Good morning, ladies and gentlemen. Thank you for standing by, and welcome to Repsol Second Quarter 2013 Preliminary Results. This conference call will be led by Mr. Miguel Martinez, CFO of the company. A brief introduction will be conducted by Mr.
Angel Bautista, Director of Investor Relations. Mr. Angel, please go ahead.
Thank you. 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 2nd quarter results. This presentation will be conducted by Mr.
Miguel Martinez, CFO. Other members of the Executive Committee will be joining us as well. Before we start, I invite you to read our disclaimer note. 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 Miguel. Thanks, Angel, and thank you for attending this conference on our Q2 results. First of all, we would like to express our deepest condolences to the families and friends, the victims of yesterday's tragic train accident in Peru. Our thoughts and prayers are with them today. Today's conference call will cover 2 topics.
1st, the operational activity and the main events of the quarter, including an update of the situation concerning the YPF confiscation and second, the quarterly results. Starting with the operational activity, I would like to highlight the following. In the Apsi business, during this quarter, production of hydrocarbons reached 359,000 barrels of oil equivalent per day, which represents a 12% increase year on year. The additional volumes arise mainly from the ramp up of the projects that came on stream during the second half of twenty twelve and the beginning of 2013 in Russia, the U. S, Spain and Brazil and the improved performance of our operations in Trinidad and Tobago, partially offset by the reduction in volumes from Ecuador, where we sold a 20% stake in Block 16 last September and Libya due to recent disruptions.
In Libya, we resumed operations on July 12 and we are currently producing at normal levels. From an operational standpoint, Quinta Roni is ready to start production. However, we are working on some commercial arrangements. The Peruvian government decision is that gas reserves from Block 57 replace the ones related to Block 88 as the guarantee to the Peru LNG export facility. In consequence, some contract modification between Camicea and Peru LNG need to be made since gas from Block 57 will be sold to Peru LNG.
We are making progress and expect to start production shortly. In relation to the JV with SandRidge in the Mississippi and than production volumes. For this year, we expect to produce in average 7,000 barrels of oil equivalent per day. We are in permanent contact with the new management with the aim of approving in the following months 2014 activity. Moving to Brazil and Bolivia and before the year end, we expect to connect 2 more wells to the FPSO in Sabinejoa as scheduled and to put into production Margarita Huacalla Phase 2 in Bolivia, thereby consolidating the successful delivery of 2 of the key projects of our strategic plan.
Let me emphasize that the 10% production growth target for the year is achievable. Regarding our 2013 exploratory activity, we have already achieved the 300,000,000 barrels of oil equivalent annual target of contingent resources addition. During the 1st part of the year, 12 exploration wells and 1 appraisals were completed. 9 of these wells located in the U. S, Brazil, Colombia, Algeria and Russia had positive results.
We're currently in operations in Brazil, Canada and the United States and Indonesia. In the second half of the year, we will continue drilling the ongoing wells and we'll continue with the exploratory campaign in Libya. We will start new wells in Norway, Kurdistan and the Gulf of Mexico. And by the year end, we will start with new winter campaigns in Alaska and Russia, expecting to achieve the target of drilling 32 wells this year. Turning now to our seismic activity.
We finished a campaign in Campus 33 in Brazil and started campaigns in Australia, Bulgaria and Venezuela. In relation to the exploratory acreage, we acquired 4 new licenses in Norway, the Norway and Barents Sea, where we will be the operator in 2 of them. We have also acquired additional acreage in Guyana and Indonesia. On the LNG sale, we continue working on the closing of the transaction along with Shell. We have received all the antitrust approvals and we will be continuing with the initial plan to close the deal before the year end.
To finish with the operating aspects in the refining business, the utilization rate has improved. On the one hand, the distillation capacity moved up to 80% from 68% during the same period in 2012. On the other hand, the conversion units increased up to full capacity 100% results analysis, let me provide you with an update concerning the YPF confiscation. Last month, Repsol Board of Directors unanimously rejected the compensation offer it had indirectly received for the ex provision of YPF as it did not satisfy the losses suffered by Russell. The offer was based on overvalued assets far from market values seen in recent transactions in Argentina and in the U.
