium margin due to the upgrades reached $2.7 per barrel during the quarter and utilization rate in the conversion units was 94%. Our Chemical business had negative results due to the maintenance work in the Tarragona plant, the most profitable site in our petrochemical business. This outage, which reduced the utilization and increased the cost of the division, has to be done every 4 years. Nevertheless, during the outage, we took the opportunity to change the turbines of the cracker in order to improve the efficiency and improve future margins. The maintenance negative effect was partially offset by an improvement in margins due to a reduction in the price of the naphtha.
These two effects caused a negative impact of €48,000,000 Our commercial business maintained a very healthy level of profitability quarter on quarter, thanks to the increase in sales volumes for the first time in years, which shows the aforementioned change in the trend. To finish with the quarterly results, in gas natural, the adjusted operating income of €208,000,000 and €10,000,000 was 7% lower than during the same period of the previous year. The decrease is due to lower results in the electricity business in Spain, affected by fiscal measures and the new regulation adopted in July 2013. We want to remind you that this year we will start booking our stake in Gas Natural FENOSA as an equity investment due to changes in the accounting rules. Moving to the 2013 cumulative annual results.
As said before, 2013 CCS adjusted net income was €1,800,000,000 and CCS adjusted operating income was €3,700,000,000 These results were 7% 14% lower respectively compared to the previous year. If Libya had been at normal levels, the CCS adjusted net income of 2013 would have been higher than in 2012. In the upstream business, the adjusted operating income was €1,800,000,000 22% lower than what we obtained during the previous year. We had good news, thanks to the startups of the key growth projects in Brazil and Russia, the new production climbing from our projects in the United States, Spain and Bolivia and the better results in Trinidad and Tobago. This higher production could not completely offset the disruptions in output in Libya and of around 100 days during the year, the increase in exploration costs and the depreciation of the dollar.
In the LNG division, the adjusted operating income in 2013 was €829,000,000 55 percent higher than 2012. This increase is due to better margins and higher volumes commercialized during the year and lower transportation cost in North America. The income attributable to our remaining businesses increased mainly due to higher LNG margins in North America with a remarkable operating results of €185,000,000 for the year. In the Downstream business, the CCS adjusted operating income was €491,000,000 47% lower than in 2012, but still healthy given the tough environment. The decrease rises mainly from the refining business due to a lower margin indicator of $3.3 per barrel versus $5.3 per barrel in the previous year, partially compensated by a higher utilization rate of 78% versus 74% in 2012.
The premium on the margin from the new units reached $2 per barrel during the year and the utilization rate in the conversion units reached 99%. In our Chemical business, as explained before, the effect of halting our plant in Tarragona during the Q4 mainly impacted the full year results by €50,000,000 reducing also the utilization rate and increasing the maintenance cost. Moving to the commercial business, we were able to deliver similar healthy results to 2012, mainly due to higher volumes in our wholesale division as explained earlier. To end with the cumulative annual results in Gas Natural, the adjusted operating income of €925,000,000 was at the same level as 2012. I would like to cover now our outlook for 2014.
In the Absinthe division, we expect to increase production over the 7% compound average growth rate guidance presented in our strategic plan, depending on the production in Libya. We expect to add during 2014 new barrels coming from Sabinhoa, which will have a positive impact on profitability, SK and Mississippian Lime. We also expect to put Kinteroni on stream soon. At the end of the year or beginning of next year, we expect to add the production from Perla, carbon forth. As presented in exploration day back in January, our exploratory activity in 2014 will include 31 wells comprising 7 appraisals.
65% of investment will target oil and around 70% of the total budget of US1 $300,000,000 will be spent on drilling. That means that we will continue investing heavily in exploration and risk with exploration CapEx per barrel produced above the industry average. From lower to higher risk, this activity would be as follow. In Brazil, 2 appraisal wells that are currently being drilled, SEAT-two and Paudia Zucker-two in Campos 33. Low risk exploratory areas such as Libya, Alaska with the 3rd winter campaign currently being carried with 3 wells being drilled right now.
Gulf of Mexico with the Baxkin II appraisal well and the Leon exploratory well, Romania, Algeria and testing the boundary of the basin in Kurdistan, where we are also drilling a well now. Following our success in 2013, we will continue our intense exploratory activity in Russia. In Colombia, we will start our drilling activity extending our Caribbean play from Venezuela. Mix plays in OECD countries like Norway and Canada Using the Rowan Renaissance rig, we will explore Namibia and Angola and contingent to the timing of the final permits, the Canary Island. And also in West Africa, we will explore in Liberia and onshore Mauritania, where the well planned for this year is currently being drilled.
Turning to our seismic activity, we have already started exploratory seismic campaigns in Bulgaria and Guyana and development seismic campaigns in Venezuela, Algeria and in Campos 33 in Brazil. In our LNG assets in North America, we will continue with our efforts to optimize the operation of Canapur and maximize the profitability of the North American gas commercialization to achieve the breakeven level in 2014. In the Downstream division, we expect to maximize the capacity utilization of our conversion units and to reduce the energy costs of our industrial businesses. We are optimistic that the positive evolution of Spain's macro indicators will translate into a fair evolution of the retail division results, which will continue at the same level of operating results with very low investments. We also expect an improvement in the European refining sector during this year, thanks to wider heavy light crude oil spreads due to the lower demand of Latin American heavy crude by the North American refiners that will bring also a reduction on the imports coming from the United States to Europe, a new maritime fuel regulation that will increase the consumption of diesel and further closures of the spare capacity.
All these effects will help us to improve our results in refining, allowing us along with our profitable commercial businesses to continue for free to free cash flow to self finance our upstream growth. The estimated margin indicator needed to achieve a breakeven level in CCS operating income is $3.3 per barrel with an exchange rate of $1.3 per euro and around an 80% of utilization rate. At EBITDA level, such breakeven is 1.5 dollars per barrel. In the Chemical business, we expect results from our product differentiation and efficiency programs in order to reach at least the breakeven level. All these measures will bring a better optimization of the integration all along our downstream value chain.
