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 Martínez, CFO of the company. A brief introduction will be conducted by Mr. Ángel Bautista, Director of Investor Relations. Mr. Ángel, please go ahead.
Good day, ladies and gentlemen. On behalf of our company, I would like to thank you for taking the time to attend this conference on Repsol's first quarter results. This presentation will be conducted by Mr. Miguel Martínez, 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, Ángel. Thank you all for attending this conference on our first quarter results. This quarter, we release a CCS adjusted net income of EUR 676 million, 40% higher year-over-year, and a CCS adjusted operating income of EUR 1.3 billion, 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 $6.7 billion U.S. The sale includes the minority stakes in Atlantic LNG, Peru LNG, and Bahía de Bizkaia Electricidad, as well as the LNG sale contracts and time charters with their associated loans and debt.
The deal strengthens the company balance sheet and financial position. Second, the sale of our 5% treasury stock to Temasek, the investment company of Singapore, for EUR 1 billion. With this transaction, we have completed the delivery of the measures to which we committed in order to strengthen our balance sheet following the confiscation of YPF by the Argentinian government. We welcome Temasek to our company. Third, in the upstream business and regarding our exploratory drilling campaign, seven out of the nine wells drilled during the first quarter of 2013 have found hydrocarbons. In Alaska, in the North Slope, we recently announced three new good quality hydrocarbon discoveries. The Qugruk 1 and Qugruk 6 wells produced two oil shows with encouraging results during production tests. In the Qugruk 3 well, hydrocarbons were identified at multiple levels. Exploration and assessment, and eventually start of 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 two different levels. Gavi 3 is testing productivity right now. In Brazil, in Block BM-S-50, Petrobras has already reported the presence of oil in Sagitario. Finally, in Algeria, in Block Sud-Est Illizi, 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. Four additional wells have been recently spudded. Duncan offshore Ireland, Magari offshore Canada, a new well in Sud-Est Illizi, Algeria, and the appraisal of our discovery in the Gulf of Mexico, Buckskin. Rigs for Magari and Buckskin have drilled a pilot hole and will have to resume drilling later in the year.
With 13 wells already drilled or ongoing, we have made good progress in our annual schedule of 32 wells. Before I start to explain our first quarter 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 first quarter results, I would say that adjusted operating income in the quarter on the basis of current cost of supply was EUR 1.3 billion, 22% higher than the same quarter a year early, after excluding YPF figures. On a business-by-business basis, starting with upstream, adjusted operating income in the first quarter was EUR 668 million, only slightly higher than in the first quarter of 2012.
Production output was 360,000 barrels of oil equivalent per day, 11% higher than in the first quarter of 2012. Since five out of the 10 key growth projects of the strategic plan 2012-16 have come on stream, together with better volumes from Trinidad and Tobago. We are confident that we will achieve the 10% average growth targeted for 2013. Incremental production will come from the ramp-up of Midcontinent in the U.S. and Sapinhoá in Brazil, and the startup of phase II of Margarita in Bolivia. On the other hand, Kinteroni is already technically prepared to come on stream, but the delay is mainly due to the negotiation with the final contractual arrangements to be completed with the Camisea partnership, and Trinidad will undergo planned maintenance. The increased production volumes had a positive impact of EUR 72 million.
Repsol crude realization prices remained flat despite the weaker performance of Brent prices in comparison with first quarter 2012. Gas realization prices increased by 26%, having a positive effect of EUR 43 million. Increased depreciation charges had a negative impact of EUR 45 million. Depreciation charges per barrel are higher in the early stage of production. We also had cost increases of EUR 63 million, mainly due to the new production of Sapinhoá in Brazil and the startup of the new projects in Russia. Sapinhoá produced 20,000 barrels per day in gross terms during the quarter, but bears the cost of a FPSO with a capacity of 120,000 barrels per day. Two additional production wells will be connected before year-end. Other minor items explain the remaining differences. Moving to LNG, adjusted operating income in first quarter 2013 was EUR 311 million versus EUR 158 million posted in the same quarter last year.
