Good morning, ladies and gentlemen. Thank you for standing by and welcome to Repsol Second Quarter 2012 Results Presentation. This conference call will be led by Mr. Miguel Martinez, CFO of the company. I will first pass the floor to Mrs.
Maria Victoria Zingoni, Investor Relations Managing Director that will make a brief introduction. Maria Victoria. Please go ahead. Good day, ladies and gentlemen. This is Maria Maria Victoria Singorni, Director of Investor Relations at Repsol.
On behalf of our company, I would like to thank you today for taking time to attend this conference call on Bratfel's 2nd quarter results. The presentation, as said, will be conducted by Mr. Miguel Martinez, CFO. Other members of the Executive Committee will be joining us at work. After the speech, we'll have a Q and A session.
Before we start, I invite you to read our disclaimer notes. We may make forward looking statements, which are identified by the use of words such as will, expect and similar phrases. Patients' results may differ materially depending on a number of factors as indicated on the slide. I now hand the conference over to Miguel.
Thanks, Matti, and thank you all for attending this conference on our 2nd quarter results. In today's call, we will cover 3 topics. First, we will give an update on the YPF ex propiation on both, the status of the legal action and the accounting impact on the financial statements. Then we will explain the progress we have made on the actions to strengthen the balance sheet. And finally, we will cover the quarterly results and current status of the operations.
Let us start with the update on the YPF situation by reviewing the progress on the legal matters. The legal actions are related both to the 51% of the company subject to expropriation and already occupied by the Argentine government and to the remaining stake held in Whitebills. Repsol currently has the right to exercise both in consensual and other powers pertaining to Class D shares of YPF, representing a 12% stake, which is composed of 2 parts: 6.4%, which was part of the original 57.4% we own and was not subject to expropriation and an additional 5.4 percent over which we have those power as a result a result of the early termination of the loan agreement with the Petersen Group and Repsol rights on the collateral of that loan agreement, according to the terms of the collateral pledge. The other shares belonging to the Pettersson Group are now in the hands of the banks or institutions, which were part of the loan to Pettersen at the time of expropriation. Amongst them, we fund the companies of the Carlos Slim Group or Banco Itau, which are now shareholders of OIBF as a result of the exercise of their collateral rights.
The most relevant legal steps taken by Repsol include the following: Repsol notified the Argentine state of the controversy resulting from a breach of the agreement for the promotion and protection of investments between Spain and Argentina and its intention to file for international arbitration at the International Center For Settlement of Investment Disputes, ICSID. 2nd, Repsol filed a claim of 3rd, Repsol lodged a class action lawsuit in New York jointly with Texas Jail Corporation for the part of its stake in YPF through ADRs, not subject to expropriation against the Argentine state for breaching its obligation to file a tender offer in the event of gaining control of YPF in accordance with the provisions of Section 728 of YPF's articles of association as approved in 1993, pursuant to the legal regulation on the privatization of YPF. The class action lawsuit also includes the protection of all the ADRs held by the Petersen Group on that date and held in favor of Repsol as a pledge for its loan to the Petersen Group. Those rules were very clear on the procedures to be followed in case an entity wanted to gain control over YPF. These procedures were followed by Repsol during 1999, when we acquired YPF.
The government has failed to comply with the obligation to launch a tender offer to allow the shareholders to decide if they want to remain part of the company with another new shareholder in control, a basic right, which is recognized in similar transactions all over the world. In summary, that has always been open to a negotiated solution to the issues facing in the Argentine energy sector has been forced to take all appropriate legal actions in defense of its rights as an expropriated party, even against those who may attempt to take unfair advantage of an unlawful confiscation. As current shareholder of YPF, Rexel also will require full transparency, professionalism and rigor in the management of a private company that is listed in New York and in Buenos Aires. To finalize our update on YPF, we will explain the accounting of the expropriation. The fact which affects our financial situation is the change of control due to the unlawful taking of YPF's management and assets by the Argentine government.
The accounting is as follows: 1st, the consolidation of which is the write off of the related assets, liability, minority interest and translation differences for an amount of EUR 4,700,000,000 2nd, write off of all the loans related to the Petersen Group, net of the value of the 5.4 percent claim as collateral for an amount of EUR 1,400,000,000. Additionally, we have recognized a provision of an amount of EUR 54,000,000 because of the guarantees granted to Petersen Group. 3rd, registration of YPF shares that remain our property as financial investments for sale at their fair value. For those shares not subject to expropriation, that is 6.4%, fair value has been calculated according to quoted prices in the market. For the 51 stakes subject to expropriation, fair value should be amount the group expects finally and effectively to receive as a result of the expropriation process.
Considering those values criteria, which the relevant bodies and cash resolving the price or compensation related to the expropriation process would reasonably apply. The estimation of the recoverable value entails uncertainty, not only related to the amount, but also to the time and terms of payment. For those reasons, even though Repsol considers that there are sound and clear legal grounds to be compensated with the market value of the shares subject to expropriation determined by the valuation criteria usually applied by the financial community and that the value determined by YPF by law is clear and objective and also consistent with those methods and lead to a value of USD 18,300,000,000 we have chosen a more prudent $14,000,000,000 valuation for the 100% of the company. As a result of this, the 51% of the shares subject to expropriation, EUR 5,300,000,000 plus the EUR 6 €400,000,000 of our current holding has been registered for a total amount of €5,600,000,000 The net effect of the P and L for the above mentioned accounting entries plus a deferred tax effect of EUR 524,000,000 results in an accounting loss of EUR 38,000,000. As explained in our strategic plan presentation, we are considering various actions in order to strengthen our balance sheet.
Let me provide you an update of the implementation of the concrete actions taken so far. First, we have successfully finished the scrip dividend program for the complementary dividend of Remember there that our initial estimates was approximately 50%. 2nd, with respect to the asset disposal program, we have sold our LPG operations in Chile for USD 514,000,000 in July. This transaction, along with the sale of the 5% treasury stock in January 2012, amount to EUR 1,800,000,000 delivered out of the EUR 4,500,000,000 we have announced as an objective for the 5 year duration of the strategic plan. We continue to actively work on the main alternatives to reduce debt and improve the financial ratios and cash position in accordance with our strategic plan and our discussions with the rating agencies.
