Good morning, ladies and gentlemen. Thank you for standing by and welcome to Repsol's First 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. Good day, ladies and gentlemen. On behalf of our company, I would like to thank for taking the time to attend this conference on Repsol's 1st quarter results. This presentation will be conducted by Mr. Miguel Martinez, CFO.
Other members of the Executive Committee are joining us as well. Before we start, I invite you to read our disclaimer note. We may make forward looking statements, which are identified by the use of words such as will, expect and similar phrases. Actual results may differ materially depending on a number of factors as indicated on the slide. I now hand the conference over to Miguel.
Thanks, Angel, and thank you all for attending this conference on our Q1 results. This quarter, we released a CCS adjusted net income of EUR 676,000,000 40% higher year on year and a CCS adjusted operating income of EUR 1,300,000,000 20% 22% higher than the same quarter last year. Before we focus on our earnings performance, I would like to highlight the main events of the quarter. First, the sale of our LNG division we announced earlier this year. We signed an agreement with Shell to sell all of the assets and operations related to our LNG business outside U.
S. And Canada for an enterprise value of $6,700,000,000 The sale includes the minority stakes in Atlantic LNG, Peru LNG and Bahia de Biscaya Electricidad, as well as the LNG sale contracts and time charters with their associated loans and debt. The deal 2nd, the sale of our 5% treasury stock to Temasek, the investment company of Singapore for €8,000,000,000 With this transaction, we have completed the delivery of the measures to which we committed in order to strengthen our balance sheet Argentinian government. We welcome Temasek to our company. 3rd, in the Apsi business and regarding our exploratory drilling campaign, 7 out of the 9 wells drilled during the Q1 2013 have found hydrocarbons.
In Alaska, in the North Slope, we recently announced 3 new good quality hydrocarbon discoveries. The Kugruk-1 and Kugruk-six wells produced 2 oil shows with encouraging results during production tests. In the Ugruk-three well hydrocarbons were identified at multiple levels. Exploration and assessment and eventually start up development will continue next winter. In Russia, in West Siberia, wells Gavi 1 and Gavi 3 have found hydrocarbons, gas with an oil ring at 2 different levels.
Gavi 3 is testing productivity right now. In Brazil, in block BMS-fifty, Petrobras has already reported the presence of oil in Sagittario. And finally, in Algeria in Block Suez Ilesi, a significant gas discovery assures the commercial development of this block where we previously announced a first discovery back in November 2012. Further tests will be performed to determine the commercial possibilities of these discoveries. 4 additional wells have been recently exported, Dunkin Offshore Ireland, Magari Offshore Canada and a new well in South Elisha, Algeria and the appraisal of our discovery in the Gulf of Mexico, Bakkskin.
Rigs for Magari and Bakksin have drilled a pilot hole and we'll have to resume drilling later in the year. With 13 wells already drilled or ongoing, we have made a good progress in our annual schedule of 32 wells. Before I start to explain our Q1 results, let me say just a few words about YPF. Repsol remains open to discuss with the Argentine government a fair settlement for the confiscation of YPF, respecting bona fide and legal principles. In the meantime, Repsol has no other alternative than continue pursuing all available legal options.
Entering into the Q1 results, I would say that adjusted operating income in the quarter on the basis of current cost of supply was €1,300,000,000 22% higher than the same quarter a year early after excluding YPF figures. On a business by business basis, starting with Apsim, adjusted operating income in the Q1 was €668,000,000 only slightly higher than in the Q1 2012. Production output was 360,000 barrels of oil equivalent per day, 11% higher than in the Q1 2012. Since 10 out of the sorry, 5 out of the 10 key growth projects of the strategic plan twenty twelve-sixteen have come on stream together with better volumes from Trinidad and Tobaro. We are confident that we will achieve the 10% average growth targeted for 2013.
Incremental production will come from the ramp up of Mid Continent in the U. S. And Chapinhoa in Brazil and the startup of Phase 2 of Margarita in Bolivia. On the other hand, Quinteroni is already technically prepared to come on stream, but the delay is mainly due the negotiation with the final contractual arrangements to be completed with the Camicea partnership and Trinidad will undergo planned maintenance. The increased production volumes had a positive impact of €72,000,000 Repsol crude realization prices remained flat despite the weaker performance of Brent prices in comparison with Q1 2012, while gas realization prices increased by 26 percent having a positive effect of €43,000,000 Increased depreciation charges had a negative impact of €45,000,000 Depreciation charges per barrel are higher in the early stage of production.
