Hello, welcome to the Repsol Q2 2019 results presentation. Today's conference will be conducted by Mr. Josu Jon Imaz, CEO. A brief introduction will be given by Mr. Ramón Álvarez-Pedrosa, Head of Investor Relations. I would now like to hand the call over to Mr. Alvarez-Pedrosa. Sir, you may begin.
Thank you very much, operator. Good afternoon. This is Ramón Álvarez-Pedrosa, Head of Investor Relations. Welcome to Repsol's Second Quarter 2019 Results Conference Call. Today's call will be hosted by Josu Jon Imaz, Chief Executive Officer, with other members of the executive team joining us here in Madrid. Before we start, I advise you to read out our disclaimer. During this presentation, we may make forward-looking statements which are identified by the use of words such as will, expect, and 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 Josu Jon.
Thank you, Ramón , 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. Thirdly, an update on the outlook for the rest of 2019. Finally, the board proposal to implement a share capital reduction to improve shareholder remuneration announced this morning. Let me begin by reviewing the key messages. During the second quarter, the industry has faced a volatile market environment, marked by weaker international gas prices and a challenging environment for refiners in Europe. Even in this context, Repsol has been able to deliver a resilient set of results with a strong operating cash flow generation in both upstream and downstream.
At the macro level, Brent oil averaged $69 per barrel in the quarter, 9% higher than in the first quarter of the year, but 7% below the same period of 2018. In the gas markets, Henry Hub decreased by 16% quarter-on-quarter and by 7% compared to the second quarter of 2018. Price references in Europe and Asia experienced significant declines too. Our refining margin indicator averaged EUR 3.50, bottoming out in June at levels not seen since 2014. A combination of a stronger Maya and fuel oil together with weaker middle distillate spreads impacted our margins negatively. The current CCS margin was higher than the indicator. Finally, the positive impact of a stronger dollar partially offset the worst commodity environment. Operating cash flow in the second quarter amounted to EUR 1.4 billion, a 70% increase year-on-year.
Upstream continues to be a significant cash contributor to the group, benefiting from the relative strength of the oil price while reducing its cost base. In downstream, our weaker refining was compensated by the resilient performance of the rest of the businesses. As of June, the group's accumulated cash flow from operations amounted to EUR 2.5 billion, 47% higher than in the first half of 2018. Operating cash flow more than covered CapEx, financing cost, and shareholder remuneration in the quarter and in the first half of the year. Upstream production was roughly flat quarter-on-quarter. As factor in our budget, volumes were impacted by plant maintenance in Trinidad and Tobago. Compared to the second quarter of 2018, cash flow from operations increased by 27%, and CapEx was 25% higher year-on-year.
On the development side, quarterly activity focused on the efficient delivery of projects and the high-grading of our portfolio. In the Gulf of Mexico, the development of Buckskin started production ahead of its planned startup date, delivering significant cost savings. In downstream, the weaker EBITDA contribution from refining was offset by improved chemicals. A solid quarter in Peru and better performance in the commercial businesses. The cash flow from operations amounted to EUR 630 million, EUR 436 million higher than in the same period of 2018, which was impacted by a significant working capital buildup linked to higher inventories and the increase in oil prices. In low-carbon, consolidation of the business continued both in retail and in the low-emissions power generation.
After quarter closing, we announced an agreement to develop three new renewable projects in Spain, two wind farms and a photovoltaic power plant with a total installed capacity of 800 megawatts. At the group level, net debt remained flat at EUR 3.7 billion, or EUR 7.5 billion if you like, if we include leases. This figure includes the investment of EUR 0.3 billion in treasury shares during the quarter. Liquidity at the end of June represented more than 1.6 x our short-term gross debt maturities. Finally, the annual general meeting held in May approved the board proposals to increase the annual shareholder remuneration to the equivalent of EUR 0.95 per share in 2019, and to implement a share capital reduction to offset the dilution associated to the scrip. In the July dividend. The acceptance of the scrip option remain high at 72%.
Later, I'll discuss the agreement taken by the board to propose a 5% share capital reduction by the cancellation of own shares. Now, let me move on to the operational highlights of the quarter. Starting with the upstream, second quarter production averaged 694,000 barrels of oil equivalent per day, 1% below the first quarter, and 4% lower than in the same period of 2018. Quarterly volumes were impacted by the planned maintenance activity in Trinidad and Tobago. Higher volumes in Libya were partially offset by a lower production in Peru, mostly due to an unscheduled shutdown of the Peruvian LNG plant. Production in Libya stayed close to plateau for the full quarter, averaging around 39,000 net barrels of oil for Repsol. The situation in the country continues to be complex. In July, operations remained stable until last Friday, when production was interrupted for two days.
The incident was solved and operations were fully resumed by Monday morning. Turning now to the development activity in our projects. In Buckskin, another deepwater project in the Gulf of Mexico, we reached first oil after the connection of the first producing well. The project has come online six months ahead of schedule with more than a 40% cost reduction and a break-even 30% lower. This first phase is expected to reach a gross production rate of 30,000 barrels per day. In addition, Repsol reached an agreement with LLOG, the operator of Buckskin, to develop other deepwater assets in the Gulf of Mexico. The agreement involves Leon, discovered by Repsol, and Moccasin, operated by LLOG. Both discoveries are less than 20 mi apart, which provides opportunity for our co-development.
In Alaska, Repsol and Oil Search entered into an agreement to align ownership interest in the Pikka unit and in surrounding exploration blocks. Based on the recent successful appraisal campaign, a potential decision to enter the engineering phase could be taken during the second half of the year, with a final investment decision potentially in 2020. The partners are considering various development options, including the possibility of an early production with first oil in 2022. In exploration, seven exploratory and two appraisal wells were concluded. Five wells were declared positive. One is still under evaluation, and the remainder wells were deemed unsuccessful. Our exploration schedule for the second half of 2019 includes the drilling of eight wells. In Guyana, one of the focus areas for our near-term exploration strategy and exploratory well in the Kanuku block will test the Cretaceous play.
In Brazil, the appraisal of Sagitario is planned to start before the end of this quarter. Finally, in the Gulf of Mexico, the second appraisal of Leon is expected to start before year-end. In Indonesia, we are working on the upcoming appraisal of Sakakemang, after having fully analyzed the results of the Kaliberau Dalam discovery well, which confirm its high potential. In July, Repsol signed a memorandum of understanding with PGN on the sale and purchase of the gas. Subject to approval, this is a significant milestone for an early production of this discovery. Furthermore, this agreement confirms Repsol's commitment in supplying gas for the development of the Indonesian gas domestic market. Let me highlight that earlier this week, Indonesian authorities agreed to extend the production sharing contract for Corridor by 20 years, starting after the expiration of the existing contract in 2023. Moving now to the downstream highlights.
