Good day. Ladies and gentlemen, this is Maria Victoria. On behalf of our company, let me thank you for taking the time today to attend this conference on Repsol's Second Quarter Results. As said, this presentation will be conducted by Miguel Martínez, our CFO. Other members of the Executive Committee are joining us as well today. As always, before we start, please, 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," "set," and similar phrases. Actual results may differ materially depending on a number of factors as indicated on the slide. I now hand the conference over to Miguel.
Thanks, Maria. Thank you all for attending this conference on our second quarter results. I would like to focus today in four areas. First, the quarterly results. Second, the exploratory program for the second part of the year. Third, the evolution of the projects that will come on stream in 2012 and early 2013. Finally, the portfolio progression during this second quarter. Starting with the results, this quarter we released CCS adjusted net income of EUR 485 million, and a CCS adjusted operating income of EUR 1 billion. The main factors that explain this specific situation are the lack of production in Libya and the strikes in Argentina. In Libya, production has been totally interrupted since March 5th. No barrels were produced during the quarter in comparison with the 41,000 bbl per day in Q2 2010.
These barrels contributed around EUR 200 million operating income in Q2 2010 and would have contributed with EUR 250 million operating profits at Q2 2011 realization prices. Our facilities in Libya remain undamaged, but the country's short-term scenario continues to be uncertain. Higher oil and gas realization prices couldn't offset production losses from Libya and the depreciation of the U.S. dollar. The good news for the production for next quarter will come from Shenzi in the Gulf of Mexico since we have drilled one development well, B201, that is already producing, and we are currently drilling a second one. In consequence, our current production in the Gulf of Mexico is at the same levels we had a year ago, around 31,000 bbl per day net to Repsol. In YPF, production during the quarter was lower due to the labor strikes, mainly in the south of the country.
These strikes had an impact of 61,000 bbl per day of crude oil and 15,000 bbl of oil equivalent of gas production per day. The strikes are over and operation resumes from July 4th. The drop in oil production due to the impact of the strikes affected also the refinery throughput. In consequence, oil and oil product purchases had to be increased to match demand. The net impact of this situation plus higher operating costs due to inflation could not be offset by higher local and international related prices. The effect of the strikes in the quarter reduced operating income by approximately $270 million . In the first half of the year, gasoline has increased 11% and diesel 10% in dollar terms. Additionally, last Monday, we raised again local prices at the pump by approximately 6% in local currency and continued the trend towards international parity.
To finish with the second quarter results, let me highlight the main aspects of the remaining business segments. Starting with LNG, adjusted operating income in second quarter 2011 was EUR 53 million versus EUR 13 million posted in the same quarter last year. The year-on-year increase was driven by higher volumes, mainly due to the start of the Peru LNG in June 2010 and wider LNG marketing margins. In the downstream business, adjusted CCS operating income was €224 million, 39% down year- on- year. The year-on-year drop in earnings is mainly due to lower margins in the refining and the LPG business that could not be offset by the recovery of the chemicals business that is operating in positive terrain. Gas Natural Fenosa, at EUR 188 million, adjusted operating income was in line with the same quarter of last year.
On June 17th, the board of Gas Natural Fenosa approved SONATRACH's entry in the company share capital with 3.85% shareholding. SONATRACH acquires a minority shareholding for almost EUR 515 million through a capital increase excluding preferential subscription rights. This agreement is the end of the arbitration process that was in place. The second area I would like to cover is our exploratory program for the rest of the year. On top of our already announced success in Guaran Carioca appraisal this year, we had a positive well in the quarter, Gavia, in Campos 33 block. The discovery includes two oil horizons. Drill results are being analyzed before continuing with the appraisal of the area. We are currently drilling five exploratory wells, two in the Brazilian Santos, block 44, Itaboraí and Tinguá, one in Bolivia, Sararenda, and two in Colombia, Chipirón and Jaripeo.
We are also going ahead with our appraisal drilling campaign. In the Gulf of Mexico, we have been drilling the Buckskin II well since May 12 and expect to finish by the end of September. In Brazil, we are drilling three development wells, Guarazul, Guará RDA, and Piracucá IV. The extended well test of Guará is ongoing and should be completed by the month of August. In Peru and Venezuela, Kinteroni III and Perla V gave positive results, reinforcing the positive outlook for the development of the above-mentioned fields. Last, in the second half of 2011, we will start 13 new wells. Five wells in Brazil, Pau da Açúcar, Albacora Leste presalt, Abaré, Sagitario, and Carioca Sela. Three wells in Sierra Leone and Liberia, two wells in Norway, and finally, Yagüe in Cuba, Yaguar in Guyana, and Sagari in Peru.