It's important to point out that both the preference share conversion and the asset disposal process have been handled simultaneously. However, the disposal of the LNG business should not only reduce our debt, but also increase our cash position and will not have a dilutive effect. Therefore, the sale of our LNG business is our first choice. However, we will continue working in parallel with these two alternatives to minimize the risks of not obtaining the required ratio levels. Going into our liquidity position.
At the end of the quarter, we have EUR 2,600,000,000 of and EUR 4,700,000,000 of committed and drawn credit bank lines, covering our short term maturities 4 point We have executed separate share forward and share swap transactions with 3 financial institutions for a total amount of EUR 1,000,000,000 using a 10.4% of our stake in Gas Natural as collateral without any transmission of the shares nor any limitation to our political or economic rights and obtain very competitive terms. This transaction demonstrates our access to the financial markets and allow us to have alternative ways of funding in lieu of the reduction of our EPC outstandings and ensure we keep our liquidity position at a comfortable level in a tough financial financing environment. Let's move now to the results. And as presented on the Q1 results, all numbers exclude YPF and Repsol YPF Gas. During the Q2, CCS adjusted net income was EUR 481,000,000 and CCS adjusted operating income was EUR 936,000,000 These results were 27 percent and 34% higher, respectively, than during the same period last year.
The good results have been driven by the performance of our APSIM and LNG divisions. In the APSIM front, the adjusted operating income was EUR 518,000,000, 77% higher than during the same period last year. The return to pre conflict levels in the Libyan output and the revenues and gas realization price increase, added by the startup of the Margarita project have been the main drivers of the good results, partially offset by the amortization of the unsuccessful exploratory wells, mainly Cuba. In the LNG division, better margins resulted in an adjusted operating income of €78,000,000 47 percent better than during the same period last year. The increase was due to higher commercialization margins.
The results were lower than the previous quarter because of the seasonality effect, mainly in our North American operations. In the Downstream business, the CCS adjusted operating income was EUR 205,000,000, 5% lower than in the Q2 of 2011. The improvement in refining margins and the increase in refined volumes could not offset the decline of the petrochemical product demand and the lower sales volumes of direct retail of the market division. The utilization rate of the refining system was 68% versus 70% in the same period in 2011. The low utilization rates of our units was a consequence of shutdowns due to maintenance in the Portoiano and La Coruna refineries, a catalyst change process in the Tarragona hydrocracker and the revamp of the Petronas refinery base breaker.
Cartagena's new hydrogen and hydrocracker plants also have short shutdowns due to mechanical adjustments. The ban on acquiring Iranian crude caused oil mix and operational changes in our refineries, mainly in Petronor. In Gas Natural, the adjusted operating income of EUR 232,000,000 was 23% higher than during the same period last year. The good results are a consequence of higher margins in the the quarter were EUR 88,000,000 EUR 32,000,000 higher than the same period of last year. The increase is mainly due to the step up in the interest of the preference shares and increase in gross debt due to the bonds issued in December 2011 January 2012.
Let us now move to the operational performance behind the results. Production in the Absinthe division during the quarter was 320,000 barrels of oil equivalent per day, 8% higher than during the Q2 of 2011. The main variations come from Libya, Bolivia and Trinidad and Tobago. In Libya, the production reached 47,000 barrels of oil per day, which we have reached pre conflict plateau levels. In Bolivia, production was 26 1,000 barrels per day, 24% higher than during the same period last year due to the startup of Margarita Phase 1.
In Trinidad and Tobago, we were still affected by maintenance on the offshore platforms and in the Atlantic LNG trains, and production reached 119 barrels of oil equivalent per day, 16% less than during the same period in 2011. Since early July, production is at record levels of 350,000 barrels of oil equivalent per day due to the recovery of Trinidad and Tobago. We expect to materialize other production from Kinteron in Peru, Russia and Mid Continent in the U. S. In the second half of the year.
Let me now review the status of the main development projects. The Margherita field project is running properly. Phase 1 of the gas development project start up in May, increasing in gas delivery up to 9,000,000 cubic meters per day. The second phase is on track to start up in Q4 2013 and reach a capacity of 14,000,000 cubic meters per day in 2014. In Peru, the Quinteroni project carries on as planned, and we expect to reach 1st gas during the last quarter of 2012, with a gross production capacity of 5,000,000 cubic meters per day plus associated liquids.
The Sabinhora project, before Colguarara is going as scheduled. We are currently logging the PS3 P3S well and drilling 2 producing wells, P4 and P5. The installation of the Huaratu pit gas pipeline is progressing, and we expect to receive via PCO in December. In the Lavinia Montanato project in Spain, we are working on the subsea equipment installation and the hookup to the Casablanca platform, which is better to start production in October. Now let us review the status of the main exploratory activity.
Unfortunately, our well in Cuba was dry, and we will not undertake any more activity in the area. We had to suspend operations in the Jaguar well in Guyen before reaching the main objective because the pressure design limits for safe operations prevented further drilling due to the high pressures encountered considered the depth we have reached. Sample supplied oil were recovered from sands above the primary objective, which is encouraging. We'll be evaluating the information of the well, both for the aforementioned presence of oil in some horizons and the knowledge we acquire about the pressure ramps in order to consider further exploratory work. We are currently in operations in another 4 wells: Magadi 1 in the Spiritu Santo 21st Block in Brazil, Sararendo in Bolivia and Sagari in Block 57 in Peru and just spud a new non operated well in Norway.
We are working on testing of Sagari due to the positive indications we have. We have been especially active during this quarter in seismic campaigns. We finished campaigns in Indonesia, Portugal and Alaska and start campaigns in Angola, Canada and Iraq. We are including in our acreage acquisition, pending final ratification, 2 new important areas: Namibia and Bulgaria. In Namibia, we have acquired a 44 percent working interest in Blocks 1910A, 1911A from Arcadia Petroleum.
In Bulgaria, we were awarded exploratory rides in the Canas Peru block in the Black Sea, along with our partners Total and OMB. We have also been highest bidders in 5 additional blocks in the Gulf of Mexico. These blocks are the result of a very selective bidding to balance the current tax rate we hold. We are also waiting for a notification from authorities in our entry into the Benicia block in the Portuguese Atlantic deepwater offshore and also the award of offshore in Block 23B in Trinidad and Tobago. As for the remainder of the year, we expect to finish around 12 wells, 7 new wells to be testing 2 additional wells in Brazil and 3 wells will be slipping into 2013.
