Hello, and welcome to the Repsol Quarter 3 2017 Results Conference Call. Today's conference is being recorded. The conference will be conducted by Mr. Miguel MacInnes, CFO. A brief introduction will be given by Mr.
Paul Fourniho, Finance and Investor Relations Corporate Director. I would now like to hand the conference over to Mr. Ferniho. Sir, you may begin.
Thank you, operator. Good afternoon. This is Paul Furneyhoe, Head of Investor Relations at Repsol. On behalf of the company, I'd like to thank you for taking time to attend this conference call setting out the company's 3rd quarter results. This conference call and associated webcast will be delivered by Miguel Martinez, Repsol's Chief Financial Officer, with members of the executive team joining us here in Madrid.
Before we start, I advise you to read our disclaimer. During this presentation, we may make forward looking statements, which are identified by the use of words such as will, expect 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 conference call over to Mr. Miguel Marquez.
Thank you, Paul, and thank you to those online for attending this conference call on our 3rd quarter results. In today's call, I would like to cover 3 principal topics. Firstly, I summarize a summary of key messages and the main operational highlights for the quarter. Secondly, the financial results. And finally, an update on guidance for the end of the year.
Starting with our key messages, operational metrics at our refineries and improved commodity prices during the Q3 have allowed Repsol to deliver around €700,000,000 of free cash flow before dividends and interest expenses and €500,000,000 reduction in our net debt position. We continue to focus on investing for value and resiliency with a portfolio of assets that in combination more than breakeven at current commodity price. This is evidenced by the free cash flow generated in the 3rd quarter on the background of an average Brent price of $52 per barrel. We are finishing our journey to stabilize our credit rating at BBB and our September closing net debt figure of around €7,000,000,000 is a clear step towards achieving this objective. Let me now go into detail in the main operational highlights for the quarter.
At the macro level, we saw an improving trend in oil prices that continue to build on the recovery experienced by during the year. However, this was partially offset by weaker U. S. Dollar. The disruptions caused by Hurricane Harvey in Gulf of Mexico had a significant impact on production and refining capacity in the region, resulted in inflated global refining margins for part of the quarter.
In the upstream division, production averaged 693,000 barrels of oil equivalent per day, a 2% increase quarter on quarter. Up to September, accumulated production has averaged 688,000 BOEs per day. Walter Leaf volumes were positively impacted by the ramp up of new projects, higher production in Libya and the normalization of gas sales in Indonesia. Production in Libya averaged around 25,000 net barrels per day, despite being interrupted for 17 days in the quarter. Accumulated volumes in Libya through September have averaged around 23,000 barrels per day net to Repsol.
Flinder and Monarch in the UK North Sea reached an average production of 7,000 net barrels a day in the quarter. In Trinidad and Tobago, Juniper achieved 1st gas in August as expected providing an additional 5,000 BOEs of net average production during the Q3. Kinabalu in Malaysia delivered first production late in October. Development work continued at Sagar in Peru and we expect to achieve first production later in this quarter. We now expect Ragan in Algeria to start production around year end.
In total, the sum of Monarch, Juniper, Kinabalu, Sakari and Regan will more than offset anticipated natural decline over the next 12 months. Development work has continued at Red Emperor in Vietnam and Bakken in Gulf of Mexico, following the FIDs taken earlier this year. Both projects have a breakeven below $50 a barrel and are expected to start production in 2019. Finally, in exploration, a total of 3 wells were completed in the quarter. One well was declared positive, while the remaining 2 wells were deemed negative.
Additionally, one well concluded in October was declared negative impacting the results of the 3rd quarter. During the Q4, our back end loaded exploration program will result in activity in around 13 wells. Now continuing with the Downstream, good performance across all business line delivered another quarter of strong cash flow generation. In refining, our margin indicator averaged $7 supported by strong middle distillates and gasoline spreads, steady demand and the positive impact from capacity disruptions across other operators. Completing all of our major plant maintenance in the first half of the year has allowed us to run our refineries at very high distillation and conversion factors, thereby benefiting from the positive environment during the quarter.
