Hello, and welcome to the Brepsil Q3 2019 Results Presentation. Today's conference will be conducted by Mr. Joseph John Ima, CEO. A brief introduction will be given by Mr. Raymond Alvaro Pedroza, Head of Investor Relations.
I would now like to hand the call over to Mr. Alvarez Pedrosa. Sir, you may begin.
Thank you, operator. Good afternoon. This is Ramon Alvarez Pedrosa, Head of Investor Relations. Welcome to Repsol Third Quarter 2019 Results Conference Call. Today's call will be hosted by Jose Jon Imaf, Chief Executive Officers, with other members of the executive team joining us here in Madrid.
Before we start, I advise you to read our disclaimer. During this presentation, we may make forward looking statements, which are identified by the use of words such as will, expect or similar phrases. Please note that actual results may differ materially depending on a number of factors as indicated in the disclaimer. I will now hand the call over to Joshua Yon.
Thank you, Ramon, and thank you, everyone, for joining us today on this conference call. Today, I'd like to cover the following main topics. Firstly, a review of the key messages and main operational highlights of the quarter. Secondly, a summary of the financial results. And finally, the outlook to the end of 2019.
Let me begin with the key messages of the quarter. We have delivered a set of solid quarterly and 9 months results supported by the resiliency of our integrated model. We keep progressing towards our strategic targets with a clear focus on disciplined growth, the efficient development of our projects and of course, safe and reliable operations. Looking briefly at the macro environment Brent, the price was 10% below the 2nd quarter and 18% lower than in the same quarter a year ago. In the gas market, the average Henry Hub price was 15% lower compared to the 2nd quarter and 24% below the period in 2018 last year.
In refining, despite a challenging month of September, the margin indicator increased quarter on quarter by more than 50%, growing strongly to the last quarter of the year. Despite a volatile macro scenario and weaker oil and gas prices, the cash flow generated by our operations amounted to €1,500,000,000 without roughly equal contribution from upstream and downstream. This is a 13% increase compared to the 2nd quarter. Up to September, the accumulated cash flow from operations reached €4,100,000,000 a 22% increase compared to the same period in 2018 despite a lower production figure, lower oil and gas prices and lower refining margin. In upstream, the accumulated operating cash flow to September has been in line with the first 9 months of 2018.
Aligned with our strategy, production volumes reflect how we are modulating our development activity to prioritize value over volume with our focus on profitability and returns. As of the end of the quarter, upstream division maintained a risk cash flow breakeven below $50 The contribution of efficiency and digital initiatives is allowing us reducing our cost base. 3rd quarter unit OpEx was $10 per barrel, continuing the cost reduction trend of the last few years. In downstream, the accumulated cash flow from operations through September increased by 83 percent year on year despite an average refining margin indicator of $2.10 below the same period of 20 18. The group's operating cash flow in the 1st 9 months of the year has more than covered CapEx, interest cost and shareholder remuneration.
Net debt excluding leases amounted to €3,800,000,000 as of the end of the quarter, around €200,000,000 higher compared to June €400,000,000 higher compared to December 2018. The net debt increase in 2019 is driven by our investment in treasury shares during the year with an impact of 1.4 €1,000,000,000 to September. The net debt to EBITDA CCS ratio was near 0.5 as of the end of the September, well below the objective defined in our strategic plan. Liquidity represented more than 1.7 times our short term gross debt maturities. And as part of our debt management, we issued in July an 8 year bond of €750,000,000 our first bond issuance since 2017.
The coupon of 25 basic points is the lowest paid by Repsol and by an European bond issuer with a BBB rating. Now let's take a closer look into the operational highlights of the quarter. Starting with the upstream, 3rd quarter production averaged 711,000 barrels of oil equivalent per day. Compared to the previous quarter, production volumes were positively impacted by Buxtin in the Gulf of Mexico producing for the full quarter following start up in June, higher uptime in Peru and Trinidad and Tobago and higher production in the Marcellus. These effects were partially offset by lower volumes in Venezuela, Canada and Libya.
In Venezuela, the quarter was impacted by lower gas demand in Caddon 4. In Canada, we are modulating activity in response to the depressed gas prices in the region. And in Libya, production average is 32,000 barrels per day. Operations were affected in July by 4th Mayur in Sadala field and production restarted in August and has remained stable since then. Turning now to the development activity in our projects.
In the Bakken, as part of the broader full field development plan, the partners are now evaluating the new data coming from the 2 producing wells of the current phase and pending on further analysis after development well could be drilled next year. In Alaska, the war plan for the next winter campaign in Pikka was approved. It includes the drilling of 2 wells and also a gravel lay program that is going to allow us to work year around starting in 2021. In Indonesia, in the Sakakimam block, we are working on the location of the appraisal of the Caliberao dam discovery expected in 2020. And the partners, we are working on the early development of the resources in Sakakemang.
And for that, we are going to use the existing facilities in corridor. Malaysia, second phase of the Kinabalu redevelopment was sanctioned in July. The drilling campaign will be complete between the remainder of 2019 and in 2020. Our RAP24 in Asia is mainly focused especially in these two countries. In exploration, we continue taking steps to build a robust opportunity portfolio based on our core strengths.
In the Gulf of Mexico, the appraisal of Leon operated by log was completed during the quarter with a total drilling cost 13% below budget. The preliminary results of the well confirm the potential for a joint development of Leon and Moccasin. The operator is working on the conceptual engineering to visualize the joint development of both areas. And let me underline that the Gulf of Mexico constitutes a niche opportunity for us. And in that sense, the recent agreement with LLOG is an important step to consolidate our position.