As discussed before, the refining margin indicator averaged $3.50 in the quarter. This was 34% lower than in the previous quarter and 51% lower year-on-year. Compared to the second quarter of 2018, narrower middle distillate and naphtha spreads, as well as lower heavy to light crude differentials impacted margins negatively. The current unit CCS refining margin was $0.80 higher than the indicator, thanks to the flexibility of our refining system, despite the planned turnarounds complete in the quarter. After the minimums of June, the indicator has recovered to an average of slightly above $5 per barrel in July, helped by stronger product spreads, partially offset by narrower heavy and medium crude differentials. Planned maintenance in our refineries included the turnaround of the coker in A Coruña and of the distillation unit in Bilbao, with no material impact on the utilization of our distillation capacity.
In 2019, we are accelerating the planned maintenance of our refineries to maximize plant availability during the period of maximum impact of the upcoming IMO regulation. In this sense, the turnarounds of Cartagena and Puertollano will start in September and in November, respectively. The chemical business delivered another good quarter of results, thanks to a stable international environment and improved operational performance. Compared to the same period in 2018, our margins benefit from cheaper feedstock, higher LPG utilization, and the absence of significant operational issues. The maintenance program in 2019 of our petrochemical sites includes the turnaround of the cracker in Tarragona on the fourth quarter. Our business in Peru had another good quarter supported on healthy refining margins. In the commercial businesses, the result of the mobility business was positively impacted by the start of the driving season.
Our expansion in Mexico continues progressing on track with 200 service stations operating out of 300 contracts signed. In low carbon, the recently announced projects in Spain are another step in developing and operating profitable low emissions business. WindFloat Atlantic, our offshore floating wind project in Portugal, has reached an important milestone with the start some days ago of turbine assembly. Our project pipeline, including Valdesolar in Spain, will add one gigawatt of additional renewable power generation to our portfolio, achieving 90% of our low emissions generation target to 2025. In the retail gas and power business, we have reached more than 900,000 clients, a 20% increase since completing, seven or eight months ago, the acquisition of the Viesgo assets. The results in the second quarter evidence once again the resilience of our downstream business.
While the refining margin indicator decreased by more than 50% year-over-year, the EBITDA at CCS, excluding the impact of IFRS 16, decreased just by 2%. This is due to the flexibility of our refining system and its integration with marketing and other downstream businesses. Our international expansion strategy aims to maintain this resilience and best performance in the future. Turning now to the financial results. I summarize the main figures for the second quarter of the year and how they compare with the same period in 2018. Second quarter 2019, CCS adjusted net income was EUR 497 million, a 9% decrease from the second quarter of 2018. Upstream adjusted net income in the second quarter was EUR 323 million, EUR 37 million lower than in the same period of 2018.
Lower prices and volumes were partially offset by lower exploration expenses, the appreciation of the dollar against the euro, and lower costs. Accumulated adjusted net income in the first half of 2019 amounted to EUR 646 million, in line year-over-year, despite the decrease of 6% in the price of Brent and the lower production volumes. Downstream adjusted net income in the second quarter was EUR 311 million, 8% lower than in the same period of 2018. The lower result in refining was partially offset by improving chemicals, a better result in Peru and in the commercial business. The accumulated result in the first six months of 2019 amounted to EUR 715 million, 6% lower than in the same period in 2018.
In corporate and others, the adjusted net income of the second quarter was EUR 137 million negative and an EUR 11 million improvement compared to the same period in 2018. Of course, as always, for further details on Repsol's results, I encourage you to refer to the financial statements and accompanying documents that were released this morning. At this point, let me go through our update outlook to the end of 2019. Our strategic update defined a clear path to grow operating cash flow by EUR 1.9 billion from 2017 - 2020 under a $50 flat oil price scenario. Following our results in the first half of the year, we are on track to deliver on the targets set to the end of 2020.
By year end, upstream new production is expected to contribute with EUR 300 million of incremental operating cash flow, and this represents 75% of our objective to 2020. RISE, that you know is the efficiency and digitalization program in the upstream division, is expected to deliver around EUR 300 million of sustainable operating cash flow improvement, roughly half of the target set for 2020. The contribution is coming from improved maintenance, reduction in logistic and decommissioning costs, and initiatives in gas commercialization. In the downstream, we expect around EUR 80 million coming from international margins improvement due to IMO to be captured in the fourth quarter out of the EUR 300 million expected for 2020 in our strategic update.
Efficiency and digitalization projects are expected to capture EUR 130 million of sustainable cash flow improvement in 2019, progressing on our roadmap of generating EUR 200 million in 2020, coming from profitability improvement measures. Low carbon and expansion initiatives in downstream will start to positively impact the results this year with an expected contribution of EUR 120 million to cash flow from operations.
Finally, in the corporation, we will see a 6% cost reduction by year-end as the company continues to work towards new ways of working, implementing lean processes, and ensuring our commitment to reduce costs by 9% in 2020. Altogether, we foresee an improvement of EUR 1 billion of sustainable cash flow from operations in 2019 coming from these levers out of the EUR 1.9 billion objective to 2020. I'd like to highlight the achievements in digitalization with more than 150 initiatives ongoing, out of which 50 of these initiatives are already scaling up. This transformational process throughout the company is enabling us to develop new business models, engage with our clients through an omnichannel experience, and continue to work towards operational excellence, both in our industrial sites and upstream projects. Finally, look at our full year guidance.
Following the refining margin weakness of the first half, we are revising our average refining margin indicator that we estimate to $6 per barrel in the whole year 2019. As a result, we are slightly adjusting our full year EBITDA at CCS to EUR 7.8 billion, mostly due to the lower refining margin assumption. Before moving into the conclusions, let me now discuss the share capital reduction that the board will propose to the AGM, as announced this morning. Our strategic update for 2018 to 2020 contemplated, first, a self-funded plan of $50 with a total CapEx of EUR 15 billion for the period. An increased shareholder remuneration to EUR 1 per share with a scrip option, implementing a share buyback to remove any dilution associated to the scrip. An increase of the total shareholder return associated to a higher dividend and improved financial metrics.
As we have discussed today, we are progressing on track to deliver on our strategic commitments in a more supportive price environment. The results in 2018 and our current estimates for 2019 and for next year point towards a higher cash flow generation to 2020 than originally expected. Taking all this into consideration, the board has resolved to submit for the approval by the 2020 Annual General Meeting, a 5% share capital reduction through the cancellation of treasury shares. At current prices, the associated disbursement will be slightly above EUR 1 billion, and I'd like to underline that this will be in addition to the share buyback and capital reduction to offset the dilution of the scrip.