S. And had a structure which was far from the declared interest of Repsol for an agreement, since its lack of liquidity did not include the minimum necessary legal nor financial warranties and required significant and compulsory investments. It's also worth mentioning the recently announced Chevron YPF agreement. Rex So regrets that a company like Chevron that seeks the endorsement from the international community in its conflicts with foreign states is willing to take advantage from an illegal act entering into an agreement over the expropriated assets prior to the payment of a fair compensation to Repsol. In the meantime, we would like to acknowledge the support received from the best companies in the industry.
Result trust in the justice of the legal proceedings already brought in different forms in response to Chevron's actions, including the request made yesterday before exceed in Washington for an injection in order to protect the assets of YPF. At the same time, the result maintained its confidence in the recognition of its legitimate claims through the legal actions taken against the government of Argentina, Rating notwithstanding, as it always has, its open attitude to reach an agreement negotiated through the appropriate corporate channels with the necessary balance and which provides for a fair compensation, bringing to an end the claims surrounding the expropriation. Let me start now with the results. This quarter, we released a CCS adjusted net income of EUR 509,000,000 6% higher year on year and a CCS adjusted operating income of €979,000,000 5% higher than in the same quarter last year. In the first half of the year, we released a CCS adjusted net income of EUR 1,200,000,000, 26% higher year on year and a CCS adjusted operating income of EUR 2,300,000,000, 14% higher than during the first half of twenty twelve.
In Absinthe, the adjusted operating income during the Q2 2013 was EUR 514 million, in line with the same quarter of last year, mainly due to the increase in production, but lower realization prices. The explained 12% production increase had a positive effect of EUR 51,000,000, while the related increase in the depreciation charges had a negative impact of €33,000,000 Exploration costs decreased this quarter by €86,000,000 if compared to the same period last year due to the success in the exploratory wells during the period. Repsol crude realization prices had a better performance than Brent due to higher volumes in Brazil and in the U. S. While cash realization prices decreased year on year due to the sales volume mix.
These two price effects have a negative impact of €71,000,000 Other minor items explain the remaining differences. Moving on to the LNG, adjusted operating income in the second quarter was €170,000,000 versus €78,000,000 posted during the same quarter last year. We achieved higher volumes and stronger marketing margins along with a better performance in our North American operations. In the Downstream business, adjusted CCS operating income in the Q2 2013 was 140 €7,000,000 28% down year on year. The results of our resilient marketing business could not be could not offset the lower result in the industrial businesses.
By business segment, in the we suffered weak margins in Europe, mainly during April May that recovered slightly during June. This decrease in margin was due mainly to narrower spreads of middle distillate and gasoline versus Brent and the spread between light and heavy crude oils. The margin indicator and the premium margin, thanks to the upgrades for the Q2 were $2.6 per barrel and $1.2 per barrel respectively. The higher volumes could not offset the lower margins and caused a total negative impact of EUR 11,000,000 In the Chemicals division, lower naphtha prices and better volumes could not offset lower product prices, having a negative impact of €23,000,000 The chemical division results were close to breakeven. The marketing businesses had a performance line in the Q2 2012, despite 7% decrease in our service stations located in the Iberian Peninsula.
In Gas Natural Dinosa, EUR 2.30 million adjusted operating income during the Q2 of 2013 was in line with the same period last year due to better wholesale marketing margins, partially offset by a lower contribution from Union Fenozant Gas. The government of Spain recently announced a change in the law that regulates the electricity sector in Spain, putting pressure on the regulated business. We estimate that this change will produce a negative impact pre tax net to us of EUR 7.27 million 54,000,000 in 2013 2014, respectively. The effective corporate tax rate in the Q2 of 2013 was 48% and we forecast a 44% tax rate for the whole year, including accrued inventories effects and the current circumstances. As a conclusion or in summary, I'll say that despite the tough macro and regional environment, we were able to release a resilient set of results.
Moreover, we have maintained our focus on the execution of our strategic plan, delivering production growth and resources additions. And now I will be pleased to answer any question you may wish to put forward.
Good morning, ladies and gentlemen. The Q and A
Hello again. Let's begin with our Q and A session. We have 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. If any, we will address these questions at the end.
Let's begin. Please, Thomas Adolff from Credit Suisse.
