Hello, welcome to the Repsol Quarter Three 2017 Results Conference Call. Today's conference is being recorded. The conference will be conducted by Mr. Miguel Martínez, CFO. A brief introduction will be given by Mr. Paul Ferneyhough, Finance and Investor Relations Corporate Director. I would now like to hand the conference over to Mr. Ferneyhough. Sir, you may begin.
Thank you, operator. Good afternoon. This is Paul Ferneyhough, 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 third-quarter results. This conference call and associated webcast will be delivered by Miguel Martínez, 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 Martínez.
Thank you, Paul. Thank you to those online for attending this conference call on our third-quarter results. In today's call, I would like to cover three principal topics. Firstly, a summary of key messages and the main operational highlights for the quarter. Secondly, the financial results. 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 third quarter have allowed Repsol to deliver around EUR 700 million of free cash flow before dividends and interest expenses, EUR 500 million 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 break even at current commodity price.
This is evidenced by the free cash flow generated in the third 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, Our September closing net debt figure of around EUR 7 billion 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 continued to build on the recovery experienced by the sector during the year. However, this was partially offset by a 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, resulting 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-over-quarter. Up to September, accumulated production has averaged 688,000 BOEs per day. Quarterly 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. Flyndre and Monarch in the U.K. North Sea reached an average production of 7,000 net barrels a day in the quarter. In Trinidad and Tobago, Juniper achieved first gas in August, as expected, providing an additional 5,000 BOEs of net average production during the third quarter. Kinabalu in Malaysia delivered first production late in October.
Development work continued at Sagari in Peru. We expect to achieve first production later in this quarter. We now expect Reggane in Algeria to start production around year-end. In total, the sum of Monarch, Juniper, Kinabalu, Sagari, and Reggane will more than offset anticipated natural decline over the next 12 months. Development work has continued at Red Emperor in Vietnam and Buckskin in Gulf of Mexico following the FIDs taking earlier this year. Both projects have a break even below $50 a barrel and are expected to start production in 2019. In exploration, a total of three wells were completed in the quarter. One well was declared positive, while the remaining two wells were deemed negative. One well concluded in October was declared negative, impacting the results of the third quarter.
During the fourth quarter, our back-end loaded exploration program will result in activity in around 13 wells. Continuing with the downstream, good performance across all business lines delivered another quarter of a strong cash flow generation. In refining, our margin indicator averaged EUR 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 one effect caused by third-party capacity disruption has gradually unbound since the end of September.
Despite this, the strong underlying fundamentals of our business have maintained a refining indicator in line with the three-quarter average into 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. The commercial businesses maintain a steady performance, benefiting from higher sales in marketing due to seasonality, supported by continued growth in the Spanish domestic market. A word on capital optimization efforts together with lower overall cost resulted in a net CapEx figure for the company as a whole of EUR 645 million in the third quarter, bringing capital for the first nine months to EUR 1.8 billion. On our forecast for the year, up to EUR 3 billion.
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 onto the financial results, I will briefly summarize the principal outcomes for the quarter. Third quarter 2017, CCS adjusted net income was EUR 576 million, EUR 269 million higher than in the same period of 2016. The EBITDA at CCS stood at EUR 1.6 billion, an increase of more than EUR 400 million year-on-year. In the upstream, adjusted net income in the quarter was EUR 148 million, EUR 176 million 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 EUR 502 million, EUR 107 million higher than in the third quarter 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 EUR 14 million lower than in the same period of 2016, mostly due to lower results contribution from Gas Natural , 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 released 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 EUR 2.1 billion target of annual cash savings, accelerated by one 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 break-even of the upstream portfolio. In fact, the break-even for the upstream in the first nine months of 2017 dipped 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 EUR 3 billion without impacting production volumes over the coming years.