We also had cost increases of €63,000,000 mainly due to the new production of Sapinhoa in Brazil and the startup of the new projects in Russia. Zapingjoa produced 20,000 barrels per day in gross terms during the quarter, but bears the cost of FPSO with a capacity of 120,000 barrels per day. 2 additional production wells will be connected before year end. Other minor items explain the remaining differences. Moving to LNG, adjusted operating income in Q1 2013 was €311,000,000 versus €1 €158,000,000 posted in the same quarter last year.
We achieved a very positive operating profit of €129,000,000 from the North American assets that will remain in our portfolio due to exceptionally extreme cold temperatures in Northeast Coast of North America. The 97% increase between the period is due also to higher volumes and better marketing margins in the rest of the businesses. Regarding our Downstream, we have remained profitable even though environment was tough during the quarter, showing the resiliency and efficiency of our integrated operations. Adjusted CCS operating income was €183,000,000 123% up year on year. Better margins in the refining business, improvement of the Chemical division and better LPG results explain the year on year earnings growth, while the marketing division continues to suffer from the weakness in the Spanish environment.
By business division, in refining, our margin indicator reached US3.9 dollars per barrel, taking into consideration the weak margin environment in Europe, still above the US3 dollars achieved in Q1 2012. The slight improvement year on year in light heavy oil and gasoline spreads explain this difference, while diesel spreads remain flat. The premium margin due to the upgrade investments reached US1.8 dollars per barrel distillate. The better volumes and margins had a positive impact of €98,000,000 In the Chemical division, higher margins were able to offset decreasing volumes having a positive impact year on year of €35,000,000 In the other hand, commercial businesses LPG and marketing had a lower operating income of €12,000,000 In Gas Natural FENOSA at €253,000,000 adjusted operating income in 1st quarter 2013 was 5% higher than the €241,000,000 reported in the same period last year, mainly because of better wholesale marketing margins and better results in the international business mainly LatAm, offset by lower income from power marketing activities in Spain and weaker earning performance of Union Fenozagas. The effective corporate tax rates in this quarter was 42.7% before percent before results from affiliates.
We forecast a 42% tax rate including accrued inventory FX for the full year under current circumstances. After this brief analysis of our performance, let me focus now on our financial situation. We are maintaining a robust financial position. Our liquidity, cash and outstanding credit lines reached €8,900,000,000 in line with our prudent approach through the financial economic crisis period. The group's net financial debt at the end of Q1 2013, excluding Garnetrol Alfenosa amounted to €3,900,000,000 approximately €560,000,000 lower than at year end 2012.
When the LNG sale is concluded, net financial debt will decrease by around €2,200,000,000 The net debt plus preference shares over capital employed ratio excluding Gasnat was 19.1%. Zooming up, our P and L performance this quarter was positive. Our numbers improved despite the difficulties in the economic environment beyond our control, namely the Downstream division, offset by the resilience and competitive advantages of our assets. During the rest of the year, we will devote our efforts to continue to develop the growth projects we're seeing in our strategic plan. And now, I would be pleased to answer any questions you may have.
Thank you.
Good morning, ladies and gentlemen. The Q and A session starts now.
Hello, please. Thomas Adolff from Credit Suisse. Hi, Thomas. Please go ahead with your questions.
Hi, Hi, Miguel. Thanks for taking my questions. Just firstly on working capital, there was a negative move of about EUR 1,000,000,000. My question, I guess, is whether this was purely related to refinery maintenance or otherwise how we should expect this to evolve over the balance of the year? And I guess on the tax rate, you're guiding to a tax rate of 42%, which is down year on year.
Wondered whether you can give a bit more color on the year on year changes and how you expect the tax rate to evolve, let's say, in 2014 2015? And then just on Upstream, production was decent, 360 kilobytes D. Let's say, Kintaroni doesn't contribute this year. Are you still confident on the 10% year on year target? Or in other words, can you talk about contingencies?
And finally, just staying also in upstream, when you look at these 7 discoveries or at least with encouraging signs, do you feel you would have met your annual target for net contingent resource addition? Or is it still too early to say? Thank you.
Thanks for your question, Thomas. Starting with the working capital, I'll say that everything came at the same time by the 31st March. First of all, let me highlight that 2012 year end working capital level was a bit lower than our current operating requirements. The increase in this first quarter has been affected mainly by inventories level and to a lower extent to positive price effects. With regards to the higher volumes at the end of March, there had been non program operational turndowns already solved in some units, basically the coker in Bilbao and the hydro in Cartagena that have led to an increase in crude oil and intermediate product levels.
