Good afternoon, ladies and gentlemen. Thank you for standing by, and welcome to Repsol's first quarter 2012 results presentation. The conference call will be conducted by Mr. Miguel Martínez, CFO of the company. If you wish to ask a question after the presentation, please press now 01 on your telephone keypad. I will now turn the call over to Ms. María Victoria Zingoni, Director of Investor Relations. Please go ahead, madam.
Good day, ladies and gentlemen. On behalf of our company, I would like to thank you for taking the time to attend this conference on Repsol's first quarter results. We understand that at this point, there is a lot of expectations on how the company continues with the strategy without YPF. We are aware that we have a strategic plan release scheduled for May 29, so we really appreciate it if you hold questions on related topics to such date and focus on results and short-term activity during this call. The presentation, as mentioned, will be conducted by Mr. Miguel Martínez, CFO. Luis Suárez de Lezo, General Counsel, and other members of the Executive Committee of Repsol will be joining us as well. Before we start, I invite you please to read our disclaimer note.
We may make forward-looking statements which are identified by the use of words such as will, expect, and similar phrases. Actual results may differ materially depending on a number of factors indicated on the slide. I now hand the conference over to Miguel.
Thanks, Maria Victoria, and thank you all for attending this conference on our first quarter results. During this first quarter, CCS adjusted net income ex YPF was of EUR 474 million, 4% higher than during the same period last year. Even though in our books, as of December 31st, the expropriation of YPF has no effect on the financial statement as of March 31st, 2012. We have adjusted the earnings preview released this morning so as to present the information of the company with and without YPF for a better analysis of the performance under the current circumstances. First of all, let me give you an update on the current status of the expropriation of 51% of YPF, all of it corresponding to our shares in the company.
We consider the announced measure to be manifestly unlawful and gravely discriminatory, that its public interest has in no way been justified and clearly contravenes the obligations undertaken by the Republic of Argentina during the privatization of YPF, breaching the most basic principles of legal certainty and of reliance by the international investment community. Such obligations are clearly reflected in YPF bylaws, articles 7 and 28, they establish, on one hand, the price to be set as compensation, which is higher than the book value, on the other hand, the obligation to launch a tender offer in case the acquisition surpasses 49% of the company.
Even though all these measures were designed to protect investors in case of a change of control, surprisingly, the shareholders of the remaining 49%, who have not been expropriated, have not been compensated by the change of control, they have been denied the chance to choose if they want to be part of the company under the new administration or exit with the compensation established by the Argentinian government under the privatization law. The expropriation law was approved by both chambers in Argentina, it was published on May 7th. The maximum exposure of Repsol to YPF as of the end of December is EUR 5.7 billion, of which EUR 4.1 billion is the YPF group value and EUR 1.6 billion is the vendor loan to the Petersen Group. The stock exchange regulatory body in Argentina has set June the 4th as the date of the YPF annual general meeting.
Our legal counsel is working on the definition of the legal paths to follow, has already started some actions. Before getting into the quarter results, please allow me to refer to various concerns that have been raised by some of you during these past weeks. I will refer to, first, the rating outlook discussions we have maintained with the rating agencies. Second, the contracts that rule the Petersen Group vendor loan with us. Third, the concerns on our debt agreements and indentures. After the expropriation of YPF by the Argentinian government, the credit rating agencies revised our rating. Both Fitch and Moody's changed it to a negative watch, while Standard & Poor's changed the rating to BBB- and A3, maintaining the negative outlook. These changes have raised many questions about the effects on our debt.
The only effect will be on the European commercial paper, which may not be renewed in the short term. We confirm that the rating change does not affect any of our current debt or its related financial costs. Moreover, we have no rating triggers linked to our debt. We also reiterate that we are fully committed to maintaining the investment-grade credit rating and are analyzing different alternatives to enhance our balance sheet. According to Standard & Poor's, the outlook is negative, reflecting the potential for a further downgrade if corrective actions to reduce debt do not materialize in 2012. They recognize that if Repsol management can significantly reduce debt in the coming quarters and somewhat offset the financial impact of the loss of YPF, we could revise the outlook to stable. We perceive management as committed to the investment-grade rating and to strengthening the company's financial profile.