We expect also to receive the same dividend flow from Gas Natural Fenosa. Moving now to the CapEx, we will invest EUR 3,600,000,000 in our businesses this year, as 75% of the investment will go to Upstream. This figure includes the aforementioned $1,300,000,000 in exploration and the rest will be used in the development of the key growth projects and the rest of our producing assets. And a 22% will be intended for the optimization and maintenance of our downstream assets. We are going to continue with our objective online in our strategic plan of divesting non strategic assets as we did at the end of January this year announcing the disposal of our 10% in TGP in Peru with an estimated net capital gain of $75,000,000 We will continue our efforts to reshape our portfolio as we have been doing in the last years, rebalancing our capital employed into a more OECD, non OECD balanced level.
In conclusion, we faced 2014 and the rest of the decade from a very strong and optimistic grounds. Once we have settled our dispute with the Argentinian government over the expropriation of YPF, we now find ourselves financially very sound and with flexibility to continue growing steadily with opportunities in the upstream businesses and with resilient downstream assets even in the current juncture. We are succeeding in reshaping the company with a clear strategy, diversifying our portfolio and delivering steady growth from our Downstream division, which continues to perform above the industry average. And with the above mentioned strong financial position, which supports current and future projects, ensured by a constant and dynamic exploratory activity. With the aforementioned growth, we will continue our efforts to increase the value for our shareholders.
Thank you very much. We will now be pleased to answer any question you may wish to ask.
Thank you very much. Let us move to the Q and A. Just a reminder, we have also enabled a chat in the webcast in order to post questions in the event there are connection problems on the call. You may identify it by a tab called Ask a Question. We will address these questions at the end.
Okay. First, let's start with Bruno Silva from BPI. Hi, Bruno, please go ahead.
Good morning, everyone. Thank you for taking my questions. And of course, congratulations for the deal achieved in Argentina. I have a couple of questions regarding the implications of this agreement, particularly if you could provide more color on how you see your credit rating evolving And in terms of possible consequences in terms of shareholder remuneration, it's certainly positive the announcement of the up to $500,000,000 buyback, but it may seem a little bit conservative considering the interest coupon and proceeds from repayments and possible bond sales as you have mentioned. So are you ready to assume a longer term commitment in terms of the buyback program or an increase in regular cash dividend?
Or are you going to primarily allocate it to balance sheet deleverage and reinvestment? And related with that, if you don't mind, is there any pending hurdle for placing as soon as possible the current position in YPF? The second question, if I may, on chemicals. Is the tarragon cracker, I didn't understand if the tarragon cracker is already at full this Q1 versus the Q4 last year? And finally, you are going ahead with exploration in Libya.
The production is still disruptive. Just by analogy, if we are going to see more instability in Venezuela, and I understand this probably falls in the category of non diversifiable risk, but is there any contingent plan that Repsol could be considering to approach this kind of risks?
Thank you, Bruno. The first thing is about YPF and the implications with the credit rating and the shareholder remuneration. About the credit rating, we see that this is a good these are good news for the rating agencies. We see improvements in all lines of the analysis. Obviously, they will have to decide, but we do think that even though they may not consider the bonds as cash, they will have to consider the interest as income.
Then I'm totally convinced that this is going to be positive in the credit rating results. Obviously, in the case of the shareholders remuneration, we have a back buyback program of €500,000,000 That is slightly lower than 50% of what we think it's going to be discrete dividend for this year to come. Well, this is the first time we do that. We try to be very conservative. We want to see.
I mean that we are going to do that. And what after the discussions we had yesterday in the board, all the stakeholders agree that that was a good policy dilution would be reduced significantly. And based on the experience of the previous cases that it's almost 70%, 80% of the total capital increase thanks to the scrip dividend. Therefore, what is important is that we should not become crazy. And even though we have a better liquidity position and we will obviously through the monetization of the bonds, we have to be very, very, very sound and very prudent financially talking And then let us start with this €500,000,000 capital reduction program and we will see next year.
In terms of the chemical business, the cracker started full operation January 20, I think, or around January 20. And I would say that what we see today from January February is that the chemical business is performing very well. And I would say that during these 2 months, we have been working almost at breakeven, which is significantly better than what we than what happened last year. Our plans as I said in my speech are that and our goal and it's a very tough goal, but we are going to get it I'm sure is that at least being breakeven this year assuming that still we have difficult times and just going better in the years to come. And I think that what I have seen up to now is that we are seeing the results of all the things that we have modified during last year and with the Tarragona changes etcetera and with the propane using with the raw material with being used in the crackers that are reducing the cost of energy.
Therefore, I am quite optimistic in the chemical business. Libya and Venezuela are 2 different things. In Libya, as of today, we have lost something like 15 days of operation up to now. I hope that this is the situation there is instability. I would consider that civil instability, not an instability with the risk of our asset suffering etcetera, etcetera.
There are a lot of discussions between the tribe there in our fields with the national authorities. Our understanding is that they are national authorities and the tribe authorities, the 2aregs. Obviously, they use our assets there as a way to influence or to push the Libyan authorities to agree with their request. But the good thing I can say is that when this thing happened last year, in 3 days we were able to get back to the normal plateau of production. And now we are ready to do that at the same level.
Therefore, we do think that Libya will come back to stability, although we will have to be prepared to suffer from time to time this type of interruptions. Obviously, we have an exploration campaign there. Nothing to do with what I'm mentioning to you about this political debate. This exploration campaign, it's going to continue, because it doesn't happen in the same places where we have the production fields. Then we don't see any plant we don't have any plant to change.
Venezuela, for the good of Venezuela, let's hope that this instability ends at a given moment. We have been there. I was there 2 weeks ago. I talked with authorities. They are quite comfortable that this situation will be solved for the good of the country.
And we think the situation this year in our business because that's the important side of the it's the important sector in Venezuela will remain as it is today. We are working normally. I mean that we are producing the same as we produced before. Obviously, we would like to see Venezuela in a better shape and we would like to see that this instability, this political instability ends at a given moment. But as of today, we don't have any contingent plan other than just continue working.
Did I answer Bruno?
Yes. Thank you very much. Just one on YPF current stake if there is any legal or procedural hurdle to proceed with the placement? Thank you.
No, no, no. There is none.
