Hello, welcome to the Repsol third quarter 2018 results conference call. 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. Please note that today's call will be recorded. I would now like to hand the call over to Mr. Ramón Álvarez-Pedrosa, Head of Investor Relations. Sir, you may begin.
Thank you, operator. Welcome to Repsol third quarter 2018 results conference call. As the operator said, today's call will be hosted by Josu Jon Imaz, our Chief Executive Officer, with other members of the executive team joining us here in Madrid. Before we start, I advise you to read our disclaimer. During these presentations, we may make forward-looking statements, which are identified by the use of words such as will, expect, or similar phrases. Please note that actual results may differ materially depending on a number of factors, as indicated in the disclaimer. I will now hand the conference call over to Josu Jon.
Thank you, Ramón, thank you to everyone online for attending this conference call setting out our third quarter results. Today, I'd like to cover the following principal topics. Firstly, I will start with the key messages and main operational highlights for the quarter. Secondly, a summary of the financial results. Finally, an update on outlook for the end of the year. Let me begin with the key messages of the quarter. At the macro level, the market environment has remained broadly in line with the previous quarter. Brent price consolidated its recent recovery, averaging $75 despite volatility during the period. Third quarter, EBITDA at CCS and operating cash flow amounted to EUR 1.9 billion and EUR 1.6 billion, respectively, without a material working capital build-up this quarter.
The cash generated by our operations more than covered our CapEx, interest payments, dividends on the purchase of EUR 0.4 billion of treasury shares under our buyback program. Net debt at the end of September stood at EUR 2.3 billion, a EUR 400 million reduction from the previous quarter. Moreover, liquidity amounted to around EUR 9.3 billion, including cash deposits and undrawn committed credit lines. Let me underline that earlier this week, Fitch improved its outlook for Repsol from stable to positive, maintaining its triple B rating. Upstream operations continue to be focused on the successful development of our projects on time and on budget, benefiting from a better commodity scenario and progressing on the high-grading of our portfolio. Planned maintenance and lower volumes in Venezuela had a negative impact on quarterly production.
Under a strong oil price scenario, downstream results were in line with the second quarter, impacted by the ongoing challenging environment in chemicals and of course, the seasonal effect in the results of the LPG and gas and power businesses. In low carbon, we continue progressing towards our strategic objectives, and the transaction with Viesgo is expected to be completed early in November. In addition, we have recently acquired the permits to develop a 264 MW solar project in Spain. With these two transactions, we will reach more than 70% of our 4.5 GW of unregulated low emissions generation capacity target to 2025. In corporate, on September 4th, we started implementation of a buyback program in connection to the share capital reduction approved by our annual general meeting in May.
Including the shares purchased before the implementation of the program, at the end of September, Repsol had bought 32 million shares of the total 68.8 million shares to be amortized. The share capital reduction will be executed within a month after the buyback program is completed. Finally, on September 20th, as you know, CaixaBank announced its intention to divest its 9.3% stake in Repsol after 22 years as shareholder of the company. At the time of the announcement, half of that stake had already been sold in the market. The remaining position is being sold in an orderly way through a disposal program that will be complete before the end of first quarter of 2019. Moving now into the operational highlights of the quarter, starting with the upstream. Our accumulated crude realization prices to September have evolved in line with the recovery of the main crude benchmarks in 2018.
In contrast, gas realization prices have improved by 16% compared to an 8% decline of the Henry Hub. This is a consequence of our limited exposure to North American gas spot prices, as most of our production is linked to Brent or another liquids and gas references. Our portfolio actions in the quarter included the exit from our positions in U.S. Midcontinent, Romania, and Angola. Third quarter production was impacted by planned maintenance in several assets and lower volumes in Venezuela due to lower gas demand in the domestic market. Quarterly volumes averaged 691,000 barrels of oil equivalent per day, a 4% decrease quarter-on-quarter, and in line with the same period of 2017. In Libya, despite the security conditions still being a concern, production averaged 35,000 net barrels per day.
This is a 3,000 barrels per day reduction compared to the second quarter, and 10,000 barrels higher than in the same period of 2017. Up to the end of September, the total group production has averaged 713,000 barrels per day. Development activity includes the ramp-up of Egina in Nigeria, one of our most significant projects in Africa, which reached its plateau production level in August. In exploration, a total of five wells were finished in the quarter. Two of them are currently under evaluation, while the remaining three were deemed unsuccessful. Moving now to the downstream and starting with refining. The margin indicator averaged $6.70. Compared to the second quarter, the indicator was impacted by narrower heavy-to-light crude differentials, partially offset by the strengthening of the main product spreads.
Completion of all major plant maintenance in our refineries during the first half of the year allow us to increase our utilization rates in both distillation and conversion units. In addition, with all conversion capacity on stream during the full quarter, our unit CCS margin was able to generate a premium to the indicator. The chemicals business continued to face a challenging international environment, mostly driven by the increase in the price of naphtha, and the production volumes were also affected by the turnaround of Sines that started up at the end of July. Compared to the second quarter, the result of the marketing business was positively impacted by the driving season in Spain and Portugal, while seasonality affected LPG and gas and power negatively. Finally, our business in Peru finalized the development of the new gasoline desulfurization unit at the La Pampilla refinery, which started operation in October.
