Hello, and welcome to the Repsol Q2 2019 Results Presentation. Today's conference will be conducted by Mr. Jean Huynh, CEO. A brief introduction will be given by Mr. Ramon Alvarez 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 Ramon Alvarez Pedrosa, Head of Investor Relations. Welcome to Repsol's Q2 2019 results conference call. Today's call will be hosted by Josu Jonimath, 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, Ramon, and thank you everyone for joining us today on this conference call. Today, I'd like to cover the following main topics. Firstly, our 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.
And 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 Q2, the industry has faced a volatile market environment, market 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 Q1 of the year, but 7% below the same period of 2018.
In the gas markets, hurry up decreased by 16% quarter on quarter and by 7% compared to the Q2 of 2018. Price references in Europe and Asia experienced significant declines too. Our refining margin indicator averaged $3.50 bottoming out in June at levels not seen since 2014. A combination of 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 2nd quarter amounted to EUR 1,400,000,000, 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 2,500,000,000 47 percent higher than in the first half of twenty eighteen.
Operating cash flow more than covered CapEx, financing costs 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 Q2 of 2018, cash flow from operations increased by 27% and CapEx was 25 percent higher year on year. On the development side, quarterly activity focused on the efficiency delivery of projects sorry, the efficient delivery of projects and the high grading of our portfolio.
In the Gulf of Mexico, the development of Pascaline started production ahead of planned start up 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 6 €30,000,000 €436,000,000 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 continue both in retail and in the low emissions power generation. After quarter closing, we announced an agreement to develop 3 new renewable projects in Spain, 2 wind farms and a photovoltaic power plant with a total installed capacity of 800 megawatts.
At the group level, net debt remained flat at €3,700,000,000 or €7,500,000,000 if you like, if we include leases. This figure includes the investment of €300,000,000 in treasury reserves during the quarter. Liquidity at the end of June represented more than 1.6 times our short term gross debt maturities. Finally, the Annual General Meeting held in May approved the Board's proposals to increase the annual shareholder remuneration to the equivalent of $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 remained 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, 2nd quarter production averaged 694,000 barrels of oil equivalent per day, 1% below the 1st quarter and 4% lower than in the same period of 2018. Quarterly volumes were impacted by the planned maintenance activity in Trinidad and Tobaico. Higher volumes in Libya were partially offset by a lower production in Peru, mostly due to an scheduled 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 2 days. The incidents was solved and operations were fully resumed by Monday morning. Turning now to the development activity in our projects.
In Pascin, an ultra deepwater project in the Gulf of Mexico, we reached 1st all after the connection of the first producing well. The project has come online 6 months ahead of schedule with more than a 40% cost reduction and a breakeven 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 Bakskin to develop other deepwater assets in the Gulf of Mexico. The agreement involves Lyon discovered by Repsol and Moccasin operated by LLOG.
Both discoveries are less than 20 miles apart, which provides opportunity for ATCO development. In Alaska, Repsol and Oil Search enter into an agreement to align ownership interest in the Pikka unit and in surrounding exploration blocks. Based on their recent successful appraisal campaign, a potential decision to enter the engineering phase could be taken during the second half of this year with our 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, 7 exploratory and 2 appraisal wells were computed.
5 wells were declared positive, one is still under evaluation and the remainder wells were deemed unsuccessful. Our exploration schedule for the second half of twenty 19 includes the drilling of 8 wells. In Guyana, one of the focus areas for our near term exploration strategy and exploratory well in the Canuckoo block will test the Cretaceous play. In Brazil, the appraisal of Sagittario is planned to start before the end of this quarter. And finally, in the Gulf of Mexico, the second appraisal of Lyon 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 Calibera Uddaban 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 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 Corvidor 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 Q2 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 a stronger product spreads, partially offset by narrower heavy and medium crude differentials. Planned maintenance in our refineries included the turnaround of the coker in Acorunya and of the distillation unit in Bilbao with no material impact on the utilization of our distillation 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 Q4. 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 station 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.
Moreover, wind float Atlantic or off shore 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 1 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 7 or 8 months ago the acquisition of the Biesco assets. Overall, the results in the 2nd quarter evidence once again the resilience of our downstream business. While the refining margin indicator decreased by more than 50% year on 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'll summarize the main figures for the Q2 of the year and how they compare with same period in 2018. 2nd quarter 2019 CCS adjusted net income was €497,000,000 a 9% decrease from the Q2 of 2018. Upstream adjusted net income in the Q2 was €3,000,000 €37,000,000 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 cost. Accumulated adjusted net income in the first half of twenty nineteen amounted to EUR646,000,000 in line year on year despite a decrease of 6% in the price of Brent and the lower production volumes. Downstream adjusted net income in the second quarter was €311,000,000 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 1st 6 months of 2019 amounted to €715,000,000 6% lower than in the same period in 2018.
