CFO of the company. A brief introduction will be conducted by Mrs. María Victoria Zingoni, Corporate Director of Investor Relations. Mrs. Victoria, please go ahead. Thank you.
Thank you. Good day, ladies and gentlemen. This is María Victoria Zingoni, Director of Investor Relations at Repsol. On behalf of our company, let me thank you for taking the time today to attend this conference call on Repsol's third quarter results. The presentation, as mentioned, is going to be conducted by Mr. Miguel Martínez, CFO. Other members of the executive committee are joining us as well today. Before we start, please, 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. Recent results may differ materially depending on a number of factors as indicated on the slide. Before I hand the conference over to Miguel, let me highlight that this is our first conference call in our new building.
Even though we have made several noise trials, if you have any problems with hearing this conference call, please let us know immediately, either calling the IR department or dropping an email. I now hand the conference over to Miguel.
Thanks, Mavi. Thank you all for attending this conference to discuss our third quarter results. The order of our presentation today will be, first, highlights on the operational activity. Second, an update on the financial situations and the steps we are taking to strengthen the balance sheet. Third, the results of the quarter. Let us start with the operational performance. Production in the upstream division during the quarter was 339,000 barrels of oil equivalent per day, 20% higher than during the third quarter of 2011. The end of the conflict in Libya and the startup of phase 1 of the Margarita project are the main drivers behind the production increase. Libya is back at 44,000 barrels per day, and Margarita has added almost 9,000 barrels of oil equivalent per day.
The market demand has allowed us to test the plant's operational capacity, delivering during some days a peak gross volume of 10 million cubic meters per day of natural gas. We also started production in Russia and U.S. Midcontinent this quarter, adding around 4,400 barrels of oil equivalent per day from these two assets. Production volume was reduced mainly in Ecuador with the sale of 20% of Block 16. For 2012, we expect to reach slightly above the committed 330,000 barrels of oil equivalent per day average production, even with lower than expected production from the bpTT assets. The Lubina project in Spain came on stream on October 15th, and by the end of the year, we will have the Kinteroni project in Peru producing.
Kinteroni is expected to start as planned in fourth quarter 2012, most likely in early December, to be in line with the scheduled turnaround of the Peru LNG plant. The construction activity to expand the Malvinas processing plant and the government approval to increase capacity of the Camisea gas pipeline will be supportive to our Kinteroni production and future developments in the area. By the end of 2012, we will have five of the 10 strategic development projects in production. Margarita, which is already at plateau, while Midcontinent, Russia, Lubina, Montanazo, and Kinteroni will continue to ramp up. If we take into account that Sapinhoá, our first Brazilian producing field, will have first oil in the first quarter 2013, by first half next year, we will have 6 out of the 10 strategic projects producing.
Regarding Sapinhoá before Koruara, in our strategic plan presented last May, a slower ramp-up than originally expected was already included, and we do not expect major changes to these volume figures. On top of the six mentioned projects that will be on stream at the first quarter next year, there are two more projects in Venezuela that will start production in 2014. The remaining two other projects, Reggane and Carioca, to complete the 10 included in our plan, do not add material production during the strategic plan period despite the included CapEx. This allows us to ensure that delivery of the production growth established for the period 2012-2016 will be accomplished. Moreover, our average 2013 production would be around 10% higher than the 2012 volumes. With regards to another growth project included in our strategic plan, Cardón IV in Venezuela, on August the 15th, we officially declared commerciality.
The development plan was approved on August the 20th, and it will have three phases, starting with 300 million standard cubic feet per day production by early 2014. Let me now follow with the exploratory activity in the quarter. The Sagari well in Block 57 in Peru was successful. The estimated resources are above 2 TCF. In October, we start drilling Mapi, the following prospect in the block. We have had five discoveries in the year. On top of the abovementioned Sagari, we had Pão de Açúcar in BM-C-33 block in Brazil, TIHS-1 in Algeria, and Chipirón T-2 and Caño Rondón Este in Colombia. With these discoveries, we have surpassed the 300 million barrels of oil equivalent yearly contingent resources target established as our exploration objective in this strategic plan.
We have achieved the objective in spite of falling short in finished wells, estimated at 20, mostly due to the operational setback in Alaska and delays in Libya, where several wells were initially forecasted. In order to diminish the rig availability risk, we have contracted two deep water rigs from Ocean Rig and Rowan. The first one will be exclusively devoted to the appraisal of the Campos 33 discoveries. The second one will be used mainly in exploratory campaigns in Gulf of Mexico, Angola, Namibia, and the Canary Islands. In addition to Mylos, we are currently drilling two wells, Sagitario in Block Santos 50 in Brazil, and Teso-1 in Algeria. We have also finished with good results the appraisal well Carioca North in Santos 9. During 2013, we expect to drill between 30 and 35 exploratory wells, depending on rig availability, and investigate above 6 billion barrels in gross terms.