This project completes a EUR 741 million investment that includes the diesel desulfurization unit that started up in October 2016. Moving on now to the financial results. I'll summarize the main figures for the third quarter of the year and how they compare with the same period of 2017. Third quarter 2018, CCS adjusted net income was EUR 588 million, EUR 60 million higher than in the same period in 2017. Upstream adjusted net income was EUR 368 million, a EUR 220 million increase compared to the third quarter in 2017, driven by higher prices and lower amortization, partially compensated by higher exploration expenses and taxes. In the downstream division, the CCS adjusted net income was EUR 336 million in the quarter, EUR 166 million lower than in the same period of 2017, mostly due to a lower contribution from chemicals and refining and lower results in LPG and gas and power.
In corporate and others, the adjusted net income was EUR 116 million negative, probably in line with the same period in 2017. For further detail on Repsol's results, I encourage you to refer to the financial statements and accompanying documents that were released today. Before closing this first speech, let me now review the outlook to the end of 2018. Considering our progress during the first nine months of the year, there are no material changes to our main financial and operating objective for 2018. Our previous EUR 4 billion guidance of total capital expenditure now sits at the higher end of our planning assumption range. Capital discipline is a must for me and for my management team, and we are going to deliver on that. The efficiency and digitalization programs are progressing across the whole organization, having already delivered by the end September the full year targets set for 2018.
In Venezuela, during the month of October, we have already received two cargos from PDVSA to cover outstanding payments in Petroquiriquire. Additional payments for Cardón, Petroquiriquire, and Petrocarabobo are expected in November, allowing us to reach our cash objective for the year. Looking at our project's fourth quarter drilling activity in the first phase of Acacias in the CPO-9 block in Colombia continues with the objective of doubling production in 2019, with a potential FID for the full development of the field in first half of next year. In the Marcellus, drilling activity will be supported with the addition of a second rig starting the fourth quarter. In Buckskin, in the Gulf of Mexico, the two wells of the first phase have been drilled and development. We continue towards achieving first production in 2019, in the first half of 2019.
In Alaska, a two-well appraisal campaign in the Pikka area is expected during the coming winter's window in order to confirm recoverable volumes and test the development concept. The appraisal phase of Sagitario in Brazil is expected to start during the first half of 2019. Finally, after getting the final investment decision, the development of Angelin in Trinidad and Tobago is progressing on track with first gas expected during the first quarter of 2019. In the downstream unit, the refining margin indicator has averaged around $5 in October, following the sharp reduction in gasoline spreads and narrower heavy-to-light crude differentials. These effects have been partially reverted at the last week of the month, and the indicator is today at a level of $6.40-$6.50 per barrel.
That is the level in these last days of October, reverting these two, three weeks where we suffer these effects from the market. In chemicals, we have adjusted our full year EBIT forecast from EUR 350 million to around EUR 290 million in 2018, driven by the worse environment and unexpected operational issues earlier in the year. In conclusion, as we face the last quarter of 2018, we are confident on delivering on all the key objectives set in the first year of our strategic update. Supported by an improving commodity price scenario, upstream has become the main cash flow contributor of the company. This division continues to work to further reduce its cost base and high-grade its portfolio, sustaining current production level and developing our projects in an efficient way.
This better price environment is helping us for accelerating our portfolio rotation, completing the exit from positioning non-core assets or from areas where we don't have an optimal scale. At the group level, our accumulated results through September demonstrate the benefits of our integrated model. Coming from record levels of refining and chemical margins in recent years, the downstream division continues to generate significant cash flow in a much higher oil price scenario. Moreover, Repsol is perfectly positioned to benefit from the upcoming IMO regulation, and we continue working towards optimizing our refining operations to maximize the value capture by 2020. The chemicals business enjoyed a very favorable environment in the past three, four years, leading to a record-level performance in 2016 and 2017.
The significant positive results generated in 2018 under a more challenging scenario, not only from the international margins point of view, but also from the operational point of view that was overcome and is over, are solid evidence of the turnaround achieved in this business by investing during the previous down cycle. In low carbon, we are quickly delivering on our targets, and the Viesgo transaction will be the core of our inorganic growth to 2020, becoming the cornerstone of our future low-emission gas and power business. Let me finalize by underlining that under a sustained higher oil scenario, our strong balance sheet and financial flexibility will allow us to accelerate our projects while delivering our objective of increasing shareholder compensation by 8% annually, as committed in our recent strategic update.
With that, I now hand the call back to Ramón, who will lead us through the question and answer session. Thank you.
Thank you very much, Josu Jon. Before moving to the Q&A session, two previous advices. One is that in case you run into technical problems during the webcast or conference call, please address any problems to our email address, investorsrelations@repsol.com, we will contact you immediately to try to solve it. Also, before moving to the Q&A session, I would like the operator to remind us of the process to ask a question. Please go ahead.