I've got 3, please. Firstly, on your production maybe in 3Q, can you give some form of guidance and perhaps go into some details on the moving parts? And secondly, on your solid liquidity position, which will improve further post the LNG disposals completed. I was wondering whether you intend to bid for the Libra field as part of the JV with Sinopec? And I'm assuming you have seen the data already.
And perhaps you can comment on the oil and gas ratio and say something on the CO2 content? And just sticking around with liquidity, I was wondering whether you also consider potential share buyback just to keep the share count the same? And finally, just on the U. S. Unconventional play, I was just or the onshore play, I was just wondering whether you feel you have the capability to be ultimately an operator?
Thank you.
Thanks for your question, Thomas. Regarding some light for the 3Q, I would say that it's going to depend much on the entrance of Kinteroni because the rest of the additions will come more in the Q4. But that refers to the second well that will be tying into Sapinghua and Margarita. So it's going to depend much on the entrance in production of Quinteroni. So I would say flat with this quarter if Quinteroni doesn't at least to analyze, but it doesn't have much to be with liquidity.
In provision with Libra, we analyze for sure everything that moves. And in that case, we will have to analyze that in conjunction with our partners Sinopec. Having said so, probably I would say that there are other companies that would be more aggressive initially because our position in Brazil is quite long and we already have a capital employed, which fits with our portfolio. Turning back to liquidity and share buybacks, I would say no. And we don't we are not analyzing any share buybacks.
And also you have to think that the liquidity that is shown, which is the $10,000,000,000 from which $4,500,000,000 more or less are tradelines will shrink because cash proceedings, we are not renewing the bond that $1,000,000,000 bond that matures in July. And we also have the conversion of the half of the preference shares. So basically, no buybacks and the position we have at the month end is somehow exceptional. Finally, as an operator, well, right now, I'd say that we'll keep in touch with them to analyze which are the proceeding. They are more oriented to value than to production figures, which for us is fair.
And we keep working with them. Being an operator, well, could be, but is not in the table at the present time, okay?
Okay. Thank you.
You're welcome.
Thank you, Thomas. Now let's move on, please. Oswald Clint from Bernstein. Please go ahead with your questions. Yes.
Thank you. Just two questions. First one, maybe just talking about the weak Downstream result there. Can you talk about how your crude diet has changed for the refineries in the Q2? And is there anything you can do here with the low light heavy spreads to try and improve that capture or improve that positioning in terms of light heavy spreads or any other crude that you could actually start to import?
And then secondly, I wonder if you could just give or talk about your OpEx per barrel just in the upstream and how that's trending through 20 13 relative to last year? Thank you.
Thanks, Oswald. Starting with the second one, I would say that the OpEx is moving, but it's slightly up. It has to be more with the type of activity we are entering in, more deepwater, more than with cost inflation that we are not pursuing. Yes. And also with transportation costs from Sapingo, I mean, just one well.
So cost there are impacting more per barrel produced because we are in several of our projects in the startup phase. And so they normally assume more costs per barrel. And in relation with the crude diet, I think that we have keep attached to the crude diet more or less the same we had last year, except for the change in the Iranian crude, but this affected more the first I mean, the Q1 than the second one. So second one, I would say, it's the same diet. We basically operate with 45%, 48% of our diet is heavy crude.
But I don't see any other thing we can do. I mean, it's the market, the one that really marked the spread between heavy and light. And in relation with weak results, I agree with you. I mean, they have been weak. I think that probably this quarter, at least is the trend in the last year, the 2nd quarter has always been the weakest in refining.
So we will see how we end the year, but in relation with your question, I don't I cannot see any way to really modify the spread.
Okay. That's great. Thank you.
Thank you, Oswald.
Okay. Thank you very much, Oswald. Let's move to Jason Gammel from Macquarie. Hello, Jason. Please go ahead with your questions.
Thank you, gentlemen. I just had a couple. First on Brazil, you mentioned that there's only one well producing now and that you expect to tie into during the quarter, I believe is what you said. Can you comment on the production that you're seeing from the well that's in operation? And then just clarify that the reason for the delay in the other wells being tied in is simply the unavailability of the Subsea Boy.
And second of all, if I could turn to Kurdistan, can you talk about any progress that you may have had in farming down your interest in Kurdistan? I believe you mentioned that you were intending to drill a well there later this year.