These last three wells, along with Sagitario and Carioca Sela in Brazil, will not be completed until 2012. Regarding exploration of YPF, further progress in unconventional resources was made during the quarter. To recap, Vaca Muerta is a 30,000 square kilometers formation with rock thickness between 50- 400 m. YPF has a net acreage of the formation of originally 12,000 sq km, which has been increased up to 14,000 sq km after new acquisitions. During 2010, 330 sq km were chosen as the initial area to perform pilots. Six vertical wells were drilled with initial flow rates of between 200 and 560 bbl per day. Information provided by these wells allows us the assessment of recoverable resources of 150 million bbl of oil. In the 2011 program, an additional 25 sq km a rea was chosen for a second pilot along with the 200 sq km of delineation.
The annual program included 17 new wells and fracturing 14 existing wells of the Loma La Lata field. During this quarter, we have had results in the area of Loma La Lata Norte, with two latest vertical wells drilled in a possible natural fracture sweet spot. After fracturing the wells, they are performing with high productivity and under natural flow pressure and rates above 500 bbl of oil per day with capacity to produce above 1,200 bbl of oil per day. With these results, we will continue the campaign in Loma La Lata Norte with another nine wells, three of them horizontals. As a second part of the unconventional oil program for 2011, 13 exploratory wells would be drilled in order to assess the potential of Vaca Muerta in other parts of the Neuquén Basin.
During the quarter, YPF announced a new shale oil discovery in the Vaca Muerta formation in the Bajada de Añelo block. The well was 3,000 m depth, in which three fractures were made in 150 m. The results of the well delivered an average production of 250 bbl flowing naturally. Such good results come from a well which does not have the best geological conditions, low carbonate content, and drilled in a rock thickness of only 135 m. This encourages us to expect improved results in future wells with better geology. We will go ahead with the exploration program in the rest of the basin, in which we are close to fracturing three wells already drilled. Before the end of the year, we will drill with our partners at least the nine additional exploration wells.
Moving to the third area of discussion today, let me share with you the status of the key growth projects that will start coming on stream in the coming months. Cartagena, with 95% project completion, the startup of the units will be carried out during the months of August and September, and they're expected to be in operations by October. Final total costs are expected to reach EUR 3.2 billion, EUR 300 million less than the original budget. Bilbao will begin a startup of the units by the month of October. Project completion is at 95%, and we continue monitoring the increase in refining margins these investments will generate. So far this year, we maintain the additional range of $2 up to $3 per barrel for the whole of our Spanish production. In Kinteroni, the appraisal campaign has been successful with Kinteroni II and III already drilled and tested.
The construction of production and gas evacuation facilities is currently underway. First gas production of 5 million cu m per day is to come on stream in the second quarter of 2012 as planned. Overall, project CapEx is below budget. In Margarita, the first phase of the project, which includes the 6 million cu m per day plan expansion plus the hookup of three existing wells, is at 53% of project completion, and it's expected to start production in the second quarter of 2012. The Argentinian and Bolivian governments inaugurated the gas pipeline between Bolivia and Argentina, which will allow gas exports from Bolivia to go up from 7.7 up to 11.3 million cu m per day in an initial phase. We are already launching the second phase of the project, which will increase production by an additional 6 million cu m per day in the fourth quarter of 2013.
Guará field development is progressing well, with first oil expected in the first quarter of 2013 as planned. The results of well Guarazul and Guará ADR confirm the connectivity of the reservoir and the good expectations. Construction of the first FPCO and other critical supplies is progressing well. An extended well test is currently ongoing and delivering an average of 15,000 bbl per day of gross production, only limited by gas clearing. In the Cardón IV project, five wells have already been drilled, and the supply, as well as the front-end engineering and design for the early production facilities of up to 300 million cu ft per day capacity, has been concluded. First gas is planned for late 2013. The option of accelerating a part for this production to begin output even earlier is being studied.
Further options for gas export will also be analyzed jointly with the government in order to extract maximum commercial value from the field and bring production to up to 1,200 million standard cubic feet per day in a second phase. Regarding the Carabobo project, early production has been set to 2014. Additional efforts are being made to bring forward the production of first oil of smaller volumes. We are already contracting the rig for stratigraphic wells and the 3D seismic while progressing with engineering activities of oil production facilities. The front-end engineering and design of the upgrader has been tendered and bids are currently under evaluation. The fourth and last topic I would like to go through is the enhancement we have achieved in our portfolio through some operations.