The strength of middle distillates and gasoline spread gave us the opportunity to focus on absolute distal volumes at the expense of premium resulting in higher overall cash flow generation. The one effect caused by 3rd party capacity disruption has gradually unbound since the end of September. Despite this, the strong underlying fundamentals of our business have maintained the refining indicator in line with the 3 quarter average in 2 October. In the chemical business, we saw another quarter of results driven by higher sales, thanks to robust demand, partially offset by lower margins due to the increase in the price of naphtha. Finally, the commercial businesses maintained a steady performance benefiting from higher sales in marketing due to seasonality and supported by continued growth in the Spanish domestic market.
Finally, a word on capital optimization efforts together with lower overall costs resulted in a net CapEx figure for the company as a whole of €645,000,000 in the 3rd quarter, bringing capital for the 1st 9 months to €1,800,000,000 and our forecast for the year up to €3,000,000,000 Lower CapEx requirements compared to budget are still allowing us to invest in our upstream assets, fund maintenance activity in the downstream and continue to achieve close to our reference production level of 700,000 BOEs per day. Moving now on to the financial results, I will briefly summarize the principal outcomes for the quarter. 3rd quarter 2017 CCS adjusted net income was €576,000,000 €269,000,000 higher than in the same period of 2016. The EBITDA at CCS stood at €1,600,000,000 an increase of more than €400,000,000 year on year. In the upstream, adjusted net income in the quarter was €148,000,000 a €176,000,000 higher than in the same period in 2016, principally due to higher prices, higher production volumes and lower exploration expenses, partially offset by higher amortization.
Lower effective tax rates also impacted the net income positively. In the Downstream, CCS adjusted net income was €502,000,000 €107,000,000 higher than in the Q3 of 2016, principally due to better margins and higher utilization together with better results in chemical, trading, marketing and LPGs. Finally, in corporate and others, adjusted net income in the quarter was €14,000,000 lower than in the same period of 2016, mostly due to lower results contribution from Gasnat, partially offset by lower interest costs and corporate expenses. For further detail on the company's quarterly results along with detailed variance analysis, I encourage you to refer to the financial statements and accompanying documents that we release today. Let me now finish with some thoughts on guidance for full year results.
Starting with our efficiency and synergy program, by the end of the year, we expect to fully deliver our $2,100,000,000 target of annual cash savings. Accelerated by 1 full year our original objective for the end of 2018. The acceleration of our efficiency program together with the higher margin barrels coming on stream is allowing us to continue reducing our cost base and lower the overall breakeven of the Upstream portfolio. In fact, the breakeven for the Absint in the 1st 9 months of 2017 dip below $60 per barrel. We expect that lower investment needs supported by more effective optimization and overall lower cost will allow us to reduce our full year group CapEx to around €3,000,000,000 without impacting production volumes over the coming years.
Considering accumulated production today, we expect to end 2017 with an average production of around 690,000 barrels of oil equivalent per day, subject to fluctuations in Libya. In the downstream, following the results achieved in the 1st 9 months of the year, we expect the division to deliver above our target of €2,000,000,000 of free cash flow in 2017. Up to September, the accumulated refining indicator has averaged $6.8 per barrel, well above our long term target of $6.4 In conclusion, and with just 1 quarter of 2017 ahead, Repsol remains on track to deliver or improve on its targets for the year. Our Absinthe division is currently producing at close to 700,000 BOE per day. Capital investments continues to be optimized, but not at the expense of volumes or long term average reserve replacement.
In the Downstream, with major planned refinery maintenance complete in the first half, our system has returned to normal high levels of conversion and utilization. This is allowing the refinery division to maximize the benefits we are able to obtain from stronger margins since the beginning of September. The strength of our integrated business model and the ongoing transformation of the company under the guidelines set out in our current strategy has delivered a business that is robust under current economic conditions, whilst being able to maintain upstream production volumes and deliver high levels of free cash flow from the downstream. With that, I will now hand the call back to Paul, who will lead us through a question and answer session. Thank you.
Thank you very much, Miguel. In case any of you run into technical problems during the webcast or conference call, please address any problems to our e mail address investorrelationsrebsol.com, and we will contact you immediately to try to resolve the situation. Now let's move to the Q and A. Operator, please could you review the procedure for placing a question?
Yes, certainly, sir.
Thank you, operator. We'll now move to the question and answer session. Our first question comes from Flora Trindade at BPI. Flora, please go ahead.