If you would like to ask a question on today's call, please press star one on your telephone keypad.
Thank you. Let me move to the Q&A session then. Our first question comes from Flora Trindade from CaixaBank BPI.
Yes. Hello, good morning. Thanks for taking my questions. I have a couple of questions on guidance. You have maintained the CapEx target of EUR 4 billion, considering the CapEx in the nine months, it should mean a strong concentration in Q4. Is there a specific reason for this concentration, or are we likely to see a lower figure by year-end? The second question is on the EBITDA. I think you had previously mentioned a EUR 7.9 billion target for the EBITDA. Can you just update that with the recent cut in chemicals and also the update on oil prices we are seeing? Thank you.
Thank you, Flora. First of all, let me say that CapEx is going to be EUR 4 billion. As I said before, that is the higher range of our approach today, on December 31st. In this CapEx is, of course, included the EUR 750 million that we are going to pay for the asset of Viesgo in coming days. The main reason of this concentration, of course, is this additional CapEx. As I said before, EUR 4 billion is the high range of our expectation of our guidance today. Because as I underlined before, capital discipline has to be a must in the company. That is written on the stone in the management team and the whole people from this company.
As we said before, in the strategic update in June, we are going to be very cautious in the disposal, the application of CapEx, guaranteeing that the return is going to come. Let me say that one of the main reasons for this reduction in the CapEx figure is that we are more efficient than expected, delivering the growth projects coming mainly from the upstream side, but also projects coming from the downstream. We are going to gain EUR 300 million in efficiencies over the whole year, guaranteeing that the projects are on track. We are guaranteeing that the production projects in the upstream are on track with no delay. The CPO-9, the first phase is growing and is going to be finished in the first quarter of 2019 to take the FID in the first half of 2019 of the second phase.
The Buckskin is going to be on track. The IMO project is going to be also on track. We are going to apply the second rig of the Marcellus in the last quarter. All the growth is on track. We are very efficient applying this CapEx, that is going to be the high range of the figure at the end of the year. As you said, I talk about EUR 7.9 billion for the EBITDA of the year in July. Today, that is also the guidance for the end of the year, EUR 7.9 billion of EBITDA at the end of the year. We maintain this guidance.
It is true, as you said, that in the chemical side, I remember that I talk about exactly EUR 350 million of EBIT, and we are going to be in a lower figure, 290, more or less, EUR 60 million below the figure that we commit as guidance in July. The main reason is going to be that the turnaround of Sines was a bit longer than expected, and also the international margins level we have experienced over the last weeks. But let me say that after overcoming these reliability problems and operational and maintenance and turnarounds periods we have in our crackers, even at these oil prices, I think that talking about EUR 350 million as EBIT of our chemical business for 2019, it could be a good approach. Thank you.
Thank you, Flora. Our next question comes from Thomas Klein from Royal Bank of Canada.
Hi there. Thank you for taking my question. I just had one on Venezuela. You were talking about it before, and you also mentioned it had a negative impact on production in the quarter. But can you quantify that a bit more, and provide any more color? Thank you.
Yes, Thomas. Of course. In Venezuela, I think that you know that the economic and social situation is complex. Over this quarter, we were impacted by a reduction of production, not because we had any decline in the gas production, not because of any operational problem, but because some of our clients that are using this gas for producing power in thermal plants, they were shut down. So we had a reduction of demand because the operational problems in some plants that are buying our gas in Venezuela. For that reason, the gas production reduction was at around 20,000 barrels equivalent per day in the third quarter. Let me say that, on top of that, as I said before, we have some turnarounds and unplanned maintenance periods in the U.K., in Montrose.
We also have something like that in the Marcellus, in the PM3, in Malaysia, in BPTT, in Trinidad and Tobago, and so on, and also in Norway, in Gudrun. This factor of the reduction of production in Venezuela due to this reduction of demand was behind a main part of the production reduction in the third quarter. As I said, even in this complex economic context in the region and in the country. We have some positive sounds coming from Venezuela in October. We were paid with two cargos that we have already received them in our plants. On top of that, they have committed two more cargos in the framework of the financial agreement of Petrocaribe in coming weeks, before the end of the year, and two more related to the receivables of the gas of Cardón.
I don't know what is going to happen, taking into account, let me say, a prudent approach to the picture, I think that the target of being neutral in free cash flow terms in Venezuela this year is going to be there. Thank you.
Thank you, Thomas. Our next question comes from Thomas Adolff from Credit Suisse.
Good afternoon. Couple of questions from me, please. Firstly, just on net debt. Obviously, you had very strong cash flow from operations this quarter, which saw net debt go down to EUR 2.3 billion. I remember your guidance previously for year-end net debt was around EUR 3.5 billion, and I can get to that if you do quite a bit of buybacks in the fourth quarter. Can you perhaps talk about where you see net debt ending, then maybe discuss the moving parts, please? Secondly, just in downstream. Yes, refining margins seem to have recovered last week and including this week. I wonder, since you use about 50% of heavy crude, with Maya being possibly the best indicator for your indicator margin, whether it's reached a level where it makes sense to go to alternatives. Thank you.