First, the completion of the last stage of the partial sale of Repsol stake in YPF after the successful placement of YPF shares among international institutional investors and the Peterson Group's exercise of the 10% call option. This last stage consisted of a placement of 0.73% of shares among investors in the Argentinian local market. This was a very relevant transaction for the Argentinian market since it represents approximately seven days of trading. It also shows the significant interest and support of the local investment community in the equity story of our subsidiary. After this transaction, Repsol retains a majority stake of 57.4%. The Peterson Group owns 25.5% and free float is 17.1%, 1.1% in Buenos Aires. If we consider the 1.6% call option in place and assume it's executed before January 2012, our YPF stake would then be 55.8%.
We feel comfortable with this stake in our affiliates and are not contemplating further sales in the short term. We feel that we have already achieved our objective of diversifying our portfolio, retaining at the same time a majority stake in order to capture the upside potential that YPF is offering. Second, our joint venture with Alliance Oil in Russia. On June 18th, Repsol and Alliance Oil executed a letter of intent for the purpose of creating a joint venture that would serve as a growth platform for both companies in the Russian Federation. Alliance Oil will hold a 51% stake in the joint venture, producing assets in the Volga-Ural region, while Repsol will hold the remaining 49%, contributing an initial investment to finance future growth opportunities.
The transaction is pending negotiations on the final terms and conditions of the agreements, the due diligence report on the assets to be contributed by Alliance Oil, and corresponding regulatory and corporate approvals. The transaction should materialize during this year. This deal is aligned with our strategy of searching new platforms for future growth with limited geographical and financial exposure, local partner, and exploration upside. This is a similar approach to the one pursued in our recent entry in onshore and offshore blocks in Alaska. In both cases, we targeted cash flow contribution in the medium term through volume growth but focused on value creation. Our robust financial position allows us to target this kind of a small transaction while focusing on the operational performance to deliver the projects as planned.
The group net financial debt at the end of the second quarter 2011, excluding Gas Natural Fenosa, remained at approximately EUR 2 billion, while the liquidity position has remained close to EUR 10 billion, in line with the prudent approach we have been sustaining throughout the financial economic crisis period. Summing up, our P&L performance this quarter was challenging. As we have mentioned at the beginning of the year, 2011 will be the transition year to lay the groundwork for the next stage of growth. Additionally, the first half of it was impacted by the aforementioned issues of Libya and the Argentinian strikes. We are committed to medium and long-term value growth, expecting the delivery of production and profit improvement of the ongoing projects to start becoming a reality in the coming months. Thank you for your attention.
Now we are open to questions.
Ladies and gentlemen, the Q&A session will begin now. If you would like to ask a question, please press zero one on your telephone keypad.
Let's start with the Q&A session. We have the first question from Bruno Silva from BPI. Bruno, good morning.
Good morning, everyone. I have three questions, if I may. The first one on YPF. I wonder if you could give us some EBIT guidance for this year, and also if you could clarify on Petroplus incentives and the statement you have in the press release saying that you are actually booking incentives from last year. How much would we see recognized in full year 2011 relative to this program? The second question on refining and marketing, you already commented once again that the impact of the co-version project would be $2-$3 per 1 bbl. Could you just update us on the impact on an OpEx per barrel impact of this project? Thirdly, on E&P, you said at the beginning of the year that Carioca and the declaration of commerciality shouldn't bring an upgrade of recoverable resources. That's what I understood at the time.
In the meantime, BG did an aggressive comment outside the consortium scope on Block 9. I don't know if you want to add anything on that and if you believe that there could be good news volume-wise towards the end of this year with declaration of commerciality. Related to that, I would like to understand your stance today with the recent results that you have not announced yet from exploration and appraisal activity. How does it change your previous stance on contingent resources, potential addition this year, and in particular, if Gavia and Block 44 prospects have any impact at all in those expectations? Thank you very much.
Okay. Regarding the first question on YPF, I think that we have passed the worst part of the year. I mean, the strikes really harm our P&L in this part of the year. I think that right now the situation is calm and for the rest of the year, as everyone has already increased their salaries, we don't expect any type of conflict or social conflicts. If I will have to bet on an EBIT guidance, I will say that probably we will recover in the second part of the year to end up more or less at the same levels that we did in 2010. Regarding Petroplus, we didn't award it or we didn't gain the right in the first and second quarter. That was expected because if you remember, we suffered another strike in December 2010.