Also some exports basically one cargo from Bilbao, another cargo from Coruna were completed in the 1st 2 days of April. So part of the reason is also there. And as a final comment, I'll say that the spread between the euro crude and heavy Saudi has increased enormously. So we are reducing somehow the euro consumption in favor of the Arabia one. This also implies to have more crude in transit.
I mean, Urals takes 7 days, while Saudi it's 20 days. If you want somehow a which is my estimate for the whole year or which will be a normal situation, I would say that probably somewhere in between the 4,200,000 tons we ended up, 4.3 basically at the year end and 5,600,000 tons we have at the end of March will be probably the place in which we would be. So in April, we already have recovered half of this increase in the working capital. In the tax rate, I mean, normally that depends logically on the mix. But for the whole year, we expect a 42% and this quarter was a little higher 42.7%.
Basically, we analyze the whole year, but we split the charges by quarter. So in every quarter, we assign the tax rate that fits on it. In relation with the production, I keep attached to the 10% growth, which was my prior comments in the last quarterly results presentation. And it's true that Kintaroni has been delayed. Basically it's and only is for commercial reasons.
I mean we are discussing somehow the backup of Blocks 8857 to the Peruvian LNG and to the internal market. And this is what is taking us somehow a little longer. And finally in relation with the exploration for the year, I would say that we have already covered the expected contingency reserves funding for the whole year. So it has been a real successful quarter. Did I answer you, Thomas?
Yes, perfect. Thank you very much.
You're welcome.
Okay. Felipe Rosa from Espiritu Santo. Please, Felipe, go ahead with your questions.
Hi, good afternoon, everyone. Three questions, if I may. The first one, a follow-up on Thomas' question on exploration. We've seen that you have been quite successful in the Q1 activity. Could you just give us some color on what have been the wells which have a bigger impact in terms of your resource backlog?
I would specifically ask you about Sagittari, which seems to be the one that has been most promising. The second question relates to your downstream operations. The profitability in Q1 has been low, namely for marketing and for chemicals. Could you update us what whether we can expect some sort of recovery at least for the marketing division over the next few quarters? Or should we sort of annualize the results from the Q1 to reach the full year EBIT?
And the final question on YPF. Could you just give us a better idea what would be the minimum expectations for Repsol in a negotiation with Argentina over a compensation for YPF in terms of whether assets or cash or some guidelines on what would be your minimum requirements for to start negotiations with Argentina? Thank you very much.
Thanks, Felipe. Well, in relation which about which would be the most important, I'll say first comment is way too early to say. We are still testing some of the discoveries. So it's a little early to say, but I like them all to be honest. But if I have to choose probably Sagittarius and Alaska are the ones that I mean, I would say I'm more happy about it.
But as mentioned, it's still way too early. And touching the second question, which refers to marketing in Spain, I would say that we keep falling, I mean, close to a 10%, which are figures I never expected to see. I mean, so it's difficult to see when we will reach the ground over here. But since 2007, we have lost 25% of our volumes in our retail network without losing market quota. So difficult to say.
And for the full year, I don't have any other data to give you. I mean, we can extrapolate the existing situation, but I don't have any clue. I never expected it to keep falling at this pace. And finally in YPF, I mean, our aim is clear. The valuation we have and we have it in different ways by banks that have established the price, by the main bylaws of YPF are clear and we simply want for treatment.
I mean, they already have taken our shares. They are even taking the dividends and we simply want a fair treatment. And that implies for sure liquid assets at the most. I mean, if it's possible in cash, cash. If it's financial instruments that can be cash in, it will be the 2nd option and but we expect somehow to obtain the fair compensation we think we deserve.
But would you consider 2 old assets in Argentina?
Well, I'll have to answer to that one personally. I will not. Personally, I will not, but it's not on me. As mentioned, liquids is what we are looking for, at least personally. Okay?
Okay. Thank you.
Okay. Houtan Jazari from Bank of America Merrill Lynch. Hi, Houtan.
I had two questions. One on the update on how the conversion of the preference shares is moving along. What we can expect there in terms of any updated guidance have on the reduction in interest expenses that you would face by converting preference shares into a bond? And secondly, also if you can give us some sort of color on the sale of the Peruvian downstream assets and what sort of capital release we can expect from that? Thank you.
In relation with the first one, Huttent, I cannot talk much because we are pretty close to the filing in the Commission, for the shareholders. As you can understand anything I tell about the formula we are going to use to swap those prefs could affect the market. So the only thing I can tell you is that it will not affect our shareholders. That it will not affect our shareholders. There will be no dilution.