Thank you, Thomas. First of all, I think that the figure that I have in mind, that I talk about, but is very close to the figure you said. It was EUR 3.6 billion in July. Anyway, EUR 3.5, EUR 3.6, you know that a cargo delivered in the last day of December could move EUR 100 million or EUR 150 million up or down the net debt figure. We have to take into account that this fourth quarter, we are going to cash out EUR 750 million to pay the assets of Viesgo. On top of that, we are going to complete in coming before December 21st and taking into account the rhythm we have, you know that in October 26th, we only have eight or nine million of additional shares to be bought. That means that we are going to need EUR 600 million in the quarter for the buyback.
On top of that, because the divestment of Gas Natural, we have to anticipate this quarter, in the fourth quarter, EUR 400 million to the Spanish treasury, and we are going to be paid back in January 2020. We have anticipation of taxes. Taking into account this combined effect of EUR 800 million approach to pay Viesgo, EUR 750. EUR 400 for the anticipation of taxes for the divestment or the disposal of Gas Natural. Plus EUR 600 million for the buyback in this quarter. Taking into account these figures and taking into account what we forecast in terms of cash generation coming from the operations in this quarter, I think that this figure of EUR 3.6 I mentioned before could be our most accurate approach for the end of the year.
As I said before, taking into account that we are going to anticipate EUR 400 million that is going to come back and guaranteeing the whole fulfillment of the buyback program. EUR 3.6, the figure I anticipated in July, is today my best approach. As I said before, we are fully focused on the cash generation and on the efficiency in CapEx. Myself and the whole team is going to do our best, if we could, of course, to improve this figure. Talking about the refining margins. Today we are at EUR 6.5 per barrel in the current business scenario. The average in the first nine months of the year has been EUR 6.9 per barrel. I think that at the end of the year, we are going to be very close to this figure.
Perhaps we could be 0.1 or 0.2 below because the first two, three weeks of October, that as you know, in October, we could have an average of EUR 5, that could impact it perhaps in EUR 0.1 per barrel or something like that in the average of the year, but we are going to be there. You are right, the spread of heavy oil is impact either in a positive or negative way in our feedstock. We have seen over the last three years, ups and downs. We are adapting our programming every day, depending on the spreads and the prices in the market. If we see that increasing the feedstock of medium API, crude oils, Urals and so on, and reducing the heavy oil, we are optimizing the basket. We are going to do that, to be sure about that.
All in all, I think that today, the refining margin is not going to be far from EUR 6.9, EUR 6.8 per barrel at the end of the year. We can't forget that we are impacted by the feedstock in terms of heavy oil, but also a 55% of our yield is middle distillate. This winter that is now coming, and that they arrived to the Iberian Peninsula last week, in very hard terms, is going to have also an impact on the middle distillate spread. All in all, we are going to be there. Thank you.
Right. Thank you. Thanks.
Thank you very much, Thomas. Our next question comes from Lydia Rainforth from Barclays.
Thanks, good afternoon. Two questions, please. Firstly, in the strategy presentation, you did talk about the extra cash, being used to accelerate the growth projects that you have. Can I just ask, when are you prepared to trigger that acceleration? What would make you sort of go, "Actually, we can pursue the more projects." Secondly, I'm sorry to do very boring question, what was behind the strong equity affiliates contribution in the quarter? Thanks.
Lydia, sorry, can you repeat the second question? The second one, please, Lydia. I have some problems with the sound.
Oh, okay.
The second-
The equity affiliate's contribution looks very strong for the quarter, and I didn't know if that was just the U.K. or the Sinopec JV doing particularly well.
Going to your first question. First of all, Lydia, let me underline that I have here in front of me, in my office here and everywhere, the cash flow increase that we committed in our strategic update coming from operations. This target of improving EUR 1.9 billion by 2020 per year. The cash flow coming from the operations at flat price of commodities, we take the case of $50 per barrel, is going to be written on a stone in every corner of the company in coming 3 years. Let me say, in the first half of the year, and I anticipated this effect, that the $20 per barrel more in Brent price terms, coming from the upstream, they were going to be used to build the inventories of the downstream because the weight that the downstream has in Repsol.
We were going to start seeing this cash effect in the 3rd quarter. We are there. We are on track. We are going to fulfill what we committed in our strategic update. We are going to see quarter after quarter, better environments sometimes, worse environments sometimes. We are going to do our best to deliver what we commit in cash terms in our strategic update. That is the main target, that is the main driver, and that is the real objective I have. As you said, Lydia, if we fulfill and we deliver what we said, we are going to have additional cash. Of course, we are going to fulfill and we are going to deliver the buyback program for the whole 3 years period to avoid any kind of dilution coming from the scrip dividend.