We achieved a very positive operating profit of €129 million from the North American assets that will remain in our portfolio due to exceptionally extreme cold temperatures in the 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 the market environment was tough during the quarter, showing the resiliency and efficiency of our integrated operations. Adjusted CCS operating income was €183 million, 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 $3.9 per barrel.
Taking into consideration the weak margin environment in Europe, it's still above the $3 achieved in Q1 2012. The slight improvement year-on-year in light heavy oil and gasoline spreads explain this difference, while diesel spreads remained flat. The premium margin due to the upgrade investments reached $1.8 per barrel distillate. The better volumes and margins had a positive impact of €98 million. In the Chemical division, higher margins were able to offset decreasing volumes, having a positive impact year-on-year of €35 million. On the other hand, commercial businesses, LPG and Marketing, had a lower operating income of €12 million. In Gas Natural Fenosa, at €253 million, adjusted operating income in Q1 2013 was 5% higher than the €241 million 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 Unión Fenosa Gas. The effective corporate tax rate in this quarter was 42.7% before results from affiliates. We forecast a 42% tax rate, including accrued inventory effects 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 €8.9 billion, 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 Gas Natural Fenosa, amounted to €3.9 billion, approximately €560 million lower than at year-end 2012. When the LNG sale is concluded, net financial debt will decrease by around €2.2 billion.
The net debt plus preference shares over capital employed ratio, excluding Gas Nat, was 19.1%. Summing up, our P&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 foreseen in our strategic plan. Now, I would be pleased to answer any questions you may have. Thank you.
Good morning, ladies and gentlemen. The Q&A session starts now. If you wish to ask a question, please press 01 on your telephone keypad. Thank you.
Hello. Please, Thomas Adolff from Credit Suisse.
Hi, Thomas. Please go ahead with your questions.
Hi, Ángel. Hi, Miguel. Thanks for taking my questions. Just firstly on working capital, there was a negative move of about EUR 1 billion. 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. I guess on the tax rate, you're guiding to a tax rate of 42%, which is down year-on-year. I 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 and 2015. Just on upstream. Production was decent, 360 Kbd. Let's say Kinteroni doesn't contribute this year. Are you still confident on the 10% year-on-year target? In other words, can you talk about contingencies? Finally, just staying also in upstream.
When you look at these seven 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 will say that everything came at the same time by the 31st of March. First of all, let me highlight that 2012 year-end working capital level was a bit lower than our current structural 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 known program operational lockdowns 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 Coruña, were completed in the first two days of April. Part of the reason is also there.
As a final comment, I will say that the spread between the Ural crude and the heavy Saudi has increased enormously. We are reducing somehow the Ural consumption in favor of the Arabian one. This also implies to have more crude in transit. Ural takes seven days, while Saudi it is 20 days. If you want somehow, which is my estimate for the whole year or which will be a normal situation, I would say that probably somewhere in between the 4.2 million tons, we ended up 4.3 million tons basically at the year-end, and 5.6 million tons we have at the end of March, will be probably the place in which we would be. In April, we already have recovered half of this increase in the working capital. In the tax rate, normally that depends logically on the mix.
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. In every quarter, we assign the tax rate that it is 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. It is true that Kinteroni has been delayed. Basically, only is for commercial reasons. We are discussing somehow the backup of blocks 88 and 57 to the Peru LNG and to the internal market. This is what is taking us somehow a little longer. Finally, in relation with the exploration for the year, I would say that we have already covered the expected Contingent reserves finding for the whole year. It has been a real successful quarter.
Did I answer you, Thomas?
Yes. Perfect. Thank you very much.
You're welcome.
Thanks.
Okay. Filipe Rosa from Espírito Santo. Please, Filipe, 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 had a bigger impact in terms of your resource backlog? I would specifically ask you about Sagitario, 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 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? 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 to start negotiations with Argentina. Thank you very much.
Thanks, Filipe. In relation about which would be the most important, I would 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. If I have to choose, probably Sagitario and Alaska are the ones that, I'll say I'm more happy about it. As mentioned, it's still way too early. Touching the second question, which refers to marketing in Spain, I would say that we keep falling. I mean, close to 10%, which are figures I never expected to see. It's difficult to see when we will reach the ground over here. Since 2007, we have lost 25% of our volumes in our retail network without losing market quota. Difficult to say.