In corporate and others, the adjusted net income of the 2nd quarter was 100 and and €37,000,000 negative and €11,000,000 improvement compared to the same period in 2018. Of course, as always for further detail 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 20 19. Our strategic update define a clear path to grow operating cash flow by 1.9 €1,000,000,000 from 2017 to 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 target set to the end of 2020.
By year end, upstream new production is expected to contribute with €300,000,000 of incremental operating cash flow, and this represents 70 5% of our objective to 2020. RISE, that you know is the efficiency and digitalization program in the Upstream upstream division is expected to deliver around €300,000,000 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 €80,000,000 coming from international margins improvement due to IMO to be captured in the 4th quarter out of the €300,000,000 expected for 2020 in our strategic update. Efficiency and digitalization projects are expected to capture €130,000,000 of sustainable cash flow improvement in 2019, progressing on our roadmap of generating €200,000,000 in 2020 coming from profitability improvement measures.
Low carbon and the expansion initiatives in downstream will start to positively impact the results this year with unexpected contribution of EUR 120,000,000 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 the processes and ensuring our commitment to reduce cost by 9% in 2020. Altogether, we foresee an improvement of €1,000,000,000 of sustainable cash flow from operations in 2019 coming from these levers out of the $1,900,000,000 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 develop new business models, engage with our clients through an omni channel 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 revisiting 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 €7,800,000,000 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, 1st, a self funded plan of $50 Brent with a total CapEx of €15,000,000,000 from the period an increased shareholder remuneration to €1 per share with the scrip option implementing a share buyback to remove any dilution associated to the scrip. And 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 to a higher cash flow generation to 2020 than originally expected. Taking all these 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 would be slightly above €1,000,000,000 and I 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. And despite a more challenging environment during the Q2, we remain on track to deliver on our goals for 2019 and the objective set at the end of our strategic update. 2nd 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 factor for a lower refining margin indicator and slightly lower production figures. We remain confident on the positive impact of IMO for which Repsol is perfectly positioned.
The efficient delivery aligning 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. And finally, the progress in the delivery of our strategic targets, our financial flexibility and higher than planned commodity prices allow us to propose a shared 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 Ramon, who will lead us through a question and answer session.
Thank you.
[SPEAKER JOSE RAFAEL FERNANDEZ:]
Thank you very much, Joseph Yun. In case you run into technical problems during the webcast or conference call, please address any problems to our email address, investorrelationsrepsol.com, and we will contact you immediately to try to solve it. Before we move on the Q and A session, I would like the operator to remind us of the process to ask a question. Please go ahead, operator.
Thank I'll hand back to Ramon Alvarez Pedrosa.
Thank you, operator. Let me now move to the Q and A session. Our first question comes from Oswald Klin at Bernstein.
Thank you very much, Ramon. Josu John, 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.
And specifically, is there any contribution yet from Mexico? And really around this business, I see all of your sales, your product sales are also down around 4% or so for the first half of the year across all product types. So perhaps within this topic, you could talk about what you're seeing in terms of demand? And then secondly, I guess, it's a question more for next year, but I'm looking at your I guess your carbon emission allowances and the €100,000,000 or so of costs that you had last year. And I'm just I know there's some offsets in credit from your emission allowances, but those have now quadrupled in price.
And 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.
So thank you, Oswald. Let me first of all say that at this moment, Mexico is in operating result terms in breakeven after 1 year starting the business there. So 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, the mobility business comes from Spain and from Portugal. And this quarter, the EBITDA could be at around €200,000,000 in this business.
In the case of the carbon emission allowances, I mean, let me say that cost carbon, I mean, is not a big burden for Repsol, because in our refining and chemical business, we have reduced in our 20%, 22%, 23% our CO2 emission level in our Spanish plants over the last 8, 9 years. Today, we could have, let me say, a full exposure in terms of needing of needs of purchasing carbon allowances, carbon rights at around slightly above 1,000,000 tons per year something like that. But 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 our 25% by 2025%. The current emission level we have in our plants that means that we are going to be very close to the breakeven in the short term in our industrial plant.