The total number of wells drilled in 20 12 will reach 22. On the LNG front, Peru LNG produced 575,000,000 Btu per day, 2% more than during the same period last year. The plant delivered during the quarter 3 out of 15 cargoes to the Manzanillo plant in Mexico. In Trinidad and Tobago, deliveries were affected by maintenance on the upstream platforms and on the Train 34. Production was 10% lower than during the same period last year.
We have successfully started our delivery of projects for this year, and we are delivering on the actions we had outlined on our strategic plan as essentially to fortify our balance sheet. We have had robust results with Absint being a solid pillar of the new stage of the company, I'll now be pleased to answer any questions you may wish to put forward.
Ladies and gentlemen, the Q and A
it. It. It. It.
Okay. We will start the Q and A system. There are some number some names that are not I will start first with Morgan Steinbeck. It's Haytham. Haytham, please go ahead with your question.
Thank you, Mavi. Good afternoon, everyone. Haytham Rashid from Morgan Stanley. Three quick questions, if I may. Firstly, just to come back on the financing plan and the sort of fuel approach to LNG assets plus the preference shares.
I just wondered if you could provide any update on particularly on the preference share sort of transaction, any sort of in terms of the timing, is it still sort of planned for some time in sort of late 3Q, early 4Q? Any sort of hurdles that need to be overcome before we get to that stage? Secondly, just sort of related to that, I guess, on the LNG business, given the sort of indication around the sort of preference for a sale there. Given previously the comments about the synergies between Gas Nat and LNG, has your view around Gas Nat changed at all since we last spoke? And would you be sort of more willing to do something around that, around your stake there now given the sort of potential sale on the LNG side?
My third question is just on the downstream environment, just to get your view on the outlook for the second half of this year and specifically as well how the upgrade impact is coming through on the numbers and where you are in relation sort of the $2 to $3 positive impact from the Karteen and Bilbao upgrades? Thank you.
Hi, Faison. Well, in relation with the first one, I mean, all the measures we presented to the agencies and to the market, we have to handle those in parallel. I think it's important to realize those that has already been conclude, the script with better result than expected, the gain of liquidity through the prepaid forward, also the shale of the Chilean LPG. And the rest, we will move them in parallel. So it's difficult to assess any detail about the preference and the conversion and whether it would be conversion or not because we have to consider this quite cautiously.
So I will have to see how the LNG process go on and then take decisions about the prefs. We will keep advancing. And in that sense, we have the authorization of the Board to keep moving with the preference shares. The final decision and end of the process, it's linked to the LNG process. So difficult to assess now any detail about the conversion of the prefs.
In relation with the second one, I would say that before analyzing gas natural, let's see if we are able to sell the LNG. So for sure, it will imply many things, but let's go step by step. And we'll have to think about our situations if the LNG sale goes ahead. Finally, my outlook for the refining in Europe has not modified substantially. I think that Europe is long in approximately 3,000,000 barrels of distillation capacity.
So I'm basically bearish about the area in the following months till the year end. I think that the solution will never come by the demand. So some of this distillation capacity has to be, I would say, converted into logistic terminals for shutdown. Having said so, in relation with Spain, first, the data we have for the quarter is $1 per barrel, which is below, 1st, the range we provide the market, which was between 23, and it was a little lower than in the Q1. The reasons for that is, I would say, it's basically that during April May, the beef breaker in Bilbao has been revamped.
So the coker in Bilbao has not worked at his efficiency or to his limit. With the revamping situation and the existing situation right now is that we are improving this $1 per barrel. Approximately, today, we are at 1.6 dollars 1.7 dollars above so improving. And I would say that in the 2nd part of the year, in equal conditions, we will improve the results in our refining division. Basically, you have to think that it's not easy to adapt a refinery as Cartagena that was pure hydro skimming into one of the more complex refineries in Europe, 1st step.
2nd, in relation with Bilbao, a part of the issue of the beef breaker, you have to think that the change in the diet in the diet, closing the Iranian oils and moving into other type of oils, which are needing more hydrogen between many other things, people need to adapt and need to know better the behavior of this new diet we're imposing. So I think that by the year end, we will be able to reach the range between these $2 $3 Did I answer you, Hayton?
Great. Yes, that's very helpful.
Thank you.
Thank you, Hayton. We have the
next question from BPI,
Bruno Silva. Bruno, good afternoon.
Hello, good afternoon, everyone. Thank you for taking my questions. I would start with today's news, if you don't mind, on Peru, if you could add more color on the alleged claim from Peru regarding the sale of liquids or gas in the U. S, I guess, and the potential cancellation of any sort of license you may have in the basin. I'm not entirely sure what were the details of that news.
And the second going back as a follow-up on the conversion sensitivity
to
share regarding those investors in the pref shares. Sensitivity to share regarding those investors in the pref shares regarding what would be the acceptable conditions to convert in terms of potential common shares? And the final question, if I may, is regarding downstream. And you have been repeatedly booking resilient margins in the marketing unit in the context of very aggressive demand fall and most likely competition should be increasing from your peers in Iberia. Just wonder how far you can go and what are you exactly doing to sustain this kind of margins?
And if you can give us any sort of number target number for the full year, I would appreciate. Thank you very much.
Okay. Thanks for the questions, Birong. In relation with the first one, I think it's a M and A score. I mean, it's a minimum issue. I mean, we are talking totally, I think, about $15,000,000 or something like that from which our portion is a 10%.
So I think that the issue to point out or give you some color, it's approximately $1,000,000 So I mean, no big deal. In relation with the preference and conditions, I think that every shareholder or every investor for sure is concerned about the illusion. And that's the reason why we have to check first how the LNG business is going to evolve and which will be the impact because I think that the LNG under the agency's concept implies a debt of EUR 4,000,000,000. So it will have a massive impact on the considerations of the agencies. So I cannot go any forward because first, we have to check the evolution of the LNG parallel because one thing is important, I mean, what we consider totally necessary is to keep the investment grade.
So we will see. We will see, but I cannot be more clear, okay?
Sure. If you don't mind, a very quick follow-up on that one. You had commented in the strategic presentation a potential evolution over the coming years related with both the scrip and the pref shares? And regarding with that, are you changing did your sensitivity on the potential evolution change since then?