Considering accumulated production to date, 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 first nine months of the year, we expect the division to deliver above our target of EUR 2 billion 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, with just one quarter of 2017 ahead. Repsol remains on track to deliver or improve on its targets for the year. Our upstream 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 plant 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, while 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 email address, investorrelations@repsol.com, and we will contact you immediately to try to resolve the situation. Let's move to the Q&A. Operator, please could you review the procedure for placing a question?
Yes, certainly, sir. Ladies and gentlemen, if you'd like to ask a question at this time, please press the star or asterisk key followed by the digit one on your telephone keypad. Please do ensure that the mute function on your telephone is switched off to allow your signal to reach our equipment.
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. Considering that now you are already below the EUR 7 billion 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 Internode Sapinhoa awards last week. It seemed a big profitable share. Can you give us an idea of the expected resources and the benefits of the combined development with Sapinhoa? 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 fund that you are investing. 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. Basically, I would say that if things are normal, I think we would be around the figure we have today, EUR 7 billion of debt. Out of this, remember that always in the fourth quarter, we have the issue with the IRS that can modify this figure. Being conservative, I would say EUR 7 billion would be our data. In relation with Sapinhoa, 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.
It has been a minor investment, we think it's much better to keep the same partnership, that's the reason we went for it. 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 first company that had the concepts of energy, not only the concept of oil company. In that sense, I may remember that we have been in Gas Natural 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 on a project on batteries for motorcycles in Catalonia. We are also investing in floating windmills in Portugal.
We have always been around there. 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. Basically, it's it. I think it's continuity in our concern about decarbonation. Did I answer you, Flora?
Yes, perfect. 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 at 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 EUR 6.4 billion-EUR 7 billion range, depending on whether you can complete about EUR 600 million in disposals. I wondered what is happening with the disposal plan. Is it just not happening? Secondly, just on your upstream portfolios. Obviously, it is kind of young in nature today and also more gassy, therefore, your portfolio decline rate today is quite low. I wondered, at what point do you expect decline rates to accelerate from today's portfolio, which then obviously will require to invest a little bit more? Do you see many EOR tieback opportunities that actually can keep the portfolio decline rate at current rates for many years to come?
My final question, I guess if there is one thing that keeps you up at night, it certainly must be Venezuela. 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. In relation with the first one, that debt is true your comment. I mentioned EUR 7 billion 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 EUR 6.2 billion. We have already achieved, at least in my book, EUR 5.1 billion. I am not working hard on that line. We know that only organically in the next three years that the plan was prepared for, we will be able to reach the EUR 6.2 billion. 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.
If the opportunity is there, we will go for it, but with no hurry at all. In relation with the second question, it is true that our upstream portfolio, our production is two-thirds is gassy and our reserves are three-quarter gassy. Decline rate is lower than probably other companies. Right now with the data I have, I may say that till 2021, 2022, without any of the five 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. We are quite confident and more focused on value per barrel than number of barrels. Also think that two years ago, we were a company of 320,000 barrels a day of production. Somehow the growth has been there.
Right now with a CapEx figure between EUR 3 billion for the whole company or EUR 3.5, we would be able to keep that production steady around 700,000 BOE per day. In relation with Venezuela, well, I don't think they are going to default. That's the first comment. Second, in receivables, we have an increase in our debt in the third quarter of EUR 75 million. 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. It's where the oil is. 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. Thank you.
No, you are welcome, Thomas. Thank you for the questions.
Thank you.
Thank you, Thomas. Our next question comes from Brendan Warn at BMO Capital Markets. Brendan, please go ahead.
Yes. Thanks, gentlemen. 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 gonna expect in 2018, either out of your ACDC plus one portfolio or other? My second question probably relates to the Eagle Ford. Statoil, 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 of cash flows or expectations out of the Eagle Ford, please?