Okay. Thank you.
Okay. Thank you, Bruno. Now please Alejandro Demichelis. Olejandro, please go ahead with your questions.
Hi, guys. Alejandro Demichelis from Exane BNP Paribas. Again, congratulations on the deal with Argentina. Just to follow-up on the previous question. If you were to dispose or monetize the bonds, would the priority be to use that cash for acquisitions and finance the growth?
Or would that cash be coming back to shareholders in some way, shape or form?
Okay. That's very simple. I mean that in our opinion the best way to increase the remuneration of our stockholders is through an increase in the value of our shares. And I discussed that again yesterday in our in the Board of Directors and all of us agreed that we have to be very prudent. If we have to monetize again in a very prudent manner these bonds in order to get the €5,000,000,000 in cash.
We are not in a hurry. We have growth organic growth in front of us until 2020 beyond with growth. But obviously, it is for us it's very clear that there are opportunities in the market. I mean that and we are and our responsibility is studying all these opportunities that are just appearing in front of us. If we find an opportunity in terms of assets or even companies that do not interrupt our way to see our financial structure, I mean, that being very prudent.
But that the remuneration of this asset or this company is on top of our cost of capital then we will study that opportunity in order to place the money that will come from the monetization of the bond. You have to think that we are free to monetize these assets at the moment that we won. We don't have any type of limit on them, but we are not crazy. I mean, we have a sound financial position today. My instructions to the financial people in our company is that in 2 years from now, we should be able to recover nominal value the $5,000,000,000 plus the money coming from the 12% stake.
Therefore, reaching that level of $6,000,000,000 to $6,500,000,000 But we don't want to destroy the market. We don't want to destroy the value of IPF. We want to maximize the value in terms of cash. This is what we will try to do. Remember by the way that thanks to the settlement we had in Argentina, we are protected in front of all the other bonds, etcetera, with a default position or with a specification position etcetera.
Argentina has settled to pay us $5,000,000,000 and this is no matter the economic situation of Argentina etcetera, etcetera. Then that is good for them. That is mainly good for us. And therefore, that give us time to organize in the proper way the monetization of these bonds. Then also you have to take into account that these bonds bring on average a 9% interest rate.
Keeping those bonds from 8% to 9%, keeping those bonds that could mean that in our P and L, we will see something like $100,000,000 per annum pretax. That's good news. Therefore, believe me, I mean that that's a combination of stability, prudency and getting or trying to get the most from what we have today, which means trying to monetize the existing assets getting face value of those assets.
Okay. That is very clear. And just as a short follow-up, does this change your view of what is the situation with Claz Soldatural or what do you want to do with that stake?
No. Again, it's the same concept. I mean that remember in the last conference calls and the last conversations we have had with you and with all of you, we have said that governmental is an optionality. Obviously, today becomes that concept of optionality becomes even more important. We have the cash or we will have the cash coming from YPF that today was in existence.
But tomorrow, it's going to be from $6,000,000,000 to $6,500,000,000 Then we have the possibility to have cash from the selling of gas nat. But at the same time keeping gas nat in our balance sheet, it's not a bad idea. It's a good asset. They are performing very well. They are performing better than all their peers.
The rate of the remuneration, the yield that we get from Gasnab in cash is something like 6% in terms of shareholder return is by far more. And it delivers. Then I mean, obviously with that I'm not saying that we are changing our plans. If something better in our strategy than keeping us not happens to us. But again, be prudent.
I mean that I know that looking even ourselves when we talk ourselves in the executive committee etcetera, we have very clear ideas. I mean that we have to focus priority 1 organic, organic growth, organic profitability. 2nd, now that we got the settlement with Argentina, monetizing that cash and investing that cash in profitable assets. 3rd, and after that altogether with that based on the opportunities maximizing the value of the optionality of Gas Naturals.
Okay, Alejandro? It's very clear. Thank you very much.
Thank you, Alejandro. Thank you very much, Alejandro. Now we move to Haitham Rashid from Morgan Stanley. Hello, Haitham, how are you? Please ask your questions.
Thank you, Angel, and thank you, Antonio, for the presentation. Two questions from my side, please. One is sort of a clarification on the settlement with Argentina. Can I just ask with the bonds that will be transferred to yourselves, is there any specific lockup period that's associated with any of the bonds, any of the tranches that you have agreed upon? And also related to that, could I just sort of clarify this amount that you've talked about in terms of a minimum of $4,700,000,000 at the time of transfer?
Is that specifically at the time of those bonds being transferred to Repsol and therefore post you taking receipts of those bonds, there is no sort of minimum value then it depends on the market's sort of conditions for those bonds, if you could just clarify that point specifically. The second question I had was on Kintaroni. You mentioned that should be starting up soon. Perhaps you could just provide a little bit of color on specifically sort of how long you're expecting the start up potentially to take? And what would be the sort of key milestones to deliver the startup?
Thank you.
Yes. Hi, Hassan. In terms of lockup, there is no lockup period. I mean that we are free to sell at any moment. Obviously, there it's again prudency.
I mean that we will sell that provided that we don't destroy value into the market. The $47,000,000,000 is being built and computed based on the 90 days before the delivery of the bonds. To be accurate 94 days before 94 days and it's the average of that period of time in order to define which is the market value of those bonds in order to compute the quantity of extra bonds that they have to deliver to us up to the total of 1,000,000,000 Then I mean that I think that we have we compute debt every day and we are in that range of being below €1,000,000,000 of extra bonds. I mean that's then but remember that the €4,700,000,000 is just a reference. It's nothing magic to us.
I mean the market value of these bonds, it's just a theoretical point, because if we try to sell those bonds tomorrow, for sure we could not get €4,700,000,000 I mean that we would get less, at least 10% less than that €4,700,000,000 But we are not planning to do that. I mean that we will get the €5,000,000,000 for sure. We will get an extra up to €1,000,000,000 more. We have the capitalized interest of €500,000,000 Let's say that in total to get €5,000,000,000 we have to work with €6,500,000,000 in bonds or in capitalized interest. Then I think honestly that we are covered and we will have plenty of room not to lose money, not to lose money, not to get less money than the nominal value of the bonds if you do a good job.