70% of the investment will target oil, and drilling will take around 65% of the total budget. The investment will be mainly concentrated in the U.S., Brazil, Norway, Canada, and Peru. We are fulfilling the acreage replacement goals with 23 new blocks already ratified in 2012 and nine in the process towards official award. On the refining side of the business, we had a very good quarter with an average utilization rate of 81% of total capacity. Moreover, during August and September, the Cartagena coker and hydrocracker have been working at full capacity. The high levels of utilization are due to the better margins, the end of high maintenance seasons, and the previous quarter, and the performance of the new units. The October utilization rate has been around 86%. Let me now move into the financial situation.
Starting with our liquidity position at the end of the quarter, we had over EUR 3.9 billion of cash ex Gas Nat, EUR 1.3 billion higher than at the end of the previous quarter. The level of committed and drawn credit bank lines was EUR 4.5 billion, totaling EUR 8.4 billion of liquidity. In September, we issue a EUR 750 million 5 years and 5 months bond with a coupon of 4.375%, equivalent to mid-swap plus 335 basis points. These transactions show that we are getting financing at reasonable rates. Several Spanish companies issue bonds around the same week, and Repsol got the best cost of finance amongst them. The net debt, excluding Gas Nat, at the end of the quarter was EUR 4.9 billion, a EUR 1.8 billion reduction compared to the level at the end of 2011.
We would like to highlight that the cumulative EBITDA, excluding Gas Nat, generated during 2012, has almost covered our investments, taxes, net dividend payments, and interest and leasing expenses. Regarding the actions we are carrying out to reduce debt and improve the financial ratios and cash position of the company, first, we will continue with the scrip dividend program with the interim dividend of 2012. We had an acceptance rate of almost 64% in the flexible dividend program for the 2011 complimentary dividend paid in July this year. Second, we have closed the sale of the LPG division in Chile and the sale of our 20% working interest in Block 16 in Ecuador during the quarter. Both transactions amounted to EUR 551 million, more than 20% of the asset disposal program included in the five-year strategic plan, and generated a net debt reduction of EUR 361 million.
Third, we continue with the process to dispose of our LNG division. Due to the confidentiality agreement we have signed with the participant companies, we will make no further comments or answer any questions about the process until a decision on the sale is made by the year-end. Let me share with you that the process is evolving according to our expectations. With regards to the preferred shares conversion, our first option is to avoid shareholders dilution, as mentioned in prior opportunities. If our LNG disposal process is successful, we could still expect a conversion, but into a non-dilutive instrument with the aim of giving liquidity to current tenants of the preferred shares. In conclusion, we are working on the preferred shares conversion instruments, which will depend on the LNG sale success.
Moving into the quarterly results, third quarter CCS adjusted net income was EUR 496 million, and CCS adjusted operating income was EUR 1.2 million. These results were 89% and 64% higher, respectively, than during the same period last year. The better results have been driven by an improved performance in all of our divisions. In the upstream division, the adjusted operating income was EUR 634 million, almost doubling the result we obtained during the same period last year. As mentioned in the operational chapter, in addition to the Libya production performance getting back to normal and the continuous improvement in the Margarita project ramp-up volumes, we started production from the Russian and the Mississippi Lime operations. Despite lower Brent prices in the period compared to 2011, there were higher realization prices in the quarter due to the impact of the Libya in the sales mix and the increase in the West Texas.
Operating income was partially offset by exploration expenses, which were EUR 114 million higher than during the same period of 2011. Higher depreciation charges due to the production increase also negatively affected the results. In the LNG division, the adjusted operating income was EUR 189 million, 75% better than during the same period last year. The increase was due to higher commercialization margins. In the downstream business, the CCS-adjusted operating income was EUR 307 million, 47% higher than the third quarter of 2011. The good performance comes mainly from the refining business, where the gasoline and middle distillate differentials, as well as the lowest quality of the new crude slate and product yields due to the Cartagena-Bilbao new units, have delivered an average margin of $6.4 per barrel during the quarter.
The premium on the margin from the new units developed favorably during this quarter with a $1.6 per barrel average, going from $1.2 in July up to $2.2 US per barrel in October. This increase in the margin premium of our refining system highlights that when the market is running smoothly, we are able to capture a higher premium. The good performance of the refining business has been partially offset by the weaker petrochemical environment. The increase in naphtha prices affected by an unfavorable exchange rate, along with the decrease in demand and margins in some of the products, were the main reasons behind the weak performance. The LPG results and higher volumes in the wholesale marketing of petroleum products partially offset the decrease in margins and the 12% decrease in volumes in the retail marketing division, delivering an overall stable result.