I mean, dilution, it's always a great concept because we can talk about dilution in number of shares, dilution in BPA and BPS profit per share. So it's not that clear. When Antonio gave the figure, it was a figure. It's not that we are modifying anything. I mean, it also depends on which is the value of the share at a given moment.
So there are many factors. And to me, the important thing is that till now and you have seen it in all the acts we have been going on in trying to extend the balance is that we have been rational and we have tried to do their job properly in order to maintain the investment grade and we will continue to do so. So let's analyze first how the LNG goes. In parallel, let's keep working to have everything ready. If a conversion or if a optionality is to be given to the tenants of the preference shares and we will see afterwards.
But I cannot advance any more than that. I mean, we are working in both areas and we will see at the end which is the best for our shareholders and for the company. And finally, in relation with the marketing margins, I mean, the we keep our keep our market quota and we keep good margins. So I don't see this type of pressure. I think that the margins in Spain are not that big.
We are talking 0.2.6 dollars of euro per liter. And I expect to the area to behave quite similar to the results they obtained last year. So I keep thinking that the resilience of our marketing is enormous and the results are there, okay?
Okay. Thank you very much.
We have next question from Brancos Filittosanto with Filipe Rosa. Filipe, please go ahead with your questions.
Hi, good afternoon, everyone. Two questions, if I may. The first one on going back to the refining business. I was just wondering that there has been a huge improvement in the refining margin reported by Epsol. Year on year, it came from $2.1 to 4 $700 quarter on quarter from $3 to $4.7 However, the uplift in terms of EBIT has been quite limited.
I believe that your guidance is still for each one additional dollar to add roughly $100,000,000 to EBIT, but this has been quite disappointing in terms of the past few quarters. Could you explain what is happening and whether this could be solved in the near future? And the second question relates to the exploration activity. You have significantly scaled down your exploration plans for this year. I believe that you planned to drill around 30 wells in the beginning of the year.
Now you're talking about 2022, I believe. So what have been the main drivers for such a significant delay? Thank you very much.
You have to consider in the EBIT, the impact of the stock. I mean, during the quarter, it was EUR 3 50,000,000 of impact in the inventory losses in comparison with last year. The second point is that we calculate the index based on the maintenance throughout the year. And within this quarter, we have full maintenance for La Colonia and for Puertoiano. So basically, the semester has suffered the whole maintenance for the whole year.
And I think that this is what really explains the variance. Also, keep in mind that in comparison with last year, we have an extra depreciation due to the new facilities Cartagena and Bilbao. And I think that if you combine the three factors, the inventories, the increasing depreciation and the fact that we have the maintenance within this quarter, while in the index is considered all throughout the year, you get the point. And in relation with the number of wells that we're going to drill, there has been delays and the most of it has been, 1st, in prospect that we are not the operators as vaccine, which modifies from December to January. So it's not big delay though in the headcount for the year makes a number.
And also it's important to note that within this study, there were 8 wells to be drilled in Libya that we have reduced the figure to 2 wells and delayed the process till 2013. So basically, it's Libya, plus some delays of months. So no major I mean, no change in our business model.
Thank you very much.
Thank you, Felipe.
Thank you, Felipe. We have next question from Nomura
Miguel, just coming back to the LNG business. I just want to understand in terms of the sale process, would you consider a piecemeal sale within the LNG business? And could you just remind us what where some of that off balance sheet debt lies between the assets? Then secondly, on production, could you perhaps give us any guidance on what you think the exit rate on production maybe for 2012? And then lastly, just on Jaguar, I assume you may write off the cost of that well in the coming quarters.
If that's right, could you tell us what you may write off?
Good morning, Thipan. In relation with the LNG, our idea is to sell it as a walk. I mean, we're not one share repicking, so it would be a single transaction, at least initially. And in relation with where is the off balance debt, it basically refers to all the leases that the rating agencies consider it as debt. Basically, we are talking about of 14 tankers and all the pipelines across the U.
S. And Canada, which accounts for EUR 3,000,000,000. So basically, the debt we have, it's EUR 1,000,000,000 in our balance sheet and the agencies account the debt for EUR 4,000,000,000 just to the fact that I mentioned. If I have today to give you an idea for the year production, and I'm always wrong with my projections, but I think that if you take 330,000 barrels per day on a yearly yard work, the yard work well was finished in July and would be accrued or write it off in the Q3 of this year. And we still have to analyze all the information of the well to look for to drill another one.
Also, having said something that the impact on our P and L is not going to be that big, but our stake there is a 15%. Okay?
Okay, perfect. And I mean coming back
to the LNG business, I know it's early days, but have you had can you indicate any level of interest in that that you've had so far in that business?
I can tell you that we have a strong team in our side with the Goldman's, Boston Consulting Group, Linklater's. We have also, I think, it's Deloitte or KPMG. So we have all the group working, and we have already received interest from more than 10 companies. So we will see how it evolves. But our idea is, as mentioned, to move it fast in order to have more possibilities to in front of the agencies, see whether or not we need to go for extra measures as the one we mentioned in our strategic plan.
Thanks, Stephen. Thank you.
We have the next question from Barclays with Lydia Brainfolds. Lydia, please go ahead.
Thanks and good afternoon, Miguel. A couple of questions, if I could. First one, just on the working capital side. And clearly, it was quite a good release of working capital from the quarter. Can you just talk about how you expect that to move for the rest of the year?
And then secondly, if I come back to the LNG and the preference shares issue, clearly selling the LNG was not part of the original plan from the strategic side. And I just want to understand, is there a maximum level of dilution that you would look at to being acceptable for issuing the preference shares? And the other bit we haven't talked about is the sale of the treasury shares and where you currently stand on that issue as well? Thank you.
Thanks, Lydia. In relation with and congratulations for your promotion, okay? Thank you. Well, first one, Reason for that, basically, 100,000,000. Reason for that, basically, the price of the oil.
So my estimate is that by the year end, in equal terms from the beginning of the year, we should be reducing our working capital between EUR 200,000,000 EUR 300,000,000. In relation with the LNG and the prefs, no, we don't have a magic figure. I mean, we have to keep working, advancing first the LNG process to see where we are, and then we will take the decision. One thing is clear, we have to keep the investment grade. And we will look at the first, at the results of the LNG.
And if necessary, we'll go preferred shares. So we keep with both process in parallel, and we will see. I mean, in today's financial markets and in today's I mean, volatility is the name of the game. So it's quite difficult to assess what is going to happen in 2 weeks. So we will keep working on the LNG, and then we will take our decisions.