Thank you. In relation with the Eagle Ford, 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 will check as with all the assets by the year-end, which is going to be the impact if there are changes in the technical works that the operator is leading. Right now, as mentioned, we don't expect any impact. In relation with the, it's becoming almost popular, the ACDC plus one, which is Sagitario. I would say that the first oil, first gas, well, in CP Nine we are already producing, but the new project probably will reach plateau or ensure its strength by 2021.
In the Duvernay, we are also producing right now, and we have choose two 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 33 will come a year later, probably by 2024. Finally, Sagitario the day after. Basically, the run is two already producing that will be ramping up shortly. Alaska, 2022, 2023, Campos 33 in 2024, and finally Sagitario by 2025. Okay?
Thanks for the update.
Thank you, Brendan.
Thank you, Brendan. 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 triple B from S&P, you would be cutting your scrip fairly shortly after that. With that in mind, I noticed that BP have implemented a buyback or announced a buyback in their third quarter. Could you remind us why you'd sooner cut the scrip as to do a buyback, given there's clearly a lot of choice from your investor base to take the scrip, 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, Nanushuk, who have kind of been suggesting to the market that its break-even oil price of around $45. Could you tell us what's been done on the block to kind of establish some slightly better economics? My other one's answered, so just those two for me.
Thank you, Hamish. Well, starting with the first one. It's not me, the one that is going to decide whether the scrip goes out or not. It's a board decision.
what we have announced, and we like to deliver on our comments is, first we have to achieve the triple B. Second, I think that the solution given by BP, it's a very good one. It gives more flexibility. I know that I'm not becoming quite popular with all of you with my opinion about the scrip. I think that giving a free option to the owners of the company is something that shouldn't be penalized. First point. Second, we can provide them this fiscal advantage while at the same time recapturing part of the dilution with buybacks, global or partially. I think it's a good idea. As mentioned, first triple B, then it's a board decision.
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's probably the best solution. In relation with our new partner in Alaska, let me say that personally, I don't know them, these people from Oil Search. One things were clear since the beginning. Armstrong is a very good promoter, but he's not a developer. It was one day or the other was going to happen, that he will dilute his presence. It's a company, Oil Search for that, I have been able to reach in the last 24 hours. It's a company that it's well capitalized. We have some contacts with this company in the past in Papua New Guinea. I think that our upstream people have had already meetings with them.
The initial perception is it's positive. On our side, we keep thinking that Alaska has more potential and that the next drilling campaign in this winter will de-risk the whole area. 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 two, please. Just to follow up on the CapEx, you're running well below the previous guidance, and you've obviously reduced that. 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? The second question, just to follow up on Venezuela, could you just, Miguel, give us a current view of where the receivables balance is for Venezuela? Thank you.
To the second one, the net figure between receivables and payables with PDVSA is EUR 780 million. Okay? In relation with the CapEx reduction, I would say the most of it came 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. This is basically the point. We have not cut anything, but having said so, don't extrapolate the figure of the nine first months of the year. The fourth quarter, it comes heavy loaded, both in development and in exploration. Right now, we have 13, one, three exploratory wells ongoing. It's true that we reduced from the EUR 3.6 initial figure to this EUR 3, that could end EUR 3, EUR 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 target. Obviously, you've been doing very well on that. Do you think that continues into next year now, or is pretty much everything you wanted to do done on that? 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 the maximum that you can get to in any given quarter? Finally, I know I said two, but just a very quick follow-up. On the credit rating, just based on your experience, do you think that you will actually see that decision before the year ends?
I know it's not your decision, but by the year end, or do you think that is actually going to be next year post the full year results? Thank you.
Thanks, Lydia. In relation with cost savings, there's always some extra room. That's first point. 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. 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. We have been running the refineries at full speed all throughout the quarter. Finally, in relation with the rating agencies, we'll met with them by February with the year-end figures.