In relation to Gas Natural, the adjusted operating income of EUR 231 million was 16% higher than during the same period last year. The increase is due to improved results in the Latin America operations and better margins from the natural gas sales. Financial expenses, ex Gas Natural during the quarter were EUR 156 million, EUR 72 million lower than during the same period last year. The increase in interest expenses due to the step-up in the interest of the preference shares and the increase on the gross debt due to the bonds issued in December 2011 and January 2012 was partially offset by the results of the hedging positions. As a recap, this quarter results are a proof of the operational solidity that is gaining momentum in the company. The upstream division is starting to show in its result the contribution of the new projects.
The refining division has enjoyed a good macro environment, which combined with the premium of the new units, has delivered a good improvement. While the petrochemical division is suffering some headwinds. We expect the upstream division to continue increasing results as new projects start, and the downstream division to generate cash flow and deliver fair results. Let me finish, turning now to YPF. As explained in our previous quarterly presentation, we have initiated different legal actions as a consequence of the expropriation of YPF. We have always been open to a negotiated solution to the issues facing the Argentine energy sector. We have been forced to take all appropriate legal actions in defense of our shareholders' rights as an expropriated party, even against those who may attempt to take unfair advantage of an unlawful confiscation.
As a current shareholder of YPF, we are also requiring full transparency, professionalism, and rigor on the management of a private company listed in the New York Stock Exchange and in the Buenos Aires market. Thank you. Now I will be pleased to answer any questions you may wish to put forward.
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.
Okay. We will start with the Q&A session. We will have first question from Haytham Rashid from Morgan Stanley. Haytham, please go ahead with your questions.
Three quick questions, if I may. Firstly, on the CapEx run rate for the year, it appears relatively sort of light. I know you've talked about in the past 4Q being a relatively heavy quarter on the CapEx side. I wondered if there's sort of no change still to your full-year outlook for CapEx for the group, and also what would be the main sort of driver into 4Q for the sort of higher CapEx level? Second question I had was just relating to the downstream. You sort of highlight that the utilization rates into October still remaining relatively high and also the margin looking still reasonably healthy there. How sort of comfortable are you for the rest of the year as we move into 2013? You've talked before, Miguel, about downstream conditions still remaining tough. I'm sort of specifically referring to the refining side for that.
Finally, just any updates on the timing of the drilling on BM-C-33 with the Mylos Ocean in terms of when you plan to do that next year? Thank you.
Hi, Haytham. Thanks for your questions. In relation with the CapEx one, we expect to end up the year between EUR 3.2 billion and EUR 3.3 billion. Our initial estimate, if you remember, was EUR 3.5 billion. The downfall has been basically in the downstream division. Details from the Cartagena and Bilbao price were smaller than we thought, so we have some CapEx saves there. Also in the estimate in the budget for the year, we have EUR 60 million for projects in the new energies, which has not been covered. Basically, I would say CapEx will be totally in line with the estimates in the upstream division. The shortfall would be between EUR 200 million and EUR 250 million in the downstream division.
My estimate for the year in refining margins, to predict is always difficult, especially the future, but we have seen a lot of strength during October and somehow a smaller margin in the last week. My estimate, we should be between approximately $5 or $6 per barrel. Finally, in relation with Campos 33, our estimate is that we will start appraising at the end of next year. As mentioned in the speech, one of the rigs will be devoted to Campos 33. Did I answer you?
Yeah, that's great. Thank you.
You're welcome.
Thank you, Haytham. We have next question from Santander, Jason Kenney. Jason, good morning, and please go ahead with your question. Jason, are you there? We move for the next one is from Nomura, Theepan Jothilingam. Theepan, please go ahead with your questions.
Thanks, Mavi. Good afternoon, Miguel. Just two quick questions, really. Could you just talk a little bit about the progress you're making, both the SandRidge acquisition with Mississippi Lime and sort of just an outlook on production there? Secondly, just coming back to the treasury shares. Just wanted to get an idea of whether you are still considering any other options outside perhaps just using them for the scrip dividend. Thank you.
Starting with the second one, for sure, it's only my opinion, at the end, the final decision would be on the board. In my perception, the treasury shares will go into the scrip dividend. Basically, we will increase capital and reduce at the same time the treasury stock. This is our initial idea and the one we will present to the board meeting. We do not discard, though, that depending on the LNG final results, also part of the treasury stock will go into the conversion of the preference shares. One thing is clear, those shares will not go to the market. Either one way or the other, we will allocate those in any of the formulas, scrip or the conversion. The first question refers to the Mississippi Lime, and, well, we cannot advance much at this moment. We are simply producing approximately 1.5 thousand barrels.
We are just starting. Right now, we have 22 rigs that will be ramping up till 2018, I think, in which we'll be working with more than 90 rigs. Other comments is that, basically, we expect a very important ramp-up of this asset and will impact really the production, not this year, not next year. Basically, we keep attached to the plan, it's way too early because it's only five months since we presented the strategic plan. I don't know what else can I comment you. Simply that probably next year would be around 6,000 barrels of oil per day, that we will keep working.
Could I ask, Miguel, what type of capital investment do you think we should think about for next year for that project and then going forward?