And in relation with the Peruvian sale, the process goes ahead. We have made a shortlist and due diligence has already started with this small group. Our estimate is that would be closing if everything works out well in the by the end of the Q3 this year. And basically what we expect over there would be something around $700,000,000 more or less and then you have to discount also approximately another $700,000,000 of loans that we already incorporate in our balance sheets. So this would be more or less the situation.
Miguel, does that include sorry, does that include the working capital at the facility as well?
Sorry, the sound wasn't that good. Can you repeat the question,
Yes. The question was, does that $700,000,000 figure also include the working capital at the facility? Yes, it does. Okay, understood. Thank you very much.
Haitham Rashid from Morgan Stanley.
Two questions, if I may. Firstly, just to come back on production and specifically sort of looking at North Africa. I just noticed that the production levels have been coming down sort of relatively steadily since 2Q 'twelve. I just wondered if you could perhaps give us an update on Libya in particular, how you see activity there on the production side and where we should be thinking about those volumes stabilizing for the rest of the year and how that should evolve? Secondly, just a quick question on CapEx.
It looks like it was relatively light quarter in terms of CapEx in the upstream. And just wondered if, obviously, if you sort of run that forward for the full year, it implies, obviously, somewhat lower for the overall CapEx figure for the full year versus guidance. I just wondered if how we should be thinking about CapEx for the rest of this year. I mean, should we be thinking about CapEx perhaps coming in below where you'd originally guided to or is there some phasing there? Thank you.
Thanks. Hi, Jason. In relation with Libyan production, we are already at plateau with approximately 340,000 barrels per day of production and we expected it to continue that way throughout the year. We'll have between 6 7 exploratory wells throughout the year, but I don't see it impacting in our production figures. So I will say flat 300 and attached to the €3,300,000,000 €3,500,000,000 ex gas net.
It's true that the first quarter was light. I think it was €717,000,000 or €720,000,000 But normally it always happens that the last quarter is the one that gets more loaded. And it's always the first one, the one that is lighter. So I keep attached to the €3,300,000,000 €3,500,000,000 ex gas net. Great.
You're welcome.
Brendan Moorene from Jefferies. Please, Brendan, go ahead with your questions.
Gentlemen, this is Brendan Moore from Jefferies. Just one question, a couple of the other ones have been answered. I guess just with the delays at Kintaroni, if you can just give us any indication, are there any additional costs related to the delay? Actually, I will ask a
follow on question, I apologize.
Just in terms of Downstream, you highlighted Downstream this quarter was profitable. Can you give us any sort of indication on if you had positive free cash flows and again related to CapEx whether the run rate CapEx in the downstream is indicative for the remainder of the year?
Thanks, Brendan. Well, the only cost related that I can think of with Kinteroni is that with our partner, we already have, I think it was $570,000,000 which are not producing, but only the financial cost of it. But I mean, Nemesio, it's already in Peru trying to sort out the issue of the Blocks 8850 7. So it couldn't take, I hope, longer. So no extra cost related and just the closing of the commercial conditions are the ones that are on top.
And in relation with the free cash from the Downstream division, the quarter was really light, it's true. But really I think that at the end of the year will be around €600,000,000 €700,000,000 for the whole division. So as I talked to Haizen in the question before, till now I don't see any reasons why we will not be around the EUR 3,300,000,000 EUR 3,500,000,000 for the whole year. It's okay, Brendan?
Okay. Thank you. Cheers. Bye. Well, now please, Alejandro De Michelis from BNP Paribas.
Hi, Alejandro. Please go ahead with your questions.
Yes. Good afternoon, gentlemen. A couple of questions from my side. Coming back to Quinteroni, should we think that the Quinteroni negotiations are completely separate from let's say the disposal of the Peruvian downstream assets and any approval that you need to get for the LNG plant? That's the first question.
And the second question turns to the LNG numbers that we have seen this quarter, particularly out of Canapord. Maybe you can tell us how much do you think that is sustainable from that?
Well, the first one, I mean, Quinteroni, as mentioned is linked to the backup in one hand of the Peruvian LNG and also to the gas that has to go to the local markets. And think that in the Camicia project we have approximately 8 or 9 partners. So it's not that easy to end up closing a deal that satisfies everyone. And this is the only thing that is taking us more time. And for sure it's not linked to the downstream movement.
It's only linked as mentioned to the which would be the gas that we have to place for the LNG and which would be the one that will go into the local market. And in relation with the LNG Canapord, I would say that it's not sustainable. I mean, basically the good results there, which has been the whole increase in the LNG division has been due to the real cold weather they had during January February in the East Coast. Four cargoes went to Canapord through the quarter and at a given moment even prices were above $20 per million TEU. So I would say it's one off in $0.01 and we'll have to see.