My guidance for the rest of the year is that third quarter for sure we will not be able to award the Petroplus. I have doubts regarding the fourth quarter. The fourth quarter will represent roughly before taxes something around $55 million. What we have accounted this year, it's $85 million on the program Reserve Plus, which if you remember on liquids last year, our replacement ratio was over 100%. We are awarded with this Reserve Plus issue, which initially we have account with $87 million. In relation with the refining and marketing, if I have to give you a figure on the break-even in relation with the OpEx, I would say that the break-even operating result after investment should be close to $4 per 1 bbl. This is the data I can give you.
In relation with DMP, we kept the same expectations that we had in the past regarding Brazil. I mean, we are quite bullish about Brazil and we respect a lot of the opinion of BG, but I think that it's only an extra comment. We will see. I mean, there's still a lot of exploration to go, but we keep thinking that Brazil will deliver a lot for all the companies that are there in the following years. In relation with Gavia, we haven't yet detailed any volume. Further work needs to be done before assessing any figure. Finally, in relation with Carioca, the commerciality, it's going to depend a lot in many issues. I think that in the last part of the year, we will drill Carioca Serie. I think that this well is the one that will somehow determine the future of the prospect. Did I answer you, Bruno?
Yes, it was very clear. Thank you very much.
Thank you, Bruno. We have a next question from Irene Himona from Société Générale. Irene, good morning. Please go ahead with your question.
Yes, good morning. I just had two questions, please. First of all, on cash flow, cash flow from operations, if you exclude working capital in the first half was about EUR 3.3 billion, so it is down 15% year- on- year. Could you say perhaps what the impact of Libya and YPF were on cash flows in the first half? Secondly, if you could just remind us of the CapEx budget for this year and also how it may decline in 2012 as the refining projects complete. Thank you.
Thanks, Irine. Libya impact, as I mentioned, it's difficult to assess which would have been the prices of Libya, I mean, the prices of oil with Libya in production, but at the existing prices, Libya has represented after tax approximately EUR 110 million. You have to add up to this on an annual basis. This figure is only for a quarter, but on an annual basis, the depreciation in Libya is around $120 million. Basically, in the first quarter, Libya has represented a loss of 180 because the first quarter we did produce, if you remember, during two months, and then you have the $60 million of depreciation. In Argentina, the impact has been $217 million and the depreciation was reduced due to the lack of production by $50 million approximately.
I think that with these two factors, more or less, you can get the whole picture regarding the cash flow question. The CapEx budget for the year was EUR 6.4 billion, and my estimate is that we will be a little below that figure, probably around EUR 6 billion. The reason for that, basically, on one hand, the strikes in Argentina during the whole quarter have reduced our investments in the south of Argentina as an issue. The second one is that the de facto moratorium reduced our investments in the U.S. Gulf of Mexico during the first quarter of the year. Probably we'll get around EUR 6 billion for the whole year.
Thank you.
Thank you, Irene. We have now Filipe Rosa from Espírito Santo. Felipe, good morning.
Good morning, everyone. Two questions, if I may. The first one relates to the exploratory activity in Brazil. Could you give us a little bit more color on the timings you expect the wells to be drilled in the northern part of the block BMS 11? When do you expect the results of the drilling? The second one also related to the overall exploratory activity. You mentioned in your report, in your presentation, that there will be some of the exploration wells. The results will only be known in 2012. Does this mean that there has been a delay in your overall exploratory activity or is everything on track with your initial plans? Thank you very much.
I cannot give you more data. Sorry about that because some of them are correlated to the prior one. It also depends on the results of the well, whether we have to complete the well and continue working on it. I think that basically what you have is Carioca Serie and Sagitario falling in 2012 and the rest within the year. In relation with the second question, I'll say that there have not been real delays. Basically, it's what we expected. This year, we have some wells that were drilled initially in 2010 and fell in the first quarter of the year. Basically, I mean, the information I can provide you. The other data that perhaps could help you in order to model the whole thing, we expect that the total exploration expenses for the whole year would be in the range of between $620 million and $650 million.
For sure, depending on the results of the exploratory wells we still have in front of us. On average, and with the expected results we have today, the figure including G&G and G&A would be around $640 million. Okay?
Okay. Thank you very much. Just a follow-up question because I didn't quite understand if you detailed what has been the impact of the Petroleum Plus adjustment that you made in Q2. I didn't understand the figure. Just in Q2, the adjustment that you made related to 2010, could you just repeat? I don't know if you said it or not, the impact on Q2 results of YPF.
Okay. This quarter, we include $87 million, which is for the whole year. It's the award we gained in 2010.