With the first one, I mean the producing well is producing 25 1,000 barrels per day gross, okay? And in relation with the second one, we are in talks with 2 companies at the present time to allow them to farm in Kurdistan. But still, I mean, probably within 1 month or so, we'll have news in that sense. But yes, our idea is to dilute our 100% that we already own today.
Okay.
Did I answer you, Jason?
Yes, you did.
If I could just ask though, the delay in tying in more than one well at Sapanoa, obviously, it's been producing for a while now. Is this due to the unavailability of the Subsea Boy? Or are there other issues on the FPSO?
What you mentioned, exactly what you mentioned. Okay. Thank you.
Okay. Thank you very much, Jason. Now please, Laura Primidade from BPI. Go ahead with your questions.
First question basically is a follow-up on the last one, the delays on subsea equipments. Are you also seeing any cost inflation? What's your view here on the impact it could have going forward? And then in line with this and considering the information you have as production advances in Sapingo, can you share with us any updated expectations for the typical OpEx per barrel and CapEx per barrel you have in place it in your models? And then the last one, just trying to look forward to the second half of the year.
Can you update any expectations for Canaport and also for the marketing within the Downstream division? Thank you.
Well, in relation with cost inflation, I would say that 5% is the figure of cap inflation that we are seeing and but no more than that. What it's possible is that in Brazil due to the extra works, there are not many companies or suppliers available. But if you remember, part of our I mean, our we are negotiating and the operator is negotiating now with Sahin Modec and we will have to wait and see which would be the final cost of this process of negotiation. So I would say on average 5% and with the factor I mentioned you in relation with Brazil. And the second one, in relation with the second one, I would say that altogether it would be around $35, dollars 37 per bottle combining CapEx and OpEx.
And is not I prefer to give you the combined figure because depending on the property of the FPSO, figures can change from one company or the other depending if you own the FPC or if you simply rented it. So around dollars $0.37 per barrel. And second, in relation with Canapord, well, I'll say that Canapord figures will vary our North American LNG business. I mean, the part that we didn't sell to the Shell, the results will vary once the transaction is closed, because at that moment we will not have the availability of our own gas. As mentioned in the press release after the announcement of the sale to the Shell, we will accrue the necessary quantity so that at the end in the figures and for your models, the operational result would be 0.
So the negative part that we expect in the future would be absorbed by the amount accrued. And did I answer you, Flora?
Yes, perfect. Thank you.
You're welcome.
Thank you very much, Flora. Now let's move to Felipe Rosa. Hola Felipe, please go ahead with your questions.
Okay. Hi, good morning, everyone. Three questions, if I may. The first one on CapEx. Apparently, it's running slightly below the full year your full year run rate.
Could you namely in Down if you could update us on that? The third one would be for if you could update us on that? The third one would be for the marketing division, again, a follow-up on one. Have you seen any recent signs of recovery in terms of volume stabilization? Could you update us on your view for the second half on that one?
Thank you very much.
Always the 1st part of the year, you are a little below what you ended up. So our figure of or the indication we gave in the 1st quarter results, presentation results, we're between 3.33.5xgasnat. And I think that we are going to be in line. In the 1st 6 months, we have CapEx of 1.5x and normally, especially the Q4 is a little higher. So I think that we are in line with our budget and with the indications or color we gave you.
In relation with your second question in Peru, we keep the process and let's see how it evolves, but I cannot tell you more about this, sorry. And in relation with the volumes, we have seen somehow soften the fall in the retail network, because at the end, the retail network is the one that provides you the best data. I mean wholesaling through a small discount, you can move volumes easily. But if you look at the figures that fall in the was 7.3% in the quarter, which was smaller than what we have seen before. And in this month, we're a little above what we saw in July 2012.
So the situation, it looks like somehow recovering though, I mean, if someone would have told me 6 years ago, if I could think that consumption in our network will focus 30%, I would say that the guy would have been crazy. So this is really a tough recession and we will see, but it looks as the news are a little better.
And on the margin front, if there is a stabilization of the volumes or if the drops are relatively small in second half, do you think that it will be possible to have some margin improvements? Or do you think that it will be possible to have some margin improvements? Or do you think that it will be something similar to the first half?