Yes, hello. Good morning. Thank you for taking my questions. The first one is on the net debt. So considering that now you are already below the €7,000,000,000 target you have for year end and the guidance cut on CapEx.
Can you give us a sense of what level of net debt do you expect for year end? The second question is on Interno de Sapigno award last week. It seemed to be a big profitable share. Can you give us an idea of the expected resources and the benefits of the combined development with Sapingoa? And then just a small question on something that was in the press in Spain mentioning that you were studying investments in renewables on top of the OGCI funds that you are investing.
So can you tell us just what kind of investments are you looking at? Thank you very
much.
Thanks, Flora. In relation with net debt, I think that in normal conditions, we are going to have a heavy loaded CapEx and exploration program. So basically, I would say that things are normal. I think we would be around the figure we have today, €7,000,000 €7,000,000,000 of debt. Out of this, remember that always in the Q4, we have the issue with the IRS that can modify this figure.
But being conservative, I would say 7,000,000,000 would be our date, our data. In relation with Sapiño, what we have done is to recover volumes with the unitization process and the new area, at least the analysis that had been made approximately represents a 3.7% of all the volumes that we'll have in the area. So it has been a minor investment, but we think it's much better to keep the same partnership and that's the reason we went for it. And in relation with your third question, renewables, I'll have to say that I think that right now the industry is looking at which the transition to a lower carbon emissions world would be. Probably we were the 1st company that had the concepts of energy, not only the concept of oil company.
And in that sense, I may remember that we have been in gas nat for more than 20 years, which was always an optionality to whether or not we should move. Other than that, we are involved in a net throughout Spain of electric charge in our service stations. We are working also in a project on batteries for motorcycles in Catalonia. We are also investing in floating windmills in Portugal. So we have always been around there.
So basically, I would say it's part of a game that we have been in for 20 years. It's only that probably others have been moving lately and with more noise than ours. But basically, it's it. I think it's continuity in our concern about the carbonation. Did I answer you, Flora?
Yes, perfect. So I just understand that these investments should not be that relevant. Is that it is mainly going through whatever you are already doing, right?
I would say not in the short term.
Okay, perfect. Thank you.
Thank you, Flora. Our next question comes from Thomas Adolff of Credit Suisse. Thomas, please go ahead.
Thank you, Paul and hi, Miguel. I've got three questions, if I may. Just on the net debt, I recall on the 2Q call that you had mentioned €6,400,000,000 to €7,000,000,000 range and depending on whether you can complete about €600,000,000 in disposals. So I wondered what is happening with the disposal plan. Is it just not happening?
Secondly, just on your portfolio, upstream portfolios, Obviously, it's kind of young in nature today and also more gassy. Therefore, your portfolio decline rate today is quite low. And I wondered at what point do you expect decline rates to accelerate from today's portfolio, which then obviously will require you to invest a little bit more? Or do you see many EUR tieback opportunities that actually can keep the portfolio decline rate at current rates for many years to come? And my final question, I guess, if there's one thing that keeps you up at night, it certainly must be Venezuela.
And I wondered whether you can give us a bit more color on what is going on there and specifically to receivables on a quarter to quarter basis and what it means to Repsol should Venezuela default on its bonds? Thank you.
Thanks, Thomas. Well, in relation with the first one, net debt is through your comment. I mean, I mentioned EUR 7,000,000,000 being conservative, but if we recover from the IRS before the year end, for sure, the figure would be lower. In relation with divestments or disposals, at least in my account, the figure we have to deliver from 2016 up to 2020 was €6,200,000,000 And we have already achieved at least in my book €5,100,000,000 So I'm not working hard on that line. We know that only organically in the next 3 years that the plan was prepared for, we will be able to reach the 6.2 that was our commitment.
Having said so, think that right now the pressure is not on disposals. If you look at the ratio, we will end up the year with between net debt and EBITDA. Well, if the opportunity is there, we will go for it, but with no hurry at all. In relation with the second question, it's true that our upstream portfolio, it's our production is 2 thirds is gassy and our reserves are 3 quarter gassy. So decline rate is lower than probably other companies.