This proposal preserves all our financial flexibility to maintain our organic CapEx and the expansion of our new low-carbon business, and is fundamentally based on the higher cash flow generation in a higher commodity price scenario compared to the assumptions of our strategic update. The performance of our share price, currently very far from Repsol's valuation of its businesses, and the liquidity and gearing level of the Repsol Group that provides a financial rationale to the purchase of treasury shares. I'd like to conclude by reaffirming our path to meet our targets to 2020. Despite a more challenging environment during the second quarter, we remain on track to deliver on our goals for 2019 and the objectives set at the end of our strategic update.
Second quarter results and a strong cash flow generation demonstrate the resilience of Repsol's integrated model, not only the balance between upstream and downstream, but also with integration within the different businesses in the downstream segment. We are maintaining roughly unchanged our EBITDA CCS objective for 2019, having factored for a lower refining margin indicator and a slightly lower production figure. We remain confident on the positive impact of IMO, for which Repsol is perfectly positioned. The startup of Buckskin project is an example of efficient delivery, alignment with our focus on short cycle, high margin, brownfield and exploration-led projects. The good news coming from Alaska, Gulf of Mexico, and Indonesia reinforce our commitment to deliver on our 2020 targets. We continue taking steps to thrive in the ongoing energy transition into a less carbon-intensive world, reshaping our portfolio to build the long-term options of the company.
Finally, the progress in the delivery of our strategic targets, our financial flexibility, and higher-than-planned commodity prices allow us to propose a share capital reduction that will further increase the value and remuneration to our shareholders, all within the cash allocation priorities set out in our strategy. With that, I'll now hand the call back to Ramón, who will lead us through our question and answer session. Thank you.
Thank you very much, Josu Jon. In case you run into technical problems during the webcast or conference call, please address any problems to our email address, investorsrelation@repsol.com, and we will contact you immediately to try to solve it. Before we move on the Q&A session, I would like the operator to remind us of the process to ask a question. Please go ahead, operator.
Thank you, ladies and gentlemen. If you would like to ask a question, please press star and one on your telephone keypad. Star and one if you would like to ask a question. I'll hand back to Ramón Álvarez-Pedrosa.
Thank you, operator. Let me now move to the Q&A session. Our first question comes from Oswald Clint at Bernstein.
Thank you very much, Ramón. Josu Jon. Thank you. Two questions. The first one really on the downstream business, more on the marketing side. I wonder if you could just potentially give us the marketing earnings this first half of the year. Specifically, is there any contribution yet from Mexico? Really around this business, I see all of your product sales are also down around 4% or so for the first half of the year across all product types. Perhaps, within this topic, you could talk about what you're seeing in terms of demand. Secondly, I guess as a question more for next year, I'm looking at your carbon emission allowances and the EUR 100 million or so of costs that you had last year. I know there's some offsets and credits from your emission allowances. Those have now quadrupled in price.
I think about 2020 as some of the allowances roll off. I'm just wondering, is the cost of the carbon going to become a bit of a burden for your business going into 2020? Thank you.
Thank you, Oswald. Let me first of all say that at this moment, Mexico is in operating result terms, in break even, after one year starting the business there. We are on track and even performing in a better way than expected in result terms. Our Mexico business and the main result of our marketing business and mobility business comes from Spain and from Portugal. This quarter, the EBITDA could be at around EUR 200 million in this business. In the case of the carbon emission allowances, let me say that cost carbon is not a big burden for Repsol because in our refining and chemical business, we have reduced in a 20%, 22%, 23% our CO2 emission level in our Spanish plants over the last eight, nine years.
Today, we could have, let me say, a full exposure, in terms of needs of purchasing allowances of carbon rights at around slightly above 1 million tons per year, something like that. Let me say, we are on track of go on reducing our CO2 emission level in our refineries. We have a quite ambitious project on track to reduce in a 25% by 2025. The current emission level we have in our plants, that means that we are going to be very close to the break-even in the short term in our industrial plants. We are very efficient in energy terms. That is very important, not only in order to reduce the cost of carbon or CO2 tons, but mainly because we are reducing in a dramatic way the energy cost of our energy needs in our industrial plants.
That is not a burden today for Repsol. Thank you.
Thank you, Oswald. Our next question comes from Thomas Adolff at Credit Suisse.
Good afternoon. A couple of questions from me, please. Firstly, just on your 2019 guidance. You've tweaked your EBITDA guidance somewhat. I'm just wondering if there's any contingency buffer or is this your best estimate? Within that, what upstream production is assumed for 2019? Secondly, just going back to the additional buyback. Should I view this as a one-off, or can it be more recurring, maybe not necessarily at that run rate, but some form of a commitment to return more via buybacks on a more sustainable basis? Then maybe finally, just specifically on this incremental buyback plan. Are you confident that this can all be funded organically without using the balance sheet? In that scenario, what sort of a CapEx inorganically is assumed? Thank you.
Thank you, Thomas. Going to the EBITDA guidance. We are assuming upstream production, something in between 715,000- 720,000 barrels per day for the whole year. If you take the €3.7 billion of the first half in EBITDA terms, and take into account that we are forecasting a higher refining margin in this half of the year, and that the production of the upstream is going to be at around 30,000- 35,000 barrels per day higher, the second half comparing with the first half, mainly coming from the Buckskin , coming from the Marcellus, coming from Peru, and so on. Taking all that is the rationale behind this EBITDA guidance. Going to the buyback. What is the rationale, first of all?
In this half, with low refining margins and a half of the period without Libyan production, we have been able to invest more than EUR 1 billion, maintaining the debt in a low level of EUR 3.7 billion. Our best guidance today, at current oil prices, after building the inventory level we need at these prices, consuming the working capital we needed is to achieve a cash flow from operations EUR 1.1 billion above our strategic estimations at the end of 2020. On top of that, due to efficiencies, as the Buckskin project execution shows, the upstream business CapEx execution in the period of 2018-2020 could be EUR 1 billion below our strategic guidance. Saying more, because we are prioritizing the return in our low-carbon business, and this return is going to be both building our own capabilities and through greenfield projects.
Probably a part of this CapEx, the EUR four billion committed to the expansion of downstream and low-carbon business, will be committed but not executed at the end of 2020. We will be EUR two billion or EUR three billion below the debt level forecast by the end of 2020. That take into account this net debt, the EBITDA ratio, that in our strategic update goes below 0.7 at the end of the strategic plan. Let me underline that there is plenty of room for this decision that our board took yesterday. In any case, we are going to prioritize organic growth projects as much as we can. Leon-Moccasin, CP0-9, Sakakemang, or the development of 1,000 megawatts of greenfield renewable projects is a good example of that. I said from the very beginning to you, if we see room after boosting growth to additional buybacks, we'll do it.