What we have done is a project to reduce the limit of what the Canapur plant needs to operate down to 10,000,000 cubic feet per day. And we know that this plant will be working 2, 3, 4 months at the maximum for the year. But I don't see any possibility to repeat it. Last year to give you an example, operating results in the assets we kept in the U. S.
Were minus 8 €1,000,000 in the Q1. And this year, we have been €116,000,000 So basically, it has been a good quarter and that's it. Okay?
Okay. That's very clear. Thank you.
Thank you. Hello. Bruno Silva from Banco Portugas Investimento. Bruno, go ahead with the questions.
Hello, good morning. I just have a follow-up question related with refining margins. When you mentioned regarding, I think, working capital and was mentioned the input crude mix change in light of the evolution of spreads between heavy and light crudes. What was the impact in the reported refining margin in this first quarter? Or if there was none, is it possible to have an estimate of what could be the impact of those actions over the coming quarters?
Thank you very much.
I mean to predict this is difficult, especially the future. But I would say that I think that approximately almost a 50% of our diet it's on heavy stuff. So the spread between heavy and light really affect us. Also we have seen especially in the last month that the diesel spread with Brent has reduced enormously, which implies that those refineries with no real complexity are producing with more heavy stuff, which also implies a reduction in the spreads. Our estimate for the whole year, I would say, we will keep attached to 5.5 dollars per bottle more or less.
Though I can tell you that right now there's no margin in Europe in refining and this is due to the smaller spread we have today between the fuel oil and the crude oil. So but we will see. I mean, as mentioned, the future is quite difficult to predict.
Okay. Just another follow-up, I forgot to mention in the first half. Can you make an update or confirm whether or not you are taking actions to sell the remaining interests in LNG, namely Canaport?
Can you repeat the question,
Bruno, please? I was asking if you are taking any actions or there is any process ongoing for the divestment from the remaining assets in the RNG unit?
Okay. Okay. Sorry, the sound is not good today. So sorry for asking you to repeat the question. I mean, basically, once we close the whole transaction with Shell, we'll have to and we will accrue approximately $1,800,000,000 out of 2,500,000,000 dollars which is our book value.
And then we have to see how we move ahead with the plan that today it's a problem as you all know. But several things are clear. I think that we were last year at the worst scenario for the plants with an average of $2.4 per 1,000,000 Btu, it was sure that no LNG was possibly coming to North America. This situation will change one way or the other. I mean, first, if the U.
S. Allowed exports of all the gas they are producing for sure prices goes up, will go up. If they don't, I'm sure that all the fleets will start shifting into gas their trucks. So this also will imply a higher price. And also as I said, looking to the issue from the other side from the LNG producers, more and more LNG will come to the sea in the following months years.
So at a given moment, I think that Canapord will be a better situation than the one we have today. Right now, what we're doing is having contingent plans to analyze which are our options and how operationally we can reduce that short term.
Okay? Okay. Thank you very much.
Thank you. Please, Alastair Syme from Citi. Hello, Alastair. Please go ahead with your questions.
Just one question. Can I ask Miguel what you can fundamentally do about the poor profitability in marketing? Is there something you can do on the cost side to help get margins back up? I assume the problem is that you're running a reasonably higher fixed cost base and you just can't pass through the price
increases? I mean, marketing probably is the most profitable business we have within the company. I think that our total capital employed should be around EUR 1,000,000,000 and we are doing that figure almost in 2 years. So basically it's a very profitable business. The point there which is also something to consider is that right now we're working with a margin of $0.02 per liter that we sold.
So I mean in a market that is being reduced 10% after 10%, right now we are simply somehow trying to put the margins where they were last year. I think that by the beginning of the year, there was an extra taxation for the biofuels. And we are absorbing this tax increase, though we expect to little by little to capture it back. But there's nothing no other thing to do. I mean, we are not losing quota.
So is the whole market the one that is falling. And by the year end, we expect in the whole division to also move at EBITDA levels between €1,500,000,000 and €2,000,000,000 which is what we have been capable in the last 5 years of crisis to maintain in that division. On top of that, we finish all our CapEx program by the end of 2011. At that time, we were investing €1,700,000,000 €1,800,000,000 and we have reduced that fee down to €700,000,000 So extra cash, free cash will come easily into the rest of the company, especially to fund the upstream projects.
So but what I mean given you did $350,000,000 EBITDA in the Q1 what drives the improvement to get to that $1,500,000,000 to $2,000,000 range?