And right now with that I have, I may say that till 2021, 2022 and without any of the 5 largest projects, we would be able to keep the production a little above the 700,000 barrels a day. This is what I can tell you. So we are quite confident and more focused on value per barrel, that number of barrels. Also think that we are I mean, 2 years ago, we were a company of 320,000 barrels a day of production. So somehow the growth has been there and right now with a CapEx figure between $3,000,000,000 for the whole company or 3.5 would be able to keep that production steady in the around 700,000 BOE per day.
And in relation with Venezuela, well, I don't think they are going to default. That's the first comment. 2nd, in receivables, we have an increase in our debt in the Q3 of 75 €1,000,000 What's going on? Well, actually it's a situation quite tough. But at the end, we believe that thinking in the long term that Venezuela, it's an area in which we should be in, is where the oil is.
So short term, we expect that they improve in their financial situation and they are able really to recapture and be able to deliver on their commitments in our case in the receivables.
Great. Thanks.
Noah, you are welcome, Thomas. Thank you for the questions.
Thank you, Thomas. Our next question comes from Brendan Warne at BMO Capital Markets. Brendan, please go ahead.
Yes. Thanks, gentlemen. So look, just two questions. You've obviously taken a couple of FIDs this year, Buckskin and Red Emperor. Can you just touch on what we're going to expect in 2018 either out of your ACDC plus 1 portfolio or other?
And then my second question probably relates to the Eagle Ford Statoil or your operator on the call earlier this week or last week just talked about obviously they've taken an impairment and a change to spacing. Can you just make any comment on your view of value on cash flows or expectations out of the Eagle Ford, please?
Thank you. In relation with the Eagle Ford, I mean, basically our technical data and with the figures we have in our book for the asset. And as of today, we don't have any need of impairments. For sure, we'll check as with all the assets by the year end, which it's going to be the impact if there are changes in the technical works that the operator is leading. But right now, as mentioned, we don't expect any impact.
In relation with the and it's becoming almost popular, the ECDC plus 1, which is Sagittario. I would say that the first oil, first gas, well in shipping 9, we are already producing, but the new project probably will reach plateau and show its strength by 2021. In the Duvernay, we are also producing right now and we have choose 2 areas, which we think are the sweet spot areas and progressively would be ramping up. Alaska, well, probably by the end of 2022, 2023 would be the year in which Alaska will deliver their first oil. Campos 10 33 will come a year later, probably by 2024 and finally Sajitario, the day after.
So basically the run is still already producing that will be ramping up shortly. And then Alaska 2022, 2023, Campus 33 in 2024 and finally Saggitario by 2025. Okay? Thanks for the update. Thank you, Brandon.
Thank you, Brandon. Our next question comes from Hamish Clegg at Bank of America Merrill Lynch. Hamish, please go ahead.
Good afternoon, gents. Thanks for taking the questions. Just first of all, we've had a lot of questions about net debt. And you mentioned on the last quarter that should you get the BBB from S and P, you would be cutting your script fairly shortly after that. With that in mind, I noticed that BP have implemented a buyback or announced a buyback in their Q3.
Could you remind us why you'd sooner cut the script as to do a buyback given there's clearly a lot of choice from your investor base to take the script given the uptake of it and how that would work and why you choose one over the other? My second question is, I wondered if you could tell us a little bit more about your new partner in Alaska, Nanoshuk, who have kind of been suggesting to the market that it's breakeven oil price of around $45 Could you tell us what's been done on the block to kind of establish some slightly better economics? And my other one is answered, so just those 2 for me.
Thank you, Hamish. Well, starting with the first one, I mean, it's not me the one that is going to decide whether the script goes out or not. I mean, it's a poor decision. But basically, what we have announced and we like to deliver on our comments is, first, we have to achieve the BBB. 2nd, I think that the solution given by BP, it's a very good one.
It gives more flexibility. So I know that I'm not becoming quite popular with all of you with my opinion about the scrip, But I think that giving a free option to the owners of the company is something that shouldn't be penalized, first point. 2nd, we can provide them this fiscal advantage while at the same time recapturing part of the dilution with buybacks, global or partially. So I think it's a good idea. But as mentioned, 1st BBB, then it's a Board decision.