I would say that margins will be a little better in the 2nd part of the year. You have to think that when we started the year, the Spanish governments changed the tax in relation with the biofuels. Initially, I mean, the biofuels were not taxed with the hydrocarbon taxation and we have been slightly recovering that tax. So I expect there's a little a little recovery in the 2nd part of the year in comparison with the first one.
Thank you very much.
Thanks, Felipe. Now let's move on to Haitam Rashid from Morgan Stanley. Hello, Haitam. Please go ahead with your questions.
Thanks, Sengel, and good afternoon, everyone. Just two quick questions from my side. One is a very quick clarification and a follow on from the previous question on the downstream. Just to understand given sort of comments that there is sort of cautiously optimistic outlook potentially for the marketing side, do you feel sort of guidance for the full year could be sort of exceeded? Or have you got any sort of updated view on where you see sort of full year EBITDA for the Downstream sort of ending up?
Second question I had is slightly bigger picture. You've made good progress on all the financing parts of the strategy. And it sounds like with the LNG sale effectively with all the approvals in place now, it's a matter of time now to have that completed. Are you thinking about a potential next stage in the sense of where you see Gas Naturale in the portfolio? And have you had any sort of updates on your thoughts there?
I know that previously that was something that you wanted to sort of see the LNG sale done before thinking about, but is that something that you're now sort of looking at in a bit more detail? Thank you.
In relation with the first one, I think that my In relation with the first one, I think that my comments in the Q1 presentation results were that probably we will reach EUR 1,500,000,000 as EBITDA for the whole Downstream division. If you look at our figures today, we closed the 1st part of the year with €430,000,000 I think. But my comment was based on non impact from the inventory effects and we had suffered EUR 230,000,000 impact on the inventory valuation. So if we add up both figures, so considering for the whole year that the inventory impact would be 0, the figure of the first half of the year would be around 6 €70,000,000 So expecting a slightly better second part of the year, I think that if we don't reach it, we are going to be pretty close with no inventory effects, okay? In relation with the second one, you are right in your comments.
I mean, part of the rationale of our stake in Gas Natural was the ability to make money through our LNG division. And the rationale well, we are not in a hurry. I mean, only the financial advantage we get, I mean, the natural yield is 6.5 after tax and our last bond issue was 1.8 after tax. So we have a positive carry of almost 500 basic points. So we are not in a hurry, but it's true that it's something we seriously have to think of it.
Okay. Thank you.
Okay. Thank you very much. Hi, Tom. Now let's move to Alejandro De Michelis. Well, Alejandro, please go ahead with your questions.
Yes. Good afternoon, gentlemen. Thank you very much for taking the questions. The first one is a follow-up on your last answer. On gas natural, if you're thinking about where your next steps are, do you need to agree with La Caixa to do something jointly?
That's the first question. 2nd question is on Argentina and you mentioned the situation with Chevron. Does that change your willingness to take part of the asset as part of the transaction given that Chevron has taken probably the jewel in the crown of the asset?
Well,
for sure, I mean, any transaction we possibly foresee in the future, it would be much, much better and much simpler if we do it in agreement with Caixa and with the Gas Natural Management. That's clear. So as mentioned, it's way too early. We have to think of it and look for the future. But I would say, yes, I mean, I would prefer to have any future transaction in agreement with Caixa and with Gas Naturale.
In relation with Chevron and Argentina, I mean, over here, I want to explain that basically we are not against any expropriation. I think it's fair to say right that all the governments have, but the point here is that we need a fair compensation, which is something that after 15 months, we haven't seen a single dollar. And one way is to receive the liquidity now for value now for the assets that were expropriated. The other possibility if they don't we don't reach an agreement of fair value is to obtain the assets back. And in that sense, Chevron is interfering in our process.
But the jewel of the crown, yes, it's true that it's probably the best part of Vaca Muerta, but I think that Vaca Muerta is huge. And on top of that, we are looking more for liquid assets, more than for investment for future investments in Argentina.
That's clear. So are the negotiations with the government continuing or have they stopped now?
I mean, as mentioned, really there were no negotiations with the government. I mentioned that it was signed directly. So basically what we had was a meeting in Mexico with YPF people and PMICs people and our team. And that was it. So I cannot say that we are in conversation because the contact has been totally indirect.
That's very clear. Thank you.
Thank you very much, Alejandro. Now please, Tipan Sutilingang from Nomura. Please go ahead with your questions.