I mean, in the Q1, we were at 360% more or less. And I would say that marketing would be basically the one that will have to improve their performance. On top of that, as mentioned, we expect approximately $5 per barrel produced in refining, while in the Q1, we have been around 3.5 So also refining will have to increase that. And finally in Chemicals, the margins keep improving, the volumes haven't show up. So the combination of all these two factors is what I think will lead us into this minimum figure that we expect of EUR 1,500,000,000
Yes. I guess I just don't understand what in response to your earlier question about earlier response by getting marketing profits back up, what drives that improvement? Because it's if the market remains difficult, it remains difficult.
Well, I think that the point is that zinc increasing by $0.01 Our price there that will go straight to the bottom line and this implies a 50% increase of the $0.02 we have had in this quarter. So the leverage we have there is quite important. And I mean, thing also that this will imply, as mentioned, 50%. Right now, we're working with $0.02 per liter after tax, so $0.01 would make the difference. And I'm sure that no one knows whether the last time they fill their car, the price was €1.47 or €1.48 of euros But it's the only way out.
I mean, for sure demand, I do not expect demand to recover. Okay. Thank you very much for that.
Okay. Thanks. And now please, Irina Haimona from Societe Generale. Please go ahead with your questions.
Thank you. Good afternoon, Miguel. Just one question remaining. If I can go back to the realized liquids price in your Upstream. The discount Brent in the quarter was only about $14 I think compared to $30 a year ago.
If you can just talk about what that was due to? Is it the mix of production? Is it a one off basically? Or was it sustainable? Thank you.
It's sustainable, Harim. Good afternoon, by the way. It's sustainable, but basically because within our mix, we had Ecuador in which we sold last year 20% of our stake there. And in Ecuador, our realization price is $37 per barrel. You can add up to this that it's a little more U.
S. Production, a little more Brazil production, which also had higher prices. So I would say it's consistent and we can keep that throughout the year.
Great. Thanks
so much. Thank you. Please now, Hamish Kapadia from TPH. Please go ahead with your question.
Hi, good afternoon. I have three questions. Firstly, on the Mississippi Lime. We've seen Sandridge just recently cut back the number of rigs being run to 25 from over 30, given its focus on liquidity. So I think they're running your original plan was to drill something like 1,000 wells next year.
Your original plan was to drill something like 1,000 wells next year? The second question was, I just want to see if we could get a little bit of an update on your 2 key Venezuelan upstream projects. So I'm just more detail on the progress, initial production timing and the ramp up. And then the final one was on Trinidad and Tobago. It's largest producing asset in your portfolio.
We've seen the reserve life on that fall down to 7 years at what's now a reduced production rate. Just wondering how much of a concern that is and how you see production over the next few years there? Thank you.
Thanks for your question, Anish. Starting with SandRidge, they have announced in April their new strategic plan reducing somehow their total CapEx by 17% versus prior guidance for 2013. This implies that the number of rigs on average will be 25 instead of 32, which was the original estimate. I mean, we'll have to look at it. For this year, there's practically no variation on our figures.
And what I think it's important is that I think that Sunridge is a very good operational company. In fact, some of the initial estimates we did in our investment plan like the cost per well, which we include $3,600,000 They're drilling at almost $3,000,000 per well. And I think that part of the reason why we enter with them was the carbonates. And we have some experience there and we think that we can help out the production. I mean, this is they work more like a factory and they know that there are areas what they call the sweet spot areas, but we are looking more on our people use analyzing more the why.
I mean, why are those areas really the ones that get more production? So I think that the combination of the team will work out pretty well. In relation with the year, no variance for us. I mean, it will not imply much of a variance. The second question, which refers to the ramp up of the different projects, I would say that in Mid Continent, the increase up to an average of 8,000 barrels per day, which is what we expected for the year, it's more or less linear.
In Russia, it's somehow loaded in the last 5 months of the year. And in Kinteroni, the ramp up will be quick once we start it. But as mentioned before, it's dependent on the commercial negotiation with our partners.
Just I think you misunderstood the question. The question was, it was specifically on Venezuela, actually just once again update on the progress that you're making on Karabobo and Perla, how that was going and kind of timing on first production ramp up?
Okay. Sorry, I understood it for the whole project. In Carabobo, the ramp up will start May, June. And I mean we expect really small figures. I mean we're talking that we will end up on average at 2 point 2,000 barrels per day.
So I would say quite a small one. And in Perla there will be no production within the year. We expect to start production in 2014. Okay? And the final question in relation with Trinidad and Tobago, I mean, we are at plateau there and I think we have reserves in our books for the next 7 years of production approximately.
So no more news or no more things to come in there. I mean we are at plateau. That's it.