In Brazil, the appraisal of Sagittario was initiated in September and drilling continues to this date. In the recent October bid round, Repsol was awarded 4 new offshore exploratory licenses, reinforcing our position in the Brazilian result. Our exploratory program includes also the start of 6 wells in the Q4. In Guyana, the drilling of the Repsol operated Carapa well in the Canuku block started some days ago in October. This well will test the upper Cretaceous and the lower most tertiary place, targeting the same formation as in successful neighboring prospects.
Now let me move to the operational performance of the Downstream, starting with the refining. 3rd quarter refining margin indicator was 5 $0.50 After the challenging environment of the previous quarter, margins were positively impacted by stronger metal distillate spreads. The average indicator for July August was above $6 September was negatively impacted by an increase in the price of heavy oil Maya, but this temporary effect has already been redressed in October. The current unit CCS margin generated a premium of $0.80 over the indicator, in line with the previous quarter. Planned maintenance included the completion of the turnaround in Bilbao and the start by mid September of the turnaround of 1 of the crude units and the hydrocarcer in Cartagena, already in full production since last week.
The chemical business compared to the previous quarter was affected by lower volume sales due to seasonality, building stocks to face our Tarragona plant turnaround and the unschedule interruptions in Sines in August. International margins were slightly below the Q2 due to a lower demand in Europe. In Peru, our business extended its positive momentum with another strong quarter of refining margins and results. Additional improvements made in our Pampilla refinery have led us to increase gasoline yield and reduce naphtha production among other benefits. The commercial businesses contributed with a robust performance.
In particular, mobility benefit from a high seasonal demand in Spain. The all energies customer centric plus digital strategy is performing results with increased throughput and non oil contribution. We also reached, let me underline, a significant milestone with the opening of the most powerful electric vehicle charging station in Europe. Today, Repsol owns the only 2 ultrafast charging points in the Iberian Peninsula. Lubricants post a very solid quarter as well.
In addition, we took another step in the internationalization of this 40% stake in Singapore based United Oil. DJ Venture will allow us to produce and commercialize our brand products in Southeast Asia with the help of this local partner. And we also expect to close this transaction before year end. The expansion in Mexico has reached 2 25 service station under operation out of 310 contracts signed. And finally, in low carbon, our hydros performed below regular average due to the low rainfall.
However, this effect was more than compensated by our CCGT power plants that reached record levels of utilization last quarter. Our combined silcores benefit from the lower gas prices in Europe and also, of course, in Spain and a favorable gas to coal spread that anticipates the planned closures in the near future of most of the coal, fire, power plants. And in the retail side of the business, we have reached 960 5,000 clients. On the 1st July, we incorporated 3 new renewable energy projects to our portfolio, 2 wind farms and a photovoltaic power plant in Spain, and these projects will add 800 megawatts of capacity when developed. And lastly, in Windfloat Atlantic, we have just started the offshore installation of what will be the first floating wind farm in Continental Europe.
Turning now to the financial results. I will summarize the main figures for the Q3 of the year and how they compare with the same period in 2018. Q3 2019 CCS adjusted net income was €522,000,000 an 11% decrease from the same quarter in 2018. Upstream adjusted net income was EUR 218,000,000 which compares to EUR368,000,000 in the Q3 of 2018. Downstream adjusted net income was €372,000,000 11% higher than in the same period a year ago.
In corporate and others, the adjusted net income was €608,000,000 negative, up €48,000,000 negative, sorry, a €48,000,000 improvement over the same period in 2018. For further detail on Repsol's results, I encourage you to refer to the financial statements and our compelling documents that were released this morning. At this point, I want to update you on our look to the end of the year. Firstly, following our strong performance through September, we remain on track to meet our operating cash flow increase objective for 2019. Delivers and initiatives contemplated in our strategic update are expected to deliver EUR 1,000,000,000 of additional cash flow compared to the 2017 baseline of organizing to the basis of our plan.
We expect to end 2019 with our total organic CapEx below €3,100,000,000 of which €2,300,000,000 will be deployed in the upstream and the EBITDA as CCS estimate for the year is now €7,500,000,000 of which upstream will contribute €4,500,000,000 and downstream €3,100,000,000 Production has averaged around 730,000 barrels per day in October and subject to fluctuations in Venezuela and Libya, we expect full year average production to end at around 710,000 barrels per day as average. Development activity remains focused mainly on prioritizing value over volume, adjusting our capital investment to the commodity scenario. This is what we are already doing in North America in the face of low gas prices. In downstream, the refining margin weakness of the first half of the year was followed by a partial recovery in the Q3. Aligned with our assumptions, we expect this outperformance to continue in the 4th quarter, led by the upcoming implementation of the IMO next January.
The margin indicator has been particularly strong in October, averaging $8 Operators have already started to adjust their inventories ahead of IMO, resulting in a collapse of high sulfur fuel oil spreads. The spread between diesel and high sulfur fuel oil has opened to more than $40 in October, driving the trend for IMO, boosting the margins of deep conversion refiners like Repsol. In Chemicals, last quarter, the year will be impacted by negatively impacted, I mean, by the planned turnaround of the cracker in Tarragona that started on the 1st October and will last until the end of November. We foresee international petrochemical margins still healthy, mid cycle range into the Q4. In low carbon, the results during the 1st 9 months of 2019 have been in line with our expectations.
We are growing in all business lines and as important, we are finishing the integration of the assets we acquired 11 months ago. The strength of Repsol's brand lever on our client base in Spain and our existing distribution channels is allowing us to expand our retail gas and power business where we are approaching 1,000,000 clients with a multi energy approach. In power generation, we have 3 gigawatts of low emission capacity already in production and another gigawatt under development. Our project portfolio will allow us to achieve and exceed our 2025 low emissions capacity target. It is also important to highlight that now we have a highly competitive and experienced renewables team to face new challenges and goals.