And B, I think that the possibility of keeping the scrip while at the same time buying back either the whole scrip or part of it, it's probably the best solution. And in relation with our new partner in Alaska, I may say that personally I don't know them on these people from oil search. But one things were clear since the beginning. I mean, Armstrong is a very good promoter, but he's not a developer. So it was one day or the other was going to happen that he will dilute his presence.
It's a company I will search for that. I've been able to reach him in the last 24 hours that it's a company that it's well capitalized. We have some contacts with this company in the past in Tapunu, Guinea. And I think that our upstream people have had already meetings with them. And the initial perception is it's positive.
In our side, we keep thinking that Alaska has more potential and that the next drilling campaign in this winter will derisk the whole area. And we are going to keep working on Alaska. Okay, Hamish?
That's brilliant. Look forward to hearing how the campaign goes.
Thank you. Thank you, Hamish. Our next question comes from Biraj Borkhataria at RBC Securities. Biraj, please go ahead.
Hi. Thanks for taking my questions. I have 2, please. Just to follow-up on the CapEx and you're running well below the previous guidance and you've obviously reduced that. Can you talk about can you just give a bit more detail about what is driving that reduction and how investors can be assured that you're not necessarily under investing in the upstream business?
And the second question is just a follow-up on Venezuela. Could you just, Miguel, give us a current view of where the receivables balance is for Venezuela? Thank you.
The second one, the net figure between receivables and payables with PDVSA is €780,000,000 Okay? And in relation with the CapEx reduction, I would say the most of it come from the difference between the expected prices we were going to have from suppliers and service companies versus what we have been able to achieve with all the cost reductions. And this is basically the point. We have not cut anything, but having said so, don't extrapolate the figure of the 9 1st months of the year. I mean, the Q4, it comes heavy loaded, both in development and in exploration.
Right now, we have 13, 13 well exploratory wells ongoing. So it's true that we reduced from the 3.6 initial figure to this 3% that could end 3%, 3.1%, but most of this reduction has been achieved through cost savings.
Great. That's very helpful. Thanks, Miguel.
Thanks, Biraj. Thank you, Biraj. Our next question comes from Lydia Rainforth at Barclays. Lydia, please go ahead.
Thanks, Paul, and good afternoon. A couple of questions, if I could. The first one, just on the cost savings, Toggen, I think you've been doing very well on that. Do you think that continues into next year now? Or is pretty much everything you want to do done on that?
And then the second one was just on the refining business, which obviously did very well this quarter. Those conversion rates of 104% utilization and distillation utilization of 99%, is that really just based on your experience, do just based on your experience, do you think that you will actually see that decision before the year end? And I know it's not your decision, but by the year end, what do you think that is actually going to be next year post the full year results? Thank you.
Thanks, Lydia. I mean, in relation with cost savings, there's always some extra room. That's first point. But I think that we have another stage to go through, which would probably be included and I shouldn't say so, but would be included in the next strategic plan, which is how all the efforts that the company have to face in relation with the digitalization, both for all our facilities and B, also in relation with our clients. So I think that the next step either in efficiencies or cost saving will come from the digital approach.
In relation with the utilization rates, I may say, yes, this is the maximum conversion we may get. I mean, we have been running the refineries at full speed all throughout the quarter. And finally, in relation with the credit rating, I mean, with the rating agencies, I mean, we'll met with them by February with the year end figures. And I think that with the financial situation we have would be amazing if they remain their BBB- I mean, we will end it up at least in January for sure once we recapture from the IRS, the EUR 600,000,000 that we prepared last year would be below the one figure. I mean, the ratio between net debt and EBITDA would be probably a little below 1.
And if with that they keep at least they will have to explain to me how is that possible. But we will see. I mean, it's on them, not on us. We have been doing, as you know, quite well, what it was in our hands. So right now it's on them.
I hope it will, but we will see.
Perfect. Thank you and have a wonderful weekend.
Thank you, Lydia. Our next question comes from Anish Kapadia at Tudor, Pickering, Holt. Anish, please go ahead.
Hi, good afternoon. First question was, I was wondering if you can give some idea of any potential negative impact of oil prices increasing from $50 to $60 on the downstream. I assume you have some negative impacts from higher energy prices and feedstock prices and then some impact on lower marketing margins. So if you could kind of just give some idea of sensitivity of any negative impacts you've seen from that higher oil price on the downstream? And then the second question was, I was wondering if you can kind of give some idea of the contribution from a kind of earnings cash flow standpoint of Bolivia?