For the full year, I don't have any other data to give you. We can extrapolate the existing situation, but I don't have any clue. I never expected it to keep falling at this pace. Finally, in YPF, our aim is clear. The valuation we have, and we have it in different ways by banks that have established a price, by the main by laws of YPF are clear, and we simply want a fair treatment. They already have taken our shares. They are even taking the dividends, and we simply want a fair treatment. That implies, for sure, liquid assets at the most. If it's possible in cash, if it's financial instruments that can be cash in, it will be the second option. We expect somehow to obtain the fair compensation we think we deserve.
Would you consider tooled 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. Hootan Yazhari from Bank of America Merrill Lynch. Hi, Hootan. Please go ahead with your questions.
Hi there, gentlemen. 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 you have on the reduction in interest expenses that you would face by converting the preference shares into a bond. 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, Hootan, I cannot talk much because we are pretty close to the filing in the Comisión Nacional del Mercado de Valores. What I can tell you is that there would be no dilution for the shareholders. As you can understand, anything I tell about the formula we are going to use to swap those pref could affect the market. The only thing I can tell you is that it will not affect our shareholders. There will be no dilution. In relation with the Peruvian sale, the process goes ahead. We have made a short list, and due diligence has already started with this small group. Our estimate is that we'll be closing, if everything works out well, by the end of the third quarter this year.
Basically, what we expect over there would be something around EUR 700 million, more or less. Then you have to discount also approximately another EUR 700 of loans that we already incorporate in our balance sheets. This would be more or less the situation.
Miguel, does that include the working capital at the facility as well?
Sorry, the sound wasn't that good. Can you repeat the question, Hootan?
Yeah. The question was, does that EUR 700 million figure also include the working capital at the facility?
Yes, it does.
Okay. Understood. Thank you very much.
Haitham Rachid from Morgan Stanley. Hi, Haitham. Please go ahead with the questions.
Thank you, Ángel. Good afternoon, gentlemen. Two questions, if I may. Firstly, just to come back on production, specifically, looking at North Africa. I just noticed that the production levels have been coming down relatively steadily since 2Q 2012. 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 a relatively light quarter in terms of CapEx in the upstream. Just wondered if, obviously, you 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 how we should be thinking about CapEx for the rest of this year. 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, Haitham. In relation with Libyan production, we are already at plateau with approximately 340,000 barrels per day of production. We expected it to continue that way throughout the year. We'll have between six and seven exploratory wells throughout the year, I don't see it impacting in our production figures. I will say flat at 340,000 barrels, which count for us approximately around 40,000 barrels net. In CapEx, we keep attached to the EUR 3.3, EUR 3.5 billion ex gas net. It's true that the first quarter was light. I think it was EUR 717 or EUR 720 million. Normally, it always happens that the last quarter is the one that gets more loaded. It's always the first one that is lighter. I keep attached to the EUR 3.3, EUR 3.5 billion ex gas net.
Great. Thank you.
You're welcome.
Hello, Brendan Warren from Jefferies. Please, Brendan, go ahead with your questions.
Gentlemen, it's Brendan Warren from Jefferies. Just one question. A couple of the other ones have been answered. I guess just with the delays at Kinteroni, if you can just give us any indication, are there any additional costs related to the delay? Actually, just will ask a follow-on question. Apologize. Just in terms of downstream, you highlight downstream this quarter was profitable. Can you give us any sort of indication on if you had positive free cash flows? Again, related to CapEx, whether the run rate CapEx in the downstream is indicative for the remainder of the year.
Thanks, Brendan. The only cost related that I can think of with Kinteroni is that with our partner, we already have, I think it was EUR 570 million, which are not producing. Only the financial cost of it. Nemesio, it's already in Peru trying to sort out the issue of the blocks 88 and 57. It couldn't take, I hope, longer. No extra cost related, just the closing of the commercial conditions are the ones that are on top. In relation with the free cash from the downstream division, the quarter was really light, it's true. Really, I think that at the end of the year, we'll be around EUR 600 million, EUR 700 million for the whole division.