Among the actions to improve our balance sheet, we have the following. A scrip dividend program already included in 2012 AGM agenda for approval involving the 2011 final and the 2012 interim dividend. This scrip dividend could be carried forward into subsequent periods subject to AGM approval. Offering the voluntary conversion of our existing preference shares into a mandatory convertible bond in Repsol shares. Details and execution alternatives and their analysis to be materialized shortly. If convenient, to strengthen our liquidity position, the monetization of our current 5% treasury stock, which would also be credit supportive.
Even though we acknowledge the challenges that we have in front of us and feel confident to achieve the required ratio levels, let me highlight that in this context, without taking into account any of the above mentioned actions and excluding YPF and Gas Natural, we keep on holding a very solid financial and liquidity position. No significant debt maturities until July 2013 other than those above mentioned included in the ECP program. As of the end of April 2012, over EUR 2 billion of cash and EUR 4.7 billion of committed undrawn pipelines well in excess of short-term maturities. Liquidity available shows a coverage ratio of more than 3.7 times in relation to short-term debt. With the release of our strategic plan, there will be further clarity on our operational and financial metrics under the new scenario.
Let me now talk about the concerns raised by the consequences of our stake in YPF going below 50%, as stated in the agreement between Repsol and the Petersen Group. According to Spanish law, which governs the agreement, in order to trigger the consequences established in such an agreement, Repsol failure to own directly or indirectly an interest of at least 50% of YPF would have to be as a consequence of a voluntary disposal act by Repsol, which clearly was not the case, as expropriation of YPF is both an unforeseen and an unavoidable event. Finally, in regards of the concerns on our debt agreement and indentures, first, Repsol does not guarantee any YPF debt.
Second, with respect to our European medium-term notes program, nothing has come to our attention that would indicate that an event of default has occurred under the terms and conditions of the notes issued, nor has any event or default occurred under any other loan agreement. Third, we are not aware of any acceleration of any of YPF's debt. Let us move now into the results. Please remember that all the numbers are ex YPF and ex Repsol YPF Gas, the LPG division, which was expropriated as well. This quarter, we released a CCS adjusted net income of EUR 474 million, 4% higher year-on-year, and a CCS adjusted operating income of EUR 1.1 billion, 8% higher than in the same quarter last year. These results have improved also in relation to the previous quarter. The good results have been driven by the performance of our upstream and LNG divisions.
In upstream, the adjusted operating income was EUR 659 million, 35% higher than the same period last year. The normalization of the activity in Libya, a better production output in the Gulf of Mexico, and the higher realization prices have been the main reason behind this improvement. With the operations back into normal conditions and the new projects starting as scheduled this year, we expect this quarter's good results to start a steady increase in contribution of our upstream division to the performance of the company. In the LNG division, better margins resulted in an adjusted operated income of EUR 158 million, 37% better than during the same period last year. The market opportunities have been optimized again this quarter. We will keep on doing so with the non-contracted volumes. In the downstream business, the CCS adjusted operating income was EUR 82 million, 61% lower than the first quarter of 2011.
The results were mainly affected by the negative effect of the deterioration of the chemicals environment and the marketing volumes. In refining, earnings increased slightly. The successful start of the Cartagena and Bilbao projects enhanced its contribution due to higher spreads and margin improvements, especially since the second half of March. These effects were partially offset by the low utilization rate due to scheduled maintenance and the stop of some units due to low margins during the first part of the quarter. The low utilization affected mainly the topping units. It is worth mentioning that the utilization rates of the recently opened conversion units of the Cartagena refinery ran at full capacity during the quarter. The coker unit at the Petronor refinery was at 76% of utilization during the quarter due to the usual maintenance process during the ramp-up period. During April, the margin has improved compared to March.
In Gas Natural, the adjusted operating income of EUR 241 million remained in line with the same period last year. The financial expenses, ex YPF, came to EUR 260 million in the quarter, a 13% increase compared to the same period of 2011. The increase was due to higher gross debt subject to fixed interest and the step up of the preference shares effective in the payment of September 2011 and March 2012. The ex YPF tax rate amounted to 40.5% during the quarter. We expect a full-year tax rate without YPF of 42%. Activity for the quarter in YPF has been explained in Section 3.4 of the press release. We are disclosing YPF at a net income level. It amounts to EUR 149 million, which compares to the EUR 193 million during the same period last year.