Yes, thank you. Good afternoon, gentlemen. Actually, two questions. Just coming back to exploration, please. Could you perhaps give us any sort of indications of on a volumetric basis what you're targeting for H2 after having a And when And when you may think about sort of first oil?
Thank you.
Well, I'm sorry, but to the first question, I have to say, no, I mean, we do not disclose volumes we are aiming at. Though I have to say that still in front of us, we have Kurdistan, Norway, Canada, Brazil, U. S, Libya and in front of us and Romania. So it's still a really weighted second part of the year, but we're not disclosed the volumes we are aiming at. And in relation with Alaska, if you remember, we still have one campaign to go, an exploratory campaign.
So we do prefer to really end up all our homework before disclosing disclosing any figure. Sorry about that, Thipan.
Okay. Could you I mean, just two follow-up questions, I guess. What do you think of economic threshold is there therefore? I might spin it a different way on that question. And secondly, just coming back to the previous Q and A.
Subsequent to the Chevron announcement, has there been any further contact with the Argentine government? There's not been any change in stance. Is that what you're trying to tell us today?
In general terms, we always aim for a return which depends on the risk of the country and also the fit with our strategic plan. So I would say that for sure it was or what I can tell you it was 2 figures before we started and after the tax modification is going to be a little higher in Alaska. But for sure, it will it's going to depend also in how on what we find in the during this winter. I mean, depending on the size, the development projects would vary. So still way too early to say.
What I can tell you is that based on our initial analysis, we are in better shape today that when we approve the first exploration campaign. And the other one, the answer is no. I mean, there has been no contact.
Okay. All right. Thank you very much, Miguel.
Thank you,
Stefan. Sorry.
Hello. And now thank you, Stefan. Let's move to Houtan Jazari. Hello, Houtan, please, from Merrill Lynch. Go ahead with your questions.
Good afternoon, Two questions, if I may. Starting with YPF, you indicated that you will be pursuing some activity in the U. S. Court system. Can you just give us some clarity on what exactly you are pursuing there?
And if a successful judgment is given in your favor, what would that entail? And how could this play out for you? And your reentry into BMC 33 and what we could expect in terms of your reentry into BMC 33 and what we could expect in terms of timings there? Thank you.
I'd like to pass the first question to Miguel Klingenberg, which is our lawyer and the one that is suing everyone that moves around. Miguel?
Yes. Thank you. Thank you, Miguel. Well, very quickly, as you probably know, we have filed an arbitration procedure at the World Bank Arbitration Tribunal exit, and the claim is related to the fact that the exploration has been in our cost budget and in our view is also, let's say, illegal itself. And therefore, our claim at ICSID is twofold.
On the one side, we are requesting the tribunal to grant us the restitution of the assets expropriated, the shares. In fact, are still the legal owners of those shares, although economic and voting rights are well sized by the government. And secondly, as an alternative, an economic financial compensation. So far, therefore, it is our obligation to protect the assets of YPF, and this is what we are trying to achieve. We have advised 3rd parties that we are going to fight against those who are willing to take advantage of this illegal exploitation, and therefore, that's what we are doing.
And what we have by now done, a part of other proceedings in the U. S. Courts is basically to request the tribunal to grant an injunction to the government of Argentina, imposing on them the protection on the assets and, in particular, those who are the subject of the Chevron YPF agreement.
Thanks, Miguel. Jotin, your second question was referred to Campos 33 or in general terms?
Campos 33.
The rig will be in place by the end of 2013, probably the end of October, November. Okay?
So we won't get any results on BMC 33 until early next year?
Yes, at the best.
Okay, understood.
Thank you.
Okay, thank you very much. And now we move to Anish Kapiria from CPH. Hello, Anish.
Hi, good afternoon. I have three questions. First one was on Brazil, on a couple of developments over there. On Carioca, it seems like the size of the FPSO has come down in size. And also that I think there was only one company that tendered for the FPSO.
Just wondering if there's any risk of delays over there and impacts on CapEx. And on the gas condensate developments, it seems like the Panoramics well was unsuccessful. Just wondering how that impacts development of Panoramics and the other discoveries around there? And second question is on the refining division. Given the very weak performance you've seen, would you consider closing down one of your underperforming refineries?