Let me now update you on our preparations ahead of IMO 2020. Repsol's refining team is perfectly positioned to capture the higher margins resulting from the new IMO regulation. We own 25% of the total coking capacity in European Union, while only 6% of the total distillation capacity. Our refining system is fully invested for IMO. And our accelerated maintenance schedule in 2019 will allow us to maximize the availability of our system during the period of maximum impact of the new regulation.
The planned turnaround of Porto Lano starting next month, we finish our maintenance program for the year. We will end 2019 with more than double turnaround days in our refineries than the average of the previous for use without a material impact in utilization terms. This will allow us to reduce the turnaround days in 2020 to 2022 to around half of our normal year. At the moment, all our refineries in Spain can operate without producing any high sulfur fuel oil at all. Due to a high conversion and the flexibility of our system.
We are prepared to produce very low sulfur fuel oil if margins are there. If not, of course, we are prepared to fully get a rate of any fuel oil production. We have tested the properties of different blends of this product, especially its stability. And at this point, I'd like to conclude with some final remarks. The strategic update that we presented last year revolves around our commitment to deliver value growth through the 2018 to 2020 cycle.
Now we approach the last year of our plan moving forward with our value proposition on track to deliver on the 3 pillars of our strategy to 2020. Firstly, we have improved shareholder remuneration removing the dilution associated to the scrip option and increasing our dividend in 2018 and 2019. And we will reach €1 per share dividend in 2020 as committed in our plan. On top of that, a higher cash flow generation in a higher commodity price scenario will allow us to propose in a very firm way to the 2020 Annual General Meeting an additional 5% share capital reduction as we announced in July. Secondly, we are growing the profitability of our portfolio with a clear path to increase the cash flow generated by our operations and we maintain our disciplined approach to every dollar that we spend or we don't spend, it depends.
We are accelerating the high grading of our portfolio, maintaining our core CapEx and progressing in the development of the 3rd pillar of our strategy, which is building a profitable low carbon business. We have the conviction that the energy transition is an opportunity to create value for our shareholders. We want to lead the evolution into others carbon intensive work, reducing in a firm way our carbon footprint and becoming a global multi energy customer centric campaign. And finally, the resilience of our self funded strategic plan enables us to deliver all of this while maintaining the necessary financial flexibility. The efficiency and digitalization measures maturing next year together with the impact of IMO will further contribute to our operating cash flow increase in 2020.
With that, I now hand the call back to you Ramon. Ramon is going to lead us through a question and answer session. Thank you.
Thank you very much, Josh Young. In case you run into technical problems, please contact us through our e mail address, investorsrelationrepsol.com and we will contact you immediately to try to solve it. Before moving on to the Q and A session, I would like the operator to remind us of the process to ask a question. Please, operator, go ahead.
Thank you.
Thank you, operator. Let me move now to the Q and A session. Our first question comes from Oswald Clint at Bernstein.
Thank you very much, Ramon. Josh and John, I just wanted to just touch on that $8 per barrel refining margin you're witnessing in October. Is that also the same number you're assuming in November December for your EBITDA number there of $3,100,000,000 that you kind of indicated towards, please? That's the first question. And secondly, just on the volumes, primarily in the upstream.
And I'm just curious about, I think, some of the commentary around lower gas demand in Bolivia and places like Malaysia. Is that counted in those numbers? Or could you talk about what is happening with the lower gas demand in Bolivia, Malaysia? In Bolivia, was it just around the elections and you expect that to pick up again in the Q4? Perhaps just talk around those particular assets, please?
Thank you.
[SPEAKER JOSE RAFAEL FERNANDEZ:] Thank you, Oswald. As I said before, the average in October has been $8 per barrel in margin index terms, of course. You know that on top of that, we used to add some additional value, thanks to the flexibility of our operation, a refining system. This week and today, we are $9 per barrel. So I don't know what is going to happen in November December.
I mean, it seems to be to me that the fundamentals to and the pillars to prepare the market for the IMO scenario is going to be there. It's fully clear in the case of middle distillates. In the case of heavy oil, you know that we have experienced some volatility in prices and so on in September. I mean, I don't think that we are going to have a larger offer of heavy oil in coming months, but the good news for our refining system is that due to a higher discount in the bottom of the barrel in fuel lower, high sulfur fuel oil and so on, that could be a fixed stock for our refining system in case of having an opportunity in terms of programming. I mean, we have some kind, let me say, of sealing in operational terms to the price of the heavy oils.
I mean, if we are we don't have, let me say, a full competitiveness processing. Heavy oils, we are going to process the bottom of the barrel and we are going to process a high sulfur fuel oil. So it seems to me that we could that is a very challenging figure because we'll need an average of the Q3 of $9 per barrel. I don't know if we are going to be there. But having an average of $9 per barrel in the last quarter, we could have a year average of $6 per barrel.
It seems to me that we are going to be slightly below this figure in the whole year. But I think that November December, we are going to have good news in margin terms in our refining system. Going to the second part of your question related to the gas in Bolivia, Let me say that the contracts today with Bolivia, with mainly Argentina and Brazil are very solid. They are they have flexibility. You have to take into account that the game, winter, summer is playing in this part of the world.
But the demand is quite robust from our point of view. Going to Malaysia, demand is okay, but we have had a planned turnaround in Kinabalu that has impact the production in Malaysia. And on top of that, we have a small reduction of demand in corridor in Indonesia. So facts are there, but we are quite comfortable regarding the gas demand in Asia. We have, let me say, a bigger view about gas prices in North America and for that reason because we are flexible in our operation.