Okay.
Still pending is that this quantity could be a little higher depending on the negotiations with the authorities, because part of the subsidiaries, to say that we do not operate, have to be also included. Some extra quantities will come, but I don't expect a big one. Okay?
much does this compare with an overall impact from Petroleum Plus in 2010?
I found that this quarter, Petroleum Plus, it's more or less $55 million before taxes.
Okay.
Last year, we were awarded the fourth quarters. This year, first and second are out. We didn't account anything. Third quarter to me looks totally impossible due to the strikes in the second quarter. The only doubt you can have or I can have is whether or not we will be able to achieve Petroleum Plus in the last quarter 2011. This will represent before taxes $55 million, sorry. After tax, we are talking about $30 million. One way or the other.
Despite the strikes and the lower contribution of Petroleum Plus, you still guide for a flat EBIT for YPF for 2011?
Yeah, that's correct.
Okay, thank you very much.
Thank you, Felipe. We have the next question from JP Morgan, Nitin Sharma . Biraj, good morning. Please go ahead with your question.
Hi. Morning. Three questions, please. First one, in relation to the 10% stake option that Peterson Group has exercised. The loan that you guys have extended to Peterson Group, what's the period for this loan? When do you expect to get that money back? Question number two on Peru. Recent change in the government in the country. Does that have any impact whatsoever on your planned investment in that country? Two, has the state initiated any talks for potential contract changes? This is in relation to government take, etc. Final one in relation to your marketing business. Weakening outlook in Iberia. Could you guide us on how we should be thinking about marketing volumes versus margins, etc.? Thank you.
First, in relation with the loan to the Peterson Group to acquire the 10%, the contract is the one we signed in February 2008, which is the moment in which we gave them the call option. All the conditions have followed this contract. Basically, we are financing 48% of the transaction, which roughly represents $625 million. The first five years of the loan, they don't have to pay us back anything. From then on, they have another five years to pay us back. The loan gives us an interest rate of approximately, I think, it's 7.5% in dollar terms. This is more or less the answer to the first question. In relation with Peru, we haven't had any new contact or any hint that makes us think that the contracts are going to modify.
We also have to take into account that today, I think, is the first day of Mr. Huala, PM of the Peruvian government, so a President of Peru. It's still way too early to have any input from the new government. In relation with marketing figures, it's true that we have been hit in the last four years quite heavily in consumption here in Spain. The global figure shows a little better because we have been increasing our sales to the wholesalers. To analyze how the crisis is hitting the consumption here in Spain, we fell 4.3% in 2008, 4% in 2009, 3.5% last year. This year, on average, I'm talking only about the retail side, on an accumulated basis, we are falling a little below 7%. How long this crisis will stand? Difficult to say to me. Okay?
Thank you. Thanks.
Thank you. We have now Mark Bloomfield from Deutsche Bank. Mark, please go ahead with your question.
Good afternoon. Yes, two questions, please. Firstly, just returning to CapEx, I wondered if you could give us your expectation for 2012 and drilling into that a little further. Perhaps you could comment on the CapEx budget for YPF both this year and then rolling forward into 2012. Second question, just wondered if you could give us an update on progress towards drilling on the North Slope of Alaska. I guess specifically looking for whether you've secured rigs yet, how many wells you expect to drill, and what kind of resource opportunity you might be targeting in that first phase. Thanks.
Thanks, Mark. CapEx going ahead, what I can tell you is that once we finish Cartagena and Bilbao, downstream will account this year for approximately EUR 1.7 billion, we'll reduce their CapEx down to EUR 600 million. EUR 600 million is what I would say is the average that the downstream division will have to invest on, I would say, on a regular basis. In relation with LNG, I would say that it's nil. I mean, we have already the perimeter we wanted there. In Argentina, it's the part which probably will vary more in the future one way or the other because basically, the investments there go in parallel with the rewards. Depending on how the market and the price evolves in Argentina, the investments will go along with them.
Finally, in upstream, I think that the next year, and this is advancing because I don't have the budget yet, but I would say that 2011 has been the first year in which development CapEx was over the exploration CapEx, and the trend will continue. Probably next year, upstream division would be around EUR 2 billion investment, a little below €2 billion investment. In relation with Alaska, we are trying to move ahead as fast as possible. Our estimate today is that we would be able, if everything works out the way we are thinking, we would be able to drill five exploratory wells in the winter of 2012. Okay?
Thanks.
Thank you, Mark. We now have Stefano Vitale from UniCredit. Stefano, good morning.