And I'm sure that we are going to do that good job. In Kintaroni, Kintaroni unfortunately it's day by day a delay in the opening of the operations. Today I could say, but unfortunately, I would have said the same 3 months ago that the opening of the Quinta Roni is going to happen in this quarter by the end of this quarter. Why I am more optimistic today than I was before? Kinteroni as you know was linked the Block 57 was linked basically to Kamicea and to the LNG deal.
And everybody was trying to get the most from this deal. Obviously, the Peruvian authorities are forcing the Camicea Group to give Block 88 in Camicea for internal purposes for internal market and substituting the 88 for the 57 which is Now it's just a matter of getting the approval of all the other partners in Kamisea. That should not be difficult. Having said so, it's not up to me. I mean that they have to put the signature in the agreement.
But I think that we are in the last phase of this in order to have Kinteroni starting production this year. We do think honestly and in our budget this year, we have Quinteroni on average net to us producing something like 9,000 barrels a day of oil equivalent per day. And I'm optimistic that's going to happen and that you are not going to need to ask for Kinteroni again in the next conference call.
Thank you very much. Very clear.
Okay. Thank you. Thank you very much, move to Irene Haymona from SocGen, Societe Generale. Hi, Irene. How are you?
Please go ahead with your questions.
Thank you, Angel. Good afternoon, Mr. Buffo, and congratulations on the YPF resolution. I had two quick questions please. So firstly, if we look at the 2013 results stripping out the discontinued LNG basically adjusted EBIT fell about 23% in a flat oil price environment despite the 4% production growth.
What guidance can you give us please for 2014 regarding in particular downstream EBIT? And also
what is
the sort of probable production growth that captures the Libyan risks? And the second question, again going back to the issue of resolving YPF and the much increased financial flexibility, I just wanted to see or to ask where you would like to take Repsol next given that you do have that flexibility? So what do you feel you can now do really differently in the next 3 to 5 years that you clearly couldn't do before given the balance sheet? Thank you.
Thank you, Irene. About 2013 EBITDA in let me say that 2013 basically everything was against the industry in the European industry. At the upstream level, flat prices in oil, but some operators in Europe were working for instance in Libya as you know and we suffer from Libya. That's the basic problem we had in Libya. Downstream, the downstream business in Europe suffers in my opinion the worst year in many, many years.
That which is not sustainable. I mean that we are what we see today is that the EBITDA that we had last year in downstream was that was around something like €900,000,000 has to go up significantly this year. And I'm going to say very simple things. 1, improvement in our margins. I mean that we are seeing this year an improvement in the margins coming from those that we had last year.
Our system is more efficient. Our units, our conversion units are working better. The new units of Cartagena and Petronor are delivering better results compared with those of last year. Energy efficiency is has improved and we have invested very heavily in improving energy consumption and CO2 reductions etcetera, etcetera. Then at the refining business, I see a very clear improvement and also the basics.
I mean that we see heavy and light crude spreads widening and it's just now a matter of seeing the same in products in middle distillates. In chemicals, we suffer around €100,000,000 because of the outage of Tarragona and because of the big crisis we had. That's not anymore the case. I mean that all what we have invested in chemicals will prove to be very efficient this year. At the retail situation, we lost something like we lost.
We didn't make that money in the Q1 of 2013, because of the biodiesel taxation. I mean that because of the bios composition in our products. I mean that the de taxation or the contrary, the taxation of the bios in our products was being paid by Repsol, not by our customers. In the through all the year, we have managed to improve prices and increase prices. And we see this year a big difference in terms of margins at the retail level from what those that we had last year, etcetera, etcetera.
And then I think that looking item by item, I see that we will see a significant improvement at the downstream level. Obviously, we are not delivering. The downstream cash flow is not what we thought should be when we decided to build or to create the strategic business plan. But I would say that 2014 will be very similar to what we expected 3 years ago. Then in terms of EBITDA and results of 2014, my impression is that we will see a better result than what we had in 2012.
Thanks to what I have said up to you until now. If we don't have Libya, well you may manage Libya in different cases. Assuming that we have Libya at 90%, that means 30 days of interruption. That would mean that our production would be on top of 7%. Assuming that you have Libya with no production that would mean that together with Quinta Roni in operation that would mean that our production would go between 4% to 5% etcetera.
Then that's not a big, big problem for us. I mean that Libya will come in operation. I mean we will have the interruptions of 60 days, 30 days or 40. But at the end with Libya working at full, our production would grow at the level of more than 11% working at full. Then I mean that and I'm totally committed to deliver in terms of production what we set in our business plan in the 12 2016 business plan that was a compound annual growth rate of more than 7%.
That's already there. And the question about the APF was what? Well, with the financial flexibility, again, to answer this question, we need some time. I mean, the first we have to have the cash, which is not the case. I mean, that now in 2 months we will have papers not cash.
2nd, papers that are profitable by the way. And then as I said before in 2 years, the goal is getting that cash becoming a reality. Meaning with that with the selling of the bonds and the selling of the 12% stake getting between $6,000,000,000 to $6,500,000,000 And at that moment or during now and then moment, we will have to reinvest that money to get a fair rate of return. I mean that in terms of buying assets or buying specific medium or small companies that adds value to us. Irene, did I answer to you?
Yes. Thank you very much.
Thank you. Thank you very much, Irene. Now we'll go ahead with Felipe Rosa from Banco Spiritu Santo. Hi Felipe, please go ahead with your question.
Hi, good morning to you all. First of all, congratulations on the deal. Really positive what you managed to achieve in terms of compensation guarantees versus market expectations and your counterpart in the dark talk. So good, well done. And now I think that you are forced to have a view on Argentina as you are creditors of Argentina or you are about to be.
Do you think that your deal will help them going forward? Do you think that the country risk premium following these steps in the right direction could go down? Or you are skeptical and you just are working on basic assumptions that the credit risk will remain stable at very high levels over this period of 2 years where you are planning to exit? That's my first question. And the second question, I know this is a little bit tougher to answer, but this has been a topical issue regarding the stake held by Pemex, which is a key shareholder of Repsol.