We are reducing in an important way the capital expenditure program either in the Greater Telsion in Canada and in the Marcellus in the United States. Thank you, Oswald.
Thank you.
Thank you, Oswald. Our next question comes from Michele Della Vigna at Goldman Sachs.
Thank you very much, Jose John and Ramon. Two questions, if I may. The first one is in terms of your E and P business. In the last few years, you made a tremendous effort to replace the business from a cost perspective. But I was wondering if you think whether you had the right geographical and hydrocarbon balance, particularly in view of what the price referred to as your interest in the Exxon Gulf of Mexico assets?
And then secondly, going back for one moment to the strong refining margin that you're seeing at the moment, I was wondering whether that includes the increase in tanker rates that we've seen recently or whether we need to make an adjustment for that when we apply your sensitivity to refining margins? Thank you.
So, Michele, thank you for your questions. I mean, I agree with your first point. I mean, our geographical scope is not the right one. We have tried over the last year and one half year exiting Romania, Angola, mid continent, gas production in Russia, the Kurdistan and so on to redress albeit this picture. But be sure, Michele, that we are going to try to improve and to highlight our upstream portfolio in coming months being more active in terms of M and A.
And when I say more active in terms of M and A, I'm talking about investing and divesting. Of course, I'm not going to put names to our assets on the table that is not what I have to do. But be sure, Michele, that I take your point. I agree with your point. And we are going to be more active in this portfolio management in terms of the E and P.
And of course, we know what is happening with the gas prices and we are going to act in this line you are expressing. Going to the margin, refining margin and the tankage cost, I mean, we don't understand. Are you talking about the fleet cost that are below margin?
What I'm talking about is we've seen a huge increase following the recent sanctions in the cost of transporting crude and products across the world. And I was wondering if that would make an impact on your realized refining margins?
[SPEAKER JOSE RAFAEL FERNANDEZ:] No. I mean, all this effect is included today. We are experiencing this I mean, that is included in our variable margins, cost. And today, when we are talking that we are at $9 per barrel, all that is included in the margin we are reporting, Michele. Thank you.
I'm sorry for not understanding at the first glance your second question. Thank you.
No, very clear. Thank you.
Thank you, Michele. Next question comes from Thomas Adolff of Credit Suisse.
Hi, Thomas Adolff from Credit Suisse. Thanks. Three questions, if I may. Just coming back to Michele's first question on high grading, the sweet spot of value creation and risk for the company? Then secondly, you talk in your presentation about value over volume and that's your priority.
But certainly, if you're ramping up the Marcellus so hard and that explains some of the increases we've seen in the Q3, most likely also in the Q4, Would you consider that value over volume given weak gas prices in the U. S? And I'm not sure how much free cash flow you generate in your Marcellus business. And then maybe just a question on guidance. You've slightly tweaked your EBITDA guidance for the upstream.
And was that more a function of the macro? Or was it a function of your lower production guidance? And the lower production guidance, is that also translating into a lower CapEx since you're now guiding to a CapEx less than €3,500,000,000 Thank you.
[SPEAKER RAMON ALVAREZ PEDROSA:] Thank you so much. I mean, going to your first question, I mean, I understand your question. You understand that I can't put surnames and names in the assets, but I'm going to give you some color about what you are asking for. I think that we have to reduce the scope of the countries where we operate. We have exited from 1, 2, 3 countries over the last year.
And we are going to try to go on that in terms of efficiency. That is a driver. 2nd driver, we are going to grow and to invest in places where we have synergies, where we have a position, where we are we have, let me say, more competitive advantages than others. And 3rd driver, we are going to capture the tax pools we have in some of these countries in terms of increasing the cash flow from our operations in the short, midterm, in 2, 3, 4 years in a positive and dramatic way. And in our today's M and A view, either for divesting or for investing In the E and P, these are going to be the main drivers.
And also with a more, let me say, flexible and dynamic approach to the M and A. I mean, we are ready to in some places where we have the knowledge and we have the capacities to improve some assets to enter again a strategy of acquire, improve and of course, after trading value, I mean, why not in some places divest. So that is going to be, let me say, the main driver in this M and A strategy. I mean, value over volume, that is going to be also the strategy in the Marcellus. And with the flexibility that the Marcellus give us now and over the last months, we are reducing our CapEx and we are going to adapt our production to this price scenario.
You know that we have a very low breakeven in the Marcellus, but we are not ready in any case to drill our well if we are not making a positive net present value with the gas prices we have in the area. So we are going to prioritize absolutely value over volume also in the Marcellus. And I'm not going to have any problems to explain you in coming months why in case of not being in targets of production to say we are doing that because we prefer to prioritize in any case volume over sorry, volume over volume or production. Sorry, in terms of guidance, the EBITDA of the upstream has been lower mainly because prices. You know that the gas pricing in other regions are quite depressed, not only North America.
You know that in our gas structure, more or less, roughly speaking, Thomas, 22% of our production could be related to heavy hub, 8% is Aiko, Canada, more or less 20%, 30%, better said, are fixed prices, so less impacted for this environment. 20% could be related to Brent or some products related to Brent And the rest of the 20% is JKM or NBP, I mean. And what is happening in the gas market is not only affecting negatively to the heavy hub, also to the NBP in Europe and to the JKN in Asia. That means that half of our gas production more or less has been impacted by these negative prices impacting in our lower upstream EBITDA. That is the main explanation for that.
And lower productions, I mean, has been compensated by higher production in some other places, so mainly price. Thank you, Thomas.
Thank you.
Thank you, Thomas. Next question comes from Matt Loftin at JPMorgan.