And the reason I ask is, you've seen Argentina talk about becoming self sufficient for gas towards the end of the decade. Brazil has got a large amount of gas production coming through from the Brazilian pre salt. So it seems like there's some risk that Bolivian gas exports will have fall at the end of the decade and beyond, which might impact your exports. So just wondering kind of your opinion on that and then if you can give some idea of your exposure. Thank you.
A positive approach. I mean negative impact of an increase on bran prices. I mean, I would love increasing Brent prices as a base, okay? Negative impacts, for sure there would be some, but would be minor in comparison with the advantage of having higher prices. For sure, cost base will increase with some lag, but the service companies will increase price because the sector will increase the drilling and will increase the activity.
And in relation with the downstream, froliochemicals, which is the most antithetical business we have with the upstream will be the one that suffers. Having said so, I think that the main surprise for the agencies has been how strong demand is. I mean, probably by the year end, we'll be reaching one extra 1,800,000 barrels per day of consumption. And this is somehow pushing not only the prices, but also the utilization of all the refining system. Think that even the hydro skimming refineries have been doing money in this quarter and I don't see any signs of weakened in the demand side.
So basically, I would say it's positive, but it will have some minor counterparts, which are basically cost increases and some impact in the chemicals. But I don't see more than that if Brent prices goes up. And in relation with Bolivia, I'll say that Argentina, let me Argentina is a country that is absolutely gasified and that gas consumption is really high. So I don't see the first the hypothesis of Argentina exporting gas or being self sufficient is going to happen at least in the short term. So I think that the impacts that we had suffered this year comes more from El Nino and the year the hydraulic year in Brazil, which has been really good.
And this has reduced the number of exports from Bolivia to Brazil. But other than that, I don't see short term an issue being Argentina self sufficient. Okay?
Thank you.
Thank you, Anish. Our next question comes from Tipan Jopfillingham at Accent BNP Paribas. Tipan, please go ahead.
Thank you. Good afternoon, Miguel. Thanks, Paul. A couple of questions I just wanted to ask. Firstly, just come sticking with the downstream.
Could you talk about perhaps the benefits in terms of the premium margin that Repsol could have achieved in Q3 and relative given that you've got some of the assets back compared to H1 and how that looks going into Q4? The second question, just coming back to your CapEx guidance, the €3,000,000,000 to €3,500,000,000 to sort of sustain the portfolio in the medium term, could you just talk about what the what's the flex in there, that €500,000,000 What are we looking at in terms of moving parts? 3rd question, you talked about the buyback, Miguel. I'm just wondering, again, in terms of timing and a process, would we think, firstly, achieve the BBB and then the AGM would be where you would would be the forum to get approval for a buyback for the second half of twenty eighteen? Thank you.
Well, in relation with the first one, actually the premium we obtain over the index was reduced by the percentage of distillation barrels we had. I mean, we can you can increase up to $1 the benefit or the premium margin. This doesn't show because we have distillate 20,000,000 extra barrels at pure hydro skimming that only provide $1 per barrel. And that's the reason why the index was a little lower than expected. But globally talking, we generate more EBIT.
I think that's somehow the game. And in my account, I think that in like for like basis, the premium was around $1 okay? In relation with the CapEx, most of it is already committed. So for the next year, probably only a 20% of flexibility. The rest is already ongoing.
So not much flexibility in our hands other than this perhaps EUR 600,000,000 700 €1,000,000 but no more than that. And I mean the process would be, a, as you mentioned, we have to achieve the BBB is what we have communicated to all the markets. And then it would be on the boards whether they choose one direction or the other. But I think that the solution that I mentioned before, keeping the script, but at the same time buying back, not necessarily 100% of it could be the better solution because it will provide our shareholders the best of the worlds. They can choose and afterwards the dilution of those that take the cash would be reduced.
So this would be probably what I will present to the Board, but it's on the Board the final decision.
Okay. And then just coming back to that €600,000,000 to €700,000,000 is that where is that potential capital deployed? Is it mostly in the U. S? Or is are there other regions that we should think about?