I have repeated this message many times, and let me say that I'm very comfortable today proposing this additional buyback. That let me also underline, it's the first net new and real buyback in Repsol history. Because, the rest of the buyback, the buyback after the scrip and so on, they have the aim of offsetting the dilution coming from the scrip. This is a net new and real buyback. I'm going to say more. That is one shot, of course. If we have a similar cash situation next year, and if we see that the cash flow from operation is above our expectation, I'll analyze to propose an additional buyback to our board. Also, if we have the same conditions. Let me say, I have a concern because the dilution our shareholders experienced from 2012 to 2016.
Let me underline, I'll do my best to partially offset this dilution, redeeming a part of those issued new shares in this period of time. Always under the principle, of course, of financial discipline and always prioritizing the organic growth we could have with returns that could increase the value of the company and the value of our shareholders. I think that the third is combining cash flows and CapEx is answered. Thank you, Adolff.
Thank you.
Thank you, Tomas. Next question comes from Chris Kuplent, Bank of America.
Thank you and good afternoon. Similar question, I think. If I may, a bit more detail. If you're keen, as you just answered, on potentially buying back more shares, can you perhaps comment about any appetite to raise DPS? How do you feel about currently a 7% dividend yield or more? Are you basically saying, for now, returning cash to shareholders via buybacks is a more profitable route as you see it? I appreciate you've given us DPS outlook guidance for 2020, but just a bit more color in terms of how you prioritize between the two ways of returning cash back to shareholders. Lastly, you mentioned already upside to your 2020 cash flow from operations outlook. Perhaps you can give us a little bit more detail because, of course, famously, that existing outlook was based on $50.
On what basis are you making these statements that you can see more than a billion upside to that existing guidance, please? Thank you.
Let me say, first of all, that as you said, Christopher, there are a lot of options to increase the remuneration of the shareholders. I think that today, the share buyback is a practice adopted by most of our peers, and we believe that it's the best way to increase value for our shareholders under the current market conditions. We can't ignore that today our dividend yield, taking into consideration the current share price, is very close to a 7%. In some case, buying back new shares, we are, at the same time, increasing the earnings per share of our shareholders, and we are increasing the value of the share of Repsol and the value for our shareholders. We think that is the most efficient way to do that.
The estimation we are taking to calculate this operating cash flow is mainly the current oil price basis, plus the refining margin we are taking in this second half of the year, plus our estimation of the IMO effect for 2020, and the increase of production coming from the upstream. If we take all that, today our best estimation for the period 2018-2020 is that I have in mind the figure, I think that, otherwise, correct me, please, Antonio, that we had EUR 16.8 billion as cash flow coming from the operations in the whole period of 2018 - 2020. We are going to check the figure now, because I have in mind this figure. Our expectation today is achieving the figure of EUR 17.9 billion of cash flow from operation over the whole period.
On top of that, I also underlined before the expectation about the evolution of the CapEx figure. The main rationale comes from the cash flow from operations. Thank you, Christopher.
Thank you very much. Just a quick clarification, if I may. Your views on the IMO impact for 2020 haven't changed from what you previously disclosed, correct?
It's an increase of $1.5 per barrel, for the whole period, 2020, due to the IMO effect, that we think that even now that you know that there is some kind of a volatile expectation about the IMO, depending the month we are in. Taking into account the 50% of heavy oil feedstock we have in our system, and the 55% of Middle East production, we think that $1.5 per barrel gaining the refining IMC is a quite a prudent guidance for 2020. Thank you.
Very clear. Thank you.
Thank you, Chris. Next question comes from Lydia Rainforth at Barclays.
Thank you very much, and good afternoon. Two questions, if I could. The first one, just coming back to the buyback. That does seem a change in the way that you're thinking about things. Can I just ask, in terms of where are you comfortable with gearing going to? Where do you think we'll be at gearing for the end of the year, and where would you be comfortable with that gearing level going, if you were to do additional buybacks? The second one, just, would you mind just talking about the downstream as it is right now, in particular, those light heavy crude spreads, and how you see that changing towards the IMO implementation? As an observation, things haven't played out this year quite as I think many of us expected it to. Thanks.
Thank you, Lydia. First of all, our best expectation this year, in terms of net debt as in December, is at around EUR 3.2 billion-EUR 3.3 billion of net debt at the end of 2018. In terms of gearing, if we take the current, I mean, with no buybacks, the forecast we had at the end of 2020 was an EBITDA. I'm talking about the strategic update. By 2020, at around EUR 8.8 billion, more or less, and net debt of EUR 6.1 billion. The net debt, EBITDA ratio, was at around 0.7 in our expectation in the strategic update. Today, we don't have any, let me say, concern regarding the EBITDA figure. Regarding the debt, under the basis I said before, we could have EUR 3 billion less in debt terms.
That means that we will be without any kind of action at around EUR 3.1 billion-EUR 3.2 billion of debt at the end of 2020, with an EBITDA of EUR 8.8 billion. That means at around 0.4. We are comfortable being below 0.7, 0.6. I'm going to say more. The average of the sector could be at around 1.1 x the ratio. We have plenty of room in terms of financial flexibility doing that. What is our outlook about spreads of heavy crude oil? We are experiencing, let me say, Lydia, a quite volatile environment and in refining margin terms. I mean, this morning, checking our system, this week, we are at $6.3- $6.4 per barrel. In the whole average of July, we are slightly above 5% this month.
A 4.5 has been the average of the first half, even some weeks we have achieved a figure of $2 per barrel in May, June. Our expectation regarding the second half of the year is a bit better. We are seeing that already in the middle distillate spreads that are today at around $16- $17 per barrel, increasing in a quite clear way, the refining margin. I'm going to say more. We are starting now seeing a slight improvement of the spreads in terms of heavy crude oil. Last week, we could have $ 5.5 of discount, and today we could have $1 more in discount terms, almost $7 per barrel. It seems to me that if we take in a serious way the IMO, and I think that that is going to happen, the discount on fuel oil, high sulfur fuel oil is going to happen.
Linked to that phenomenon, we are going to see wider spreads of heavy crude oil. Anyway, as I said before, we are quite prudent and only taking the effect of the middle distillate side and seeing the heavy crude oil at around $7 per barrel, we will achieve an improvement of $1.50 per barrel, because the IMO effect over the whole IMC of Repsol. Thank you, Lydia.
Thanks.
Thank you, Lydia. Our next question comes from Alastair Syme at Citigroup.