So I mean, 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. So that is not a burden today for Repsol. Thank you. [SPEAKER RAMON ALVAREZ PEDROSA:]
Thank you, Oswald. Our next question comes from Thomas Adolff at Credit Suisse.
Good afternoon. A couple of questions for me, please. Firstly, just on your 2019 guidance. You've tweaked your EBITDA guidance somewhat. Just wondering if there's any contingency buffer or is this your best estimate?
And 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? And 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? And in that scenario, what sort of a CapEx organically inorganically is assumed? Thank
you. Thank you, Thomas. Going to the EBITDA guidance, I mean, we are assuming upstream production something in between 715,000, 7200 and 20,000 barrels per day for the whole year. I mean, if you take the €3,700,000,000 of the first half in EBITDA terms, I mean. And take into account that we are forecasting a higher refining margin in this half of the year And the production of the upstream is going to be at around 30, 35,000 barrels per day higher.
The second half comparing with the first half mainly coming from the backspin, coming from the Marcellus, coming from Peru and so on. Taking all that, that is the rationale behind this EBITDA guidance. I mean, going to the buyback, I mean, what is the rationale? First of all, I mean, in this half with low refining margins and a half the period with our Libyan production, we have been able to invest more than EUR 1,000,000,000 maintaining the debt in our low level of €3,700,000,000 I mean, and 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, dollars 1,100,000,000 above our strategic estimations at the end of 2020.
I mean, on top of that, due to efficiencies as the Bastian project execution shows, the upstream business CapEx execution in the period of 2018 2020 could be €1,000,000,000 below our strategic guidance. I mean, 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. I mean, probably a part of this CapEx, the CapEx, the €4,000,000,000 committed to the expansion of downstream and low carbon business will be committed, but not executed at the end of 2020. So we will be €2,000,000,000 or 3 €1,000,000,000 below the debt level forecast by the end of 2020. That taking account this net debt to EBITDA ratio that in our strategic capital goes below 0.7 at the end of the strategic plan.
I mean, let me underline that there is plenty of room for this decision that our board took yesterday. I mean, in any case, we are going to prioritize organic growth projects as much as we can. I mean, Leon Moccasin, CPO-nine, Sakakemang, all the development of 1,000 megawatts of greenfield renewable projects is a good example of that. But I mean, 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. But let me also underline is the 1st net new and real buyback in Repsol history, because I mean the rest of the buyback, the buyback after the strip and so on, they have the DM of setting the dilution coming from the script. This is a net new real buyback. And I'm going to say more. I mean, that is one shot, of course.
But if we have a similar cash situation next year and if we see that the cash flow from operation is above our expectation, I mean, I'll analyze to propose an additional buyback to our board also if we have the same conditions. And let me say, I mean, I have a concern because the dilution our shareholders experienced from 2012 to 2016. And 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 mean, I think that the 3rd is combining cash flows and CapEx is answer.
Thank you, Alvaro. [SPEAKER JOSE RAFAEL
FERNANDEZ:] Thank you.
Thank you, Thomas. Next question comes from Chris Coupland, 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? So I appreciate you've given us EPS 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.
And 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 Brent. So on what basis are you making these statements that you can see more than $1,000,000,000 upside to that existing guidance, please? Thank you.
So I mean, let me say first of all that as you said, Christopher, I mean, there are a lot of options to increase the remuneration of the shareholders. But I think that today, the share buyback is a practice adopted by most of our peers and we believe that is the best way to increase value for our shareholders under the current market conditions. I mean, we can't ignore that today our dividend yield taking into consideration the current share price is very close to a 7%. And in some case, I mean, buying back new shares, we are at the same time increasing the earning 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.
I mean, 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. I mean, if we take all that today our best estimation for the period 2018 2020 is that is 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 to 2020. We are going to check the figure now because I had in mind this figure. And our expectation today is achieving the figure of €17,900,000,000 of cash flow from operation over the whole period. On top of that, I mean, I also underlined before the expectation about the evolution of the CapEx figure.
But the main rationale comes from the cash flow from operations. So 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?
[SPEAKER RAMON ALVAREZ PEDROSA:]
It's an increase of $1.5 per barrel for the whole period of 2020 due to the IMO effect that we think that even now that you know that there is some kind of 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 distillate production, we think that $1.5 per barrel gaining the refining IMC is a quite a broad 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? So where do you think we'll be 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? And then the second one, just to jump, 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? Because as an observation, things haven't played out this year quite as I think many of us expected it to. Thanks.