Or is that will you not be allowed to do so by the Spanish government? And then the final one is just a little bit of guidance for 2014. I was just wondering with the LNG business coming out of the portfolio, can you give a guidance on what the increase in tax rate will be? And following the preference share conversion, what the decrease in the financial expense will be expect in 2014? Thank you.
Well, in relation with Carioca, we do not expect any delays. It's true that the FPSO is a little smaller and this is due to the results of Carrioca Sella. So we are going to develop the north part of Cario Casella with the 1 FPSO, but we do not expect any delay. And as mentioned before, the operator is negotiating right now with Moneka and Sahim and the tariffs for it. So no delay expected there.
Your second question refers to panoramic. Yes, panoramic, we have abandoned this project. The drive was well and it was not commercially interesting to go ahead. There was a 4 meter pay. So we have abandoned this project.
Your third question, well, first, it's true that the refining or the Downstream division has been weak this quarter, but we're still better than we were last year. This is a first comment. And second, we do not expect to close any facility. I mean, our system works as a unit and we took advantage of it. So no any closing expected so far.
And finally, in relation with 2014 for the tax rates and the financials, it's way too early to being able to give you any color or any hint. But I would be happy once we have all our budget for the next year to comment that with all of you. So I would say it's still way too early to give you to provide you any flavor. I think that also in relation with financials, it's going to depend much on how the closing of the LNG is. There are many factors.
So I'll rather prefer to wait for the buyer to give you those data, okay?
Okay. Just one clarification. In terms of
Panoramics abandoning that project, are you still going ahead with Tiracuka though? And what's the timing on that?
Petrobras is the operator and we're still going ahead. In Panoramics, we are the operator and we just decided to stop the project.
Thank you.
Okay. Thank you very much. Now let's move to Lydia Rainfall from Barclays. Hello Lydia, how are you?
Hello there. Yes, thank you very much. I just have a couple of questions if I could. Firstly, Miguel, just to clarify on the LNG sales closing. Now you've got the antitrust approval, is there any risk at all that the deal doesn't happen?
Or is it just a case of going through each of the individual contracts and sorting those out? And then secondly, I'm sorry to ask you to do this again, but could you just go through the outlook for the profitability of the North American LNG business again for me? And just what would it take for that business to be breakeven? And then actually, if I could just do a third one. It is now pretty much over a year since you signed this strategic alliance with Pemex around the Mexico side.
I was wondering, have you actually seen much progress in that or sort of what more you might expect from that to come through? Thank you.
Well, to the first question, I would say no. I am totally positive that the deal will be closed. We already have the antitrust permits. And the point there is that exactly we have 152 contracts to be transferred to Shell. And in all these contracts, we have other parties.
So it takes time. It takes time, but things are going well. My comment in 3 months ago was that probably by September, October, there would be possibilities, probably would fall more in the Q4. But the answer is that we think that we'll for sure we'll go ahead with it. In relation with the North America and the LNG, what we mentioned when we announced the deal with Shell is that we will accrue the quantity necessary for those assets.
So at the end, the losses could be between $50,000,000 $100,000,000 per annum, but this will go against the accrual. So basically, at the operating level, the result would be 0. And in relation with Pemex, we are in talks with them, especially in the petrochemical area with the some possible projects in the but going is slow, but we keep talking with them, but no major advances to say something. Okay, Lydia?
Perfect. Thank you very much.
Thank you, Lydia. Thanks for your questions. Now let's move on to Alastair Syme from Citi. Hello, Alastair. Please go ahead with your questions.
Yes. Hello, Angel and Miguel. One point of clarification on the you mentioned the change in electricity tariffs in Spain. And just to clarify, is that EBIT impact coming through the gas natural line? Or is it coming through the E and P in the form of lower natural gas prices to the extent that those are linked to Spanish electricity prices?
And my second question, just you mentioned the big fall in marketing volumes over recent years. Is there anything or are other things you are doing on the fixed cost side to adjust for that lower capacity?
Thanks, Alistair. I mean, the change in the regulation of the electrical system in Spain affect us in two ways. The first one is through our participation in Gas Natural for the figures I mentioned. And then we have an extra minor impact on our cogeneration. But that's it.