The lower result is mainly due to the increase of the minority shareholding from 31.8% to 42.6% and higher financial expenses. Turning to the operational activity in the core businesses, starting with upstream production for the quarter was 323,000 barrels of oil equivalent per day, 11% higher compared to last quarter 2011 due to the improvements in the Libya operations and the Gulf of Mexico production. In line with last year, first quarter level, less affected by the Libyan war. Current Libya production is at 310,000 barrels of oil gross. We expect to finish the year about 320,000 barrels of oil per day, near our full capacity. There have been five cargos in the first quarter. We expect to support periodical sales of 1.2 million barrels per quarter net to us.
The non-conventional project in the Mississippian Lime started in February, adding to our production profile as well, still in small amounts, but consistent with the ramp-up plan we have. Let me review the status of the main development projects. The Argentina field project started up last week as planned, below budget CapEx and with very good safety records. The field gross production is ramping up into plateau to reach up to 9 million cubic meters per day from 3 million cubic meters per day in a few weeks' time. All the volumes are dedicated to supply the Bolivian government export agreements with Brazil and Argentina. Prices for the second quarter on both contracts will be $9.26 per million BTU and $11.08 per million BTU respectively.
The main contracts for the construction of the second phase, which will add up to 6 million cubic meters per day to the production of the field, have already been signed. Once it's fully operational, the second phase will take around 18 months to be commissioned, and the total processing capacity of the plant will be of 15 million cubic meters per day. Sorry, I mentioned Argentina. Probably I was thinking in other things. I refer to Margarita for sure, and Bolivia. Our Bolivia production will also be increased in the Sábalo field operated by Petrobras. A third train started operations in the month of February, and gross production will be increased from 13.4 million cubic meters per day to 22.1 million cubic meters per day. 70% of the Sábalo volumes are devoted to the Brazilian market.
Our net working interest is 24.5% through our participation in Andina with the Bolivian government. The net production added by this project is of 1.5 million cubic meters per day net to Repsol. In Peru, our Kinteroni project carries on as planned as we expected to reach first gas early during the last quarter of 2012 with a gross production of 5 million cubic meters plus associated liquids. In Brazil, we continue the drilling activity in Sapinhoá, formerly Guará. We already have four wells drilled and two more ongoing. We will complete the second extended well test in the northern part of the field this year. Production startup in the southern part of the field is scheduled for the first quarter 2013. We have already signed the lease of the second FPSO, Cidade de Ilhabela, to the company SBM Offshore.
Such FPSO will be dedicated to produce the northern part of the field, and its production is expected to start in 2015. Let us review the status of the principal exploratory activity. As announced in our previous result presentation, we will mainly focus on the Pão de Açúcar discovery in the Campos 33 basin after Sapinhoá and Carioca. We expect to start the appraisal work later in 2012. In Alaska, we have finished the drilling campaign with a total of two wells drilled. Both wells, Kachemak and Qugruk-2, are oil-bearing sands, but the initial delays and the early end of the winter season have not allowed any further tests. The information provided by the wells is still being evaluated.
Unfortunately, there was not enough time to gather enough information to deliver more consistent news on the results of the area. We expect more definition of the prospects of the area in the following drilling campaign. In our West Africa operations, two wells have been drilled in Sierra Leone, Jupiter-1 and Mercury-2. The first found 25 meters of pay, gas and condensate to light oil in two zones in the main objective, Turonian. Studies are ongoing to evaluate the discovery, and the joint venture is evaluating the feasibility of running a test to assess productivity. The second well, Mercury-2, found a thick, good quality reservoir section in the Cretaceous, but water bearing. Our wells in Cuba and Guyana are progressing in depth, and we are expecting to have results by the end of this month and the beginning of the third quarter, respectively.
Our seismic campaign in Portugal, Indonesia, and Alaska are already completed. The remaining acquisitions activity for the year will be concentrated in the U.S. and Algeria. We continue very active with our acreage acquisition, with six new concessions awarded in Norway, four in the Norwegian Sea. Two of them in the Barents Sea, with Repsol as operator in one of them. We also have three new licenses in the West Siberia area through Eurotek, our 100% owned Russian subsidiary, all of them in the Ural–Volga Basin . On LNG, Peru LNG delivered its first cargo to the Manzanillo plant in Mexico, with the first ship arriving in March. Deliveries are expected to ramp up over the next few years, while in 2012, they will take at the most 25% of the Peru LNG annual volumes.
As for the remaining of the year, we still have many challenges in our activity with the delivery of the Kinteroni project scheduled for the fourth quarter, the drilling of around 40 additional exploration wells to be finished before the end of the year, the continuity of the Sapinhoá development with its first oil in the first quarter of 2013. The consolidation of our upstream projects. Despite the fact that the losses we have had with the expropriation of YPF, we believe that the future of our company has not changed in the sense that the upstream division was always the center of our growth aim, and the YPF unfortunate events do not change such view. At the end of this month, we will be releasing our strategic plan based on four pillars. First, upstream organic growth with production increase above sector average.