As I talked to Haitham in the question before, till now, I don't see any reasons why we will not be around the EUR 3.3 billion, EUR 3.5 billion for the whole year. It's okay, Brendan?
Okay. Thank you. Cheers.
Bye.
Now, please, Alejandro Demichelis 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 Kinteroni. Should we think that the Kinteroni negotiations are completely separate from, let's say, the disposal of the Peruvian downstream assets and any kind of approval that you need to get for the LNG plant? That's the first question. The second question turns to the LNG numbers that we have seen this quarter, particularly out of Canaport. Maybe you can tell us how much do you think that is sustainable from that?
Well, the first one, Kinteroni, 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. Think that in the Camisea project, we have approximately eight or nine partners, so it's not that easy to end up closing a deal that satisfies everyone. This is the only thing that is taking us more time. For sure it is not linked to the downstream movement. It's only linked, as mentioned, to 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. In relation with the LNG Canaport, I would say that it's not sustainable.
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 and February in the East Coast. Four cargos went to Canaport through the quarter, and at a given moment, even prices were above EUR 20 per million BTU. I would say it's one-off in one sense. We'll have to see. What we have done is a project to reduce the limit of what the Canaport plant needs to operate down to 10 million cubic feet per day. We know that this plant will be working two, three, four months at the maximum for the year. 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 EUR 8 million in the first quarter.
This year, we have been 116. 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 Português de Investimento. Hi, Bruno. Go ahead with your 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? 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.
To predict is difficult, especially the future. I would say that think that approximately almost a 50% of our diet, it's on heavy stuff. The spread between heavy and light really affect us. 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 $5.50 per barrel, more or less. I can tell you that right now there's no margin in Europe in refining, and this is due to the small spread we have today between the fuel oil and the crude oil. We will see. As mentioned, the future is quite difficult to predict.
Okay. Just another follow-up I forgot to mention in the first time. 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 LNG unit.
Okay. Sorry. The sound is not good today. Sorry for asking you to repeat the question. Basically, once we close the whole transaction with Shell, we will accrue approximately EUR 1.8 billion out of EUR 2.5 billion, which is our book value. Then we have to see how we move ahead with the plan that today it's a problem, as you all know. 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 million BTU to ensure that no LNG was possibly coming to North America. This situation will change one way or the other. First, if the U.S. allowed more exports of all the gas they are producing, for sure prices will go up.
If they don't, I'm sure that all the fleets will start shifting into gas, their trucks. This also will imply a higher price. 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 and years. At a given moment, I think that Canaport will be in a better situation than the one we have today. Right now, what we are 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 of 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 high fixed cost base and you just can't pass through the price increases.
Marketing probably is the most profitable business we have within the company. Our total capital employed should be around EUR 1 billion. We are doing that figure almost in two years. 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 EUR 0.02 per liter that we sold. 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. By the beginning of the year, there was an extra taxation for the biofuels. We are absorbing this tax increase, though we expect to, little by little, to capture it back. There's no other thing to do. We are not losing market quota, it's the whole market, the one that is falling.
By the year end, we expect in the whole division to also move at EBITDA levels between EUR 1.5 billion and EUR 2 billion, which is what we have been capable in the last five 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 EUR 1.7 billion, EUR 1.8 billion, we have reduced that figure down to EUR 700 million. Extra cash, free cash, will come easily into the rest of the company, especially to fund the upstream projects.
Given you did EUR 350 million EBITDA in the first quarter, what drives the improvement to get to that EUR 1.5 billion to EUR 2 billion range?
In the first quarter, we were at EUR 360 million, more or less. 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 USD 5 per barrel produced in refining, while in the first quarter we have been around USD 3.5. Also refining will have to increase that. Finally, in chemicals, the margins keep improving. The volumes haven't shown up. The combination of all these three factors is what I think will lead us into this minimum figure that we expect of EUR 1.5 billion.
Yeah. I guess I just don't understand. In response to your earlier question about earlier responses about getting marketing profits back up, what drives that improvement? If the market remains difficult, it remains difficult.