EUR 700 million for 2015.
Thank you very much.
Thank you, Theepan. We have now from BPI, Bruno Silva. Bruno, please go ahead with your questions.
Good morning, everyone. Going back to downstream, can you please reiterate or make an update on the expected EBIT, CCS adjusted for the unit for this year? If you have any view for next year, would appreciate, particularly after these impressive results from the retail area, considering the context. Secondly, on LNG, also would appreciate the guidance on operating income for this year and next. Once again, and looking at consensus, it looks like it was one of the major areas of positive deviations of your performance in this quarter. That's it. Thank you very much.
In relation with the first question, I think that the guidance I gave, I don't know if it was in March or in July, was between EUR 1 billion-EUR 1.1 billion. I think that it's going to depend for sure in this quarter, but probably we will fall a little short, between EUR 900 million-EUR 950 million as EBIT for the downstream division. Sorry about the second one, because we do not split the LNG. Sorry about that.
Okay. Thank you.
Thank you, Bruno. We have the next question from Banco Espírito Santo from Felipe Rosa.
Hi. Good morning, everyone. Two questions. The first one on your guidance for production for 2013. Could you just give us a little bit more color on how much barrels are you considering from Brazil, Russia, and Mississippi? I know that you already addressed Mississippi, but I would like to have a better idea what could be the contribution in 2013 in terms of production. The second question is regarding the resources that you are de-risking next year. You're guiding for six billion gross in terms of expression resources. Could you give us some color on the net amount that you are going to de-risk next year? Thank you very much.
In relation with the first question, we normally do not split between regions or between countries. Basically, the growth will come from the new projects. I think that we will have the ramp up of Kinteroni. Sapinhoa would be there. We will have also helping, not with much volume, but with a lot of margin in Lubina, Montanazo, and also we'll have for the full year, Margarita. There you have basically the growth areas, but we do not split field by field or country by country. Okay? The second question-
Was with regards to the exploration risk.
Yeah. We keep attached to what we mentioned in our strategic plan presentation. We are aiming, as this year, between 300 and 350 million barrels of contingent resources. We keep attached to what we said in May. Basically, we are keeping the budget. Probably the only difference with the past, if you look at it, is that most of the CapEx would be in the U.S., Brazil, Canada, and Norway. Moving into more OECD countries. Okay? We keep with the same approach we presented with the strategic presentation.
Felipe, one month ago, we put a presentation on our webpage with regards to the growth contingent resources, prospective resources that were going to be investigated. We will be holding again in January next year, our exploration day, and we will give more information with regards to the exploratory plans for the year.
Okay.
Okay?
Thank you.
Thank you. We have the next question from Barclays, Lydia Rainforth.
Thanks. Good afternoon. Two questions if I could. The first one, just on the preference shares, Miguel. When you are looking at those non-dilutive instruments, can you just talk to us a little bit more about what those options are and over what time period you would expect to get any conversion done? Then secondly, I appreciate what you said about not giving individual country guidance. For Trinidad, can I just ask, have you included the similar level of production for this year? Or have you got some of that recovering into the 2013 numbers? Thank you.
In relation with the preference shares, a solution which is at least the one I like most is to simply put a bond for 10 years. That sense, we will not convert any part of these preference shares into new capital and be not dilutive, and it is the option I would prefer. Our estimate for 2013 in Trinidad and Tobago, you know it is an asset we do not operate, our estimate is flat in comparison with 2012.
Perfect. Thank you very much.
Welcome, Lydia.
Thank you, Lydia. We have next question from Societe Generale, Irene Himona. Irene, please go ahead with your questions.
Good afternoon, Miguel. Just a couple of questions, please. First of all, six months on from the confiscation of YPF, can you perhaps update us on your discussions with the credit agencies and the current thinking regarding your financial position? Secondly, you had formed a strategic cooperation agreement, I believe, with Pemex, and I was just wondering if there's anything to report on that. Has anything come out of that agreement which you can talk about? Thank you.
Okay. Thanks for the questions, Irene. In relation with the first one, once YPF was confiscated, we met with the rating agencies, and we present them all the measures we were going to take. I think that we have been delivering one after the other and with better results than our initial estimates. We expect that once we sign the offer of the LNG to sit with them, and this will probably will happen in January next year. Okay? In relation with Pemex, I would say that basically it's simply to recover the relation we had before August 2011. If you remember, in August 2011, there was, I would say, some confusion, and we are simply turning back to the initial point and share with them those areas in which we have a win-win situation for both.
Call it using our refining system, taking their Maya crude into our system. I would say back to basics. Okay?
Thank you very much.
Thank you, Irene. We have now Oswald Clint from Sanford Bernstein. Oswald, good morning. Please go ahead with your questions.