Yes, thanks for the presentation. Two questions, if I could, please. First, just coming back to the downstream and within the sort of the comments that you made, Chesse, John, around IMO, could you talk about the extent to which you're already seeing pre stocking or middle distillates playing out in the market? And then secondly, thinking about light heavy spreads, how the recent change in Mexico on the Meyer price formula affects your view on light heavy spreads and the crude diet going into 2020? And then secondly, just sort of coming back on production, we've obviously seen modest negative revisions to previous quarter, but the 2020 targets have remained unchanged except they're sort of linked to value over volume.
But can you talk about the conviction that you have still around being able to take production higher in 2020 and the main building blocks that get you to somewhere in the region of 750,000 barrels a day? Thanks. [SPEAKER
JOSE RAFAEL FERNANDEZ:] Thank you, Matt. I mean, I agree with your point. I mean, the inventory building process is impacted in a positive way. But it seems to me that in terms of middle distillates that is going to go on, happening also in 2020, 2021, 2022 because the effect of the IMO is going to be my perception structural. Going to the supply side, I mean, I tell your point.
I think that you are right that the Maya price in formula is affected. And September has been the best example. But let me elaborate a bit more. I think that that could affect to some volatility in the short term to some contracts and so on. But in the structural terms, I mean, every producer has to adapt the price to the fundamentals of the market.
And in terms of heavy oil, it's true that a higher offer probably is not going to be at our glance in the short term there, because I mean today there is a shortage of restriction of producers in the world. But we have to take into account 2 effects. 1st, the appetite for lighter oils is going to grow and is growing and it's going to grow in coming weeks, months because people with low conversion systems are going to need more or lighter oils to be in their specification to produce this very low sulfur fuel oils and so on. So that is going to affect to the appetite for heavy oil. And the heavy oil is going to have a competitor in the market in terms of feedstock.
I mean, we have our system fully prepared and we do all that when the prices and the margins are there to substitute heavy oils by what I call the bottom of the barrel that is finally the high sulfur fuel oil that is, let me say, the bottom of the barrel after our vacuum distillation process. So that means that these prices in terms of heavy oils are not there. We are going to choose. We are going to select this kind of feedstock that it seems to me that it's going to be oversupplied in the market in coming months because you are seeing the discounts in the high sulfur fuel oils in the market. People is going to try to get rid of this kind of products.
Perhaps we are going to see some kind of demand in Asia and so on for some other applications. But and useless, but I think that we are going to see in structural terms higher discounts for this kind of heavy feedstocks. So it seems to me that in structural terms, Maya producers and heavy oil producers, they will adapt their view to these prices in the market because otherwise they are going to be out of competitiveness in the market. So I'm let me say slightly, you know that I'm Matt, I'm quite proud of, but I'm slightly optimistic related to the IMO impact and the positive impact for refining system like Repsol's refining system that is a system with a high conversion and fully prepared to capture the advantages of these changes. And let me say, I mean, people are saying, I'm able to produce very low sulfur fuel oil and so on, I mean, it's okay.
We are also prepared, but the best thing is not going to be be prepared to produce very sulfur very low sulfur fuel oil. It's going to be being prepared for getting rid of any kind of fuel oil production. And we are there. On top of that, I mean, of course, that depending on prices, margins and so on, we will be able and in Tarragona, we are doing that, we are prepared for doing that. We are able to produce a very low sulfur fuel oil, but we have the optionality.
And let me say, I mean, I never know what is going to happen in the future in prices terms, because you know that things change and things sometimes are different from what we expect. The most important thing in this life is being flexible, because if you are flexible, you could take opportunities depending on what could happen in the market. And the main advantage of our refining system is that is a very, very, very flexible system. We could produce or we could process heavy oils. We could process fuel oil.
We could process, why not, medium API oils depending on the margins and so on. But it seems to me that in coming months, we are going to have a great opportunity having a feedstock heavier. The crude diet is going to depend, of course, of prices, but you know that we could achieve a figure close to 50% more or less of heavy oil. In our feedstock, 50% could be heavy oil, 30 crudes, I mean, average API like euro and so on, 20, 25 lighter oils. But let me say that if we could instead of distillate or distillating heavy oils to process directly to in our conversion units fuel oil, we are going to do that.
And if margins in heavy oils are not there, we could reduce the feedstock of heavy oil increasing depending of the optimization of our programming work. You know that we are applying all kind of digital techniques to optimize in a better way this programming, we could change our feedstock. Going to your second question, Matt, guidance on production in 2020, also flexibility. I mean, I'm going to do one thing that perhaps Assio has not to do that, that is to take a wide range. I mean, we are going to be something in between 720,000 barrels per day in 2020 and 750,000 barrels per day.
It's going to depend on prices and margins and it's going to depend of course of the speed of this portfolio rotation in the E and P. I'm going to do, of course, my best to be in 750,000 barrels per day. But let me underline again, if we don't see value on that, the figure could be closer to 720,000 barrels per day in 2020, because we are going to prioritize value over volume. Thank you, Matt.
Thank you, Matt.
And next question
comes from Chris Kaplan at Bank of America.
Thank you, Ramon. And Jose, just two quick questions for me. Perhaps, firstly, on your 2020 guidance, I appreciate you're telling us that this is on track, but perhaps you can tell us a little bit more about how you feel about the underlying assumptions. After all, your 2019 EBITDA guidance has come down quite a bit from the start of the year to now 7,500,000,000 dollars So just checking, dollars 50,000,000 Brent and $8 indicator margins gets you to your 2020 guidance. I just wondered how you feel about both those in light of recent macro moves.