Well, I think that the point is that simply increasing by EUR 0.01 our price there, that will go straight to the bottom line. This implies a 50% increase of the EUR 0.02 we have had in this quarter. The leverage we have there is quite important. Think also that this will imply, as mentioned, a 50%. Right now we're working with EUR 0.02 per liter after tax, EUR 0.01 would make the difference. I'm sure that no one knows whether the last time they filled their car, the price was EUR 1.47 or EUR 1.48. It's the only way out. For sure, demand, I do not expect demand to recover.
Okay. Thank you very much for that.
Okay, thanks. Now please, Irene Himona from Société Générale, 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, Irene, good afternoon, by the way. It's sustainable, basically because within our mix, we had Ecuador, in which we sold last year 20% of our stake there. 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. I would say it's consistent, and we can keep that through 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 Energy just recently cut back the number of rigs being run to 25 from over 30, given its focus on liquidity. I think they're intending to drill less than 500 wells this year. Just wondering what this means for your medium-term Mississippi Lime production targets, as I think your original plan was to drill something like 1,000 wells next year. The second question was, I just wanted to see if we could get a little bit of an update on your two key Venezuelan upstream projects. Just more detail on the progress, initial production timing, and the ramp up. The final one was on Trinidad and Tobago. Its largest producing asset in your portfolio.
We've seen the reserve life on that fall down to seven 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, Hamish. Starting with SandRidge Energy. 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. We'll have to look at it. For this year, there's practically no variation on our figures. What I think it's important is that I think that SandRidge Energy 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 EUR 3.6 million, they're drilling at almost EUR 3 million per well. I think that part of the reason why we enter with them was the carbonates. We have some experience there, and we think that we can help out the production.
They work more like a factory, and they know that their areas are what they call the sweet spot areas. We are looking more, and our people is analyzing more the why. Why are those areas really the ones that get more production? I think that the combination of the team will work out pretty well. In relation with the year, no variance for us. 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 Midcontinent, 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 lineal. In Russia, it's somehow loaded in the last five months of the year. In Kinteroni, the ramp up will be quick once we start it.
As mentioned before, it's dependent on the commercial negotiation with our partners. In Brazil.
Just I think you misunderstood the question. The question was, it was specifically on Venezuela, actually. Just once again, an update on the progress that you were making on Carabobo and Perla, how that was going and timing on first production and ramp up.
Okay. Sorry, I understood it was for the whole project. In Carabobo, the ramp up will start May, June. We expect really small figures. We are talking that we will end up on average at 2,200 barrels per day. It's, I would say, quite a small one. In Perla, there will be no production within the year. We expect to start production in 2014. Okay? The final question, in relation with Trinidad and Tobago, we are at plateau there. I think we have reserves in our books for the next seven years of production, approximately. No more news or no more things to come in there. We are at plateau. That's it.
Yeah, just on seven years reserve life, should we expect to have 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 first quarter that has been delayed for the second one. As mentioned, we are at plateau, and I don't see any decline in Trinidad and Tobago production other than those that are forced by maintenance.
One other just quick follow-up on Mississippi Lime. Under the new plan of drilling with 25 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 still all the data. We are discussing with them right now. They have launched the strategic plan. We have to analyze those figures and the impact in our own. I still don't have any extra information I can provide you. I think they somehow published their new strategic plan, we are analyzing the impact that will have. As mentioned, for them, it's more important than for us. I still don't have any data.
Okay. Thank you, Miguel.
You're welcome.
Thank you. Now Biraj Borkhataria from Royal Bank of Canada. Thank you. Go ahead with your questions.
Hi, guys. Biraj Borkhataria from RBC. I had a couple of questions. First one, just on the LNG disposal to Shell. When do you expect that to close? 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, I would say that P-50 would be that we'll be closing by September, October. Okay. We already have the agreement of four out of the five authorities of antitrust. By this month, we have meetings with the lenders. Then with some of the contracts. Things are moving smooth, I would say that if everything keeps that way, we should be closing by September or October this year. In relation with the rating agencies, I would say that on average, the closing will imply a direct positive outlook, probably. If we apply those proceeds into debt reduction, I would say that short-term, an upgrade in our rating will arrive.