Thank you very much. Yes. First question was just if I could get a bit more detail on the refining margin uplift sequentially. Wonder if you could say what was the uplift there just from the general margin environment, and then what was the uplift from the refinery upgrade, or if it is possible to split that out, please. The second question was on Russia and your alliance or your JV with Alliance Oil Company. There's been a lot of favorable tax incentives over the summer in Russia for tight oil exploration. Is that something you're discussing with Alliance or something you would like to investigate within Russia? Thank you.
Okay, Oswald. I think that more or less, I gave you the split during the speech. In July, the margin of the new facilities were not that good, EUR 1.2, and we ended up with an average of EUR 1.9, sorry, EUR 1.6, finishing September with EUR 1.9. We reached the peak by mid-October at EUR 2.44. Only one day. On average, October was EUR 2.2. Basically, I would say that we are starting to see the returns we were expecting from the units. Think that there has been several factors there. Despite the general situation, it's not easy to adapt new facilities, especially when they're as important and they modify the structure of the refinery so drastically, I would say. Second, we have the issue with the Iranian crude. We have to change our diet, and this has also affected the performance of the sites.
It looks as if the fine-tuning is already there. Basically, those are the figures. You can account at least in October EUR 2.2 for the gain obtained from the new units. Your second question was in relation with Alliance. I think that with Alliance, there are many projects in front of us, and we are analyzing them all. Right now, there's nothing special to comment other than they provide us the first asset. The second one, it's coming this quarter. The AROG/Neft-Gatcha. We will keep working, but I'm not aware of anything related to the tax you mentioned other than we are working with them on a daily basis.
Let me highlight, Oswald, that the premium that Miguel mentioned applies over the total capacity of our Spanish refining system and not only of the new capacity. It's over the whole refining capacity. Thank you. We now move into next question from Royal Bank of Canada, Peter Hutton. Peter, good morning.
Hi. Thanks for the call. Two quick questions. A follow-up on the option you're talking about on the conversion of the pref. Can you just explain to me, maybe I'm being a bit thick here, on the issuance of the bond and how that gets the pref treated in a different way in terms of the treatment by the credit agencies, which was one of the areas that you're looking at. Just understanding the mechanics of that a little bit. The second one is, again, back to the downstream. Retail volumes held up better than expected, but not so much in Spain. They were a record in Europe. There seems to be a large jump outside Spain, and I'm trying to understand that and how sustainable that is looking forward.
Thanks. In relation with the first question, the word is liquidity. I mean, a bond of Repsol will be liquid day two, while the pref really doesn't have a market. The social problem we have in Spain with these preference shares is that most of them are linked to saving banks. We have to somehow make or take a decision to provide liquidity to these preference shares. We think that the bond is one way to do it. In relation with volumes, in Spain, the figures of the quarter were pretty bad. Volumes fall 12% in the quarter in comparison with the same quarter 2011. On average, throughout the year, we are falling 9% on accumulated basis. I do not know how volumes evolved in other European countries other than Spain, for sure, and Portugal and Italy. It has been a strong impact.
Think also that the VAT was modified with an increase of 3% by September the 1st. We said that the impact there could be between a 2% and a 3%. Basically, I would say that on average, probably a 1% or 2% jump between months. It's bad news. I mean, 12% fall within the quarter. Okay?
Okay. Thanks, Miguel.
Thank you, Peter. We have the next question, Fernando Lafuente from N+1. Fernando, good morning.
Hello, good morning, thank you for the presentation. Sorry to come back again on the preference shares. I have one further question regarding the possibility of including the treasury shares in the conversion. How could this be structured at some point, assuming that at the end, the LNG business is finally solved? A second question regarding the guidance you gave in Q1 for the upstream business of an EBIT in the region of EUR 2.2 billion-EUR 2.4 billion. I was wondering if this is still maintained, or what should we expect from this business? Thank you so much.
Well, the first one, it's simple. With the valuation of the shares, we can give one share of the treasury stock to each tenant of the pref, plus a bond. This will be the conversion. Second, in relation with the CapEx.
EBIT.
Sorry, EBIT for the upstream division, we keep attached to what we say. We will end up around EUR 2.3 billion for the year end. Always to make guesses is difficult, but it's our best estimate today.
Okay, thank you. Just one follow-up on the first question, Miguel, if I may. Could it be possible to include in this conversion, kind of an extendible bond for these treasury shares, including kind of an issue premium, something like that?
For sure, Fernando, we have analyzed many other options. As mentioned before, my first idea is, if possible, 100% nominal conversion into a bond, which I think is the clear solution. Think that those tenants are basically fixed income investors. If the LNG goes in the way we expect it, I think that the conversion will be through a 10-year bond or something like that.
Okay, great. Thank you so much.
Thank you, Fernando. We have the next question from UBS, Daniel Eckstein.