And then the second question, you obviously announced your intentions for a new buyback already with last quarter's results. And again, wanted to ask you how you're feeling about the progress regarding the buyback that's underway to offset the scrip and your willingness to, given that you are seeing, as you're highlighting today, impacts from the IMO, positive impacts on the IMO from the IMO, your willingness to employ that new buyback program early or any sort of time frame you could give us? Thank you.
Thank you, Chris. I mean, first of all, related to 2019, in my first speech, I talked about EUR 7,500,000,000 of EBITDA, taking into account the current commodity prices and so on in 2019. Related to 2020, let me say that I'm quite comfortable today with the assumptions of our strategic update of 2018. Of course, I'm very comfortable related to the $8,300,000 as margin index dollars per barrel guidance for 2020. On top of that, of course, we are flexible, we are very efficient, we could have an additional gain or premium coming from the operation on that.
I don't know what could happen with the oil price, of course, because I don't have the crystal ball. But I mean, under the assumption of $50 per barrel as a hypothesis, it seems to me that in terms of guidance of 2020, we are going to be fully aligned with our expectations of the strategic update we presented in 2018 and the assumptions for the year 2020. I mean, it seems to me that today, the sound in the market could be that perhaps the oil price could be a bit higher than $50 per barrel in 20 20. But of course, that is not in my hands and I prefer not speculating about that. Going to the progress of the buyback, I mean, first of all, any underlying risk that until the end of 2020, I mean, we are going to need more than 215,000,000 shares in our hands.
That's more or less the 15% of the total amount of shares of Repsol. That is the commitments related to the 2019 buyback zinc to the strip. The additional 5% we are going to approve, we are going to present in a firm way and it seems to me that our AGM is going to approve in May. And the 2020 buyback linked to the next strip. So that means that there is plenty of room in coming months for new buybacks program launched under the current regulation.
Our first step was to launch at the end of August a program to buy the shares we needed to redeem the new shares coming from the 2019 script. We will complete this program the following days. And after the completion, we will amortize the 71,000,000 shares that we need to avoid the dilution coming from 2019 script. And on top of that, of course, our aim is to build before the AGM opposition equivalent to the shares needed to execute the AGM decision of this additional 5% buyback. But in the meantime, and at these prices, as you may understand, we will be open taking into account that we see value at the current stock price to keep going a significant number of treasury stock in the balance sheet of the company.
Of course, always from there the limit defined by law. But you were further, I think in your question, Chris, in case I mean, you know that when I expressed in July my firm conviction of using the additional cash flows to use in this capital allocation process. These additional flows to support our firm proposal to the AGM in May, I said that in case of having, I mean, more cash, having a lower debt, We are going to prioritize, of course, organic growth projects, creating value for the company as much as we can. But as I said in July, Crist, if we see room after boosting growth to additional buybacks, we'll do it. I mean, I have repeated this message many times.
I was very comfortable in July proposing this additional buyback, and I keep going this view. If we have a similar cash situation next year, and I can't of course commit the decision of the Board of the AGM. But if we have a similar cash situation next year, then I'll propose an additional buyback to our Board in the same terms because I have a concern because the dilution of our shareholders experienced from 2012, 2016. And I'm going to do my best to offset partially this dilution, redeeming a part of those issue of this, let me say, dilution amortizing new shares in the future. Thank you, Chris.
Thank you.
Thank you, Chris. Next question comes from Irene Himona of Societe Generale.
Thank you, Arun. Good morning. I had 3 downstream questions, please. Firstly, can you tell us what Mexico's contribution was to the 9 month 3 month downstream EBIT, please? Secondly, you spoke about the low carbon businesses.
Have they made some financial contribution in the year to date? And then finally, looking at the 9 month Downstream EBIT, it appears that trading has contributed more than LPG. So trading seems to be doing very well. Can you talk a little bit about whether this was opportunistic? Or have you perhaps made some changes to that business?
And what you expect going forward? Thank you.
Okay. Going to Mexico, Irene, thank you. I think that this year we are going to be in this development phase close to EBIT breakeven in the Mexico service station business. That is going to be so that means that in EBIT terms, there is not a contribution to the behind. We are building the position.
We have today 215 service stations in operation. We have signed contracts, I think, by for 310 service station, and that is the contribution to Evittis. Today, breakeven is neutral. In terms of a low carbon business, we are going to be in EUR 85,000,000 of EBITDA, it seems to me at the end of the year. So you could calculate more or less we are the Q3 has been a good quarter.
I mean, let me underline that this September, we have produced in our plants the 3.7% of the total Spania power production, 3.7%. I mean, that is an important figure taking into account that we start 11 months ago building our assets. And we have to take into account, Irene, that all the renewable projects are on track. That means that they are not giving any cash or any EBITDA today. They are consuming cash because we are in the development process.
But even though taking into account that we have produced a 3.7% of the total Spanish gas production in September. Trading, as you said, seems to be very well. Our performance is growing. And I think that the main drivers are, of course, I can say, and that's true that we are improving our fundamentals, we are increasing our performance, all that is true. But the most important thing are that we are growing in 2 new businesses.
The first one is that the growing production in our upstream and the higher linkage that is growing again and again among our upstream and our trading is increasing the asset base of our trading business. So let me say that this growth of our trading business is structural. And the second reason is the biofuel business. Today, I mean, it's perhaps a hidden value that is there. We are not perhaps, let me say publicizing too much all that, but today we are producing in our refineries 1.4000000, 1.45000000 tons of biofuels per year, mainly biodiesel.
We are one of the main European biodiesel producers today. And we are producing 1,400,000, 1,450,000 tons of biofuels in our refineries. And our trading business is taking advantage of the opportunities to trade with this bio. So this biofuel production is increasing the result of refining business. In some cases, we are not only using digital oils to produce this biofuel.