On top of that, we are going to use this cash for accelerating some projects. Some of them, of course, the commercialization side in the gas and power in Spain, now that we are integrating the asset of Viesgo. The service station program in Mexico, the trading expansion program, the international lubricant expansion program. Of course, we have also some growth projects in the upstream. Potential bolt-on projects in areas where we could have synergies like U.K. and so on. The potential acceleration in the Marcellus, where we are going to invest in the 2nd rig this quarter. That is going to add, I can't exact the exact figure, but 12,000-14,000 barrels per day in gas production in the Marcellus. We are going to analyze what we could do in the future development in the Gulf of Mexico.
I'm thinking in the Buckskin, in León, in Shenzi, and so on. Of course, it will be our target to analyze the possibility to take a potential FID in Sud-Est Illizi in Algeria, also in 2019. On top of that, we are going to accelerate the development of the CPO-09 in Colombia after the early development we are promoting in these last months. We have projects for that. The organic growth to fulfill what we commit in our strategic update is going to be the priority. Let me say, we have the financial flexibility to do that. The only thing we are going to look for, of course, is the high return of these projects to invest in.
Talking about the affiliate companies, we could check this figure later, if you like, with the IR, but we are talking mainly from Trinidad and Tobago, BPTT, Brazil. I think that Brazil, the JV we have with Sinopec is impacting in very positive way, and we also have the JV in U.K. As you could imagine, Lydia, at these oil prices, U.K. and Brazil are two JVs that are increasing in a quite significant way, the profits in this quarter. Thank you, Lydia.
Wonderful. Thank you.
Thank you, Lydia. Our next question comes from Rahal Buttar from Bank of America.
Great. Thank you for taking my questions. I had three, please. First one on working capital. I guess for the first nine months of the year, you've had quite a significant build and with limited change over the third quarter. I think at the second quarter results, you mentioned you expected about half a billion of that working capital to unwind over the course of the year. Is that still a valid assumption going forward? Secondly, on Venezuela, can you just remind us on where the receivable stands at the end of three Q and whether the cargoes that you received in October had much of an impact on that number? Then finally, just looking at the trading business in the fourth quarter, how would you characterize your expectations on performance there? Because we've seen trading deteriorate over the quarter since the beginning of the year.
I wondered if you had any comments on that. Thank you very much.
Thank you, Rahal. First of all, the working capital has been flat in the third quarter. As I said before, we increased in EUR 1.4 billion, the working capital over the first half. All in all, we could think that more or less EUR 800 million could be associated to inventories due to the increase in commodity prices. EUR 200 million could be linked to the growth in some commercial businesses of the downstream, including the working capital there, because the inventory effect, EUR 300 million over the whole year could be associated to Venezuela and the receivables from that country, and EUR 100 million could be linked to the price effect on inventories in the upstream side. EUR 1.4 billion over the first half of the year and flat in the third quarter.
In terms of working capital, I work on the assumption that we are going to be also flat at these oil prices in the fourth quarter. We are going to work on those assumptions. One cargo, the last day of the year could move this picture in EUR 100 million, EUR 120 million or EUR 80 million. That is our target for the end of the year. For now on, we are not building working capital. We are not building inventories. Talking about the trading business. The trading business for Repsol is performing in a good way. It is increasing in terms of P&L. Perhaps there is an impact in seasonal terms because I have to check it, but the gas and power, the gas American business in North America is included sometimes with the trading activity.
You know that for that season, for North America, our gas commercialization and our Canaport activity, is not in the best season in summer. The trading is going to increase over these three years, and is going to increase the contribution to the P&L of the company, and this year is going to be there. Sometimes, you know that it's a volatile business, but the trend is clear for us. Talking about the receivables, as I said before, we could have today, at the end of the third quarter, a total exposure to Venezuela of EUR 920 million, EUR 800 million. We are maintaining the total exposure we had before in the second quarter. Here we are including everything, equity, loans, receivables, and so on, is the total exposure in financial terms we have to the country.
I think that the receivables, the bills were paid in October, so they are not in the third quarter. No EUR coming from Venezuela in the third quarter. These cargoes arrived and came in October. Our expectation in November and December is being very prudent because I know what the situation in economic terms is in the country, quite complex. Knowing that, I work under the assumption of maintaining this exposure to Venezuela at the end of the year in financial terms, and being neutral in free cash flow terms over the whole year in Venezuela. That's the closest assumption I could give you now. Taking into account that there are some factors that today, as I said before, they are not in my hands. Thank you.
Understood. Thank you.
Thank you, Rahal. Our next question comes from Alessandro Pozzi of Mediobanca.
Thank you. I have two. The first one is in Libya. I think production in the country now is back above 1 million barrels. I was wondering if we could say that the situation in Libya now looks more stable. If it is, just wondering whether you'd be willing to deploy a bit more funds to grow volumes there. I was wondering how much you're planning to produce from Libya during Q4. Also, second question on the average gas realizations. As you mentioned, they perform really well. I was wondering if you can give us a bit more color on the various moving parts there. Also, given that Henry Hub now is around $3.2, $3.3, they should provide a nice boost to margins in North America, upstream margins in North America.
I was wondering if you can give us maybe an update on the economics in the Marcellus as well. Thank you.