Second, enhanced profitability due to the rebalance of the portfolio. Third, self-financing plan, maintaining the investment grade and a strong balance sheet. Fourth, competitive shareholder remuneration under the new company perimeter. Finally, we will keep our commitment to pursue a fair compensation for the expropriated shares of YPF. We are fully aware of our challenges and keep on working to support our view that we may have lost value temporarily. However, the potential we have as a company will allow us to recover such value. I am pleased to answer any question you may wish to pose.
Great. Thanks for waiting. We will start with the Q&A session. We have first question from Nomura with Theepan Jothilingam. Theepan, please go ahead with your question.
Thank you, Mavi. Thank you, Miguel. I've got a few questions actually just on financing for 2012. I know you've stated you want to maintain your investment grade. Could you just talk about how confident you are that you can deliver a conversion from the pref to the convertibles? What sort of timelines should we expect? Is there any flavor we can list on financing? Should it be more expensive? Secondly, just again, you've discussed the scrip dividend. Is it fair to assume the major shareholders wouldn't participate? What sort of assumptions do you make on a take-up on scrip? Lastly, on the treasury shares, are you in any discussions to sell those treasury shares to a strategic buyer, or would the plan be at the appropriate time to drip-feed that into the market?
Separate to that, just on 2012 guidance, could you perhaps just reconfirm production guidance ex YPF for 2012 and also give any color on CapEx for this year as well, ex YPF? Thank you.
In relation with the first one, the first comment is that, yes, we are totally committed to keep our investment grade. I think that the timing will go by September. The end of September or October, we'll put the preference on the market. The first step would be the scrip dividend. By September, we will put on the market the convertible bond for the pref. Finally, if necessary, we will use the treasury shares, but only if necessary after those measures. We think that with the first two, we will be in line with what the rating agencies are expecting from us. If necessary, we'll have the third one. In relation with the profile for next year is 335,000 barrels per day.
We keep with our expectation, think that along the year we'll have a small ramp-up in Libya, but also we'll have Margarita and Kinteroni helping the production to go upwards a little. In relation with CapEx, ex YPF, it's going to be EUR 4 billion if you include Gas Natural. Without Gas Natural, it would be €3.5 billion. Okay, Theepan?
Yeah. Great, Miguel. Just as a follow-up.
Oh, sorry. You asked me also what the shareholders will do with the scrip.
Yeah.
Well, I don't know.
Okay.
That, I would say, the only opinion. I've made my estimates considering that they will take cash.
Okay.
Basically, I would expect they own 28%, more or less, of the company, so I expect from the other 72% to capture 50% as cash conversion in shares. Okay?
Perfect. Is it fair also to assume therefore that certainly for 2012, we should not expect any major asset disposals from the portfolio?
No major disposal for the portfolio for sure.
Okay. Thank you very much.
Thank you, Theepan. We have next question from Barclays, Lydia Rainforth. Lydia, good afternoon.
Thanks. Good afternoon. A couple of questions, if I could. Firstly, just to follow up on Theepan's question. Just adding up those numbers, Miguel, it looks like you're targeting a net debt reduction of about EUR 2.5 billion. Is that about right? Then just more on the operational side. Can we talk about the refining side? The increase in operating profit there does appear to be a little bit low given the investment that's gone into Cartagena and Bilbao. I was wondering, where do you see the utilization rates sustained as a whole for 2012? Was it a case of things just weren't working quite as well as you might have liked for that first quarter? Then just finally on Libya, can you just give us an indication as to where you are versus peak capacity there?
Okay. Starting for the last one, 310 when our peak should be 340,000 barrels. Okay. That's the easy one. In relation with the debt, it's going to depend much on how things evolve, how percentage of our shareholders will opt for the shares or the cash, and also on the treasury shares. We'll have to go and keep looking at it, and we will see. There's not a clear objective of debt reduction. At the end, what we are aiming for is give signals to the agencies in one hand, in the other, keep our ratio shrinking. Increasing the cash through the debt. If I will have to make a bet, I'll say that I assume that we would be above the EUR 2 billion because I expect a high percentage of conversion from the convertibles into the bonds.