As of today, could you give us an idea how do you see this shareholder? Do you think that they are closer to as it's following the public statements that they have done? Or do you think that for instance this deal in Argentina has been important to smooth a little bit the relationship between Revsol's board and Pemex? Thank you very much.
Thank you, Felipe. I mean that our view on Argentina, I think that this deal is the first step for Argentina going in the right direction. I mean that our deal with the Club de Paris agreement with inflation being in accordance with international institutions etcetera, etcetera. They try to agree with the holdout. My impression is that and I hope my hope and my will is that this settlement will help Argentina to be in a better situation.
And with that I'm not saying that this is not in a good situation, but that deal will open the international financial market to Argentina. In my opinion or at least that would be the Repsol's will. Then let's hope that. The stake in Pemex this is not up to me to answer that question. I mean, yesterday we had a very thorough debate in the board trying to have a very good to improve the relationship with Pemex.
And we have an industrial agreement with Primix, which is not being in play now. I mean, that is just not being very efficient. And I offer to the representative of Pemex to sit with the people of that company in order to start thinking or studying all type of possibilities to cooperate. From the point of view of Repsol, that's our position and our attitude. I mean that to be to answer all the needs or the demands of Pemex provided that they are good for Repsol.
And this is our position. I mean that what's going to be the position of Pemex this is not to me that I have to answer. Okay. Thank you very much. Thank you.
Thank you, Felipe. Now let's move to UBS, John Rigby. Hi, John. How are you? Please go ahead with your questions.
I'm good. Thank you. Thanks for taking the questions. 2, please. The first is I just want to explore this €4,670,000,000 lower level and in relation to the $1,000,000,000 of reserve bonds that you have.
If and Argentina's economy is not strong, the realizable value of the bonds dips below that. Can you go back to Argentina to get further consideration if the €5,000,000,000 plus the €1,000,000,000 plus the €1,000,000,000 don't make up at minimum level? That's the first question. And also actually alongside that, can you just explain again when the $1,000,000,000 of supplementary bonds become deliverable to you? The second question is, it occurs to me that over the next couple of years, there's a significant amount of your free cash flow is actually coming from non oil businesses, Gas Naturale and the bonds that you're being issued.
So I'm trying to think more about sort of post the 2 years about what it is you're going to try to make Repsol look like. Should we think that as you go about reinvesting that you want to get to a point where the oil and gas activities, both upstream and downstream, can support the CapEx reinvestment and the dividend that you're intending to pay? Thanks.
Okay, John. I mean that in terms of the 4.77 dollars we cannot go back to Argentina for additional bonds for asking for more bonds. But we have again I mean that be sure I have to be sure that I'll go through you in terms of the $5,000,000,000 are protected and are pro solvendo. That means that if Argentina goes into and nobody wants that, but if If Argentina cannot pay, we will be entitled to go to an arbitrary court to ask for those $5,000,000,000 The bonds are the collateral that we have in order to monetize as we need that $5,000,000,000 debt. Therefore, I mean that we cannot get less in terms of sorry, we cannot get more bonds if market value goes below 467, because our market value it's €5,000,000,000 I mean that it's an account in account receivable from Brazil to Argentina.
Argentina has to pay and we have guarantees to receive that $5,000,000,000 money. And Argentina is giving us $6,000,000,000 or something like that in order to monetize that the sooner we won. Then that's done. Sorry, Miguel. Well, but again, I mean, Miguel is telling me that the weakest point in terms of market value was almost €4,000,000,000 But again, that's nothing to do for me.
I mean that it's a reference.
So the way of thinking about it, would it be that you that Argentina would have to find another way of making up the decision?
Exactly. That's very clear. I mean that imagine that something goes wrong, Argentina cannot pay. We go to the core. The core is very simple.
They say, well, Argentina has to pay. And that moment, imagine at that moment having received €1,000,000,000 it has to pay €4,000,000,000 plus interest. They will have to find a way to pay €4,000,000,000 plus interest no matter the bonds.
They could offer
you a staking back a multi.
Yes. But let's hope that that's not going to happen and that Argentina Then the second question is, how would I see Repsol in future years? And how it's going to be the cash flow? And how we are going to finance? And how does not fit in this business?
Yes. I mean in front of us today, we have a good liquidity position. We have cash that will come into our balance sheet in a very some way very soon. And we have the shares of Gasnab. If I have to dream in 3 or 4 years from now, I think that Repsol should have an up stream division very powerful based on what we have today, based on what we can buy provided that this thing that we buy adds value to Repsol and to the stockholders of Repsol in terms of technology, in terms of remuneration, in terms of the basics of this business.
And obviously with that upstream being self financed, I mean that the upstream cannot should not rely on the EBITDA of the CapEx long term. Tomorrow, the upstream still needs some money coming from the downstream division. But in our organic growth in 1 year from now that's over. I I mean that the upstream will self finance growth in 2015 with what we have today. Then I mean that I was not here, but at the time that we decided to buy YPF, it's the same moment today.
I mean, but we for sure we are not going to do the same mistakes we did 13 or 14 years ago. Now we have a huge potential to improve the quality of our portfolio. Keeping or not keeping gas nat, I'm saying improving the quality of our portfolio. And that means improving the asset the OECD asset base, improving the technological aspects of business that we have today and we still need something in our technological portfolio, improving our production, improving our acreage of exploration in good areas and promising areas together with what we have today. And this is what we are going to do with the money that we are going to have that will be free after the selling etcetera, etcetera, etcetera.
Bren, I think that in 3 years from now, you will see a rep saw very sound at the upstream level with a medium sized to being a medium sized company, very profitable, less risky company. With all the assets producing today, remember, we $5,000,000,000 that are in well, a $5,000,000,000 asset that did not produce at all in 2 years. Now it will start producing. Obviously, with the portfolio that we have in Gasnad, with that optionality to increase what I'm mentioning at the upstream level and with a very sound and a very profitable downstream operation. That's what I see in Repsol.
And therefore, in my opinion, at that moment, we will have significant quantity of upstream assets that we'll be producing. And the work in progress, the assets that will be in the developing phase will be lower than the ones that we have today. Therefore impacting in a very dramatic manner the P and L of the company for the good obviously. Right.