Thank you, Alessandro. As you said, the goods coming from the production in Libya are good news. This quarter, we have had an average of 35,000 net barrels per day for Repsol. 2,000 barrels per day lower than the average of the first six months, because we had in the last days of July some security concerns in the area, and we reduced the production. Our best guidance for the year, taking into account that we are talking about a country with a complex security concern, could be at around 38,000 barrels per day for the whole year. That means that the fourth quarter, the asset is performing in the right way.
The concerns about the stability of the country are there, let me say, I think that is important, the oil production in Libya, because Libya is taking the taxes on the cash coming from the operation, and all that is helping to stabilize the country, improving the standard of lives of people. I think that we could enter in a virtuous circle in some way. As I said before, that is not in our hands. We see that the situation being complex, being challenging, could be in stability terms a bit better than it was two, three years ago. Anyway, we try, of course, to preserve the security of our people, the safety of our operations. In this framework, we try to optimize the performance of the assets. We are, of course, open to work in Libya.
We are also open, of course, in the framework of a reasonable risk-return ratio to explore also new opportunities in Libya, being prudent from the financial point of view. I think that in the complex situation of the country, we have to work together, and we are working together with the national oil company and with Mr. Sanalla to collaborate with them in order to improve the situation of the sector in Libya and increasing, of course, the standard of life of people in Libya, because all that is also good news for the stability of the country.
Talking about the gas prices, first of all, let me say that if we take the whole gas production of Repsol, that you know that is at 66%-67% of our whole production, 30% of this production is related to Henry Hub, 30% to some others, international hubs, NBP, JKM, and so on. 20% more or less is Brent related directly, and 20% local fixed prices. I'm talking, for instance, the Spanish Henry Hub or Henry Hub, sorry. I was thinking the Spanish electric pool price or some other local contracts. For that reason, you could see that even in a scenario where the Henry Hub was down on 8% this quarter, we increased in a significant way the realization price of our gas production.
In the case of Marcellus, I have to remind that the breakeven of this second rig project is in $2.4-$2.5 per million of Btus. That means that, taking into account the current stand of $3.2-$3.3 per million of Btus of the Henry Hub and the expectation we have for coming two, three years, we rely on the profitability of this second rig investment that is going to give us even at $2.5 a positive free cash flow. Thank you, Alessandro.
Thank you, Alessandro. Next question comes from Martijn Rats from Morgan Stanley.
Hi, gentlemen. Good afternoon. Just one question remaining from me. Apologies if it's been touched on throughout the Q&A. As I remember, you have a strategy of actively managing the upstream portfolio, and actually high grading by, I think the idea was to sell 300 barrels, which were maybe less attractive to fund buying 100 barrels, which were more attractive. Can you just give us an update on that strategy, whether that's still the case? Obviously, you've talked about your CapEx plans, and we see the progress there. How about the active management of the portfolio? Thank you very much.
Thank you. We have taken advantage of this quarter to, let me say, I'm going to use perhaps an appropriate word, to clean a bit our portfolio and to exit from some countries or some assets where we had either low margins or low expectations. We exit from Romania in the third quarter. We disposed our mid-continent asset that it wasn't in the best quartile, let me say, of our portfolio. We disposed what we had in Angola, and we also disposed, and we are in the process of permits and so on to conclude this process in coming months, some of our assets in Southeast Asia, mainly in the area of Papua. That means that we are taking advantage of this situation to reduce the scope of countries where we operate to increase the margin per barrel.
As you said, we have to complement all that with perhaps a growth, a new acquisition. At the moment, this growth is organic. The second rig of Marcellus is a good example. I don't discard some kind of prudent acquisition of new barrels. Let me say, I only going to buy new barrels from the upstream if we could guarantee that even at low oil prices, we could have good returns. That means that if we are buying assets when the oil price is at $70, $75 per barrel, we have two options. To take the risk of destroying value for the future, and that is not going to be our option.
I prefer, let me say, to be conservative, to be moderate, to be very prudent in the capital allocation discipline, or we could add some investment, and that is the way we are exploring of having bolt-on acquisitions, adding some new barrels, perhaps in areas where we could have clear synergies, clear operational logistic synergies, or why not? A significant pool of tax credits from the past where we could have, let me say, additional advantages related to some others potential buyers. We are exploring these possibilities. That is open. I'm going to be very prudent. My target, written on a stone, is to fulfill the strategic update, to rely mainly on the organic side to increase the cash flow coming from the operations, being very focused on digital efficiency, capital discipline, maintaining the financial prudency in the company, and relying on the organic growth.
All that is compatible if we could have this kind of, let me say, opportunistic and bolt-on operation where we could add new barrels with significant advantages. Thank you.
Thank you, Rob. Our next question comes from Matt Loftin from J.P. Morgan.