Hi. Good afternoon, everyone. Just a couple of questions, please. The first one on Libya. Could you just give us some color on what's the situation of your assets there? If you had to restart today, how long would it take to reach full capacity? What kind of investments do you foresee for that, etc.? The second one is on LNG. You know, if I sum the first two quarters' results, I get to a number which exceeds very much your guidance for the full year. Is that just because of seasonality or do you think the full-year guidance on LNG could be conservative at this stage? Thank you.
In relation with Libya, since the moment we could start operations and with the data we have today, that is that all our facilities are in place, it will not take us practically any time to start up production. We are talking about weeks, two weeks, three weeks, four weeks maximum to start up production. Logically, you will have a ramp-up. We have all the people and all the teams ready to move into Libya once the conflict is solved. The data we have today is that there has been no damage to the facilities. In relation with LNG, I think that I gave a guidance of EUR 250 million of operating profits in the last quarter presentation results. I kept attached to that. You have to think that basically the strong winter goes from in the U.S. from December to March.
Normally, results in the first quarter have to be better than in the rest of the year. Having said so, we would like to be conservative on our approach. Okay?
Thank you very much.
Thank you, Stefano. We now have Lydia Rainforth from Barclays. Good morning, Lydia.
Hi. Good morning. A couple of questions if I could. Firstly, are you able to give what target resources you're planning from the exploration in the second half of the year? Secondly, if I could go back to YPF and the salary increases that have gone through, was that a deal for just one year or has that been done over a sort of multi-year period? Thanks.
The first one is, you see, Lydia. No, I cannot give you that. Okay? Sorry about that.
That's all right.
I have all the upstreamers over here saying no to me. The second one, the salary increase refers to a year. Next year, we will have another round probably. It's also true that normally pressure on election years is more important than the ones we normally have to suffer. If you look at the last four years, you will see that there have not been many issues as strong as the ones we suffered this year in the south of Argentina. Okay?
Okay. Perfect. Thank you.
Thanks, Lydia.
Thank you, Lydia. We now have from Credit Suisse, Thomas Adolph. Thomas, good morning. Please go ahead with your question.
Morning. Thank you. Three questions, please. Firstly, on refining. Aside from the Bilbao-Cartagena projects, and you talked already about CapEx for next year in downstream, are you considering other project sanctions, be it upgrades such as a cold, as was recently stated in the press for Tarragona, or self-help measures such as energy efficiency project elsewhere in your portfolio? Also, can you give us a feeling for refinery utilization rates for 3Q, and if you have any update on the LPG pricing following your meeting with the ministry? Second one, just on Gas Natural , following the share capital increase, where does your shareholding stand now? Have you bought back sufficient shares in the market to get you back to 30% minimum again? Finally, on Brazil and more specifically regarding BMS9, there seems to be an update on the AMP website suggesting a discovery on the block. Are we talking about the Guara appraisal? Can you comment on this, please? Thank you.
In relation with refining, for sure, there are always possibilities to improve. Right now, I think that at least for the next three, four, five years, we'll get the refining system the way it is. For sure, we have investments in relation with energy efficiency, which are, I would say, treated on a recurrent basis. These are included already in the EUR 550 million, EUR 600 million of CapEx per annum that I commented. If I have to look on a longer term, I would say that probably the system will only need an extra cooker in Tarragona, but we are talking here about 2018 or so. Right now, there's nothing on the table for the next four or five years. In relation with Gas Natural , we already have acquired the 10 million shares we needed to get our 30% stake in Gas Natural .
We think it's important for us to be above this 30%. It has already been acquired. When SONATRACH joined the capital of the company, we will be over this 30%. The new regarding Guara is that a second level of oil has been reached, which is good news, but it's way too early to measure how important this second level would be or what it would represent. For sure, it's good news, but we still haven't got data enough to make any comments on that.
Thank you very much.
Thank you, Thomas. We now have the next question from RBC, Barry McCarthy. Barry, good morning.
Oh, good morning. I'm sorry. I only have one question to ask. On slide 16 of the presentation, you talk about the analogy of the Vaca Muerta with some of the U.S. shales. I didn't quite pick up what you said on that, if anything. From the data table, it suggests that the analogy is not very strong. I assume that's not the message you wanted to give. Can you just describe what you think the key message is on that slide?
Okay. I hope you can see the slide now. I don't know if you can follow. Can you follow the slide now, Barry?
I can see that the data table seems to suggest very different figures for the key U.S. oil shale plays and the Vaca Muerta.