Under our perspective, the bond is considered by the agencies as capital. Basically, we can consider that we will be above this figure. The last question, yes. The second one was the refining, it was a little low this month. I would say that Cartagena ramp-up has gone pretty well, but in Bilbao, we have some issues. First, several strikes. Second, we have to modify the diet of the refinery, seeing that the Bilbao refinery is the one that captures all the Iranian oil that we were producing. We have reduced the consumption of this crude. You will see much better results in my estimate. At least April is showing us better results. You are right, the ramp-up didn't reach the $2 per barrel we expected. It was a little below, 1.7, approximately.
Thank you very much.
Let's move to next question from Credit Suisse, Thomas Adolff. Thomas, good afternoon. Please go ahead with your question.
Good afternoon. Thomas Adolff, Credit Suisse. A few questions as well. Firstly, in the upstream, I was just wondering in the 1Q results, where you can just confirm that there were no funnies whatsoever contributing to this robustness. I'm thinking here, like one of your competitors, whether there was any form of underlift recovery in Libya for volumes in 4Q. If not really the case, all things equal, with a bit higher exploration expense over the rest of the year, then we are thinking about an EBIT close to EUR 2.4 billion and then add a bit of extra Libyan production, a bit of Russia from the alliance JV, Mississippi and Margarita-Kinteroni. That sort of level we should be thinking about, right? Then a question on the July 2013 bond. Just correct me if I understand this right.
There's a cross default to a principal subsidiary contributing 10% or more to EPS. By definition, previously this was linked to YPF, but now with YPF likely to be deconsolidated and not in default yet. Really, even in the event of a default later in the year, this shouldn't really trigger the immediate maturity of the July 2013 bond, nor the other bond as part of the EUR 5 billion bond, given the new or the updated clauses. Finally, just a question on the quarterly interest expense, ex YPF including Gas Natural, what sort of a run rate should we be expecting? Thank you.
Thanks, Thomas. Well, in relation with upstream, there's no any trick in the figures. Probably the difference we have is in the mix. We are producing more in Libya and in the U.S. while reducing our production in Trinidad and Tobago. If you look at the margins per barrel of oil equivalent in each of these countries, you would realize the impact. In relation with Libya, we are still in underlifting position of approximately 800,000 barrels. Finally, in exploration, the total expenses for the quarter has been EUR 100 million, which is a little lower in comparison in an annual basis. Not so if we compare it with first quarter 2011. In relation with your second question, you are totally right. I totally agree. Once YPF is out of our perimeter, there's no any reason why we should get any concern about the July 2013 maturity bond.
The final question, in relation with the expenses cost, I can tell you that ex Gas Natural, we expect to be approximately around EUR 840 million for the full year. Okay?
Okay. Thank you.
Thank you, Thomas. We have next question from Société Générale, Irene Himona. Irene, good afternoon.
Good afternoon. Thank you. I had two questions, please. The first, in the first quarter, I can see chemical product sales falling about 16%-17%. Oil product sales rising nearly 10%. It seems that went into exports. I just wonder if you can talk a little bit about the dynamics there. My second question is, in light of the strength of the LNG results, whether you can provide updated guidance for full year numbers. My third question is one of clarification. When the credit agencies look at the Repsol balance sheet now, would they compare Repsol's net debt excluding YPF, which is about EUR 4 billion, to capital employed, including YPF's net book value as a receivable, or would they just zero YPF in your capital employed? Thank you.
Irene, sorry, can you repeat the second question, please?
The second question was LNG profit guidance for the full year, given that we've had a pretty strong Q1.
Thanks, Irene. Well, the dynamics regarding chemicals and oil, I would say that first, in chemicals, the market, especially during January, did not exist. That's basically the reason why it fell, especially in polyolefins. In relation with oil, we logically increased our sales, but this was done through direct sales and exports, not through the service station network. It's basically due to the increased distillation of Cartagena. In relation with LNG is always difficult because we try to be prudent, but at the end they always give us better results. You can expect between EUR 350 million and EUR 400 million for the whole year as operating results. In relation with net debt, the agencies are considering right now YPF totally excluded. They will reduce the debt, and they will not consider any capital employed. They will consider YPF as zero.
Thank you. We have next question from Royal Bank of Canada, Peter Hutton.