Afternoon, gentlemen. Thanks for taking the questions. Two, if I could please. First, five, six months on from the strategic plan, it sounds like underlying progress on the efficiency and digitization-led cash flow initiatives has been very strong. If you look forward, what are some of the key next steps? How much cash flow do you now expect these programs to contribute in 2019? Is there a case that the more work you do on them, incremental upside starts to emerge? Secondly, on chemicals, coming back to the outage at Sines and looking forward in terms of the operational outlook, can you confirm that Sines is now fully back and stable in utilization terms? Also outline the maintenance requirement in the chemicals business for 2019. Thank you.
Thank you, Matt. In terms of efficiency and digitalization, my message is we are on track. We committed in June. Anyway, be sure that in February, in the year presentation of results, I'm going to take advantage to describe the figure in a more accurate way, showing that we are fulfilling the commitments we take in June. I could anticipate that we had a target in the digital side for this year of EUR 90 million of new cash coming, either for new margins or for cost reduction coming from the digital program. In this third quarter, 85%-90% of this target has been achieved. Today, this EUR 300 million of new free cash flow coming from the digital, I anticipated, I committed in June. By 2020, we are going to be fully on track.
There is, let me say, on the slide that I love a lot, that is in our strategic update in June, we presented the increase of the cash flow coming from the operations over these three years, 2018, 2019, and 2020. By 2020, taking the assumption of a flat commodity prices. My message is, we are on track of achieving the targets by 2020 we committed in June. I am going to give you more flavor and more accurate and precise figures about all that at the end of the year in the presentation of results.
I am going to take advantage of this presentation to show that when we are talking about the efficiencies and digital, I suppose that after some years of fulfilling all our commitments in terms of efficiency, we have the reliability to say that when we talk about that is not blah, blah. That is the whole effort of the company that is going to deliver these figures at the end of the year. Talking about Sines, yes, it was an operational penalty we had this spring. All that is over. We are working in a stable way since July 25th, 26th, more or less. Today, I was checking now in my iPad, the figure in operational terms. Today, Sines is operating on 95% of the operation. Of course, this figure is going to be there.
The maintenance for 2019, talking about the maintenance, we have some maintenance in the refining side in 2019, but mainly to prepare the plants for capturing, let me say, the wind force coming from the IMO in 2020. I remember that we have the FCC and the vacuum unit in Coruña in 2019. We also have the FCC of Petronor, all the hydrotreatment, including hydrocracker of Cartagena in 2019. It seems to me that we also have in the third quarter, the maintenance period of Tarragona, the cracker of Tarragona in the chemical side in 2019. I have some people from my team, I think that I am not forgetting any relevant maintenance program in 2019. Thank you.
Thank you, Matt.
Perfectly.
Our next question comes from Michele Della Vigna from Goldman Sachs.
Thank you for taking my questions. Two, if I may. The first one is on Viesgo. You're going to close that transaction next month. I was wondering if you could give us some visibility of what you expect that to contribute to earnings in 2019, and how much you intend to invest organically in growing that business. Secondly, a very clear message on increased activity in the Marcellus as you have lowered costs there. I was wondering if you could also provide us an update of activity in the Duvernay and whether you expect to take on more rigs there as well. Thank you.
Thank you, Michele. I'm sure that you are going to understand my point. You know that I love to give all kind of details about everything, today, these assets are not legally from ours, are not from Repsol. It's difficult for me to say and to consolidate figures that are not in the hands of Repsol. I expect that we are going to, in coming days, I'm not talking about weeks. In coming days, we expect to close the operation and integration of these assets in the business of the company, of Repsol, and to launch the project of Repsol Electricity and Gas, that is going to be the umbrella for managing these assets.
I could say you, Michele, that we are not going to see big surprises because, if you take the evolution of the electric pool price in Spain over the last nine months, has been over our assumptions and expectations. You also know that the assets we are buying of Viesgo, they are quite much between commercialization and generation. That means that having surprises is not going to be easy. Let me say that I'm not going to say more because they are not our assets today. No big surprises. Let me say, the CapEx are going to be always moderate, as I said before, and always in the framework we committed in the strategic update in June.
Talking about the Duvernay, I think that by the end of 2019, we are going to be close to take the FID. We are focusing on the areas where either the condensate or the oil content is higher in the asset. You know that the gas price in Canada is not experiencing the best time. The good news from Duvernay is that more or less of 35% is oil production, 35% could be condensate, and 30%-35% could be gas. We are going to focus on the areas with more liquids content, and it seems to me that by the end of 2019, we are going to be close to take the FID in the area of Farrier East. Our second target, that is Gilby, perhaps could be at around 2021, something like that. Let me say, I'm more sure about the Farrier East part.
We are analyzing and trying to risk the Gilby area, and that is going to come perhaps the new step in the progress in the development of Duvernay. Thank you, Michele.
Thank you.
Sorry. Excuse me. The Marcellus, I forgot it. I had here the note, and I forgot it, Michele. We are going to add now the second rig in Marcellus. I think that is okay. We have a quite ambitious gas program by 2019. We are going to increase our production in the Marcellus. I think that this year we could be producing, and perhaps I ask to my team to correct my figure if I'm wrong, but producing 450 million cubic feet per day. Our expectation is to increase in at 20% this figure in 2019, due mainly to the addition of this second rig in the Marcellus. Of course, we are always open.