First, the thickness of the rocks, on average, we compare it with Bakken and Eagle Ford. Bakken's thickness is 30 m, Eagle Ford is 70 m and on average, Vaca Muerta, over here, we are talking about a thickness of the rock on average of 200 m. The second data we have refers to the oil in place, estimated oil in place per square kilometer. Basically, due to the thickness and the porosity of the field, we are estimating 43 million bbl per 1 sq km, approximately a little below twice the estimated oil in place per square kilometer in Eagle Ford. We are only working in a small area. It's way too early to make any extrapolation of this figure. The only thing we have is that all the data we are obtaining from the wells we are drilling are quite positive. I insist again, it's way too early.
Okay. Just on the EUR, the recovery factor seems much lower for the Vaca Muerta despite the greater amount of oil in place per square kilometer. Does that suggest upside risk for that number?
This recovery oil measures with the area we are working on. It is a small area. We are not analyzing the 12,000 sq km we own in Vaca Muerta. We are talking only about the test we are performing in a very small area. That is the reason why it looks small in comparison. It is global for the area we are working in, not for the whole Vaca Muerta. Sorry about that because you are totally right. The figure should have been better explained. I think that it is important to mention that we are still working on vertical wells. We are just starting. We are in the learning curve, and we will see. Probably by the end of the year, we can give you a better idea of what we have in hand. All the data up to now compares pretty well with the best shale oil areas in the U.S.
Okay, many thanks, Miguel.
Thank you, Barry.
Thanks, Barry. We now have Alastair Syme from Citi. Alastair, good morning.
Hi. Good morning. Hi, Miguel. Can I just ask on the Alliance Oil deal what sort of in principle you're still discussing on? Maybe if I could push you to give some sort of scope of deal economics, what you think the rate of return might be on that investment?
I have to say that we have been with Alliance for almost four years. It's not that we joined them. I mean, we have been working with them for these four years, looking for ideas to work together. We think we have found right now a partnership that fits pretty well. Initially, we are thinking of investing $400 million. $200 million would remain in the company, which will help us to probably aim for other small acquisitions with the joint venture. In relation to returns, we are not expecting anything extraordinary. We are talking 15%, 16% rate of return on the estimates we have on the table. For sure, it's still way too early. This is more or less what I can tell you.
Okay. Can I ask a separate question as well? Just on Shenzi. I know you're not the operator, but what sort of timeline do you think on return of full production from that asset?
I would say that today, with the B201, we are gaining our size, about 5,000 bbl of oil per day, which put us in July at the same level we were in 2010. By October, we expect the B101 to be in place. I will say that probably this second one will balance the declining with the new production that we'll provide. The second part of the year, I would say that would be perfectly comparable with 2010 starting in July.
Thank you very much.
Thank you, Alastair. We now have Anish Kapadia from UBS. Anish, good morning. Please go ahead with your question.
Good morning. I've got a couple of questions. Just on Brazil, just kind of return back to that. BG, we're talking about deprioritizing Abaré West, Iguaçu, basically the prospects other than Guara and Carioca on BMS-9. I'm just wondering what your view is on this. Them talking about not developing those this decade and following on from that, why you were going ahead with drilling Abaré. Just a couple of quick questions on refining. With the ramp-up that you've got in the fourth quarter, what EBIT contribution would you expect from the upgrades, if any, in the fourth quarter? The final one, on the second subsalt well that you were planning to drill in the U.S. this year, just wondering if you're still going ahead with that?
To me, the priority is clear. It's Guara. I mean, with Guara on production by 2013, first quarter, it's our main objective. The rest of the areas are in permanent discussion because once they progress and the knowledge we have about one prospect or the other gets modified, they move up or, I mean, in front or behind. To me, the priority is Guara. Right now, all the data we have shows us that Guara would be on time by first quarter 2013. In relation with the progression of the EBIT for the refining business in Spain, we have to say that normally one of these ramp-ups takes three months. We will start with 60% October, 80% in November, and 100% in December.
If we would be producing on a yearly basis 320 million bbl per annum, that represents that the quarter would be in a regular condition, 80 million bbl. With the ramp-up, we can consider around, let's say, 50 million extra barrels to be distilled in the quarter. Probably we are talking about $150 million of gross margin, extra gross margin in the last quarter of the year. It's an overall approach. If through our IR, people will give you a more detailed answer to that figure. I should expect gross around $120 million extra of gross margin. In relation with the Louisiana, the studies are still finishing, but I don't expect any good news. Probably we'll write it off in the third quarter, the Louisiana well in the U.S.