This is what I can tell you. And final question was can you repeat it, Livia?
Yes, just around the treasury shares.
Yes, the treasury yes, yes, yes, sorry. To me, the treasury shares somehow would be the last bullet to keep the investment grade. I mean, I think that it would be a very bad signal to the market if we saw our shares at this price, which in my perception are ridiculous.
Thank you very much, Miguel. Thank you, Olivia. We have next question from Citi with Alistair Syme.
At the risk of laboring the same point, just on the LNG, can I just clarify whether this is an eitheror with the preference shares? Or would there be a scenario where you might consider doing the both? And I know you've talked in the past about trying to provide some liquidity to preference shareholders. Secondly, can I just ask, I know it's not your company, but what your thoughts are on the SIFIA situation given that you have participated in that in the past? And thirdly, just to clarify on the Peru LNG cargoes that you send away, where is the tax liability paid on those arbitrage cargoes?
Is it paid in Peru? Or is it paid by corporate reps or somewhere else?
Thank you. Thanks, Alistair. I mean, in relation with the LNG, I mean, the priority is to keep the investment grade. We are going to move faster with the LNG and in parallel with the pref shares. If the LNG give us enough room to working with the agencies, find a status in which the investment grade does and is not in danger, then we will look for a solution for the preference shares totally different from capital.
I mean, there are other formulas that can solve the situation of liquidity of the preference shares not being capital. But having said so, I need first to know how the LNG process is going ahead. So I will solve both issues. But once, I mean, I need a variable to be solved, which is how the LNG and how the agencies will analyze the company once the LNG is sold. Also, I think it's important to mention, when we talk about LNG, we are not talking about the upstream assets linked to the LNG, okay?
So basically, first step, let's see how the LNG works. Then let's solve the problem of the preference shares. If the rating agencies give us comfort and we know that we can keep the investment grade, Then, I mean, there are formulas to provide liquidity to the tenants of the preference shares not affecting the capital, let's say, hybrids or many other options. But I cannot give you more flavor today because first, I need to know how the agencies will react once we move into the LNG process. In relation with Satyr, well, not much to I mean, I don't have anything to say on that.
And finally, in Peru, basically, the royalties are logically paid in Peru, and those royalties are dependent on the price that the LNG reaches, basically depending on their destination, whether it's Europe, U. S. Or Far East. So it's an issue of royalties. And as mentioned in I think it was to Bruno, I think that the major impact for us would be around $1,000,000 or something like that.
Okay? Yes. Thank you very much.
Thank you, Alastair. We have the next question, Marc Blumfield from Deutsche Bank. Marc, please go ahead with your question.
Good afternoon. Thanks for taking my question. Yes, I'm sorry to return to the LNG business, but just a quick question on timing. You've indicated that you'd like to do the preference redemption in October, all other things being equal, of course. Assuming you've not completed the LNG sale by that point in time, but you're fairly confident of doing so hypothetically in the next 2 to 3 months, Have you had conversations with rating agencies about potentially deferring the conversion of press to say later this year going into next year.
So would they give you a period of growth to do so? The second question is just on your divestments target. You obviously outlined a target as part of the strategic plan. You've talked about looking at the LNG assets. You've obviously sold the LPG assets in Chile.
Are there any additional assets that you're looking at selling? And if so, could you perhaps give us some sense of scale and timing? And then final question is just on CapEx. I think year to date CapEx is coming in at around €1,500,000,000 pre gas nat. The full year target was around €4,000,000,000 Rum rate looks a bit light.
Could you give us some indication of whether the €4,000,000,000 target is still valid? Or have you been able to make some savings on the CapEx front? Thanks.
In relation with the first one, I'll say that we are in permanent contact with the agency. So with one of them, for example, we have already talked about this issue. And I think that time is there. I think what is important for the agencies is to see the direction in which we are moving. And in that sense, I would say that at least the last meeting we had, I ended it up quite optimistic.
Basically, the script was there. The initial divestments was there. We gained liquidity. So basically, it's not a fixed date. I think that if by September, we'll have a lot of flavor about how the LNG process will go and then we will sit with the agencies.
I mean and once we speak with them, we would realize whether or not we have to move in one direction There would There would be small and non significant ones, but not any major ones before the year end. And finally, with the CapEx, I don't know how it happened, but it's always more loaded in the 2nd part of the year. Without Gas Nat, our estimate was €3,500,000,000 and we are right now at €1,500,000,000 So we are €200,000,000 below, which is not much. So I think we will end it up in the figure we gave as indication for the whole year, which is $3,500,000,000 without Gas NAT or $4,000,000,000 with cash. Okay, Mark.
Perfect. Thank you.
Thank you, Mark. We have now Peter Hatton from Royal Bank of Canada. Peter, please go ahead with your questions.
Good afternoon, everybody. Miguel, you
must be wondering how many questions you're going to get on LNG and the press. So I've got one more and then on to development and exploration. So it's not just this focus. But there was one area that Heikkin asked about. You've been very clear about the running of these elements in parallel.
But you mentioned that the selling of the treasury shares would be the last bullet. I have not really mentioned about holding in Gasnap. Would that be
a medium bullet in between?
Or is that no bullet at the moment when you've if there's any delay on LNG? The second question is just a little bit more on the timing that you mentioned on Sapinola. I think you said that you were drilling wells 45. Just what the lead time on that is? And when those start to connect in line with the FPSO fully starting up on 1st oil next year?
And the third one, Namibia and the action plan now that you have the 3 blocks of 44 percent offshore Namibia. Where do you go from here? And what's the kind of indication on when you'd assess drilling well locations and access to rigs?
Okay. This will be small people. I don't know if I have more bullets or not. But my perception is that, and I think it's important, it's always something that we always transmit to the rating agencies. I mean, we have a lot of optionality, a lot of them, both to gain liquidity and to improve the balance.
And we have to pay those in what we think is the best for our shareholders. So if at a given moment, it's necessary to put gas natural on the table. We will have to we will analyze it as any other optionality. It's not in the plan today. In the plan today, we have LNG and the preps.
But the rating is what really concern us. And in relation with Sabinehua, I think that the number 4 would SP number 4 and 5 will Mid year because I'm promising the road. Will be mid year, broad mid year within, I would say, 3 months. Within 3 months, they would be there. It's also important to mention that the last development well we drill was drilling 43 days, which has been the best performance to total depth so far in the pre sell centers.