Good afternoon. I had a couple of questions just on some of the upstream portfolio development activity you've done this quarter. One was on Alaska. I noted that Oil Search said in their press release that they have the intention to sell down their stake in Pikka from 51% -3 5% ahead of project FID. I just wanted to find out whether it's your intention to try and keep it to do the same, to keep the ownership interest aligned. The second question was on the Corridor PSC extension that you mentioned earlier. I'm sure the terms are going to be confidential, but can you help frame for us what sort of concessions you've made to get the project extension or the contract extension? Thank you.
First of all, going to the Alaska project. We have entered Repsol and Oil Search into a key set of agreements to align ownership interest in the Pikka unit and in surrounding exploration blocks owned by the companies. In my perception, to align the interest of all the players in the Horseshoe area, in the Pikka area, in the exploration blocks surrounding the area was very important. Now we are working together, the two companies, analyzing and studying the terms of the development decisions we have to take in the future. From the Repsol side, we are very comfortable with the percentage we have today in Alaska. We don't have any kind of intention to divest or to dilute our share in the Alaska project.
Today, mainly based on the successful appraisal drilling campaign we have had this winter, it's likely that a decision will be taken to enter in the FID, that means in the engineering project in the second half of 2019. Our first approach today is after this stage to approve a potential final investment decision for the project within 2020. As part of this technical evaluation, the partnership, both companies, we are considering several various development options. One of them, perhaps one of the most probable includes an early production in Alaska with first oil in 2022. That is the best approach for that. Regarding the terms of the Corridor, let me underline that Corridor is an important area for Repsol. Mainly because it's going to give us an stability and a dimension to our activity in Southeast Asia.
On top of that, we have discovered Sakakemang. You know that Sakakemang is one of the most relevant discoveries in the last two decades in Indonesia. We are today a preliminary estimation of at least two TCFs of recoverable resources. Thanks to the extension of Corridor, we are going to have room to an early development of Sakakemang. Today, a quite reasonable and prudent target will be to have the first gas of Sakakemang by 2022. Taking into account that on top of that, we are going to be able to combine and to get synergies using facilities from both projects and so on, that is going also to improve the economics of both sides, the Corridor project and the Sakakemang project. In this extension, Repsol is going to have at around a 22%, 21.6%, strictly speaking.
The economic conditions includes a EUR 250 million bonus plus a EUR 250 million of exploration commitments over the time, because the extension is going to achieve. These figures are, of course, gross. That is not the 21.6% of Repsol. We are going to invest a minimum of this figure, but let me say, if we see opportunities, we are going to invest more because we are achieving the extension of the project till 2043. Thank you very much, Alastair.
Can I just clarify on Corridor? Do you think entitlement production in, say, 2025 will be higher than it is today, then, as a function of raising the gas volumes?
No. The production is going to be slightly below the figures we have today. In any case, I don't have today, now, the exact figure in mind because it's going to depend, of course, on the exploration side. If we are able to add barrels, and we are going to put all our effort there, we could have a similar production we have today. If we are not able to add these new barrels coming from the exploration, we could be slightly below. Let me say, we have a quite positive experience in the exploration side in Indonesia, in this area, and we are going to put all our best to try to maintain the current production we have in Corridor from 2023 on. Thank you.
Great. Thank you, Josu. Thank you for your time.
Thank you, Alastair. Next question comes from Biraj Borkhataria at RBC.
Hi, thanks for taking my questions. Two, please. First one on production guidance. One of the things you mentioned, or one of the areas you mentioned for the second half of 2019 was ramping up in production in Marcellus, which I was a little bit surprised by, given where U.S. gas prices are. Could you just clarify where production was in the first half of this year and what you're expecting for the second half? The second question, I know you've gone through this a couple of times, but just to clarify on the 5% share cancellation. Have you effectively bought back most of these shares already and they're sitting in Treasury and you'll look to cancel them post the AGM? Is the entire 5% based on an incremental buyback from today over the next year or two? Thanks.
Thank you, Biraj. Going to your first question, if you take our figures of this first half, you could see that the realization price of the Marcellus gas has been EUR 3.1 per million of Btu in this period. Today, after CapEx, our breakeven in cash terms is at around EUR 2.4 per million of Btu. We are working hard pushing down this figure and having a higher production in the Marcellus is going to be also a way to be more efficient, reducing, better said, the breakeven in price terms in the area. Because we have perhaps one of the best midstream in the area, we are one of the most efficient operators in the area. In terms of netbacks, we are a first quartile in the Marcellus. Even at these prices, we are getting money in the area after CapEx.
Going to the share buyback. I know that this issue of the execution of the new shares is quite complex in technical terms. I'm going to try to clarify and not to put more confusion in this issue. First of all, let me underline the fact that in coming 12 or 14 months, we are going to need more than 220 million shares in our hands. Almost a 15% of the total amount of shares Repsol had in December 31st. We are going to need these 220 million shares to redeem the commitments related to the 2019 buyback linked to the scrip, to the additional net buyback, the 5% we'll propose to the next AGM, and to the 2020 buyback linked to the next scrip.
That means that there is plenty of room for new independent buyback programs launched under the current regulation, and of course, depending on market conditions. Our first step will be in coming days or weeks, launching a new program to buy the shares we need to redeem the new shares coming from the 2019 scrip. That is going to be the first step in coming days or weeks. On top of that, our aim is to arrive to the AGM, having in our hands the shares needed to execute the AGM decision of this additional 5% buyback.
I'm going to add that in the meantime, and at these prices, as you may understand, we will be open, taking into account the undervaluation of the stock price, to keep going a significant number of treasury stock in the balance sheet of the company, of course, always under the limit defined by law. Let me say, it's a good investment. We are investing with no risk with a 7% of return, and we could finance ourselves in the market clearly below 1% for coming 10 years. We are not going to doubt or to hesitate to keep going a significant number of treasury stock in the balance sheet of the company. Is that enough clear, Vidas?
No, it's very clear. Thank you.
Thank you, Vidas. Our next question comes from Michele Della Vigna at Goldman Sachs.
Thank you. Congratulations on the good results despite the difficult macro environment. Two questions, if I may. The first one is about production. Could you give us the moving parts of how we get to around 750,000 barrels per day of production in 2020? Secondly, going back for one moment to IMO, are you already starting to see demand for IMO-compliant product? What do you think you can achieve in terms of refining margin premium in the second half of the year? Thank you.
Going to the reach in terms of production for 2020. Today we are, let me say, comfortable with the 750,000 barrels per day. I'm going to add a disclaimer. We could see some volatility variation depending on the gas production in Venezuela. Having 10,000 less or 10,000 more, in 2020, depending on the gas of Venezuela, it's not my concern today. As you could imagine, that is not the best option in terms of cashing the production. Saying that, we are quite comfortable with this gas production in Venezuela because, in the first six months, or better said, seven months of the year, we were paid enough, 45% the bills of the gas of Venezuela. The main production is going to come mainly from the Marcellus , from Norway, the Yme project is going to be there.