Yes. Just on 7 years reserve life, should we expect a fairly significant declines now from Trinidad and Tobago over the next few years?
No. The only variance that you will see throughout the year will be due to maintenance. There was some maintenance expected for the Q1 that has been delayed for the second one. But as mentioned, I mean, we are at plateau and I don't see any declining in Trinidad and Tobago production other than those that are forced by maintenance.
One other quick follow-up on Mississippi Lime. So where would you see under the kind of the new plan of drilling with 20 5 rigs over the next few years, where would you see production in 2016 versus your previous target of 40,000 barrels a day?
We don't have a steel all the data. We are discussing with them right now. They have launched the strategic plan and we have to analyze both figures and the impact in our own. So I still don't have any extra information I can provide you. I think they somehow published their new strategic plan and we are analyzing the impact that will have.
But as mentioned, I don't see it for sure, I mean, for them it's more important than for us. I mean, for us it's but I still don't have any data.
Okay. Thank you, Miguel.
You're welcome.
Thank you. Well, now Bera Borktariya from Royal Bank of Canada. Thank you. Go ahead with your questions.
Hi, guys. Biraj Borkhatari from RBC. I had a couple of questions. First one, just on the LNG disposal to Shell. When do you expect that to close?
And secondly, are you in discussions with the rating agencies regarding potential implications if the Shell payment wasn't received by the end of 2013? Thanks.
Thank you. Right now, the process is going smoothly. And I will say that P50 would be closing by September, October, okay? We already have the agreement of 4 out of the 5 authorities of antitrust. But this month we have meetings with the lenders and then with some of the contracts.
So things are moving smooth and I would say that if everything keeps that way, we should be closing by September, October this year. In relation with the rating agencies, I will say that on average, the sale I mean the closing will imply a direct positive outlook probably. And if we apply those proceeds into short term an upgrade in our rating will arrive.
Okay, perfect. Thanks.
Okay, thank you very much. And now please from Barclays, Rahim Karim. Hello. How are you? Please go ahead with your questions.
Hi. Good afternoon, gentlemen. Two questions, if I may. To ask the second half of Irene's question around realizations, gas realizations were very strong in the quarter. I understand it's probably due to Bolivia, but is there anything else in there that we should be aware of?
Or should we expect current levels of realizations to be sustainable? The second question was just regarding PEMEX. If you could just provide any detail regarding the developments of the heads of agreements there. Have we made any progress on that? And if you can at least, I don't think you will, but if you can make any comments regarding the suggested sell down of their position.
Thank you.
Well, in the first one, as mentioned before, I mean, in realization prices, we think is sustainable what we have achieved this year. I think that in liquids, I comment to Irene that the disposal of Ecuador plus more U. S. And Brazil is helping out the price in liquids. In relation with gas, the one that moves the dial, it's Bolivia, which is a firm rule, we are obtaining 10% of the Brent price for our gas there.
So yes, I think it's sustainable. And in relation with the news that appear about the sale of the stake of Pemex, I spoke with the Board member that is the representative of Pemex in our Board and he told me that it was simply a accounting issue due to IFRS they have to account the 5% they bought as ready to dispose or ready for the sale, but there's nothing behind it. And in relation on how we are moving on the agreement, I would say that step by step there has been groups in the upstream and downstream divisions that are working together and we will see how it evolves. But I would say that relate in relation with Pemex today, it's perfect. Did I answer you, Rafim?
Yes, that was perfect. Thank you very much.
Thanks. Hello,
Jason
Kenny from Santander. Hello, please go ahead with your question.
Hi, there. Thanks for taking the questions. Just a couple of data points, if I may. Can you give me the EBIT for the North American LNG business that you're going to retain for the full year 2012? I know you mentioned the Q1 EBIT number earlier.
And then also if possible can you remind us of the EBIT for Peru Refining in the full year 2012? And can you just clarify, because I did have some technical issues on the phone earlier. That CHF 1,500,000,000 to CHF 2,000,000,000 range that you mentioned for I think it was EBITDA in Refining, was that for a 2013 full year number? And then finally, I think your results have beaten by around 10% on average for 8 quarters now. And I was just wondering if you had a view on what you think analysts are not willing to believe in your earnings capability?
Or maybe how cautious do you think guiding currently is? Just to kind of get a sense of how you view that consistent beat quarter on quarters?
Thanks for your questions Kenny. North America results or the assets that we'll get EBIT 2012 was EUR 114,000,000 negative, minus EUR 100 and 14, okay? Peruvian EBIT was €43,000,000 in 2012.
Thanks.
Okay. And now Your question in relation with the EBITDA in the Downstream division, which was exactly, Jason?