And in relation with Namibia still in early stages, So before 2014, we shouldn't expect any news from Namibia. It will be more internal works, SMIC and the optical work. So in 2014, Namibia would be out on the bridge. Okay?
Perfect.
Thank you, Peter, for your questions. We now have from UBS, Daniel Epstein. Daniel, good morning, and please go ahead for your questions.
Thanks, Mavi. Good morning, everyone. A couple of questions. Firstly, on the credit rating. And it's a question on how seriously you perceive the risk that you could or your rating could be affected based on the position of the Spanish sovereign in the near term.
I know one of the agencies recently downgraded your outlook based not on the company specific issues, but on sovereign issues. So I guess the question would be in the near term, is your fate entirely in your hands, do you think? Could you elaborate on the dialogue you've had there? And secondly, on refining, just to get a bit more detail. I mean, this was clearly not a ratable quarter in refining due to the heavy maintenance activities that were going on.
Could you tell us how costs in this quarter for refining, either on a per barrel basis or an absolute number, would compare to a more normal quarter without the maintenance and with high utilization?
In relation with the first one, we will see. I mean, for sure, we're in Spain, and we would be partially affected, if not totally affected. But we will have to see. I mean, what we can do is try our best, to strengthen balance to the limit. And at the end, we have part of our activity, an important one, which is outside Spain, first point.
2nd, our liquidity position is quite strong. 3rd, I would say that our relation with the banks is quite reduced. Only approximately an 18% of our debt is with banks. So even if the banking system is affected, it would only affect us partially. And we have basically this relation with the banks outside of Spain.
So we'll have to see and see how the agencies react. But I mean, we are trying to do our best to strengthen the balance. We started last year, which I think is an important issue. I mean, remember that we issued bonds in December last year and in January, one of them was $750,000,000 the other $850,000,000 and we tapped also for approximately 250,000,000 in the 2019 bond. So we are preparing, and I think it's a mission of the financial area to prepare the company for the worst and then let's see what happens.
And this is what we are doing. I cannot predict what is going to happen with the rate of kingdom of Spain, but at least we have to do our best even getting ready for the worst situation. In relation with the refining, two factors to be mentioned. The first one, I would say that maintenance costs were approximately EUR 40,000,000, which is also, we consider that we our distillation capacity has been working at 68% in comparison with right now, for example, that we are at 80%, you will have all the data. Let's put it the other way around, if you want.
Basically, in a normal year, we should produce or test delayed approximately 280,000,000 barrels, which is 70,000,000 barrels per quarter. So on average, this maintenance represents roughly 0 point 50 dollars As we have been distillating only 60%, this will account for a little more, let's say, 0.75 dollars 0.80 dollars of dollar per bottle. Okay, Daniel?
Was it EUR 30,000,000 you said for the cost?
EUR 30,000,000. Thank you.
Thank you, Daniel. We have next question from Stanford Bernstein, Jan Pyle. Jan, please go ahead with your
Good afternoon. Yes, thanks for taking the questions. I think most of my questions have been answered, but perhaps on the gas realizations, given that the gas realization has moved up this quarter, I wonder if you could give some more detail on the realization you're seeing from Margarita. And secondly, I wonder if you can comment on the progress with the shale assets you're developing with Sandridge in the U. S.
And particularly given the low realizations we're seeing in the States at the moment, whether that has any effect on the future development plans for that? Thank you.
In relation with the first one, basically Margarita, to make a thumb rule, account for a 10% of the brand price, and you will be quite close. So as we reach plateau by the end of May, I think it was 27, I think that in the following quarters, you will see an extra increase in the gas realization prices once Margarita produces for the whole quarter. So good news there. And in relation with the shale assets, the impact would be minimum this year. I think that by the year end, on average, we would be approximately around 2,000 barrels of oil equivalent per day with 47% of it being oil.
So no major impact right now. We keep drilling. We have right now 22 rigs operating, and we keep confident that the price we have there is going to be a good one, and we expect to end up with more than 90 rigs and obtaining the peak of production by 2019, 2020. So right now, no more news there and for sure no impact at all within this year. Okay, Ian?
Great. Thank you.
Thank you, Ian. We have now next question from Tudor Pickering, Shola Incourt. Shola, good afternoon.
Hello, good afternoon. I had a few questions, please. I'll start with exploration. Could you just talk a little bit about Syria alone and Namibia and what your forward plans are for the region given the recent well results? And then could you talk a little bit about what you plan to do in terms of drilling activity and exploration activity in Bulgaria?
That's on exploration. On refining, I just wanted to premium that you achieved to Brent on a per barrel basis for the quarter?
Starting with the exploration, I mean, we just entered. I mean, we even in I think it's in Bulgaria, we have not received the confirmation of the award. We know the award, but so basically, it would be to start seeing any other parts. I mean, seismic works and there wouldn't be any new still 2014, 2015 at the best. And in the OpEx per barrel, I don't have the figure with me.
I don't work with in balancing with OpEx sorry, in refining with OpEx per barrel, but you will receive the data through our INR people, okay?
And then on Sierra Leone, Liberia?
Sierra Leone, Liberia, I mean, we have the disappointment of Mercury 2, and our people are analyzing the and studying back all the registers we get from the wells, both Mercury 1, Mercury 2 plus Jupiter. And they're studying it. So I don't have any X-ray input to provide you, okay?
Okay. Thank you.
We have next question, Mark Hoefler from Macquarie.
Hi, there, everyone. Just two very quick questions, please. Given the moving parts around the exploration
activity for this year. I was
just wondering if there's any material updates in terms of the total exploration budget for this year. And then also given of
the that exploration activity previously penciled in
for this year is moving into next. I was just wanted to clarify if you're still comfortable with around that sort of €1,000,000,000 spend on exploration next year. And then just secondly, just very quickly, I think there was some downtime at Shenzhen during the Q3. I was just wondering if you're able to quantify that.
Thanks. Well, in relation with the exploration program, no major changes. And you think that the Libyan wells are really cheap. We are talking there 2,000,000, 3,000,000 up to 5,000,000 at the maximum per well, so no impact there. And also those that are delayed, as mentioned before, with vaccine, are delayed from December to January.