[SPEAKER JOSE MARIA ALVAREZ
ALVAREZ:] Thank you, Lydia. I mean, first of all, our best expectation this year in terms of net debt in December is at around EUR 3,200,000,000, EUR 3,300,000,000 euros of net debt at the end of 2018. So 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 8 point €8,000,000,000 more or less and net debt of €6,100,000,000 So the net debt EBITDA ratio was at around 0.7% in our expectation in the strategic update. I mean, today, we don't have any, let me say, concern regarding the EBITDA figure.
But regarding the debt, under the basis I said before, we could have a EUR 3,000,000,000 less in-depth terms. That means that we will be without any kind of action at around EUR 3,100,000,000, EUR 3,200,000,000 of debt at the end of 2020 with an EBITDA of EUR 8.8, that means at around EUR 0.4 So I mean, 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 times the ratio. So we have plenty of room in terms of financial flexibility doing that.
What is our outlook about spreads of heavy crude oil? I mean, we are experiencing the missile idea 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. And 4.5% has been the average of the first half and even some weeks we have achieved a figure of $2 per barrel in May, June.
I mean, 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 around $16 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. I mean, last week we could have 5.5 percent 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, I mean the discount on fuel oil, high sulfur fuel oil is going to happen. And linked to that phenomenon, we are going to see a wider spreads of heavy crude oil. Anyway, as I said before, we are quite proud of 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 $1.5 per barrel because the IMO effect over the whole IMC of Ruxole. Thank you, Lydia.
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 this they compete 51% to 35% ahead of project FID. So 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?
And then 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 kind of help frame for us what sort of concessions you have made to get the project extension or the contract extension? Thank you. [SPEAKER JAIME
SAENZ DE TEJADA:]
So first of all, going to the Alaska project, I mean, we have entered Repsol and oil search, I mean, into a key set of agreements to align ownership interest in the Pika unit and in surrounding exploration blocks owned by the companies. I mean, in my perception to align the interest of all the players in the Horseshoe area, in the Pika area, in the exploration blocks surrounding the area was very, very important. And now we are working together, the 2 companies analyzing and studying the terms of the development decisions we have to take in the future. But from the Repsol side, we are very comfortable with the percentage we have today in Alaska. I mean, we don't have any kind of intention to divest or to dilute our share in the Alaska project.
And today, I mean, mainly based on the successful appraisal drilling campaign we have had this winter, it's likely that our decision will be taken to enter in the FEED that means in the engineering project in the second half of twenty nineteen. I mean, our first approach today is after this stage to approve a potential final investment decision for the project within 2020. And as part of this technical evaluation, the partnership, I mean, both companies, we are considering several various development options. And one of them, perhaps one of the most probable include an early production of in Alaska with first oil in 2022. So that is the best approach for that.
Regarding the terms of the corridor, let me underline that corridor is an important area for Rexall. I mean, mainly because it's going to give us unstability and other dimension to our activity in Southeast Asia. And on top of that, we have discovered Sakakemang that Sakakemang is one of the most relevant discoveries in the last 2 decades in Indonesia. We are today a preliminary estimation of at least 2 TCFs of recoverable resources. And thanks to the extension of corridor, we are going to have room to an early development of Sakakemam.
And today, a quite reasonable and prudent target will be to have the first gas of Sakakemam by 2022. I mean, 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 Corio project and the Sakakemang project. In this extension, Repsol is going to have at around 21%, 22%, strictly speaking. And the economic conditions includes $250,000,000 bonus plus $250,000,000 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. And 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 2,040 3.
Thank you very much, Alastair.
Can I just clarify on corridors? Do you think entitlement production in say 2025 will be higher than it is today then as a function of raising the gas volumes? [SPEAKER JOSE RAFAEL FERNANDEZ:]
No. The production is going to be slightly below the figures we have today. In any case, I mean, I'm going to I don't have today now the exact figure in mind because it's going to depend, of course, on the exploration side. I mean, 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. I mean, if we are not able to add these new barrels coming from the exploration, we could be slightly below.
But I mean, let me say we have a quite positive experience in current production we have in Corvidor from 2023 on. Thank you.
Great. Thank you for your time.
Thank you, Alastair. Next question comes from Biraj Borkhataria at RBC.
Hi. Thanks for taking my questions. 2, please. First one on production guidance. One of the things you mentioned, one of the areas you mentioned for the second half of twenty nineteen was ramping up in production in Marcellus, which I was a little bit surprised by given where U.
S. Gas prices are. So could you just clarify where production was in the first half of this year and what you're expecting for second half? And then 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 are sitting in treasury and you'll look to cancel them post the AGM? Or are you is the entire 5% based on an incremental buyback from today over the next year or 2? Thanks.