Good afternoon, and congratulations on getting a set of numbers out in what must be very busy circumstances. I've got two questions, actually, both of which relate to Libya. You saw a strong comeback in the volumes on the liquids, but gas in North Africa remains down about 7%. Is there a bit of a lag in terms of gas volumes relating to Libya? The second one is just again, I'm afraid, on the point of any accounting issues in the first quarter. When I run through the EUR 337 million reported as adjusted operating income in North Africa over the 45,000 barrels a day, that's 4.1 million barrels over the quarter, that's EUR 82, sorry, EUR 82 per barrel. That's EUR 108 per barrel of operating profit. Can I just try and understand how that relates to the possibilities given the oil price is actually higher than your realization?
Well, in relation with the first one, you have to think that Algeria is practically not producing anything. Libya, all the figures, I don't see any upward thing between the gas and liquids production in North of Africa. In relation with the second one, you have to think that one thing is the crude we produce, and the other one is the crude we sell. In the P&L, only the crude we sell is the one that is included and the ones that give you the margin. Basically, I can provide you on a week through IR the volume sold in Libya, and you will realize the margin. Though margin in Libya is quite good because all the taxes are prepaid. Okay?
Okay, thank you.
Thank you, Peter. We have next question from Bernstein, Oswald. Oswald, please go ahead with your question. Good afternoon.
Good afternoon. Thank you. Just a couple of quick ones. Downstream CapEx did drop in the quarter as you guided and as expected. Is that the new run rate we should just expect for the next couple of quarters now that the investment's behind you? Just on the Mississippi Lime, I know it's early days, but can you talk about any of the flow rates you're getting or indeed whether you could potentially put any more rigs to work on the shale play there? Thank you.
Thank you. In relation with the CapEx, as we mentioned, once we finish and close the perimeter between Cartagena and Bilbao, the figures for sure will shrink. We do expect probably approximately EUR 850 million of CapEx for the whole year in the downstream division. In the Mississippian Lime, yes, we have started slowly. The ramp-up is going to take quite a while. Right now we have between 22, and we expect to end up with approximately, let me check, 30 rigs by the year-end. The increment will be gradually, by 2013, we expect 35 rigs operating, and the maximum number of rigs operating simultaneously would be between 2017 and 2019 with approximately 90 rigs. Okay?
Okay, Oswald.
Oswald, did I answer you?
Yes, you did. Thank you very much.
You're welcome.
Thank you, Oswald. We have next question from Jason Kenney from Santander. Jason, good afternoon.
Yes, good afternoon. Three short questions, if I may. Firstly, are you able to confirm if you plan to provision for YPF in the second quarter results? Secondly, can you clarify how you treat the Petersen loan in your balance sheet currently? Thirdly, can you remind us of any pre-drill reserve estimates for either of the four exploration wells currently drilling? I know that you're evaluating Pão de Açúcar offshore Brazil, but did you have a pre-drill reserve estimate for that as well, please?
Thanks for the question, Jason. We haven't made any accrual, not in YPF investment, nor in our credit with Petersen. How the thing will evolve? Well, we have to see how everything happened. Right now, the Petersens have not defaulted. We don't know which is the situation with their banks, we will have to wait and see. That's the first comment regarding the Petersens. In the other one, regarding our investment in YPF, we will also have to wait. Perhaps we will have to approve or perhaps we will have even a net gain. We have to have a figure, at least a first figure from the Argentine government to know where we are.
Right now, we don't have any other data than the one that the by-laws of YPF shows, which represents that we have the right to be compensated by a total value of the company of EUR 18.5 billion. Our idea is that we still need more data to make any accrual. In relation with the existing drilling, we don't have any estimate. Sorry about that, Jason.
Okay. Maybe I can just come back on the YPF provisioning. I know in the news flow, the Argentine government has said they're going to take three years or up to three years to do their own interpretation of the value of YPF. Would it be prudent for us to be thinking of putting in some sort of provisioning in 2015 rather than in 2012? Is that your interpretation?
Well, we have to see how everything evolves. From now till 2015, many things will happen. Also many things will happen probably within this quarter. We'll have to be in contact, and we are in permanent contact with our auditors that are the ones that really somehow will guide us into the accounting process.
Okay, many thanks.
Let's move to next question from BPI, Bruno Silva. Bruno, good afternoon.