I think that with the financial situation we have, would be amazing if they remain their BBB-. We will ended up, at least in January, for sure, once we recapture from the IRS, the EUR 600 million that we prepaid last year would be below the one figure. The ratio between net debt and EBITDA would be probably a little below one. With that, at least they will have to explain to me how is that possible? We will see. It's on them, not on us. We have been doing, as you know quite well, what it was in our hands. 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 USD 50 to USD 60 on the downstream, as I assume you have some negative impacts from higher energy prices and feedstock prices, and then some impact on lower marketing margins. If you could just give some idea or sensitivity of any negative impacts you've seen from that higher oil price on the downstream. Then the second question was, I was wondering if you can give some idea of the contribution from an earnings cash flow standpoint of Bolivia. The reason I ask is, you've seen Argentina talk about becoming self-sufficient for gas towards the end of the decade. Brazil's got a large amount of gas production coming through from the Brazilian pre-salt.
It seems like there's some risk that Bolivian gas exports will have to fall at the end of the decade and beyond, which might impact your exports. Just wondering your opinion on that, and then if you can give some idea of your exposure. Thank you.
A positive approach. Negative impact of an increase on Brent prices. I would love increase in 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. In relation with the downstream, probably chemicals, which is the most anticyclical 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. Probably by the year-end, we'll be reaching one extra 1.8 million barrels per day of consumption, and this is somehow pushing not only the prices but also the utilization of all the refining system.
I think that even the hydro skimming refineries have been doing money in this quarter, and I don't see any signs of weakness in the demand side. 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. I don't see more than that if Brent prices goes up. In relation with Bolivia, I'll say that Argentina is a country that is absolutely gasified, and that gas consumption is really high. I don't see the hypothesis of Argentina exporting gas or being self-sufficient is going to happen, at least in the short term.
I think that the impact that we have suffered this year comes more from El Niño and the hydraulic year in Brazil, which has been really good, and this has reduced the number of exports from Bolivia to Brazil. 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 Tapan Jeetilingam at Exane BNP Paribas. Tapan, please go ahead.
Thank you. Good afternoon, Miguel. Thanks, Paul. Couple of questions I just wanted to ask. Firstly, just 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 EUR 3 billion to EUR three and a half billion to sort of sustain the portfolio in the medium term. Could you just talk about what's the flex in there, that EUR half a billion? What are we looking at in terms of moving parts? Third 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 the forum to get approval for a buyback for the second half of 2018? 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. You can increase up to $1, the benefit or the premium margin. It doesn't show because we have distillate 20 million extra barrels at pure hydro skimming that only provide $1 per barrel. That's the reason why the index was a little lower than expected. 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. For the next year, probably only a 20% flexibility. The rest is already ongoing. Not much flexibility in our hands other than this, perhaps EUR 600 million-EUR 700 million, but no more than that.
The process would be, A, as you mentioned, we have to achieve the BBB, is what we have communicate to all the markets. It would be on the boards whether they choose one direction or the other. I think that the solution that I mentioned before, keeping the scrip, 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. This would be probably what I will present to the board, but it's on the board, the final decision.
Okay. Just coming back to that EUR 600 million to EUR 700 million, where is that potential capital deployed? Is it mostly in the U.S. or are there other regions that we should think about?
I would say that of their 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. 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, Tapan. Our next question comes from Michele Della Vigna at Goldman Sachs. Michele, please go ahead.
Miguel, thank you for the presentation. 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? What do you think we should take it into consideration when trying to forecast your free cash generation?
I would say that for the model, EUR 3.5 on average for the 2018, 2019, it's a figure in which you are not going to be far apart from the actual figures that will flow. I'll take EUR 3.5 for 2018 and 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. Apologies if you've already mentioned it, what was the contribution of Libya to Q3 EBIT and net income? At $60 in Q4, what would it look like? My second question. 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, et cetera. 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 timeline at this point? Thank you.
Sorry, Irene, 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&P first, therefore you're still dependent on the credit agencies. You cannot give us a date because of that.