Thank you, Biraj. I mean, 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 $3.1 per million of BTUs in this period. Today, after CapEx, our breakeven in cash terms is at around $2.4 per million of BTUs and we are working hard pushing down this figure and having a higher production in Demaseluz is going to be also a way to be more efficient, increasing the or reducing better sales, the breakeven in price terms in the area. So I mean that is we have because we have perhaps one of the best midstream in the area. We are one of the most efficient operators in the area.
And in terms of netbacks, we are a 1st quartile in the Marcellus. So even at these prices, we are getting money in the area after CapEx. Going to the share buyback, I mean, I know that this issue of the execution of the new shares is quite complex in technical terms. So I'm going to try to clarify and not to create more to put more confusion in this issue. I mean, first of all, let me underline the fact that in coming 12 or 14 months, we are going to need more than 220,000,000 shares in our hands.
So almost a 15% of the total amount of shares Repsol have in December 31. Mean, we are going to need this 220,000,000 shares to redeem the commitments related to the 2019 buyback linked to the scrip to the additional net buyback the 5% will propose to the next AGM and to the 2020 buyback linked to the next strip. So 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 script. That is going to be the 1st step in coming days or weeks.
And 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 mean, 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. But let me say, it's a good investment. I mean, we are investing with no risk and with a 7% of return and we could finance ourselves in the market clearly below 1% for coming 10 years. So I mean, 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, Biraj? [SPEAKER RAMON ALVAREZ
PEDROSA:] No, it's very clear. Thank you.
Thank you, Biraj. Our next question comes from Michele Della Vigna at Goldman Sachs.
Thank you. And 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?
And then secondly, going back for one moment to IMO, are you already starting to see demand for IMO compliant product? And what do you think you can achieve in terms of refining margin premium in the second half of the year? Thank you.
[SPEAKER JOSE RAFAEL FERNANDEZ:] Going to the reach in terms of production for 2020, I mean, today we are let me say, comfortable with the 750,000 barrels per day. But I'm going to add a disclaimer. I mean, we could see some volatility variation depending on the gas production in Venezuela. So but having 10 more or 10 less, 10,000 less or 10,000 more in 2020 depending on the gas of Venezuela, I mean, it's not my concern today, because as you could imagine, that is not the best option in terms of cash in the production. I mean, saying that, we are quite comfortable with this gas production in Venezuela because in the 1st 6 months or better said 7 months of the year, we were paid in a 45% the bills of the gas of Venezuela.
And the main production is going to come mainly from the De Marcellus, from Norway, the IMEI project is going to be there, From Peru in some way, because the production has been lower in 2018 and 20 19. And we have some minor projects, the Duvernay that is slightly growing and that is behind the rationale of this production in 2020. I mean, going to the IMO, I think that I mean, a lot of things could happen related to the IMO, but I think that the more close we are from or the closer we are from January 1, the more conviction we have that the IMO is going to happen and our main part of the fleet in the world is going to be compliant with the products. And being compliant means installing scrubbers, and we know now that that is going to happen only in 12%, 15% of the fleet, not more. And on top of that, they are going to have 2 options.
And the 2 options are to include middle distillies, I mean, diesel, gas oil, low sulfur gas oil as product are 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, because 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. And 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. So doing expensive things to put our product in the market, I mean, it's good news for Repsol, because 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. So that could happen, but I see as a great opportunity for our refining system the IMO scenario, because we own the 8% of European distillation capacity, but we operate and we own the a quarter of the total coking capacity in Europe. What is the premium for, I mean, that is going to depend, of course, on the operation is going to depend on margins. You know that when you have a higher margins, I mean, you are more adapted to the formation you have.
That means that you are going to capture perhaps less premium than having lower margin than expected and being more flexible. But today my first approach and what I'm going to ask to the refining business, I mean the objective of this refining business is going to be to be in the current $0.8 per barrel as per me. Thank you, Michele. [SPEAKER RAMON
ALVAREZ PEDROSA:] Thank you very much.
Thank you, Michele. Next question comes from Flora Trinidad, 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 or it should be in line with last year? Then 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?
And if so, any risk of the final impact of the IMO being jeopardized by this structural pressure on margins? Thank you.