Well, I there was a technical issue. So I didn't hear whether you said the €1,500,000,000 to 2 range was for a 2013 delivery or is that a future target?
Well, basically what I commented is that I think that the figures we have obtained during the crisis always had moving this division between €2,000,000,000 and €1,500,000,000 We're still in crisis. So my estimate is that we would be in that range probably in the lower part of it.
Full year 2013?
That's correct.
Okay.
And in relation with the consensus, I think that the only difference that the consensus have with us in this quarter was our North American LNG assets. I mean, the rest of them were really accurate and probably nobody was expecting to that we will be selling gas in the Eastern Coast $20 per 1,000,000 BTU. But I mean, it's up to the consensus to approach better. I mean, the rest of the areas, I think that it was really accurate.
I suppose my question was more that if you do look over the last 8 or maybe even 10 quarters, you've had a consistent 10% beat Q on Q. So even ignoring the one off from North American LNG this time, do you think that the forward consensus for earnings is 10% light?
I think that for 2013, the consensus for the whole year has not been actualized. But I mean and I don't have in mind which were the consensus in previous quarters. What I know is that in this quarter, the main reason was the LNG in North America, which even for us was somehow unexpected. I think that last year as mentioned before, we lost I think it was 8,000,000 €8,000,000 and this year we made a very good gain over there. But I don't I cannot think in any other reason, but we will double check and turn back to you if you want.
Okay?
Okay. Thanks very much.
You're welcome.
Okay. Thank you very much. Mark Koffler from Macquarie. Hello, Mark. Please go ahead with your questions.
Yes. Hi, there all.
I just had 2 very questions, please. Just firstly on the incremental start up costs in the upstream that you alluded to in the Q1. I was hoping to get a bit more color on that in terms of if if that is solely a Q1 effect or if some of those are incremental
Sorry, Mark. We don't understand. The noise is not very good. Could you
please repeat it slowly?
Yes. Hi. Is that any further now?
No. But please try slowly so we will try to understand.
Hello. So two questions. Firstly, on the Upstream margins in the Q1. I was wondering if the incremental start up costs you alluded to, if they were likely to roll over into the Q2 and for the rest
of this year or if it
was just the Q1 effect? And then secondly, on the high utilization on the downstream and the conversion units in the Q1, given your comments around local market conditions and some of the maintenance effects. Again, I was just wondering if that sort of 98% was sustainable for the rest of this year. Hopefully, you heard that.
Thanks, Marc. Sorry, the sound was not good. In relation with the incremental cost, I would say that there I mean a couple of factors that are affecting it despite the increase in production for sure. One of them is that when you start a project or start producing, normally the figure we have of developed reserves is quite small. So they get really penalized in the depreciation figure.
And the second one refers to also the startup of, for example, in Sapinjoa. I mean, we have the whole cost of the FPSO that can produce up to 120,000 barrels where while we are only producing 20,000. So extra costs come for these reasons. It would be sustainable, but progressively coming down in a cost per barrel, I would say. And in relation with the conversion, the answer is yes.
I think we can keep the percentages of utilization we are having.
Great. Okay. I'll leave it there. Thanks.
Okay. Thank you. Please now Matt Lofting from Nomura. Hi, Matt. How are you?
Hi.
Just one question left, please. Just wanted to come back to exploration. Clearly, an encouraging start to the year. I think at the start of the year, you sort of pointed to an expectation of testing about 6,000,000,000 barrels in gross terms for the year. I was wondering if you could give us a sense of what sort of percentage of that $6,000,000,000 balance you think is still left to be tested through the rest of this year?
Thanks.
That's a tough one. I resigned my time. I don't know the answer, but I will I mean, I will ask my people to call you back to give you some color there. Though I think that more or less throughout the year, the process is quite balanced basically because some of the more riskier exploration wells we have aims for bigger prospects. So depending on the results we will see, but I would say that onefour could be probably the figure.
But as mentioned, I'll double check with the exploration people and I'll turn back to you. Okay?
Perfect. Thanks very much.
Thanks a lot. Now please, Samuel Simon from Canaccord. Hello, Samuel. Please go ahead with
questions.
I'm sorry, I didn't have a question to ask.
Okay, thanks. Then Neil Moton from Investec, go ahead with the questions.
Sorry, I have no questions left either. Thank you.
Okay. Then I think we're finished with the Q and A session. Thank you very much all of you for attending this conference call for of our Q1 results. And any new data, any clearance, any new queries that you need, please feel free to call us to the IR area and we'll come back to all of you with the pending questions that we have that you have. Thank you very much.
Bye.