No. 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 we are acting already, in a non-stress financial situation. Having said so, the 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. Other than that, the company is being run as if we were a company with a All of you know probably better than me. If you look at the figures, a relation between net debt and EBITDA of one, I think it deserves the BBB.
In relation with Libya, in the first three months, sorry, in the quarter, it has provided EUR 63 million at EBIT level and EUR 26 at after-tax level. For the nine months, Libya had provided EUR 233 million at EBIT level and EUR 96 after-tax. If the barrel in this quarter it's $10 above what we had in the last quarter, it would be a little advantage. Probably this EUR 26 million after-tax of the quarter will reach the EUR 35-EUR 40 area. 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 question have been answered, but perhaps two more. One 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. The second question, it's again, a follow-up on what you just said on the scrip. I agree with you that at one time, that EBITDA, you would deserve a credit rating upgrade. 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 am taking into account that the fourth quarter would be more loaded on CapEx. I would say the EUR 40 would be the figure in which we will close the year with free cash flow. Take into account that I measure the free cash flow without divestments, which is something that I do not know if other companies are doing. Basically, EUR 40 without divestments. In relation with the scrip dividend, it was our commitment, but at the end, it is going to be on the board. If really the situation is clear, we will have to see. Hopefully, I hope that Standard & Poor's finally give us what I think we deserve. Okay, Giacomo?
Very clear. Thank you.
Thank you, Giacomo. Our next question comes from Marc Kofler at Jefferies. Marc, please go ahead.
Great. Afternoon, everyone. Thanks for taking my questions. I just wanted to ask an upstream question, Miguel. It looks as though 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. I was wondering if you could just give a few sort of overview comments around how you are feeling about that business right now, and anything else that you feel needs to be done there. 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 a EUR 60 reference price. Thanks.
Thanks, Marc. In relation with North America, I would say that former Repsol assets are doing quite well, delivering quite well and making money. I'm thinking on Shenzi. A different issue is the Talisman former assets. 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? They are heavily penalized for a high depreciation on the figures. Eagle Ford is the one that is probably doing a little worse, Marcellus is doing quite well. 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.
In relation with chemicals, I think that earnings moving 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. Having said so, EBIT would be between around EUR 500 million next year with the data we have today in a $59, $60 scenario. For sure, if the conditions change, the chemicals would be affected. As of today, the figure should be around EUR 500 million EBIT level. Demand in Europe keeps strong, 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 Trystan Jefianian at Kepler. Trystan, 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 scrip, 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 EUR 0.80 level? Secondly, on CapEx, you said €3.5 billion 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? 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 EUR 0.80 is the figure in which we remain because basically, the figure of the dividend we pay is to put us in the first quartile between the IBEX 35 and the oil companies. To be somehow providing a yield that is important for us. 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 million. I think that part of the digital process, especially in all the facilities, will generate some extra CapEx. We will be a little above the EUR 750 million figure that has been the run rate in the last two years.
Finally, in relation with the amount recoverable resources and plateau production for Repsol in Buckskin, our people from IR will send you the data. I don't have the amount of recoverable resources in my mind. Is that okay, Trystan?
That's very clear. Thank you.
Thank you, Trystan. Our next question comes from Fernando Lafuente at Alantra. 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 EUR 6.5 billion, EUR 6.6 billion, EUR 6.7 billion for the group. Is this still valid or the outlook is a bit better right now?
Thanks, Fernando, for the question. Being conservative, I may say now EUR 6.4 billion, but if I told EUR 6.5 billion, I'll attach to the EUR 6.5 billion. 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. Downstream is doing as well. I will accept and keep attached to the EUR 6.5 billion EBITDA figure for 2017. Is that okay, Fernando?
This is great. Thank you.
For all of you, before I give the floor to Paul, have a good weekend.
Thank you. That was our last question, that brings to a close our third quarter conference call. Thank you.
Ladies and gentlemen, just to advise, that now concludes the Repsol conference call. Thank you for your participation. You may now disconnect.