We are also using products, waste is coming from the circular economy and so on. Waste is coming from plastics to feed our refineries. And the third factor is the shipping unit of the trading business that someone of you, I think that it was Michele, no Michele, it Oswald in his question about the freight and so on, all that is impacting in a positive way in our trading business. Thank you very much, Irene.
Thank you.
Thank you, Irene. Next question comes from Arwin Thomas at Exane BNP.
Hi, good morning guys. Just a couple of questions from me. Just to clarify in the refining business, what premium do you expect in the Q4 given some of the movements to the benchmark and possibly into next quarter? Just follow that up actually with to try and get your thoughts on the Chemicals business outlook and whether you're still with the guidance you provided at the Downstream Day. And I guess just if I could just touch on the low carbon business.
Are you on track given where you're expected to be on the number of customers? And are you experiencing any increased competition in that area? Thank you.
Thank you, Alwyn. First of all, I mean, the average of premium over the 9 months, I think that has been at around $0.8, dollars 0.9 per barrel. So I don't know exactly what is going to be this premium in this quarter. But I mean, I only want to remind you that we have captured this 0.8 having the turnaround process of Cartagena in September. In October, for 3 weeks, Cartagena has been also in the planned turnaround process.
So I mean, we could be something in between, I don't know, 0.6%, 0.5%, 0.6%, I don't know exactly the figure. But taking into account the turnaround process of October and the average of the year, I think that we are going to be there. And let me say in case that I think that fortunately that is not going to happen, but in case of seeing lower margins because the fundamentals of market are changing, all that is going to give us more flexibility than in this case perhaps this premium will be higher than $400,000,000 $500,000,000 $500,000,000 $600,000,000 But I think that we are going to be there, but I mean I can't anticipate in an accurate way something that still has to happen in operational terms. Going to the chemical business, I'd like to remind you, first of all, that we have non scheduled 40 days low production period in Sines, in the cracker of Sines in the 3rd quarter. That was, of course, overcome.
And that has impacted in a negative way the result of the 3rd quarter, as you saw in our financial statements and in our accounts. So due to this unexpected plant, operational penalty, because the chemical business is the most in some way exposed to the economic slowdown in the world and what is happening over the last weeks is impacting in margins in the chemical business and because we are going to be fully stopped in October November in the Tarragona's cracker because that is the plan turnaround that in our pluriannual turnaround process. It seems to me that the EBIT in 2019 is going to be closer to EUR 300,000,000 in the chemical business to the previous expectation we could have some months ago. For 2020, taking into account that the margins, they are going to be a bit lower and that we are not going to have, let me say, the big turnaround process in Tarragona, it seems to me that we could have something close to EUR 320,000,000 EUR 325,000,000 as EBIT in our budget for coming year. But I mean, we have to see, of course.
Excuse me, We are experiencing, of course, higher competition. As you said, your point okay, but let me say that we are performing in our growth of our customer base better than the plan we have. We are happy because all that is happening in a very competitive environment. I think the figure I have in mind is that we are adding 4,005 100 new clients every week. So I think that one of the strong points for Repsol to do that is that we have 10,000,000 clients in Spain.
So we are offering in some way a multi energy approach in a customer centric business that we are building, that I'm sure that is going to give us a strong competitive advantage also in this business. Thank you, Alwyn. Thank you.
Thank you, Alwyn. Next question comes from Lydia Rainforth at Barclays.
Thank you and good afternoon. Two questions if I could. The first one, could you just talk about what you're thinking about CapEx
for the renewables and low carbon business, just in terms of the within the CapEx budget at the moment? And then secondly, just to go back to the digitization and efficiency program, where are you seeing the progress ahead of schedule? And are there areas that still you think there's more improvements come from that? Thanks.
[SPEAKER JOSE RAFAEL FERNANDEZ:] Thank you, Lydia. I mean going to the CapEx side, when I express my guideline or my guidance for the full CapEx figure for 2019, and I said that we are going to be slightly below EUR 3,500,000,000, I'm including there the renewable CapEx that you note of, I mean, this year is not going to be very high because we are starting and launching the engineering part of this new windfarms and photovoltaic solar plants. And my best approach today for 2020 is that the renewable CapEx is going to be at around EUR 500,000,000 in 2020, €400,000,000 probably in projects already approved and €100,000,000 in other developments, building pipeline and so on. I mean, you know that we are open always to a small inorganic operation in terms of I mean, having catalyst to booster or to bolster the growth in this business, but the growth is going to be mainly organic. So EUR 500,000,000 CapEx for 2020 in this low carbon business is a figure I'm comfortable with.
Going to the second one, I mean, the improvements are going to be in cash flow for operation terms, the figure I have in mind is EUR 215,000,000 this year in 2019. They are going to come in a 40%, 45% from our industrial businesses. Industrial businesses in areas that are linked in some cases to everything related to a safe environment with several failures in I mean autonomous connected plants in our refineries a more dynamic planning process, as I expressed before when I was talking about the optimization of the programming of the refineries and so on, apart more or less 12%, 13% is in the commercial businesses. And in the commercial businesses, when I was talking about what how we are growing in the power and gas business and the customer centric strategy. I mean, the digital is playing a crucial factor is a crucial factor in this growth and in this opportunity.
I mean, improving the decision making across the whole value chain and optimizing the pricing, the offers to our customers and so on. And 40% more or less comes from the E and P. And the E and P, I mean, the optimizing asset development, reaching excellence in exploration, developing the one of the projects we have and is very interesting is the global drilling unit, where we put all the knowledge we have in terms of drilling wells and so on, putting together the experts to that and using the digital and communication tools we have to put all this knowledge together. We are increasing the reducing the turnaround time. We are increasing the efficiency of our plants.