Be sure that in case of having a Henry Hub over the expectation we have, we'll try to use all these additional potential cash that are going to come from the commodity sides to accelerate in an organic way, this kind of projects. I think that today, taking into account the assumptions for 2019 in commodity prices and so on, staying with two rigs in the Marcellus is a prudent approach for us. Thank you, Michele.
Thank you, Michele. Next question comes from Irene Himona from Société Générale.
Thank you very much. Good afternoon. I had three quick questions, please. Firstly, Libya, can you please tell us what the contribution was in the third quarter and in the nine months to upstream EBIT and net income? Secondly, LPG, I think it's your lowest quarter in about eight or nine years. I wonder if you can just remind us of how the price formula works in terms of the time lag before you're allowed to increase pricing, and what can we therefore expect over the next few quarters? Finally, in marketing, the nine months EBIT is a nice step up year-over-year. You do highlight that you now have 100 Mexican service stations. Are they making a material contribution as yet, or it's not relevant to the picture? Thank you.
Yeah. Okay. Starting by Libya, please check the figure with the IR team, I think that we are talking about a net income of EUR 95 million, EUR 100 million, more or less. Please check later the figure, because it's the figure I have in mind, but you could check the figure. People are saying that we are there more or less. Perhaps I was mistaken in EUR 5 million, but not more. The LPG, it's quite logical. I think that it's a conjunction of three factors. The first factor is the season. We are talking about summer. Mainly two factors, sorry. The first one is the season, and the second one is that you know that the LPG business in Spain is regulated. We have a gap of two months between the real price of the LPG and the price we are translating or moving to the market.
When the oil price is going up, there is a gap, and we recover, let me say, this deficit of tariff. I am using not the right term in regulated terms, but this gap or this area or this surface, we are losing the curve when we do not recover the price from the formula. This price is recovered in coming months. That is the reason for the negative impact of the LPG business. First of all, season, and secondly, this gap coming from the application of a gap in the time, some kind of décalage when the price is going up. All that is going to be recovered in coming months. No concerns, because if we analyze our LPG business, we are maintaining our volumes, our market share, and our revenues quite stable over the last years. Going to the second question, it is Mexico.
This weekend, I remember I was talking to Mavi Zingoni this weekend, and she told me that we were achieving the 100 service station figure. 120, sorry. This weekend, we have 120 today. I think that we could have more or less 175, 180 at the end of this year. In 2018, there is no P&L positive contribution, but today our main assumption and guidance is that we are going to have a positive in 2019. According to the business plan we checked last week about Mexico. Positive P&L in 2019. Thank you, Irene.
Thank you very much.
Thank you, Irene. Our next question comes from Yuri Koktanick from Deutsche Bank.
Yes, good afternoon. Two questions from me, please. Following on on affiliates' question, could you please describe us how cash in Repsol Brasil is distributed, is it being loaned to the parent, to Repsol and Sinopec, or is it being returned to parent via dividends? That would be the first question. The second is, what is the targeted return on your solar investment, and how exactly are you going to develop the business? Thank you.
I'm not able to give you an exact flavor. Of course, you could check this figure with IR, but I think that there are two mechanisms, one of them is the distribution of dividends, that is decided by shareholders. The second one is the financial mechanism that is called euros, that is the interest on equity that is paid to the shareholders. I can't remember now the exact balance between both factors, but of course, Yuri, you could check all that with the IR team. Returns on solar investment. At the moment, we don't have any kind of investment. Let me say, we paid EUR 20 million to buy the pipeline to build this potentially 264 MW of our solar project.
We are going to be, as I said, when we presented the strategic plan, the returns are going to be at around 9% in terms of return of the project. Combining the project with the commercialization side, we are going to pay, or we are going to match with the generation we are going to have. We are talking about returns that are going to be above 11%-12%. Thank you.
Thank you very much.
Thank you, Yuri. Our next question comes from Peter Low of Redburn.
Oh, hi, thanks. Just one quick one from me. You've talked about potentially accelerating.
Sorry.
Hello? Hi. Sorry.
No, no. Excuse me.
You've talked about potentially accelerating certain upstream projects. Is that likely to have any impact on your existing production guidance of 750,000 barrels a day by 2020? Thanks.
No, Peter, in case of accelerating some projects, we will take advantage to accelerate the high grading of the portfolio. Disposing, let me say, the lowest quartile of our assets to improve and to take advantage of this sum to improve the quality of our portfolio. Managing our portfolio, and we maintain the guidance of production we committed in the strategic plan. Perhaps improving, that will be our target, improving margins, improving the quality of portfolio, but maintaining the guidance of production. Thank you, Peter.
Thank you.
Thank you, Peter. Thank you, Peter. Well, that was our last question. At this point, I'd like to bring our third quarter conference call to a close. Thank you very much for your attention, and we will welcome you next year.
Thank you.
Ladies and gentlemen, this concludes the Repsol third quarter 2018 results conference call. Thank you for your participation. You may now disconnect.