Flora, it seems to me that I mean the exploration expenses related to exploration success. I mean the CapEx is going to be similar to the CapEx over last year, slightly below $600,000,000 $580,000,000 is today my best approach in the budget. But because we have had a quite successful exploration campaign and appraisal campaign in the first half of the year with the Pikas, with Sakakemang, with the Gulf of Mexico and Black Tips with the Tadesco and in Norway and so on. So what you see as exploration cost in the P and L is lower because the exploration success over the period. Because I mean, if we have a success, of course, all that is capitalized and not charged in the dry well in the P and L.
I mean, we are going to have additional wells this half in Guyana, in Bolivia, in Indonesia, in Norway and depending on the and in Brazil and depending on the sagittaria appraisal and depending of course of the success of these wells or not, I mean we will see a figure or a different figure in the P and L. But the CapEx is going to be similar to the CapEx of last year of this first half, sorry, and the CapEx of the whole twenty 18 year. I don't think so. I'm talking now about your second question about the IMO, Because I mean, it's true that we have experienced a quite, let me say, tough period in the Q2 in margin terms. I mean, 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. But theoretically today, we have an IMC margin indicator of $6.4 per barrel. We are above $5 in July and 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. So my perception will be that this IMO effect is not going to jeopardize the or is not going to be jeopardized better said by the lower structural margins over the first half of the year.
So I see a positive effect. And today, we are seeing in our forecast, our guideline, our 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, Societe Generale.
Thank you. Good afternoon. I had two questions, please. Firstly, is it possible to talk a little bit about the Spanish retail picture because your in Q2, your product sales are down 8% or 9%, but then you indicated better sort of marketing profit. So 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 €1,800,000,000 to €1,900,000,000 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? Because the year on year improvement is quite spectacular. It's at about 3 times. Thank you.
Thank you, Irene. I mean, let me first of all to say that Spanish retail market is growing, is still growing, is growing slightly. What you see in our product sales in the Q2 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 and that has nothing to do with the market, but with the low margins that we maximize the conversion production. But in the distillation side, we maximize the value.
That means that we distillate still the last barrel that is adding a positive margin and having the top in margin in negative as it was in the whole period. I mean, the target program in the refineries was to maximize the distillation to fulfill the conversion capacity. So we were distillating a lower amount. And secondly, the large feature in the mobility sales in terms of reduction was in the wholesale side. I mean, we tried to optimize the margin in all the channels.
So 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. So in an entourage of low margins is 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 new businesses in our service station business. Saying that, I mean, we lost a 0.5% because of commercial policy, 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 mean, is 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 AROQ in Russia. But this let me share the technical application of the IFRS 16 rule. Thank you, Arin.
Thank you, Josephine.
Thank you, Arin. And next question comes from Jaeson Kenny of Santander.
Thanks for your time. Just looking for some clarification on tax rates. I think you saw 40 2% 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. And then from EBITDA, the €7,800,000,000 for 2019, could you split out what you think the upstream could contribute? Thanks.
[SPEAKER JOSE RAFAEL FERNANDEZ:] Okay, Jason. Thank you. I mean, 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, 25% as average for the downstream business. And I mean depending on the basket of results of 2, these two businesses, we will be at around 40% for the whole company. I mean, 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.
So but what we expect at the end of the year is this 50 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. I mean, we are talking about 7.8 for the whole company. That means that 4.8 more or less could be the upstream and sorry, 4.9 the upstream, 3.1000000, the downstream and the difference between the addition of these two businesses.
And the guidance I said before of 7,800,000 is going to be the EBITDA consumed by the corporate side. So thank you, Jason.
Many thanks.
Thank you, Jason. Next question comes from Matt Loftin at JPMorgan.
Yes. Thanks for taking the question. Just one left actually related to CapEx. And I think just as you on earlier, you indicated there was sort of some signs of headroom emerging within the strategic plan and the sort of the €15,000,000,000 3 year spend. Could you just sort of clarify on the basis of organic CapEx, the €11,000,000,000 EUR 11,000,000,000, the extent to which you still expect to spend that EUR 11,000,000,000 versus headroom emerging and where you see 2019 percent as I remember for the full year?
Thanks.
[SPEAKER RAMON ALVAREZ PEDROSA:] I
mean, thank you, Matt. I think that is going to be mainly, I mean, 95% almost organic. I mean, we don't have any organic in mind, but I'm going to add, I mean, we could do things in the upstream side, rotating upgrading our portfolio. I mean 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 traders we could have in the country and so on. And a bit before or later disposing some assets in some other place.