From Peru in some way, because the production has been lower in 2018 and 2019. We have some minor projects, the Duvernay, that is slightly growing, and that is behind the rationale of this production in 2020. Going to the IMO. I think that a lot of things could happen related to the IMO, but I think that the closer we are from January 1st, the more conviction we have that the IMO is going to happen and a main part of the fleet in the world is going to be compliant with the products. Being compliant means installing scrubbers. We know now that that is going to happen only in 12%- 15% of the fleet, not more. On top of that, they are going to have two options.
The two options are to include middle distillates, diesel, gas oil, low sulfur gas oil as product, or going to the very low sulfur fuel oil. That could happen. I'm not going to say that the very low sulfur fuel oil is not going to be an alternative. My point is that it's going to be a more expensive alternative. To do that, first of all, you need light crude oils with low sulfur content, and these products are going to be very expensive, believe me, from January on. Secondly, you need to blend this fuel oil with some other products, like the VGO, the vacuum gas oil, and so on. Let me say again, they are going to be, in this context, very expensive. Doing expensive things to put a product in the market, it's good news for Repsol.
That means that we are going to have plenty of opportunities to get high margins for the products we are going to obtain, producing with heavy crude oils, middle distillates in our fully converted conversion system. That could happen, but I see as a great opportunity for a refining system, the IMO scenario. We own the 8% of European distillation capacity, but we operate and we own a quarter of the total coking capacity in Europe. That is going to depend, of course, on the operation, it's going to depend on margins. You know that when you have higher margins, you are more adapted to the programming you have. That means that you are going to capture perhaps less premium than having lower margins than expected and being more flexible.
Today, my first approach and what I am going to ask to the refining business, the objective of this refining business is going to be in the current $0.8 per barrel as premium. Thank you, Michele.
Thank you very much.
Thank you, Michele. Next question comes from Flora Trindade at the BPI.
Yes. Hello, good morning. Thanks for taking my questions. First one on exploration costs in upstream. This year, the level of cost is much lower than last year. Should we assume a lower level than the full year last year in our estimates? What could justify this lower level? It should be in line with last year? Secondly, you discussed a lot on the IMO, on the impact. I was just wondering, do you see any risks of a part of this pressure on refining margins we're seeing since the beginning of the year being more structural than short-term? If so, any risk of the final impact of the IMO being jeopardized by this structural pressure on margins? Thank you.
No, Flora. It seems to me that the exploration expenses related to exploration success. The CapEx is going to be similar to the CapEx of the last year, slightly below EUR 600 million. A EUR 580 million is today my best approach in the budget. Because we have had a quite successful exploration campaign and appraisal campaign in the first half of the year with the Pikka, with Sakakemang, with the Gulf of Mexico and Blacktip, with Klesko in Norway, and so on. What you see as exploration cost in the P&L is lower because the exploration success over the period. If we have a success, of course, all that is capitalized and not charged as dry well in the P&L. We are going to have additional wells this half in Guyana, in Bolivia, in Indonesia, in Norway, and in Brazil, the Sagitario appraisal.
Depending, of course, of the success of these wells or not, we will see a different figure in the P&L. The CapEx is going to be similar to the CapEx of this first half, and the CapEx of the whole 2018 year. I don't think so. I'm talking now about your second question about the IMO. It's true that we have experienced a quite, let me say, tough period in the second quarter in margin terms. I don't have a crystal ball. Let me say that I don't know what could happen in the future. I'm trying to elaborate my best to understand what is happening. Theoretically today, we have a nine IMC, a margin indicator of $6.4 per barrel.
We are above five in July, it seems to me that the IMO effect is going to appear with all its intensity, in my perception, in the last quarter of 2019. My perception would be that this IMO effect is not going to be jeopardized, better said, by the low structural margins over the first half of the year. I see a positive effect, today we are seeing in our forecast or guideline, a guidance for 2020 Repsol, $8.2 per barrel in our whole refining system, including, of course, the IMO effect. Thank you, Flora.
Thank you, Flora. Our next question comes from Irene Himona, Société Générale .
Thank you. Good afternoon. I had two questions, please. Firstly, is it possible to talk a little bit about the Spanish retail picture? In Q2, your product sales are down 8% or 9%, you indicated better sort of marketing profits. Are you losing market share perhaps in less profitable segments, or is it fewer retail stations? If you could clarify. Secondly, looking at cash flow, in the first half, you generated about EUR 1.8 billion-EUR 1.9 billion of operating cash flow. Around 10% of that or 9% is from dividends received. I wonder if you can talk about the affiliates that are paying that dividend. Is it Brazil? The year-on-year improvement is quite spectacular. It's up about three times. Thank you.
Thank you, Irene. Let me first of all, to say that the Spanish retail market is still growing. It's growing slightly. What you see in our product sales in the second quarter of 2019 is related to two effects. The first effect is that the distillation in the refining business has been slightly below the previous quarter and the last year, that has nothing to do with the market, but with the low margins that you know that we maximize the conversion production, but in the distillation side, we maximize the volume. That means that we distillate till the last barrel that is adding a positive margin. Having the topping margin in negative as it was in the whole period, the target programming the refineries was to maximize the distillation to fulfill the conversion capacity. We were distillating a lower amount.
Secondly, the large picture in the mobility sales in terms of reduction was in the wholesale side. We try to optimize the margin in all the channels. The wholesale market, depending on the alternatives coming to the Spanish market from imports, compete with our trading alternatives to export or to move our products to some other places. In an entourage of low margins, it's quite normal to see more imports in our market that competes with our wholesale channel, but not with the service station business. I'm going to say more. In the service station business, thanks to the non-oil, we are increasing the result, we are increasing the number of customers, we are increasing the services we are providing, and we are entering in new businesses in our service station business.
Saying that, we lost a 0.5% because of commercial policy and commercial practice in this period, 0.5%, the sales figure in our service station business in the whole period. Thank you, Irene. Sorry. The second one. I checked that this morning, and I have to realize because it's a technical issue coming from the application of the IFRS 16 rule to some affiliates, and mainly coming from Brazil and from AROG in Russia. Let me say, the technical application of the IFRS 16 rule. Thank you, Irene.
Thank you, Josu Jon.
Thank you, Irene. Next question comes from Jason Kenney at Santander.
Thanks for your time. Just looking for some clarification on tax rates. I think you saw 42% in the quarter. I was expecting slightly lower than that. It has been reasonably volatile over the last few quarters, so maybe a full year guidance on where tax rates could go. From EBITDA, the EUR 7.8 billion for 2019. Could you split out what you think the Upstream could contribute? Thanks.