The concept of IOC around some assets where we are applying the same work has been developed mainly in the North Sea over this last year and €80,000,000 in the E and P are coming from this approach. €10,000,000 more or less are going to be in the corporate side. And you said, is there more room for improvement? I mean, coming months. For being scaled up in coming months.
We have on track new initiatives and the target we have and you know Lydia that we do all our best to fulfill our targets is to have €3,000,000,000 in 2020 coming from the cash flow of our operations from the digital and EUR 900,000,000 by 2020 or in 2020. We are we have the projects to be there in 2020. But by 2022, we are scaling up. We have still a gap, but we are going to do our best to be there. Thank you, Lydia.
That's really helpful. Thank you very much.
Thank you, Lydia. Next question comes from Jason Kenney at Santander.
Thanks for taking my questions. Just wanted to look at the cumulative CapEx number, if I may, over the 2018 to 2020 period. And I'm wondering where you think the €11,000,000,000 base might end up. And then the €4,000,000,000 growth and expansion, if that might be significantly below because of some of the back loading of that growth and expansion or the lower spend that we're seeing coming through? And then if I may, just a quick one.
Tax, I think at 40%, I was looking for 39% in the 3rd quarter. Is that kind of a stable position for the Q4 and going into 2020 as well?
So thank you, Jason. I mean, if we go to the CapEx expectation for 2018, 2020, remember, as you said in a right way, that 11, they are going to come from current businesses 8, upstream 3, downstream and 4, for the downstream expansion. I mean, it seems to me today that depending of the activity in upgrading the portfolio of the upstream and so on, but we are going to be something in between, including all kind of organic and inorganic activity in the E and P, something in between EUR 7,000,000,000 and EUR 8,000,000,000 in the whole period 2018 2020 for the upstream. So something in between 7% and 8%. In the downstream case, we are going to be in the figure of 3.
And the low carbon and downstream expansion business, it seems to me that we are going to be €1,500,000,000 1,700,000,000 below what we said in our strategic cap date. All the but I have to mean, you have to take into account that these projects we are launching now, they are going to consume some CapEx in 2021 and so on, EUR 400,000,000 EUR 500,000,000. That is not going to be committed and expanded in 2020. So that means that in overall, the figure could be something in between below the commitment in 2018, €1,500,000,000, 2,500,000,000 below that figure, the whole €15,000,000,000 That is my best approach today to this figure. Thank you, Jason.
And related to the tax, yes, I mean, the average is depending on the mix of our profits. You have 25% in the downstream more or less, and you have something close to 45%, 48%, close to 50% in the E and P and depending on the mix, you are going to be, I mean, close to 38%, 40% in the Q4. Thank you.
Thanks.
Thank you, Jason. Next question comes from Peter Low at Redburn.
Hi, thanks. Just a couple of quick follow ups. The first was just on the guidance for €4,500,000,000 of EBITDA from the upstream division this year. That implies quite a step up in the Q4. Is that simply reflective of a more positive commodity price outlook?
Or are there some other factors there that should support the 4Q results? The second was just a follow-up on your onshore gas assets in the U. S. Can you talk about profitability at current Henry Hub prices and what you're doing to respond to the lower pricing environment there? Thanks.
[SPEAKER JOSE ANTONIO ALVAREZ ALVAREZ:] Thank you, Peter. Related to your first question, I mean, we have not seen any kind of change in terms of commodity prices and so on. The main driver behind the EBITDA increase in the 4th quarter is mainly production. Production that I don't have in mind exactly the average of October has been at around 330,000 barrels, 330,000 barrels per day in October. So it seems to me that being at 701,000 in the 9 1st months and having the expectation of 710,000 for the whole year, it seems to me that we are going to be close to 730,000 barrels per day more or less in the Q4 in the E and P.
So the main driver is this one. Going to the onshore USA profitability at current prices, what happen if the prices goes lower? I mean, as I said before, we are not going to drill new wells in the Marcellus below, I mean, dollars 2.3 dollars 2.4 dollars per million of BTU's price. That means that we are adapting our capital expenditure program in the unconventional in North America to these expectations. So we have this flexibility.
And you could see, of course, in that case, let me say, lower productions. In the oil case and in the Eagle Ford case, where we have the advantage of focusing more in the liquid part of the Eagle Ford, I mean, we are not going to suffer in this dramatic way this potential downside coming from commodities. But my point is we are prepared for all that. The cash flow from operations in Marcellus could be at around 300,000,000 dollars in 2019 in the whole year. So I mean, in case of seeing, let me say, lower gas prices, this figure is going to be slightly below.
But I mean, I'm coming the current prices for these guidances and I also I have in mind that, I mean, theoretically, winter in seasonal terms could be perhaps a bit better than summer, but we are not taking the let me say this upside in our guidance. Thank you, Peter. [SPEAKER JOSE RAFAEL
FERNANDEZ:] Thank you, Peter. That was our last question. We have received a question by email from Fidentis regarding the crack spreads between the spreads differences between heavy and light crude oil, but I think that been already extensively covered regarding the questions around IMO. Before we finish, I'd like to highlight that next Monday, 4th, we are hosting our 6th edition of the Sustainability Day in London with the assistance of Josue John, our CEO. So for those who are attending, hope to see you there.
So for you, see you on Monday. On Monday. Yes.
So at this point, I'll bring our Q3 conference to an end. Thank you very much for your attendance.
Thank you. That does conclude our conference for today. Thank you for participating. You may all disconnect.