I mean, we could do things like that in a practical of rotating and upgrading our portfolio in the upstream. But what we are seeing mainly is organic. You know that I'm trying to maintain this view that not discarding the inorganic side, I mean, is many times it's easier to get returns and results developing the organic side. So it's going to be mainly organic. But as I said before, we could see a small acquisition of assets in our framework, in our policy of upgrading the upstream portfolio.
And going to the downstream and the low carbon and so on, I mean, we have seen small inorganic acquisition like the JV of Parval that was at around €40,000,000 I can't remember the exact figure now the 40% of Parval and so on. But what is related to the low carbon business, I mean, we could see a small, let me say, opportunistic capabilities, acquisitions and so on. But it's going to be mainly organic in the way because we are building our own talent pool. We are building a 1st class team in Repsol to manage the renewable generation business. You know that I mean, for the best in this case, I mean, we are a Spanish company and Spain has been in the Q1 in the world developing renewable capabilities in the past.
So thanks to this approach, I mean, we have the capacity to attract the best talent today in the world to work in Spain to develop the basket of projects we have in our hands. So it seems to me that this is going to be mainly organic. Thank you.
Thank you, Jose.
Sorry, in 2019, it seems to me that the figure is going to be a bit slower that the CapEx I have in mind as guidance for 2019 is €3,500,000,000 for the whole year. Thank you.
Okay, clear. Thank you.
Thank you, Matt. Next question comes from Arwin Thomas at Exane BNP.
Good morning, team. Can I actually just follow-up on Matt's question please regarding CapEx, particularly regarding the €4,000,000,000 expansionary CapEx from 2018 to 2020 that you've allocated? Could you just maybe guide us on how much you've allocated now with the announcement of the 2 of the solar plans? And 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. And you said before, you expect that to be mostly CapEx to be organic.
So 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 €1,500,000,000 expansionary plans there? So maybe could you just comment on that? And then just secondly, just a couple of quick questions. The RISE €600,000,000 improvement you talked about in the upstream, it feels like a pretty big number for 1 year uptick on this year. So maybe 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? And maybe 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.
[SPEAKER JOSE HUMBERTO ACOSTA MARTIN:] So I mean, going to the CapEx expansion, I mean, our best expectation today will be I mean, to be I mean, to allocate and that could change, of course, depending on the development projects and so on. But my best approach today is that EUR 2.5 out of this EUR 4,000,000,000 are going to be allocated at the end of 2020. But saying that, apart of this 1,500,000,000 additional is going to be committed, not allocated. I try to rationalize. We approved EUR 1,000,000,000 sorry, EUR 1,000,000,000 in 4 projects, project in 2 wind farms in Spain, plus Aldesolar, plus the Sigma project also in Spain in Cadix.
So taking these four projects, we estimate that we could invest, let me say, more or less in these 4 projects at around €800,000,000 roughly. €400,000,000 of these projects are going to be executed in CapEx terms something in between 2019 2020. But some of these projects, one of them, the wind farm is in the Zaragoza area is going to be producing the last quarter of 2020. But apart of this CapEx from the other projects is going to be executed in 2021. So technically speaking, we are going to allocate more or less our best approach €2,500,000,000 out of these 4 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 and A area. In chemical, in the chemical areas today, we are analyzing 2 or 3 projects. I mean, we could see something in the let me say in the midterm in 2020. But in any case, we are talking about projects that they are not going to be materialized. Let me say in CapEx terms, I mean, we could expand €100,000,000 to €200,000,000 additional €200,000,000 to €100,000,000 in 2020, but that is the dimension of the figures we are speaking about.
Going to the realization gas price in Marcellus, does the midstream influence on could you repeat the question please? Could you repeat Alwyn, could you repeat the question about the Marcellus because I didn't take note of that please?
No, I was just 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?
So I mean the depreciation price is a mixture. It's a mixture of course of geology, it's a picture of the operational performance, is a picture is also a factor. The midstream we have and the transport we have because you know that in the Appalachian area the pressure of prices is quite high, but if you have the transport contracts to put this using the Tennessee or the Empire pipelines, we could transport these gas to hubs where we have better realization prices. I mean, 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.
I'm sorry for not understanding at the first glance your question.
Yes. And sorry, just my last question the other question was just on the €600,000,000 improvement in the upstream through the RISE projects that you have going on. I'm just wondering if you could maybe give a bit more detail on what that how you break that down?