Okay. Jason, thank you. Going to the tax rate, the whole picture I expect for the year could be at 50%, more or less, the average for the Upstream business. A 25% as average for the Downstream business. Depending on the basket of results of these two businesses, we will be at around 40% for the whole company. Being in the 39%, 40%, 42%, 43% depends on the basket Downstream, Upstream, and the basket you have of products and countries within the Upstream. What we expect at the end of the year is this 50% for the Upstream, 25% for the Downstream, and 40% for the company, more or less. Thank you. Sorry. The split of EBITDA for the whole year.
We are talking about EUR 7.8 for the whole company. That means that EUR 4.8, more or less, could be the Upstream and Sorry, EUR 4.9 the Upstream, EUR 3.1 the Downstream.
The difference between the addition of these two businesses and the guidance I said before of EUR 7.8 is going to be the EBITDA consumed by the corporate side. Thank you, Jason.
Many thanks.
Thank you, Jason. Next question comes from Matt Lofting at JP Morgan.
Yeah, thanks for taking the question. Just one last actually related to CapEx. I think, Josu Jon, earlier you indicated there was sort of some signs of headroom emerging within the strategic plan and the sort of the EUR 15 billion three-year spend. Could you just sort of clarify on the basis of organic CapEx, the EUR 11 billion, the extent to which you still expect to spend that EUR 11 billion versus headroom emerging and where you see 2019 organic spend versus the prior guidance, which I think was EUR 3.8 billion, as I remember, for the full year. Thanks.
Thank you, Matt. I think that it's going to be mainly, 95% or almost, organic. We don't have any organic in mind. I'm going to add, we could do things in the Upstream side, rotating and upgrading our portfolio. Buying, acquiring an asset in a place where we could have a good, let me say, business expectation, or we could capture a basket of tax credits we could have in the country and so on. A bit before or later, disposing some assets in some other place. We could do things like that in a practice of rotating and upgrading our portfolio in the Upstream. What we are seeing mainly is organic. You know that I'm trying to maintain this view that not discarding the inorganic side. Many times it's easier to get returns and results developing the organic side. It's going to be mainly organic.
As I said before, we could see a small acquisition of assets in our framework, in our policy of upgrading the Upstream portfolio. Going to the Downstream and the low-carbon and so on, we have seen a small inorganic acquisition, like the JV of Bardahl that was at around EUR 40 million. I can remember the exact figure now, the 40% of Bardahl and so on. What is related to the low-carbon business, we could see a small, let me say, opportunistic capabilities, acquisitions and so on. It's going to be mainly organic in the way, because we are building our own talent pool. We are building a first-class team in Repsol to manage the renewable generation business.
You know that, for the best, in this case, we are a Spanish company, and Spain has been in the forefront in the world developing renewable capabilities in the past. Thanks to this approach, we have the capacity to attract the best talent today in the world to work in Spain to develop the basket of products we have in our hands. It seems to me that it's going to be mainly organic. Thank you.
Thanks, Sergio.
Sorry, in 2019, it seems to me that the figure is going to be a bit lower than the CapEx I have in mind as guidance. For 2019, is €3.5 billion for the whole year. Thank you.
Okay, clear. Thank you.
Thank you, Matt. Next question comes from Alwyn Thomas at Exane BNP.
Morning, team. Can I actually just follow up on Matt's question, please, regarding CapEx, particularly regarding the EUR 4 billion expansionary CapEx from 2018-2020 that you've allocated? Could you just maybe guide us on how much you've allocated now with the announcement of the solar plans? It seems to me of that remaining budget, it seems like there's a lot to be allocated either for the rest of this year or 2020 in particular. You said before, you expect that to be mostly CapEx to be organic. Should we expect a big organic sort of uptick for next year as you build out, particularly the chemicals business, where I know you have a EUR 1.5 billion expansionary plans there. Maybe could you just comment on that. Just secondly, just a couple of quick questions.
The RISE, EUR 0.6 billion improvement you talked about in the upstream. It feels like a pretty big number for one year uptick on this year. I appreciate you've had maintenance and issues this year, and you've got projects ramping up. Maybe can you just break out what it is exactly driving that? Is that OpEx related or CapEx related? Just a quick one to follow up. The high realization in the Marcellus on gas prices, is that due to the midstream agreements that you've got? Thanks.
Going to the CapEx expansion. Our best expectation today will be to allocate, and that could change, of course, depending on the development of projects and so on. My best approach today is that EUR 2.5 billion out of these EUR 4 billion are going to be allocated at the end of 2020. Saying that, a part of this EUR 1.5 billion additional is going to be committed, not allocated. I try to rationalize. We approve one gigawatt in four projects. Project in two wind farms in Spain, plus Valdesolar, plus the Sigma project also in Spain in Cadiz. Taking these four projects, we estimate that we could invest, let me say, more or less in these four projects at around EUR 800 million roughly. A 400 of these projects are going to be executed in CapEx terms, something in between 2019 and 2020.
Some of these projects, one of them, the wind farm is in the Zaragoza area, is going to be produced in the last quarter of 2020. A part of this CapEx from the other projects is going to be executed in 2021. Technically speaking, we are going to allocate more or less our best approach, EUR 2.5 billion out of these four by 2020, at the end of 2020. That goes behind the CapEx reduction in the strategic plan I explained at the beginning of this Q&A area. In the chemical area today, we are analyzing two or three projects. We could see something, let me say, in the midterm in 2020. In any case, we are talking about projects that they are not going to be materialized, let me say, in CapEx terms.
We could expand additional EUR 100 million-EUR 200 million in 2020. That is the dimension of the figures we are speaking about. Going to the realization gas prices in Marcellus. Could you repeat the question, please? Alwyn, could you repeat the question about the Marcellus because I didn't take note of that, please?
No, you realized a very high price relative to spot in the Marcellus, and I was just wondering whether that was partly due to your midstream agreements and how that works.
The realization price is a mixture. It's a mixture, of course, of geology. It's a factor of the operational performance. It's also a factor, the midstream we have and the transport we have, because you know that in the Appalachian area, the depression of prices is quite high. If you have the transport contracts to put this, using the Tennessee or the Empire Pipelines, we could transport this gas to hubs where we have better realization prices. Taking all that today, the breakeven in cash terms in the Marcellus in Repsol production, including all that, is something in between $2.3, $2.4 per million of Btus. Thank you, Alwyn, and sorry for not understanding at the first glance your question.
Yes, and sorry. Just my other question was just on the EUR 0.6 billion improvement in the upstream through the RISE projects that you have going on. I am just wondering if you could maybe give a bit more detail on how you break that down?