First questions are on the downstream. It's good to see some improved financial performance coming through this quarter. Perhaps going back to the guidance you gave at the end of July, that was referenced in an earlier question. I think it was EUR 1 billion to EUR 1.1 billion. We're now talking about a lower number than that. This perhaps implies that your Q3 results didn't quite match your own expectations. Is that fair? If so, could you explain a little bit more about the moving parts within the business and where the underperformance came versus that which you were expecting in July? Following on from that, refining was stronger, but you've talked about the operating performance perhaps not being at optimal levels at the moment. Could you also talk about the impact the local market environment is having?
I'm talking about low demand and a number of upgraded refineries in the Iberian region. What impact is that having on your pricing power? On a completely different note, assuming the LNG deal were to complete, how would you view the scrip dividend option in 2013? If it were to continue, would there be anti-dilutive measures taken? Finally, you gave us some production guidance for this year and next, which was very helpful. Could you talk about an exit rate for 2013 rather than just the average growth for the year? Thank you.
I think that the difference between the EUR 1.1 billion and the EUR 950 million we are providing today has two reasons. First one refers to the chemical business, which is behaving both in volumes and margins lower than expected. The second one refers to volumes, the retail division. For sure, we were not expecting a 12% fall in the volumes of the net. Those are the main reasons for the fall initial estimates of the downstream EBIT. In relation with the scrip, the idea is yes, to keep it. At least it's my idea. I don't understand why some people consider this a dilutive process. What we are giving the investor is an option for free, in which if they want the cash, they have it. For sure it will imply some dilution, but for those who take the cash. For those who take the shares, the transaction would be accretive.
64% of our shareholders took the shares. I think it's a good option for the shareholder, and it's for free. We will keep attached to it. In relation with the profile production next year, 10% is what we are going to grow, but I'm not going to detail monthly which would be the production. Sorry about that.
Okay. Thank you.
Thank you, Daniel. We have next question from Credit Suisse, Thomas Fowles. Thomas, good morning. Please go ahead with your question.
Hi, good morning, guys. Thanks for taking my questions. I've got three as well. First one on upstream. Obviously nice growth, 10% year-over-year. Specifically, what I'm interested in is how do you see the group upstream margin evolve year-over-year in 2013 on flat oil prices? I'm assuming the overall upstream cash margin should improve from these new projects. Secondly, on Venezuela. When thinking of your current production and the future production now in the case of Carabobo and Perla, is it fair to assume that most of the sales in Venezuela is linked to the U.S. dollar and not to the peso, and therefore any price evolution is linked to the U.S. inflation index rather than anything that is happening in Venezuela? The final question, I guess, on your ideal scenario on the pref share conversion of taking a 10-year bond.
I was wondering whether you've worked out what sort of savings you can achieve from this vis-à-vis interest rates. I guess the bond would be lower than the preference share coupon, unless I'm mistaken. Thank you.
Starting with the last one, I forgot the first one. I would say that you can consider a saving of approximately 20%. It is more or less what a fair deal would represent. I think that over here we are somehow playing with the interest of our shareholders versus the interest of the tenants of the prefs. Our estimate today, but for sure depending on the evolution of our CDS, is approximately 80%. The saving, if you consider that, would be EUR 600 million. 20% applied to the EUR 3 billion we have as preference shares. In relation with Venezuela, we mostly get paid in dollars. Cardón, for example, would be $369. I think that Yukal Placer is one area in which we have part in dollars and those expenses that are related to the local currency are paid in local currency.
Basically, I would say that yes, dollars. The first question?
Was the EBIT per barrel or the margin per barrel that we are making in the upstream business.
Okay. We don't disclose that. One thing is clear. The mix is going in the right direction. If you compare this year with last one, the mix between liquids and gas becomes higher, we expect to keep that trend.
Okay, perfect. Just one question I had. This is a follow-up, just now longer term beyond your medium-term target of 2016. BG stated last week that you're going to tender for a second FPSO in Carioca, and that the tender process is probably going to start sometimes next year. I'm assuming this is something for the period just before 2020, the second Carioca FPSO. Thank you.
Thomas, just to be clear, you ask about the second FPSO in Carioca, if it is going to be before 2020?
Yeah. Just before 2020, yeah. It's going to be post-2016, no?
One second.
Carioca will be, at the present time, we are thinking just in one FPSO. This will have to come on stream by the end of 2016.
Yeah.
The second one is contingent. We will see. Right now, it would be only one FPSO in Carioca.
Okay, perfect. Thank you very much.
Thank you, Thomas. We have a next question from Tudor, Anish Kapadia. Anish, good morning. Please go ahead with your questions.
Hi, good afternoon. Just a couple of questions. Just a multifaceted question on the Mississippi Lime. I just wanted to go into a bit more detail. We've seen a number of companies complaining that infrastructure, in so much as oil takeaway capacity, being a big issue. Just wondering, how you're coping with that at the moment. Also, whether the mix of oil to NGLs to gas is as expected, and also what WTI price would cause you to cut activity back in the area? The reason I ask is we've seen companies such as Chesapeake more than halve their rig count over the last quarter in the Mississippi Lime. Just wanted to get an idea of how you're seeing things over there. The second question was on Trinidad. We've seen production weak this year.