All combined will not represent EUR 100,000,000 for us for the whole year. So and that's it, through gas natural one part and through our cogeneration system in the other. And in relation with fixed costs, you can imagine that, yes, I mean, we are really somehow squeezing every single cent that we have cost of. So especially if you remember, we had in 2009, we really did an extraordinary effort, cost cutting and we have reviewed almost everything, starting from timing tables in the service station till the I mean, all the costs have been analyzed, reanalyzed and we are trying to reduce all of them in order to somehow save the impact on the volumes. Okay, Alistair?
Is there a thought to closing capacity at all?
You mean in the retail network?
Yes, yes.
Well, service station normally died alone. And by that mean that independently of the moment in which you are, there is a limit probably around 2,000,000 liters per annum in which those sites cannot be operated by companies. Between 1,000,000 and 2,000,000 liters per annum can be operated by families and below 1,000,000 liters, they die alone. Okay? But there is no any idea or global concept of closing service stations.
As mentioned, they died alone.
Okay. Thank you very much.
Thank you. Thank you, Alastair. Now let's move on to Irene Himona from SocGen. Hello, Irene. How are you?
Please go ahead with the questions.
Good afternoon. Thank you very much. Most of mine were answered. I just had one question, if I may, Miguel. On the financial side, you've now obviously sold LNG.
You've changed the prefs for a bond. You've got the scrip dividend going. What is it that the credit agencies want you to do from here on in order to at some point have a chance for a credit rating upgrade? Thank you.
Thanks, Irene. I agree with you. But basically they want us to close the deal with Shell. Once this deal is closed, all the ratios would be, I would say, in the upper part of the BBB. And then, well, we'll have to wait.
I mean, the agencies always take their time to move you up. They're a little faster moving you down, downgrading you. But in our case, I have to say that they have been quite conscious of the problem we face after the confiscation of YPF. We presented the plan with the measures you mentioned and some other ones and we have delivered everything. So I think it's only pending on the closing of the LNG deal.
Thank you very much. Thank you, Miguel.
Okay. Thank you. Thank you, Irene. Hello, Neil Morton, please, from Investec. Go ahead with
Two exploration questions, please. The first one on Namibia. I think results to date have been fairly mixed. I appreciate you don't get full access to other operators' data, but has that given you any positive thoughts against ahead of your own drilling in 2014? And then secondly, in Ireland, again, you're not the operator there, but just wondering what the next steps are on Dunkin and for example, when you're if you're planning to drill Dunkin South?
Thank you.
Well, in relation with Namibia, I'll have to say that we are aiming for it's a totally different play. So I would say that nothing to do or to be with it. And your second question in Dunkin and Dunkin, I'll have to say that it was a great well for the geologists, but a horrible one under an economic point of view. I mean, the reservoir was there, the quality of it was great, all the conditions were great, but it was water instead of oil. So I don't know which conclusions the geologists end up.
But one thing is clear, I mean, the idea was correct. So probably they will keep moving around to say something, Neil.
Okay? That's great. Thank you very much. You're welcome.
And now we move ahead with move on to the questions that we will receive in our chat. First one comes from Brendan Warren from Jefferies. He's asking about an update on the results of the Sagittario discovery in Brazil and if there are other analogous prospects in the block.
Well, the appraisal plan would be presented this month and few years talking, I may not give some heat, but we are talking about a really big one over here. And Petrobras always, I mean, they don't like us to comment on that, but it's a big one. I cannot tell you more. And the second question? Well, to see if there are some other prospects similar in the area, I'll have to first list a price Sagittario and then we'll see in the future how the other prospects look.
And then moving on to the question that has been made by Jason Kenney from Santander. Comment on gas realization prices as compared to Henry Hub.
Yes. It looks a little curious that Henry Hub went up, but our realization prices went down. Two reasons for that, the first one refers to the oil to the gas we provide to the government of Trinidad, Tobago, which was higher this month. So and it affects the mix. And the second one is that we have a 20% of our gas sales indexed to the Brent price, especially important is Bolivia due to its volumes and Brent went down.
So the total mix at the end didn't follow the Henry Hub. To give you that, I think that only approximately 30% of our gas production is linked to Henry Hub and that's the reason, the mix.
So that has been everything for today. Diana, thank you very much for attending this any further doubts or queries, please contact us in the IR department and we'll be available for you at any time that you need. Thanks a lot and bye.