I'll say that of there, a, it's worldwide and it would be allocated in the areas in which returns and efficiencies are there in those barrels that really provide us the most, not necessarily U. S, not necessarily Colombia. I mean, just allocated in those projects that really have better returns or if you wanted it the other way around, those projects with lower breakeven points.
Okay. Thank you.
Thank you, Thipan. Our next question comes from Michele Della Vigna at Goldman Sachs. Michele, please go ahead.
Miguel, thank you for the presentation. And I was wondering for CapEx looking out 2018, 2019, do you think we should take 2017 as a good starting point or perhaps more activity on further sanctioning on one side or perhaps further deflation and cost reduction on the other side should bring that CapEx budget either higher or lower? Do you think what do you think we should take it into generation?
I would say that for the model 3.5 on average for 2018 2019, it's a figure in which you are not going to be far apart from the actual figures that will flow. So I'll take 3.5 as an for 2018 2019.
Thank you.
Thank you, Michele. Thank you, Michele. Our next question comes from Irene Himona at Societe Generale. Irene, please go ahead.
Thank you, Paul. Good afternoon, Miguel. My first question is on Libya. And apologies if you've already mentioned it, but what was the contribution of Libya to Q3 EBIT and net income? And at $60 in Q4, what would it look like?
And then my second question, so obviously, you are very clearly out of the, let's say, crisis management mode. You've successfully delivered early most of your targets, synergies, disposals, net debt, etcetera. And congratulations for that. Do I take it that for you to present your next strategy plan really depends on that BBB stable, meaning you cannot give us a time line at this point? Thank you.
[SPEAKER CARLOS
GOMES DA SILVA:] Sorry, Erin, can you repeat the second question, please?
Yes. I was just wondering if for you to present us your next strategic plan, you need the credit rating to be moved to BBB stable by S and P first. So therefore, you're still dependent on the credit agencies. You cannot give us a date because of that?
No. I mean, the answer is no. In a sense that, A, we think we will achieve it. B, even if they do not recognize it, well, it would be at a given moment their problems because the metrics are clear and that and we are acting already in a non stress financial situation. Having said so, dividend to me is somehow the only point in which we have mentioned to the market that the BBB have to be there and we like to deliver on our commitments.
But other than that, the company is being run as if we were a company with a I mean, all of you know probably better than me. I mean, if you look at the figures, a relation between net debt and EBITDA of 1, doesn't I think it deserves the BBB. And in relation with Libya, I mean, in the 1st 3 months sorry, in the quarter, it has provided €63,000,000 at EBIT level and €26,000,000 at after tax level. For the 9 months, Libya had provided 233,000,000 at EBIT level and 96,000,000 after tax. If the barrel in this quarter, it's $10 above the what we had in the last quarter, it would be a little advantage probably this $26,000,000 after tax of the quarter will reach the EUR 35,000,000 full year.
Okay, Irene?
Thank you, Miguel. Thank you.
Thank you.
Thank you, Irene. Our next question comes from Giacomo Romeo at Macquarie. Giacomo, please go ahead.
Thank you. Most of my questions have been answered, but perhaps 2 more. 1 on if you can give us an update in where you think you see your breakeven free cash flow breakeven after dividends given the lower CapEx numbers and the better free cash flow generation in the downstream that you talked in the presentation? And the second question, it's again a follow-up on what you just said on the script. And I agree with you that onetime EBITDA net EBITDA, it's you would deserve a credit rating upgrade.
But should this not come in March, would you still consider recommending a buyback to the Board or the credit rating upgrade is absolutely necessary for you to move to the next
phase? Well, in relation with the first one, I'm taking into account that the Q4 would be more loaded on CapEx, I would say the $40 would be the figure in which we will close the year with free cash flow. Also taking into account that I measure the free cash flow without divestments, which is something that I don't know if other companies are doing. So basically $40 without divestments. And in relation with the scrip dividend, I mean, it was our commitment, but at the end it's going to be on the board.
If really the situation, it's clear we'll have to see. But hopefully, I hope that Santander and Puurs finally give us what I think we deserve. Okay, Giacomo?
Very clear. Thank you.