I was wondering if you could give a production estimate for next year, and then how you see Trinidad production evolving over the next five years or so. Thank you.
Okay. Infrastructures in the Mississippi Lime, at least in our area, in the one we have been drilling right now, it was already there. We are simply paying the fee of someone else's infrastructure. We are pretty close to those infrastructures, so even if it would be a real small CapEx there. Second, yes, it's way too early. We are producing just 1,500 barrels per day. Right now, the mix is the one we expected, approximately 50% gas, 50% oil. In relation with the Trinidad production, our estimate, as I mentioned, is flat. Our estimate has been to produce the same this year. Though, probably it's a very conservative approach. An non-operated asset, and knowing that bpTT has been extremely conscious in all the maintenance and modifying the structure of the platforms, we want to be conservative.
Despite considering a flat production in Trinidad and Tobago, we aim for a 10% increase in the global production of the company for 2013.
Anish, could you repeat the last question, the third question with regards the pricing, the WTI, about SandRidge? We didn't hear it quite well. Can you repeat it? Anish?
Anish is back.
Yeah. In terms of the Mississippi Lime joint venture, I just wanted to know at what WTI price do you look to either stop adding rigs or actually cut back on the number of rigs that you're allocating to the Mississippi Lime? You've got WTI at around $85 at the moment. Wondering what level it has to fall to for you to consider cutting investment.
I don't have the figure in my mind, but one thing I can tell you, at these prices, the project goes ahead. We'll keep drilling. It's EUR 3 million per well, and we'll keep performing. Through Mavi, we will provide you the exact figure at which we will stop production. Okay, Anish?
Okay. Sorry, on Trinidad, in terms of your longer-term production forecast, just wanted to know, are you expecting production to stay at that flat level over the next five years or so, or do you expect production decline in Trinidad?
Let me provide you some data first to put in perspective what Trinidad and Tobago represents for us, because it's true that the production level sounds big. It represents only almost a 40% of the total production of the upstream. If we move down to the EBIT level, it only represents a 15% of the EBIT level. Those are the type of barrels with not much value. Having this in context, I would say that we expect an increase in the existing production once all the maintenance is finished. As mentioned, for the good or for the bad, those barrels are not the most profitable we have in our portfolio. Okay?
Great. Thank you.
Thank you, Anish. We have next question, Fernando Murillo from La Caixa. Fernando, good morning.
Hello, good morning. My question has been made already. Thank you very much.
Thanks, Fernando.
Thank you. We have now from Merrill Lynch, Hootan Yazhari. Hootan, good morning.
Good morning. I have two areas I wanted to focus on. First of all, on the chemical side, which has obviously been very difficult for you. What steps are you taking to address the poor profitability in this business? Are you looking at, in the medium term, potentially closing this down, given from a cost perspective, you won't be competitive with all the new capacity coming on in the U.S., which obviously enjoys low natural gas prices. Just wanted to get your thinking around there. The second point was a point of clarification. I thought I heard you mention that you're looking to drill 30-35 wells in 2013. If that was the case, that represents a slightly lower number than you mentioned earlier, which was 36-40 wells. That was in a recent presentation you put in the market.
I just wanted to see which wells or which areas are being affected, if that is the case. Thank you.
Okay. Thanks for the questions, Hootan, and good morning. The question about chemicals, if you remember two years ago, I think it was, or last year, we did a lot of reduction within the business. Right now we are analyzing what the future of this segment of the company looks like. Basically, I could agree with you that naphtha versus gas prices today, especially those in the U.S. and in the Middle East, it's a tough area. We don't have still any drastic decision taken, but we are analyzing the whole business. Being concerned that on one hand, the demand is quite weak in Europe, and on the other, that to compete with people that can produce the same as you with a raw material that is six times lower is a tough task.
Regarding exploration, I suspect that you get the data from Marcos Mozetic about a couple of months ago or a month ago.
Yes.
Right now it's contingent. We are talking 30, 35. Imagine that Libya, for example, this year, we were expecting some wells, at the end we were not able to do it. What I can tell you is that the important ones, those that are really, I would say, expensive, those are exactly the same as the one Marcos was considering a couple of months ago. The variance would be in small wells, most of them in Libya, I would assume, but I don't know exactly the split with whom Marcos mentioned that. To clarify the whole thing, Mavi is signaling me that there will be an exploration date in which we will update with our estimates for next year. Okay, Hootan?
Understood. Thank you very much.
Thanks. Thank you.
We have a next question, Luis de Toledo from BBVA. Luis, good morning.