So within December, there was no more any extra charge. So basically no change in the budget. And in relation Genfi, I think that our net loss was something as 1,000 barrels per day during 4 days or something like that. So it was totally minor, the impact of the hurricane, okay?
Okay. That's great. Thanks so much.
Thank you, Mark. We have now Thomas Alor from Credit Suisse. Thomas, good morning.
Good
morning. Thanks for taking my questions. Three sets of questions, please. First, on the transaction you did recently visavis your GAFNUT stake and obviously some other derivatives in stating that you kind of hedged out the gas nut share price risk. Can you confirm that this is completely fully hedged out, so there's no risks to, let's say, if gas nut share prices fall?
That's the first one. The second one is on refining. Obviously, you just said utilization rates gone up to 80%. But in view of the longer term outlook for European demand and capacity being added elsewhere in the world, It's kind of fair to assume that utilization rates in Europe will never really go up. If anything, they will continue to decline.
Have you thought about any sort of closures of certain CDU units in one of your refineries like Total that was gone for Gil or Exxon was the Forli refinery. Is that something you would consider doing? And then just finally, just I mean on Argentina, I guess, obviously, you had the YPF bylaws. Argentina is ignoring that. I was wondering whether you actually had any other insurances in place like the Lloyd's political risk insurance?
And then also following on the recent comments by President Chavez pushing Repsol for a friendly agreement with Argentina. Can you kind of update us on whether you've had any negotiations or any discussions or approaches with the Argentinian government? Thank you very much.
No. Well, starting by the last part, no. We didn't have any contact from the Argentine authorities. And also one of our concern is refers to all the information that the company basically is not providing to the market. We think that they would I mean, they're with holding information.
Having said so, and in that, I can include some of the discoveries we have to read in the press, as Jorge Hano and the 129, which were discovered several months ago. I think that, Chadev's comment, we agree with it. I mean, we would be really happy to really close a page. I mean, we have been able to negotiate with many governments. I mean, we have we did so in Bolivia, we did so in Ecuador, we did it in Libya, we did it in the main Venezuela.
So I think that Repsol attitude has been totally open to any negotiation process. And I think it's a good idea that what Chavez is mentioning. But still, we receive this possibility, we have to keep moving in order to protect our shareholders. So and that's it. In relation with Gas Naturale, yes, it's fully hedged, fully hedged.
And finally, in relation with refining, as I mentioned, I agree with you that the improvement of refining in Europe is not going to come by the demand side. But we are not seeing any closing at all. I mean, what we did in the past and we finished last year was to put all our refining system in the 1st quartile. So even if we have low margins, the rest I mean, our peers in Europe will be losing a fortune. So to me, the final picture is closings are needed.
I know that in some countries, the social impact is important, but at the end, especially those that are not, I would say, big companies, will not stand for long. Look at Petrobras last year, we'll see a lot of this. There is a lot of small refineries in Europe not interpreted with low conversion that are going to be the first victims. I mean, they will become logistics terminals shorter than later. And till then, I mean, at least we know that we will be in the top quartile line obtaining positive results and positive cash.
But I agree with you in your general view of refining in Europe. Did I answer you everything?
Yes, thanks. If I can just
have a quick follow-up on if you can remind us on the maturity of your committed undrawn credit facility? I think you mentioned it was EUR 4,500,000,000 or so. If you can update us on the maturity. Thank you.
In the maturity, we only have short term approximately €1,000,000,000 The rest, which is 4 $27,000,000 I mean, dollars 3.7 plus 1,000,000 the other $3,700,000,000 are long term, okay?
Okay. Thank you very much.
Thank you, Thomas. We now have from Goldman Sachs, Henri Morris. Henri Morris. Henri, please go ahead with your questions.
Hi, everyone, and thanks very much, Miguel, for taking my questions. I just got three quick questions, please. First of all, in your discussions with the rating agencies, what's the most important metric that they want you to meet in order to maintain your investment grade rating? Secondly, can I just confirm what you said earlier on the call that the total debt that you consolidate from the LNG business is €1,000,000,000 of straight net debt plus €3,000,000,000 of finance leases? And thirdly, just on Kintaroni, I know it's still up in the Q4 of this year.
Should I assume that's towards the beginning of the quarter or the end of the quarter for division.
They put on a division. They put on top of it, the cash flow you generate and but the cash flow with their considerations. I mean, it's not the cash flow we normally use. And as a dividend I'm sorry, and they divide that by a debt. I mean that debt is not the debt we are used to, it's also a type of debt they consider.
So in their metrics, and with that, I will answer the second question. They consider the leases and they calculate the present value of these leases and consider it as debt today. So in that sense, our LNG divisions has approximately EUR 1,000,000,000 in debt. And with the considerations of the agencies, they consider EUR 4,000,000,000. And the difference, these EUR 3,000,000,000 are due to the leases, basically the tankers and the pipelines in Canada and in the U.
S. Okay? And finally, in relation with Quinteroni, it would be 4th quarter. If I have to bet, I'll go by the end of November.
Great. Thanks very much. And sorry, just to follow-up quickly on the LNG. Is it then your impression from the ratings agency that if you were to sell this entire business, I mean, obviously, it depends on the price you get, but that would be enough to maintain the investment grade and you therefore wouldn't need to convert the preference shares?
I mean, it's something we have to reach. We haven't we don't know yet which is going to be the proceeds we are going to make. But I think that the perspective from the rating agencies would be by far more positive if we are able to sell the LNG. I think that the equation they put and I'm talking just by mind, but probably the EBITDA we have in that division is approximately €600,000,000,000 And if you divide that by the €4,000,000,000 they are considering as that you realize that the ratio is quite below what the agencies are investment grade. So my perception is that it would be, I'll say, an important step to keep the investment grade.
That's great. Thanks very much.
Thank you
very much, Henry, for your questions. We have now from Stockton Irene Himona. Please go ahead.
Good afternoon. I had two questions, please. So first of all, going back to YPF, you're carrying €5,600,000,000 as the net book value. Clearly the credit agencies would assume that is 0. You've already written off the Petersen Group loans.
I mean, do you anticipate a time when you might take a write off on that YPF value? And related to that, is there any time frame for when you may change accounting on Gas Naturale away from consolidation to equity accounting? Am I at length. But do you perceive that as far as the credit agencies are concerned, there is some sort of, let's say, time limits whereby you have to achieve certain financial milestones by year end or by a specific date? Or is it purely the direction of, for example, asset disposals that as long as you're progressing on that route, they're happy to see that continue?