Sounds very exciting actually. Thank you. Yes.
Thank you. Thank you.
Thank you, John. Now let's move on to Alastair Syme from Citi. Alastair, how are you? Please go ahead.
Sorry, I thought I've been taken out of the queue. My question has been answered. Thank you.
Okay.
So you don't have any further questions, Alistair?
No. Thank you very much, Ingo.
Thank you, Alistair. Now then, please Lydia Rainforth from Barclays. Hi, Lydia. How are you? Please go ahead.
Hi Angela. Thank you very much for the presentation. A couple of questions if I could. Firstly, can I just come to a change in the articles for the Board? There is now clause in that that I think 3 quarters of the Board need to approve a spin off of either the upstream or the downstream division.
And just in the context on what you were just saying, Antonio, why was that clause put in place? And is that something that the Board has been actively considering? And then secondly, if I come back to the YPF side and this the idea of adding value to portfolio, When you are evaluating whether or not to sell the Argentine bonds or YPF or Gas Naturale, If you see that there has to be something better to invest in, is there a minimum rate of return that you would want on such investments? Thank you.
Lydia, in terms of the quorum, I mean that there we increased the quorum in order to spin off both divisions up to the level of 75% at the stockholders meeting and at the board meeting. The reason for that was because there was some debate here about Repsol being divided into 2 pieces in order to I don't know and the rating agencies that are studying us would like to have Repsol integrated. There is a there are a lot of merits of being really integrated. Therefore, we are not just creating a barrier in order not to spin off the companies that we are making the life more difficult. I mean that we do think that there is merit in terms of remaining integrated.
Our strategy is being an integrated company. We do think that there is a lot of value maximizing the good things of both divisions and I wouldn't like to see that thing not happening. And that was the discussion we had yesterday on the board and the board agrees with me that it would be very good to increase that percentage of a quorum in order to put less flexibility even though there is flexibility to have some less flexibility in order to decide a thing like that which is very important. In terms of the internal rate of return of the new investment, obviously should be higher than the bonds, should be higher than the natural stake. We are not in a hurry I'm sorry, and should be higher than our cost of capital.
We are not in a hurry. We see that today plenty of opportunities. I mean that at the upstream level this year nowadays there are many, many opportunities. And at the asset level, we see also opportunities that would create more value to us in terms of technology, in terms of knowledge, in terms of people, in terms of rate of return etcetera than just keeping the bonds or just keeping the shares of CASNAD. Then my responsibility as I said before and the responsibility of the Repsol team is just trying to study everything that may add value to the Repsol's stockholders.
And therefore, provided that we have more rate of return on top of the bonds, more rate of return on top of the shareholder return on Gas Net and more rate of return on top of our cost of capital then why not? But we are not in a hurry in a hurry. I mean that's it will take time.
That's very helpful. Thank you very much and congratulations again on the deal.
Thank you, Lilia. Thank you very much. Now we move to Fernando Lapuente. Orlando, please go ahead Hello, we move to Fernando Lapuente. Hola, Fernando, please go ahead with your questions.
Hello, Good morning, Angel Antonio. Thank you for your presentation. I have a follow-up on the Argentinian agreement. Just a confirmation that in this agreement, you have not included any kind of collaboration or investment or whatever you want to call it with YPS? And my second question is on the dividend.
Two questions on that side. The first one is, what is your view on the dividend? How should it evolve in 2014 from the euro you've approved for this year? And secondly, what is the rationale to maintain the scrip? And if it wouldn't be better to just pay in cash?
Thank you so much.
Okay. We don't have any obligation to collaborate or to invest in Argentina. One of the reasons I mean that's one of the main aspects of this deal. Therefore, we with the bonds we have finished our collaboration. Fortunately, we have many Argentinians with us, which is one of the best assets we get from this situation.
But other than that nothing. And we don't plan to be back in Argentina with in the next let's say, years, no, in the next few years. Obviously, we will have to collaborate with Argentina in specific things like Maxus etcetera outside Argentina, but nothing in terms of investment or collaboration in the country. And in terms of dividend evolution, I mean that we do think that the €1 dividend is a fair value comparing with our peers in Spain, comparing with our peers in Europe and comparing with our peers in the United States. That it's a good remuneration based on the normal level of profits that we have.
The scrip dividend together with the capital reduction, I think in my opinion solves 2 things. 1, it helps Spanish people and individuals to maximize the tax value of the dividend. I mean, because for many people that do not need the CAI receiving shares instead of CAI reduces the tax burden that they have. Therefore, it's good for them and it's more value for them. And for the people receiving CICE, then the capital reduction reduces the dilution aspect of this scrip dividend.
Then I think that this year we will combine both. The scrip for people trying to maximize the tax position and the tax situation of themselves in terms of receiving shares and not being diluted with the people or institutions getting cash. Obviously, the $500,000,000 capital reduction maybe smaller than the total capital increase that we will have to do this year. That it will depend on how many people will go for the scrip. But that we will learn.
I mean that next year we will try to adjust that money. That's the first step. Okay, Fernando? Thank you
so much. Thank you so much, Antti.
Thank you very much, Fernando. Now we move to Thomas Hadal from Credit Suisse. Hello, Thomas. How are you? Please go ahead with your questions.
Hi. Thanks for taking my questions. Just a few one. On production to start with, correct me if I'm wrong, have you today reiterated your 2016 production target of 500 ks video or more since you talked about this 7% CAGR? And I'm just asking this because my sense is that Mississippian line is under delivering and this target given your large non OECD exposure in the upstream?
Secondly, for budgeting purposes, when do you expect Libya to be back to normal operation on an annual basis? And also if you can perhaps talk about what your assumption is for U. S. Price realization for the Shenzi field given the dislocation to crude pricing there? And just to clarify on your comments on the downstream, my understanding is you previously targeted an EBITDA of €1,500,000,000 to €2,000,000,000 And so you expect this range to be reached in 2014?
And just a final question on your dividend policy. I think your payout ratio is 40% to 55%. It seems a bit inconsistent with your current payout ratio, a function of your underperformance in EPS this year. If you are so positive on cash flow growth in the next few years, does it make more sense to actually link the dividend to cash flow over the medium to long term? Thank you.