Good morning. I have one question regarding the dividend. There's been a lot of press speculation in Spain regarding the potential EUR one per dividend for next year. I guess you stick to your guidance, and maybe it's too early to discuss this. I assume you would take into consideration the reported net profit for the year and take a decision regarding the range you provided, 40%-55%. I don't know if you could add some on that. I'm sorry to come back to the LNG. I'm not referring to the future. Just on the strong performance in the quarter, we are aware of stronger volumes and prices. Is there anything we should take into account? Any measure you've taken in the quarter? Thanks.
Luis, in relation with the dividend, you know that this is a proposal that the board will put on the table. Normally the board take that decision by the end of November, the last board of November. I would say it's 20 days to know better. Okay?
I can wait.
That's after this comment or prior comments, those that were made. Basically you'll have to wait 20 days for the answer of that. In relation with the LNG, I would say that there has been very good results in the quarter, and that those are based basically in three factors. First, volumes were higher. Second, there was less cargo sent to the U.S. where the margins are not that good. We got better margins. On top of that, there were some spot cargos that really make very good profit. As a recap, better margins and more volumes.
Okay. Thank you.
This is the answer.
Thank you. Coming back now again to Santander, Jason. Jason, can you hear me this time?
I hope so. I hope you can hear me.
We can.
Good. Sorry about earlier. Good results today, and well done on those. I did have a number of questions, but I'm left with two. I just wondered, have you been approached by significant sovereign wealth funds or potential industrial players to take a stake in Repsol directly? Certainly, that's been mooted in the press. Secondly, a bit more operationally focused on your current drilling. Can you tell me if Mapi in Peru is of a similar pre-drill prospect size to Sagari? Also, if you have any update on the return to the Jaguar well in Guyana?
Hi, Jason. In relation with the sovereign funds, at least they didn't approach me, okay? On top of that, I would say that today it's quite difficult for any of the shareholders to reach any agreement due to their acquisition price. I think that it must be difficult to be a press man and to fill everyday a newspaper. I don't see any approach or any possibility on that. The other option would have been our treasury stock. As mentioned before, we are going to use that treasury stock, and I would say with my first priority or possibility would be to apply this stock into the scrip dividend. In relation with Mapi, I would say that it's a little more riskier than Sagari. Basically because the height of Mapi is lower than the one in Sagari. We will see.
We are getting close to it, probably there will be some news, let's say, before the year ends. Okay?
On Jaguar?
On Jaguar, sorry, I forgot that one. Geologists were really optimistic about the first prospect. We applied for a new license to the Guyana government. Things are moving in the right direction. We expect to go ahead in a couple of years.
Okay. We'll have to wait for that one. Thanks.
Thank you.
Thank you, Jason. We have one last question from JP Morgan, Nitin Sharma. Nitin, good morning. Please go ahead with your questions.
Hi, thanks. Two questions, if I may. First one, back on dividend. Miguel, I am also willing to wait 20 days, but maybe if you could please explain what will be the key factors that you will consider in deciding a particular payout within that 40%-55% payout range? My obvious focus is interims. Second one on tax rate. You guided on a tax rate of 44% for this year. Is that for the CCS adjusted earnings? What tax rate should we factor in for 2013 for CCS adjusted earnings, please? Thanks.
Nitin, in relation with the dividend, as mentioned, let's wait for the board meeting. I am not going to advance a decision that is going to make by the board within 3 weeks. In relation with the second one, I know that there has been some people that have got confused with our indication about the tax rates. Our indication refers to the Spanish accounting system, which is MIFOR. There is a difference between the results you analyze, which are the recurrent CCS versus the MIFOR results, which include the inventory gains plus all the non-recurrent issues. During this quarter, we have had EUR 120 million of inventory gains, plus the sale of Amodaimi and the sale of the Chilean LPG.
If you take this into account, the guidance I gave, it is based on the MIFOR results with non-recurring items included, which is the one I paid at the end to the Spanish IRS. Sorry about that, I cannot provide both. Okay?
Okay, thanks.
Thank you, Nitin. We have another question from Fernando Lafuente again, N+1. Fernando?
Hi. Thank you so much for taking again my questions. Just, Miguel, a confirmation of the CapEx plan for the future. This year, you said, if I'm not wrong, that it was gonna be lower in the case of the downstream. Are the targets for the future, both for upstream and downstream, still valid?
Would be around EUR 3.5. Similar to the initial estimate for 2012. From those, the most of it, as you know, would be in the upstream division. Within the upstream division, I think it's for the third time or for the second time, development will take the most, while keeping at the same time the level of investment in the exploration. Okay? All these figures are ex Gas Natural.
Okay. It's EUR 3.5 per annum in the future, right?
Yeah. 3.5 ex Gas Natural, the same as we gave you last year for 2012.
Thank you so much, Miguel.
You're welcome.
I think we are done right now with the questions. If there is any pending question or anything that you have to discuss among partners, please don't hesitate and give us a call. We'll be glad to take them. Thank you very much for attending the conference call. Good afternoon to all of you.
Mucho.