Good afternoon, everyone. I have three questions left. The first one is more of asking of an opinion. I'd like to have a feeling of how Repsol would rank or prioritize the following balance sheet financing measures considering current context, namely, sale of a stake in Repsol Brasil, sale of all or part of Gas Natural stake, a capital increase, or the treasury stock at the current Repsol price levels. The second question is if you have already taken a decision regarding the scrip dividend from Gas Natural, if you are going to elect shares or cash. Finally, just follow up on the loan to Petersen question, in terms of what would be the next action from Petersen Group in terms of dates of payment of installments of that loan or anything else that could give us probably a signaling on what they are planning. Thank you very much.
Thanks, Bruno, for the questions. I would say that the three measures and with the time frame that I told you, scrip, then the convertibles, if necessary, the treasury shares, are the ones that we are thinking of today. We are not thinking, as I mentioned before, in any material additional sale of assets. In relation with the scrip dividend of Gas Natural, our intention is to take the cash. The final question referred to the Petersen loan. Actually, we'll have to wait for Petersen decisions, and the banks that are borrowing them the money. We don't have any maturity till next year with the Petersens. We still have plenty of time to see how things evolve, especially in the relation between the Petersen Group and the banks that are with them. Okay, Bruno?
Okay. Thank you very much.
Thank you, Bruno. We have next question from BBVA, Luis de Toledo. Luis, go ahead with your question.
Good afternoon, Miguel. Most of my questions have been already addressed. Maybe a follow-up on refining. Could you provide an update of the rule of thumb of the annual EBIT contribution of a EUR 1 per barrel improvement at the current run rate levels?
Thanks, Luis. I think that once we finish the ramp-up, we keep thinking that our gross margin increase would be between EUR 2 and EUR 3. Initially, I know that with the existing margins, we are moving in the lower level. Probably in this second quarter, we will be able to reach the EUR 2 per barrel increase.
Yeah. It seems that the improvement you recorded in the quarter has not translated to downstream figures. The reason is mainly attributable to chemical, or as you said, the capacity rates have materially affected that contribution to EBIT.
It affected, but the big one has been the chemical results, which has been Minus EUR 80 million, minus EUR 50 million within the period. It has been basically the chemical.
Okay. Thank you.
Thank you, Luis. We now have Filipe Rosa from Espírito Santo Bank. Good afternoon, Filipe.
Hi. Good afternoon, everyone. Thank you very much for taking my questions. I have three, if I may. The first one, a follow-up on the chemicals business. You have just mentioned that it's generating higher losses. Could you provide us some guidance for what could be the profitability of this business for 2012? The second question relates to the investment in working capital that you have in the first quarter. It was not only inventories, but all the major lines have increased. You have invested more. Is there any specific reason for, is this seasonal, or could we have some recovery in the next few quarters? My final question relates to the second FPSO for Guará. Apparently, there has been a delay because I think that you previously were guiding for 2014, and now you're talking about 2015. Could you just confirm this? Thank you very much.
Okay. In relation with the chemicals, it's quite difficult to assess a figure for the whole year, to be clear. In April, the results have been practically zero. The activity is recovering a little, and if we think in a ramp up in the progression of the last three months, we'll be in positive results for the year. With the economic situation, it's really difficult to assess the evolution of the chemical business. In relation with the working capital, you have two issues. First one is the price. Price has increased 15%, so both the inventories and the receivables has increased. On top of that, as you have seen, we have increased the volumes of sales due to the entrance of Cartagena and Bilbao.
The combination of all these factors are the ones that really have increased the working capital, but there's nothing strange or anything we have changed from previous quarter. In relation with the FPSO, we always have commented fourth quarter 2014. Right now we are saying 2015.
Yeah. Got it.
Could be one or the other.
Okay.
Thank you.
Thank you.
Thank you, Filipe.
Thank you, Filipe. We have now from Morgan Stanley, Haytham El-Gowaly. Haytham, good morning. Good afternoon.
Good afternoon. Thank you, Mavi. A few quick questions, if I may, and most of my other questions have been answered. Firstly, looking at your CapEx commitments for this year, I know you mentioned EUR 4 billion, including Gas Natural. Just wanted to understand how much flexibility you have in some of these CapEx commitments for this year and next, with particularly upstream and, for example, on SandRidge. Is there scope for you to phase that differently to what we had previously understood in terms of your expectations and not just at SandRidge, but elsewhere within upstream?
Secondly, I just wanted to also ask around getting some help on how we should view the sort of numbers, both on the book value that you have in for YPF at the moment, versus obviously the number that we talked about, you talked about the conference call a couple of weeks back, the sort of EUR 8 billion, which is your stake, but based on the YPF bylaws. Just wanted to get your thoughts on how confident you feel in recovering compensation, whether these numbers are a range that you see. Is there anything we should read into looking at those numbers?