Is there a time limit on the metrics? Thank you.
In relation with the YPF accounting talking, there would be a change once the financial I mean, right now, we have a financial asset there. At a given moment, once the negotiation started, and we have sent a letter to the Argentine authorities to start conversation with no answer till the moment, once the Argentine government establish a price, that would be the moment in which our valuation will have to be modified from a financial investor investment into an account receivable. Even if we ask for more, at that moment, we'll have to account the 51% for the proposal of the Argentina. So at that moment, the account will change either in one direction or the other. I mean, we should assume a write off or a net gain.
But the moment would be that in which the Argentine authorities offers a compensation. In relation, with the time frame to account for Gas Naturale, legally, it would be 20 14. One idea we are thinking of is to work on the pro form a to start giving you some flavor. But legally, it would be January 2014. And in relation with the last one, there is no date or I mean, with the rating agencies, basically what they want is a clear direction from the company and delivery.
And I think that right now, till now, both are in the good pace. But there's no fixed date. I mean, it's more direction. And what we do is to keep firmly in contact with them to let them know how we are moving and where we are taking the decisions we are taking. Okay, Irene?
Thank you, Miguel.
You're welcome.
We have next question from Morgan Stanley from the CREATE Research Department, Savi Shatekri. Savi, please go ahead with your questions.
Hi, thanks for taking my question. I promise I'll not ask you anything on LNG. I have two questions now. On your downstream business, what do you think can be a good approximation of your operating income want to end by end of this year, like assuming maybe $19,95 a bit depressed oil price. So what can be the operating income guidance you can have at the end of 2012?
And second, on the SASAIA shares, the 5 percent you have, would you consider anything on the strategic facing it within a strategic buyer? Maybe not because if you come to the markets now or maybe 3 or 4 months, your stock price is too depressed and you can't really catch €1,300,000,000 So do you want to place it with a strategy buyer? And thirdly and most importantly, if your ratings are downgraded to non investment grade with no fault of your own, like for example, if Spain goes to BA3BB- Repsol may have to come down to non investment grade. Will you still stick to this plan or this do you do you think this plan will still hold asset sales or conversion, etcetera, etcetera, in case if it's downgraded beyond your control? Thanks.
In relation with the downstream at current cost of supply, I will say it will be around 1 €100,000,000 This is my estimate today. In relation with the preference shares, as mentioned, is the last bullet. So we still have a lot of room to work with other ideas sorry, treasury stocks, sorry. We it's our last bullet and we still have a lot of things to work on before taking care of those. So we haven't had a specific new shareholder already decide.
I mean, it will be the last bullet and the last area to work in. And final question? Yes, the investment grade. I mean, at least what we're as you know, we can be 2 notches any company can be as far as 2 notches above their country based on how dependent it's his financials, his bank and his business from the country in which he is working. So I think that if we follow the divestment plan we are in, we have very good possibilities that even in the case of the loss of the investment grade of the kingdom of Spain would be public.
We have to keep working and be our best, but I mean, we will see. It's difficult to make that guesses. What I can tell you is that we are putting everything on the table to guarantee the investment grade even in the worst scenario. Okay, thank you. Okay, Shavi.
Thank you so much. Thank you.
Thank you, Xavi. We now have from Santander, Jason Kenney. Jason, please go ahead.
Hi, there. Firstly, just a small request, if I may. I was wondering if it's possible to put the breakdown by turnover back into the quarterly results release. Certainly, it'd be helpful for my modeling. Secondly, a question.
Can you give me the timing of a return to the Guyana well? Sorry if you did mention that earlier, but I did have an interruption in the call. So when you expect to start redrilling back in Guyana? And then going back to LNG, maybe a slightly different angle. In the May 29 presentation, you showed a consensus similar to parts detail for the LNG business at €2,700,000,000 at the end of 2011 €2,400,000,000 at the end of May 2012.
I'm just wondering your view on either of those numbers, which both look particularly low in certainly my estimations.
In relation with the break, Mavi will give you a call and we will say sorry if you don't like the breakdown. The second one, it's going to depend much in the conversations with the Guyana government, which is what we are involved right now. So it's still way too early to tell you anything, but we expect to have the possibility to be working short term in the second well. And in relation with the third one, I mean, those are your estimates, 2.7%, 2.4%. We will see.
I mean, we will see there at least 10 different companies which are in the process. And normally, I don't like to advance the result of what third parties are going to put on the table. Okay? Okay. Many thanks.
Thank you, Jason. We now have from BBVA, Luiz de Toledo with Brancaber.
Good afternoon, Miguel. Most of my questions have been answered. Maybe final one regarding tax rate. What are the reasons behind the guidance increased to 40 4% if they are related to recent transactions or is a level we can consider reasonable going forward?
44 is the one we expect for the whole year in the existing conditions and the shift from last year is basically dependent on the upstream division and especially due to Libya. Okay, Luis?
Okay, perfect. Thanks. Thank you, Luis. We have last question from Merrill Lynch with Huttam. Huttam?
Good afternoon, guys. Two questions. One going back to the credit rating and obviously if we did see the sovereign getting downgraded beyond your control and you were then downgraded to junk status, would you consider playing with your domicile? Is that something the management has talked about? And also coming back to YPF, with regards to the comments that we saw the President of Venezuela make regarding how you deal with the Argentine government will have direct implications on your assets in Venezuela.
Has that changed the way that you're approaching the Argentine situation at all? Are you going to completely ignore those comments? Thank you.
Well, in relation with the first one, we are not going to modify our headquarters. So we will keep it in Madrid, okay? And we will see what happens. But we are working and working heavily to have the most chances to keep the investment grade. And in relation with Venezuela, you have to remember that we first were the first company to reach an agreement in Sofia's mix test.
I think it was 2,005, 2,006. So we are always open to negotiation and we need really a response from the other side. So basically, I think it's a good approach, and we will see because we have to defend our shareholders. And till the moment, the only way we have to work out is to purchase, but we'll be happy to reach any agreement. And if Mr.
Chavez will help us in that process, for sure, if he will be welcome. Okay? Fantastic. Thank you, Miguel. Thanks, Susan.
And thanks for being still the last one. You were young when we started.
Okay. Thank you to all of you who will be sending the clarifications that we're pending later this afternoon.