Okay, perfect. Thanks.
Okay. Thank you very much. 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, understandably due to Bolivia. 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? 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, in realization prices, we think it's 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 as a firm rule, we are obtaining 10% of the Brent price for our gas there. Yes, I think it's sustainable. In relation with the news that appeared 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 is ready to dispose or ready for the sale, there's nothing behind it.
In relation on how we are moving on the agreement, I'll say that step by step, there has been groups in the upstream and downstream divisions that are working together. We will see how it evolves. I would say that in relation with Pemex today, it's perfect. Did I answer you, Rahim?
Yeah, that was perfect. Thank you very much.
The last of them in.
Thanks. Hello, Jason Kenney 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 first quarter EBIT number earlier. If possible, can you remind us of the EBIT for Peru Refining in the full year 2012? Can you just clarify, because I did have some technical issues on the phone earlier, that EUR 1.5 billion-EUR 2 billion range that you mentioned for, I think it was EBITDA in Refining. Was that for a 2013 full-year number? Finally, I think your results have beaten by around 10% on average for eight quarters now.
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 get a sense of how you view that consistent beat quarter on quarters.
Thanks for your questions, Kenney. North America results or the assets that we will get, EBIT 2012 was 114 negative, minus 114. Okay? Peruvian EBIT was EUR 43 million in 2012.
Thanks.
Okay. Your question in relation with the EBITDA in the Downstream division, which was exactly, Jason?
There was a technical issue, I didn't hear whether you said the EUR 1.5 billion-EUR 2 billion 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 moved in this division between EUR 2 billion and EUR 1.5 billion. We're still in crisis, my estimate is that we would be in that range, probably in the lower part of it. Okay?
Full year 2013 then.
That's correct.
Okay. Thanks.
Okay?
Yeah.
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. The rest of them were really accurate, and probably nobody was expecting that we will be selling gas in the Eastern Coast EUR 20 per million BTU. It's up to the consensus to approach better. 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 eight or maybe even 10 quarters, you've had a consistent 10% beat Q on Q. 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. 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 EUR 8 million. This year, we made a very good gain over there. I cannot think in any other reason. 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.
Hi there all. I just had two very quick questions, please. Just firstly, on the incremental startup costs in the upstream that you alluded to in the first quarter. I was just hoping to get a bit more color on that in terms of if that is solely a first quarter effect.
Sorry, Mark. We don't understand. The noise is not very good. Could you please just repeat it slowly?
Yeah. Hi. Is that any better now?
No, but please try slowly so we will try to understand.
Hello. Two questions. Firstly, on the upstream margins in the first quarter. I was wondering if the incremental startup costs you alluded to, if they were likely to roll over into the second quarter and for the rest of this year, or if it was just a first quarter effect. Secondly, on the high utilization on the downstream and the conversion units in the first quarter, 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, Mark. I'm sorry the sound was not good. In relation with the incremental cost, I would say that there are 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. The second one refers to also the startup of, for example, in Sapinhoá. We have the whole cost of the FPSO that can produce up to 120,000 barrels, while we are only producing 20,000. Extra costs come for these reasons. It would be sustainable but progressively coming down in a cost per barrel, I would say. 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.
Welcome, sir.
Afternoon. 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 billion barrels in gross terms for the year. I was just wondering if you could give us a sense of what sort of % of that 6 billion balance you think is still left to be tested through the rest of this year. Thanks.
That's a tough one. I resign, Matt. I don't know the answer, but I will ask my people to call you back to give you some color there. 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. Depending on the results, we will see, but I would say that one-fourth could be probably the figure. As mentioned, I will double-check with the exploration people and I will turn back to you, okay?
Perfect. Thanks very much.
Thanks a lot. Now, please, Samuel Simon from Canaccord. Hello, Samuel. Please, go ahead with the questions.
I'm sorry, I didn't have a question to ask.
Okay, thanks. Neil Morton from Investec. Go ahead with the questions.
Sorry, I have no questions left either. Thank you.
Okay. I think we're finished with the Q&A session. Thank you very much all of you for attending this conference call of our first quarter results. 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 you have. Thank you very much. Bye.