Thirdly, on Alaska, just wondered, just to confirm, should we not expect an update until early next year on the campaign there, given obviously the lack of time to drill, to analyze the results further, or is this something that we could get something later on this year? Thank you.
Well, in relation with the first one, basically the CapEx is quite stable, though you have to think that we can self-finance those 3.5x Gas Natural. We don't have much room there to reduce because, for us to keep all the growth projects at the rhythm that we have announced to market is the ones that we are going to follow. In relation with the compensation, the valuation to be claimed should be at least the valuation resulting from the bylaws of YPF, specifically the Section seven and 28. This is my only comment right now. We expect what the law says. The law was launched by the Argentine government when they privatized YPF. This is what the book says. Finally, in Alaska, you're right. Till next year, approximately this month, we will not be able to provide any extra input. Okay?
Great. Thank you.
Thank you. We have next question from CBA to Anish Kapadia. Anish, good afternoon.
Hi, good afternoon. Just a few questions. Just going back to YPF again. Given the impact that it's had on the share price, I was wondering if you would think about spinning off your exposure to YPF to shareholders. In some kind of a special purpose vehicle to take the noise of YPF out of the share price. Just related to that as well, do you have any idea on timing of the tribunal in Argentina to decide the value of YPF? Just in terms of your balance sheet, could you just give an update of how much cash you have access to from the Repsol Sinopec subsidiary in Brazil? Then just the final question is going back to refining, because I'm just struggling a bit with the numbers over here. Your Spanish refining margin was up EUR 0.90 year-over-year.
You said on top of that, you've got EUR 1.70 of improvement from the refinery upgrade. When you look at that on 50 million barrels of production in the quarter, it would imply an EBIT increase of around EUR 100 million, whereas on a CCS basis, your refining earnings are down year-over-year. Can you just help to explain that discrepancy?
Okay. Well, in the relation with the first one, spinning the situation with YPF, we have think of it, but we haven't taken any decision. If at a given moment we decide, we will let you know. The second one refers Sorry, can you repeat the second one?
The other thing was on the tribunal that's being held in Argentina to decide the value. Have you been notified in terms of timing on that?
No idea about the timing. In relation with the cash of Brazil, we have an agreement with the partners, so each one takes his percentage of the free cash of Repsol Sinopec Brasil. We have right to the 60% of the liquidity of the company. In relation with the refining, you have to take into an account that all we talk about is gross figure. You have to include the extra depreciation and some extra fixed costs. On top of that, also last year, we have an income from the transaction with CO2. The combination of all these three factors are the ones that probably distort your figure, Anish. Okay?
Okay. Sorry, just back to Brazil. I was just wondering in terms of the actual Brazil subsidiary, how much cash is there in that vehicle now? We haven't had an update on that figure.
The procedure we have, Anish, is that each year and depending on the CapEx of the year, agreed with our partners, we give back to the Brazilian subsidiary the money they need for the year. The rest is kept 60% by us and 40% by Sinopec. Paying for sure interest to Repsol Sinopec Brasil. Okay?
Right. Okay.
Thank you, Anish. We have one last question from N+1, Fernando Lafuente. Fernando, good afternoon.
Hello. Good afternoon both Mavi and Miguel. Just a clarification on the upstream business. If I understood well, Miguel, you said that these levels obtained in this quarter would increase as the years go by. This means that the result, the EBITDA from the upstream business could be in the region of EUR 2.6 billion at the end of the year. Is that a correct assumption or am I wrong? Thank you.
You have two factors there. Supposing that the prices remain the same. In one hand, we will increase production, which will help the results. In the other one, as mentioned before, we only have EUR 100 million of exploration expenses in this quarter. My idea is to end up the year between EUR 500 million and EUR 600 million for the whole year as exploration expenses. You have to decrease that. Other than that, yes. EBITDA should be in the range of EUR 2.5 billion-EUR 2.8 billion.
EBIT.
Oh, sorry, you say EBIT.
Yes, I said EBIT. Sorry.
EBIT would be approximately EUR 2.2, EUR 2.5.
Okay.
In that area. Okay, Fernando?
Yeah. Thank you very much.
Thank you.
Okay. Thank you to all of you for attending this conference call. If you have further questions, please don't hesitate to contact us with the IR team, and we hope to see you at our strategy presentation in May 29th.