This €600,000,000 of operational cash flow in the upstream business due to rise, I mean, euros 300 of them, they have been captured this year in 2019 and €300,000,000 additional they are going to come in 2020. And
more or
less all that is OpEx. When we are talking all the €600,000,000 and it's not your fault. It's perhaps our fault because I mean we are creating a confusion mixing rice and mixing the operational cash flow coming from the operation. I mean, in the upstream business, I'm going to try to clarify and not put more confusion on that, sorry. If we take the €1,000,000,000 in cash improvement from the operations in the upstream business for the whole period of the strategic update, €600,000,000 of them are going to come from efficiencies, digital and so on and €404,000,000 new organic production.
From this EUR 600,000,000 that are new margins of OpEx, so cash flow from operations, EUR 300,000,000 they have been captured in the period 2019. They are going to be captured this year. And a half, EUR 300,000,000 next year in 2020. And 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 €300,000,000 or €400,000,000 of additional savings. But this last part is not contained in the operational cash flow because it comes from the CapEx side.
I mean, it's behind the efficiency in the CapEx. Thank you.
Okay. Thank you very much.
Thank you, Arwin. Next question comes from Jon Rigby at UBS.
Yes. Hi. So I have a question on your upstream. It seems to me that the 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. And I think you talked about the perimeter for production rising to the 750,000 miles 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.
But it seems to me is that during that time subsequently, you've actually expanded the opportunity set that you have with the discoveries. You've obviously moved forward Alaska, I mean, the discoveries in Indonesia, the discoveries in the Gulf of Mexico, etcetera. So 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? And if it is the case, what is your approach going to be?
Are you going to seek to fund all of those? Are you going to make some choices? And 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. So thank you, John. I mean, 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 strategic update. And I'm going to work for win the path we define 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, I mean, we will see. But I mean, I don't have in mind the ambition to go above 700 and and 50,000 barrels per day. I mean, my focus is higher margins, higher cash coming from our upstream business, better projects, better focus I mean, because if you very focused in good projects, because if you have the pressure of adding more and more and more barrels, the risk is to lose opportunities. I want to have choices in our hands.
And 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. But 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. And the ambition to go above this figure in terms of barrels is not going to be there. And I have the opportunity to fund new things. I'm going to prioritize the upgrading of the portfolio over the increasing the number of borrowers.
Thank you, John.
Thank you, John. Next question comes from Peter Low at Redburn.
Hi, thanks for taking my question. Just one. Earlier this month, you announced you were developing 2 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.
[SPEAKER JOSE ANTONIO ALVAREZ ALVAREZ:] So, I mean, the renewable projects we announced, all of them they have a return of the project around 9% something in between 9%, 10%. And in terms of the IRR linked to the financial structure of these projects, all of them are so levered, all of them are above 10%, 11%. That is the return we expect from the wind farm in Zaragoz, the 2nd wind farm in the Spanish High Plains close to Ballavolleg, Burgos, this area and the solar farm in the area of the southwest part of Spain in Caddix. So unlever sold the return of the project at around 9% and the rentability of equity above 10.5%, 11%. Thank you, Peter.
Thanks.
Thank you, Peter. Next question comes from Luis de Toledo, DDVA.
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.
So, 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 and in the area of Alberta due to the high cost price and so on than in the States were thanks to the 1st quartile and very good assets we have in the Marcellus, the situation is better there. Thank you, Luis. [SPEAKER RAMON ALVAREZ PEDROSA:] Thank you very much.
Thank you, Luis. Our next question comes from Pablo Cuadrado, 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
had changed during the quarter? I guess the situation was improving at least in the last quarters. And if you guys just confirm as if the situation remains under control and if you can share the level of receivables has been stable or not that will be great. Thank you.
Thank you, Pablo. I mean, 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. And our main priority, our main objective is to protect 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. I mean, it's true that it's not an easy business today, an easy business environment.
But during the first half of the year, we have received reasonably regular crude oil cargoes in payment of debts and our production is in light with the budget. Related to Carbon 4 that as you know is the gas production in the JV we have with ENI, we have received 4 cargoes in the half plus one more in July that represent the 45% of the billing of the period that I mean, it's not bad taking into account improving the figures we had last year. And over this period, Petroquiliquili has received a cargo by month, I mean, roughly, they committed 7,000 barrels per day. Thanks to this, let me say, a control situation in financial terms, the exposure to Venezuela has been reduced from $522,000,000 at the end of 2018 to 440 $7,000,000 at the end of this half of June twenty nineteen. And the receivable side has been more or less stable.
But I mean the situation taking into account the complexity of the country has been in the terms I express now, Pablo. Thank you. Gracias.
Thank you, Pablo. That was our last question. At this point, I will bring our 2nd 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.