Thank you, Thomas. I mean, your first question 2016, we still feel that we can reach that 500,000 bottles a day of production by the end of 2016. Midcontinent, you are right. I mean that at that moment in 2012, when we joined Mid Continent, SandRidge, we thought that we could reach something like 40,000 barrels a day of production at the end of 2016. As of today, we are lower than that we are thinking about between 200,025,000 barrels a day.
That means that we have a gap between what we expected and what we think today of something like 15,000 barrels. Obviously, there are many other places that are going better maybe Brazil or not maybe. Brazil is going better. Peru is going better. Bolivia is performing extremely well.
Russia is going better, etcetera, etcetera of what we thought. Therefore, I think that it's not going to be difficult to substitute the midcontinent reduction into all these other assets that I have mentioned to you. Then in terms of on top of that, we have the inorganic growth, but I don't want to consider that in the analysis. Algeria was not there. I mean that Algeria started production in our in the business plan by the end of 2016.
It was not much production there. I mean that it's it doesn't account. We don't see significant delays in Algeria. I mean that we do think that we are on budget no doubt. And if we are not on time, it's not going to be because of us.
It's going to be because of the pipe that has to be built in order to reach the central headquarters of the gas distribution pipes in Algeria. Then Libya back to normal operations. Let's hope that tomorrow, but it's not up to us Thomas. I mean that the only thing that it makes me be prudent but optimistic too is that as I said before the operations are not damaged. The facilities are not damaged.
They know that it's just a matter of using us as a way to push the national authorities to agree with the needs of the Tuareg tribe. I hope that we will see operations back to normal sooner than later, but I cannot give you a data. No, I mean that we try to help the national oil company all the time and be there and but in order to deliver the day that we will be able to go back in 2 or 3 days we have to reach normal plateau, but that's the problem. In terms of the Genfi realization prices, that's true. I mean that Genfi prices in 2013 were $4 below brand.
Now in 2014, we see a minimum or a maximum price of $6 below Brent, which now Chantee is more linked to West Texas than Brent. And obviously, we are taking that into account in our analysis of the P and L for this year. But at the same time, Chant is producing very well. It's keeping production at plateau. The water injection fields are performing very well.
And we see that production this year will remain or even increase a little bit from last year. Therefore, Sensi, it's performing well even though prices are slightly lower than what we had last year. In terms of the target in downstream, you're right. I mean that in our strategic plan, we target a €1,500,000,000 to €2,000,000,000 closer to €2,000,000,000 more than €1,500,000,000 in terms of EBITDA level at CCS or MIFO because we have to consider EBITDA at MIFO because Mifo and CCS in terms of cash are the same. Last year as I said before, it was €900,000,000 My forecast for this year should be closer to €1,500,000,000 dollars and in the years to come going to $2,000,000,000 And for the reasons I mentioned to you better margins, better spreads an improvement in the economic situation in Spain, therefore better marketing margins.
A chemical business, which is not going to perform that bad of last year, etcetera, etcetera. LPG doing very well. Trading performing. Last year, we had an increase in trading of something like €30,000,000 from 2013 to 2012. This year we have done a lot in order to increase that operating income coming from our trading activity.
And we do plan a significant increase in the operating income from this activity. Therefore, all these things together and I'm not realistic at this point make us to think that as I said before 2014 will be better than 2012 no doubt at CCS. Obviously, if something dramatic happens, we will have to see. But my impression is that we will deliver and we will deliver good results. And linking your last point the dividend to our cash flow that's a very, very, very sound statement sound concept.
I have to manage different things here in Repsol. I have to manage the linking of the dividend to our ability to create cash. Therefore, to our cash flow, I have to manage that also to and I don't want to confuse you to the needs of our stockholders, but in a positive manner. I mean that provided that we are not damaging the company, I want to consider the scrip as one way to lift the cash flow goal because the scrip dividend is just a capital increase with no outflow of cash etcetera. Now we are going to have the capital reduction by the way.
But I mean that all these things together make me to think that the €1 per share based on the normal scenario of the operating let's say, the net operating income at CCS excluding nonrecurring of 2013, 2012, it's the right pace of the dividend. Then this is what I can say. I mean that we the dividend that we pay is not damaging us. It's in our strategy. It helps everybody.
It gives a good reward in comparing with our peers. It gives good reward in comparing with our Spanish peers too, etcetera. And this is our position today. Okay. Thank you very much.
Thank you, Thomas.
Yes. Thank you, sir.
Thank you, Thomas. Now let's move to Luiz de Toledo. Hola, Luiz, please go ahead with your questions from BBA.
Good afternoon, Antonio. Thanks for taking my question. Again, question regarding YPF. I don't know if you
can share. Sorry, Luis, can you speak a bit louder?
Yes. Sorry. Can you hear me now? Yes. It's regarding YPF.
And if you could maybe share your thoughts on the mild share price reaction to this announcement? And maybe also on the price on November, you're still trading more or less at the same level. We acknowledge that there's a lot of uncertainties that there's a complex deal. But do you have any reaction, any thought on the share price today?
Well, of the reaction the market is very smart and the market is market. My impression is that still there are some things to be made or to be done from now to the final moment of the settling, which means the moment that we are going to have the bonds. I think that the market would should realize what we have gotten in Argentina and approaching the date that or the moment that we will receive the bonds, the share price will react better than today. Having said so, I mean that is the market. I mean that very few things I can say in terms of this mild reaction.
I'm totally convinced that we will deliver and we will see that the market once realizes what we got and the sooner we get closer to the final settlement. And after the settlement and getting the bonds and starting cashing those bonds, we'll realize that better to have dollars in our portfolio or assets in our portfolio than just a dream, which is a litigation and waiting for something to happen in 10 years from now.
Okay. Thank you very much.
Thank you, Luis. Now let's move to Matt Lofting from Nomura. Hi, Matt. Please go ahead with your question.
Hi, thanks. Just one question left please. If I could just come back to the share buyback program and if you could talk a little bit around how you think about that going forward? Should we just view it as a standalone program for 2014 or given the increased financial flexibility that Repsol now has and the continued commitment to the scrip portion in the dividend, is this something that the market should think about as an ongoing underlying element of the cash return proposition at Repsol 2015 plus? Thank you.