Thank you, Giacomo. Our next question comes from Mark Koffler at Jefferies. Mark, please go ahead.
Great. Good afternoon, everyone, and thanks for taking my questions. I just wanted to ask an upstream question, Miguel. It looks as though the overall, the upstream business has responded very well to the macro scenario, with the exception of North America, where earnings still seem to be a little bit lagging. So I was wondering if you could just give a few sort of overview comments around how you're feeling about that business right now and anything else that you feel needs to be done there.
And then I just wanted to double check if you would be willing to talk about or even quantify how you could see those chemicals earnings moving into next year at around the $60 reference price? Thanks.
Thanks, Mark. Well, in relation with North America, I will say that former Repsol assets are doing quite well, delivering quite well and making money. I'm thinking on Chianti. A different issue is the Taliban former assets. And in those, they have one point that have to be understood, which is that when we did the purchase price allocation, we really put the asset at market price, okay?
So they are heavily penalized, but for a high depreciation on the figures. But Eagle Ford is the one that is probably doing a little worse, but Marcellus is doing quite well. So at the end, I would say that it's normal that when you buy a company and you establish high PPAs, the results are not that good. A different thing is the cash generation. And in relation with chemicals, I think that earnings move in next year is going to be absolutely linked to the oil price.
I mean, in a reverse situation. If the barrel really moves up, for sure, chemicals will have some pain. But having said so, EBIT would be between 500,000,000 around 500,000,000 dollars next year with the data we have today in a 59 dollars $60 scenario. For sure, if the conditions change, the chemicals would be affected. But as of today, the figure should be around €500,000,000 EBIT level.
Demand in Europe keeps strong and we think next year also Europe will be growing at a good pace, probably even as this year above the U. S. Growth.
Great. Thanks very much.
Thank you, Mark. Our next question comes from Tristan Jafanian at Kepler. Tristan, please go ahead.
Yes. Hi, good afternoon. Thank you for taking my question. One on dividend again, please. Keeping in mind your BBB rating target, of course, we've talked about the script, we've talked about potential buyback.
Given the very strong progress you've made on the free cash flow and the improvement of the balance sheet, would you consider a further dividend increase above the current €0.80 level? Secondly, on CapEx, you said €3,500,000,000 would be a sustainable run rate in the medium term. Could you please give us a bit of details regarding the downstream run rate CapEx for 2018 and beyond? And maybe a very quick last one on buckskin. Could you please remind me what is the amount of recoverable resources and the plateau production net to Repsol, please?
In relation with the dividend policy, I think we have already talked about it. Right now, the $0.80 is the figure in which we remain because basically the figure of the dividend we pay is to put us in the 1st quartile between the EBITS 35 and the oil companies. So to be somehow providing a yield that is important for us. So it's not only depending on us, it's also depending on third parties and how we want to be between our peers. In relation with the second one, I would say that downstream, the run rate in the following years would be around the €900,000,000 I mean, think that part of the digital process will need to especially in all the facilities will generate some extra CapEx.
So we'll be a little above the $750,000,000 figure that has been the run rate in the last 2 years. And finally, in relation with the amount recoverable resources and plateau production for Repsol in Bakshin. Our people from IR will send you the data. I don't have the amount of recoverable resources in my mind. Is that okay, Tristan?
That's very clear. Thank you.
Thank you, Tristan. Our next question comes from Fernando La Fuente at Elantra. Fernando, please go ahead.
Hello. Good morning, everybody. Thank you for taking my question. Just one quick one on the EBITDA targets for this year. I remember last quarter, Miguel, you talked about something in the region between €6,500,000,000, €6,600,000,000 for the group.
Is this still valid? Or the outlook it's a bit better right now?
Thanks, Fernando, for the question. Being conservative, I may say no 6.4, but if I told 6.5, I will attach to the 6.5. Percent. Basically, the quarter is looking good. Prices in upstream are a little above what we had in the prior quarter.
Refining is doing as well. I mean, downstream is doing as well. So I will affect and keep attached to the 6.5 percent EBITDA figure for 2017. Is that okay, Fernando? This is great.
Thank you. And for all of you, before I give the floor to Paul, have a good weekend.
Thank you. That was our last question. And that brings to a close our 3rd quarter conference call. Thank you.