This EUR 600 million of operational cash flow in the upstream business due to RISE, 300 of them, they have been captured this year in 2019. Additional EUR 300 million, they are going to come in 2020. More or less, all that is OpEx. When we are talking about the EUR 600 million, it's not your fault, it's perhaps our fault because we are creating a confusion, mixing RISE and mixing the operational cash flow coming from the operation. In the upstream business, I'm going to try to clarify and not put more confusion on that. Sorry. If we take the EUR 1 billion in cash improvement from the operations in the upstream business for the whole period of the strategic update, 600 of them are going to come from efficiencies, digital, and so on. 400 for new organic production.
From these EUR 600 million that are new margins or OpEx, so cash flow from operations, EUR 300 million, they have been captured in the period 2019. They are going to be captured here. A half, EUR 300 million, next year in 2020. If we go to the RISE program, we have to add an additional efficiency in CapEx that over the whole period, 2018, 2020, could be roughly at around EUR 300 or EUR 400 million of additional savings. This last part is not contained in the operational cash flow because it comes from the CapEx side. It's behind the efficiency in the CapEx. Thank you.
Okay. Thank you very much.
Thank you, Alwyn. Next question comes from Jon Rigby at UBS.
Oh, yeah. Hi. I have a question on your upstream. Seems to me that there's a couple of things, sort of moving parts going on. You talked around, as I understood it, a strategic approach to the upstream, which was to be relatively conservative on spending, focus on high quality, high grading. I think you talked about a perimeter for production rising to the 750,000 barrels a day, but you didn't really indicate much of an ambition to go higher than that when you last laid out the strategic plan. It seems to me is that during that time and subsequently, you've actually expanded the opportunity set that you have, with the discoveries. You've obviously moved forward Alaska, I mean, discoveries in Indonesia, the discoveries in the Gulf of Mexico, et cetera. To some degree, you have some choice emerging.
Is that a right way of thinking about it, that the choices that you have to spend investment dollars on have broadened? If it is the case, what is your approach going to be? Are you going to seek to fund all of those? Are you gonna make some choices? If you are to make some choices, what are the criteria that you're going to apply to what you fund, what you don't fund, and potentially, I guess, is what you divest? Thanks.
Thank you, Jon. Of course, we are working, and you know that I'm quite boring about this kind of issues in my answers because we have a framework, and the framework is the strategic update. I'm going to work following the path we defined in the strategic update. That means that I have the target of 750,000 barrels per day in 2020, and I said before we will have 10,000, more or less, depending on the Venezuelan situation and so on, but that is not going to change the whole picture. Of course, we will present our strategic plan after the closing and finishing this one at the end of 2020 or the beginning of 2021. We will see. I don't have in mind the ambition to go above 750,000 barrels per day. My focus is higher margins, higher cash coming from our upstream business, better projects.
Very focused. Very focused in good projects, if you have the pressure of adding more and more barrels, the risk is to lose opportunities. I want to have choices in our hands. Having choices means that we have organic projects on track. We could have opportunistic, small, inorganic operation to complement or to improve the portfolio we have. The full focus of our upstream business, and our business in this sense has a clear, let me say, objective and target on that, is to get higher margins, higher cash, better projects, a better portfolio. The ambition to go above this figure in terms of barrels is not going to be there. If I have the opportunity to fund new things, I'm going to prioritize the upgrading of the portfolio over the increasing the number of barrels. Thank you, Jon.
Thank you, Jon. Next question comes from Peter Low at Redburn.
Hi. Thanks for taking my question. Just one. Earlier this month, you announced you were developing two new wind projects and a photovoltaic project. Can you give us any indication as to the level of returns you expect from those, and perhaps the returns you're seeing available in renewables more generally? Thanks.
The renewal projects we announced, all of them, they have a return of the project around something in between 9%, 10%. In terms of the IRR linked to the financial structure of these projects, all of them are levered, all of them are above 10%, 11%. That is the return we expect from the wind farm in Zaragoza, the second wind farm in the Spanish high plains, close to Valladolid, Burgos, this area, and the solar farm in the area of the southwest part of Spain, in Cadiz. The return of the project at around 9%, and the profitability of equity above 10.5%, 11%. Thank you, Peter.
Thanks.
Thank you, Peter. Next question comes from Luis De Toledo, BBVA.
Good afternoon. Just one question regarding the profitability at North America. Is it all related to gas prices, or there's been something affecting negatively the profitability in the quarter? Thanks.
Gracias, Luis. Thank you. What is behind the profitability of North America is the price of gas. Gas prices, as you perfectly mentioned. Even tougher in Canada, in the area of Alberta, due to the AECO price and so on, than in the United States, where thanks to the first quartile and very good assets we have in the Marcellus, the situation is better there. Thank you, Luis.
Thank you very much.
Thank you, Luis. Next question comes from Pablo Cuadrado at Kepler Cheuvreux.
Hi, good afternoon, everyone. Just very one quick question on Venezuela. Can you update us, is the level of receivables or if something has changed during the quarter? I guess the situation was improving, at least in the last quarters. If you can just confirm us if the situation remains under control, and if you can share the level of receivables, if it has been stable or not, that would be great. Thank you.
Thank you. Thank you, Pablo. Regarding Venezuela, of course, I reaffirm again our willingness to continue with our businesses in the country, where, as you know, we have stayed there for more than 25 years. Our main priority, our main objective is to protect the 150 workers we have currently in the country, and of course, guaranteeing the safety of our operations in the country. Of course, in this complex situation, we are operating with full compliance to local and international laws and policies in force in the different countries where we operate, and we are continuously analyzing and monitoring potential changes that could change our activities. It's true that it's not an easy business today, an easy business environment.
During the first half of the year, we have received reasonably regular crude oil cargoes in payment of debts, and our production is in line with the budget. Related to Cardon IV, that as you know, is the gas production in the JV we have with Eni, we have received four cargoes in the half, plus one more in July. That represent the 45% of the billing of the period. That is not bad, taking into account improving the figures we had last year. Over this period, Petroquiriquire has received a cargo by month, roughly the committed 7,000 barrels per day. Thanks to this, let me say, controlled situation in financial terms, the exposure to Venezuela has been reduced from EUR 522 million at the end of 2018 to EUR 447 million at the end of this half of June 2019. The receivable side has been more or less stable.
The situation, taking into account the complexity of the country, has been in the terms I expressed now, Pablo. Thank you. Gracias.
Thank you, Pablo. That was our last question. At this point, I will bring our second quarter conference call to an end. Thank you very much for your attendance, and have a very nice summer.
That concludes the conference for today. Thank you for participating. You may all disconnect.