I was just asking about the, I think you plan to drill two wells in Louisiana. I know the first one's been written off. Is the second one still planned to be drilled this year?
Yes, we will follow with the plan. I mean, we try to get consistent. Hopefully, this one would be more positive than the one we drilled before.
Okay, thank you.
Thank you, Anish. We now have from BBVA, Luis de Toledo. Luis, good morning.
Yes, a follow-up on estimates for the year. It seems that you are guiding for a tax rate of 38.5%. It seems a little lower than anticipated. It is related to the different makes in production, I guess. We have also questions regarding depreciation rates. You guided on the last quarter call at a level of $4 billion. It seems that it might get a little lower than that. Again, on CapEx and specifically on YPF, do you expect the second half CapEx YPF at a similar level for the first half of the year? I know it will vary depending on conditions, but could you give us some more call on that? Thanks.
Yes. Regarding the taxes, we kept with the 38%, 38.5%. No changes there. As you mentioned, the mix and the entrance of Libya would modify that. Basically, if Libya doesn't produce any extra barrel for the whole year, it will be around 38.5%. Okay?
In relation with depreciation, I think that our figure for the first quarter was something around EUR 1.8 billion. The initial estimate was EUR 4 billion for the whole year. It probably would be a little below that. First, because depreciation in Libya is not there. Second, because the strike in Argentina also has reduced a little the depreciation. It's true that the second part of the year would be more loaded due to the investments in downstream. Probably for the second part of the year, we'll have EUR 2 billion depreciation. EUR 2 billion+EUR 1.8 billion would be around EUR 3.8 billion, EUR 3.9 billion.
Okay. Excellent.
The last question.
Regarding CapEx again.
CapEx, yeah, CapEx YPF. I would say that more or less would be at the same level this quarter, except for the delays we have had in the south of Argentina. I would say that probably the second part will have an increase of probably around $200 million. In regular terms, $10 million. Okay?
Okay.
In relation with depreciation, I think that our figure for the first quarter was something around EUR 1.8 billion. The initial estimate was EUR 4 billion for the whole year. It probably would be EUR 1.1 billion. Okay?
Okay.
In relation with depreciation, I think that our figure for the first quarter was something around EUR 1.8 billion. The initial estimate was EUR 4 billion for the whole year. It probably would be a little below that. First, because depreciation in Libya is not there. Second, because the strike in Argentina also has reduced a little the depreciation. It's true that the second part of the year would be more loaded due to the investments in downstream. Probably for the second part of the year, we'll have EUR 2 billion depreciation. EUR 2 billion+EUR 1.8 billion would be around EUR 3.8 billion, EUR 3.9 billion.
Okay. Excellent.
The last question.
Regarding CapEx again.
CapEx again, CapEx YPF. I would say that more or less would be at the same level this quarter, except for the delays we have had in the south of Argentina. I would say that probably the second part will have an increase of probably around EUR 200 million. In regular terms, Argentina should end the year around EUR 2 billion of investment. This first quarter, this first semester was below that figure. Normally, it happened that way always in Argentina. The second part is more loaded normally because the first quarter people tend to close the prior year deals. I would say EUR 2 billion is a good approach for the final CapEx in Argentina.
Okay. Thanks.
Thank you, Luis. We now have from Merrill Lynch last question. [Hassan,] please go ahead with your question.
Good afternoon. I had two quick questions. The first was regarding the well you're going to drill in Cuba. Can you give us the status update on the drilling rig, whether that's in place now? There have been some reports in the press that the U.S. are looking to interfere with that drilling rig to do some inspections before it's being allowed. I just wanted to get some clarification there. The second question I had was regarding the LNG side of the business. Once you have the contracts beginning with the Mexican power operators, will that lead to less probability of replicating the very strong earnings you've had in LNG this year because they're committed to contracts? Do you think you can continue to have very strong profitability on that side? Thank you.
In Cuba, we expect the Scarabeo platform to start the drilling by the end of October or November. In relation with the American authorities, we haven't received any call or any hint or any message. We expect to be drilling in November in Cuba with our partners Equinor and ONGC. You are right in relation with the LNG. Manzanillo will probably start up operations in November with the ramp-up. No impact on the figure I gave you for the year. In 2012, two-thirds of the Peruvian production will go there. The capabilities we had this year of optimizing our cargos will not be there in two-thirds of the production.
Okay, thank you.
Okay. Thank you. Since we don't have more questions, thank you to all of you. If you have further questions, don't hesitate to contact any of us at the IR department.