Our buyback program means it's going to be in as of today, what I can say today, it's going to be a normal thing that will happen every year in order to offset the dilution of people receiving Kaixin's net of shares. Therefore, I think it's a way to offset the capital increase because of the scrip dividend. This is what we said we have said in many occasions. Now is the right moment to apply. I mean that when I talk to you to most of you I mean that in the different conversations I thought that that was something that was being expected by the market.
I mean that and therefore it's just there. I mean that we will increase capital because of the scrip dividend. We will reduce capital approximately with the same amount that we increase capital. Therefore avoiding dilution for our stockholders. Okay,
Max? Excellent. Excellent. Very clear. Thank you.
Thank you. With this, we have one more question from Anish Kapadia that just came in. Hello, Anish from TPH. Please go ahead with the question.
Hi. Good afternoon. Just a couple of questions. Just wondering in terms of the upstream, how do you see the EBIT per barrel evolving if you assume a flat commodity price if we look over the next few years? Because it seems like you have got some high margin growth in Brazil, but also some quite low margin projects as well.
So just wondering how you see the evolution of that? And then also just some
clarifications on
the production side. In terms of Quinteroni, I think you said you're assuming around 9,000 barrels a day for this year. Is the guidance still the same as around the net production to Repsol will be around 20,000 barrels a day. And then looking out to 2016, I think your production target for from Venezuela was over 80,000 barrels a day with a combination of Carabobo, existing production and Perla. Just wondering what your confidence was in that?
Okay. Anish, the EBIT per barrel as of today is around $15 per barrel on average obviously. And I think that that's going to remain or even improve. Thanks to Brazil, thanks to the United States, thanks to Russia, not exactly Russia. But in my opinion, we have some gas projects like Margarita that are being linked to oil.
Then other gas projects are fixed prices like Cardon. If you combine that with the production of oil coming from Brazil, the United States and other areas. I think that the level of 15 at present value $15 per barrel will remain there for the next 3 or 4 years. In terms of Quinta Roni, in Quinta Roni, the and at the beginning, the gross production and net production to us was 20,000 barrels no, the net production to us was 20,000 barrels a day. The agreement we have today with the Camisea consortium and the Peru LNG are just slightly less.
And today what we see in front of us that Quintaroni will deliver net to Repsol as I said before 9,000 barrels a day of production and ramping up in 2 years from now. By the year 2016, Kinteroni will deliver 2016 sorry, will deliver the 20,000 barrels a day. But that's going to be ramping up from Quinteroni plus Agari, which is the discovery we had 2 years ago and the development that we are doing now from 0 to 9,000 barrels a day, 2014 to 20,000 barrels a day, 2016. That's going to be what we said 2 years ago and it's going to happen in reality. And Venezuela at 80,000 today we are producing something net to us something like 45,000 barrels.
Obviously, we have different projects that will go up, will increase that quantity. The Cardon will start producing natural gas by the end of this year in 150,000,000 cubic meters cubic meters a day. Next year, we'll go to 450,000,000 cubic meters sorry cubic feet a day. Then I mean that this is a production that will have a significant impact in our case that will account by the end of 2016 by something like 17,000 bottles a day of oil equivalent in terms of production. Then together with Cardona, we have Carabobo.
In Carabobo, we are producing already something like 4,000 barrels a day. Our idea is going to 9,000 barrels a day of production in Carabobo by 2016 net to us. Then if you take Carabobo 9,000, 17,000 of Cardon and just being in on time and on budget. And then we take the increase in Quintero in Petroquiriquir from 45 to 52, 53. Then we have Yucal Placer which is the agreement the block that we have together with Total that are now just building to reach the level the plateau of 300,000,000 cubic feet per day etcetera.
I mean that all these things combined make us to feel very comfortable with the figure of 80,000 barrels per day in 2016. This is what I can tell you. I mean, the tap you read there are many things together, but all of them are under control and on budget, on time. And we don't see today any cloud that these figures not being reached. Is it okay, Anish?
Thank you. Yes, that was very clear. Just one I just follow-up if I could. In terms of the acquisition market, you said you see quite a lot of opportunities out there. I know there's an OECD focus.
Is it kind of the key area you're looking at still North America or you're looking a bit further afield? Thanks.
Well, there are many areas, but obviously North America, which means the U. S. And Canada is a very critical area and very important area with plenty of opportunities. Obviously, I wouldn't say no. I would I consider Canada and the United States very, very, very important area to be deeper than what we are today.
Although, as you know, our main area in terms of capital employed today at the upstream level is the U. S. Still Canada is not that significant and many opportunities are there cheaper than in the U. S. And more efficient and technologically talking equally similar.
Then I think that North America, but in general OECD. I mean that we do have to change the profile of our portfolio and that I think that it's a very critical element of that of this move. Okay, Anish?
Okay. Thanks very much. Thank you. Okay. So now we're finished with the questions that we received through the phone.
We have some written short questions. I believe most of the queries that we received by writing are answered regarding cash flow from the downstream business, etcetera. Jason Kenny from Santander just asked about if you are confident to reach an 80% utilization rate in the next years in the refining business? The second question is about Libya. I believe it's already answered.
Yes. Yes. We're reaching the 80%. Today, we are at 78%, seventy 9% utilization rate. The important thing however in to make money is using the conversion rate that we are using the most.
I mean that 99% conversion rate. Therefore, I mean that if margins remain like they are today, I don't see any problem on improving even improving that percentage. Okay.
And just one last question is just Nitin Sharma from JPMorgan. Just ask what is if we don't sell the bonds, what is the cash flow that we receive from the coupons? Sorry? The cash flow that
we receive from the coupons? It's from the coupons, the cash flow and the profit before taxes will be gross $500,000,000 Okay.
So with that, we've finished with every question. I believe that we've answered everything. In any case, we'll be more than happy to from the IR area to continue with your service and answer any further queries that you have. Thank you very much for attending this full year 2013 conference call. And thanks.
Bye. Cheers.
That will conclude