Good afternoon. This is Paul Fourniho, Head of Investor Relations at Repsol. On behalf of the company, I would 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 Committee 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 call over to Mr. Miguel Martinez.
Thank you, Paul, and thank you to those online for attending this conference call on our Q3 2016 results. CCS adjusted net income was €307,000,000 €1,200,000,000 for the quarter and the 1st 9 months of 2016, respectively. In today's call, I would like to cover 3 principal topics. Firstly, operational results secondly, financial results for the quarter year to date and finally, a review of our progress towards key strategic objectives. Before moving on to the operational results, I'll make some brief comments on the macroeconomic environment.
The market and commodity price volatility our sector has been facing since 2014 has continued into the Q3 of this year. Even though in recent weeks we have experienced a modest recovery, year to date Brent, crude and Henry Hub prices have averaged 24% and 18% lower respectively than in the same periods of 2015. In the Q3, Brent crude averaged $46 per barrel, flat quarter on quarter and lower than the $50 witnessed in the Q3 of 2015. Crude oil prices fluctuated within a $40 to $50 range for much of the quarter with news from the OPEC meeting in Algiers helping oil price to close in September near a year to date high. In the U.
S, gas price recovered materially in this quarter with Henry Hub averaging $2.8 per 1,000,000 Btu, 40% higher than the 2nd quarter and comparable to the Q3 of 20 15. The average refining margin indicator declined in the quarter to $5.10 per barrel versus $8.80 per barrel last year. Despite the decline in margin and lowered year on year commodity prices, the business generate an EBITDA of €1,100,000,000 in the quarter, €130,000,000 higher than in the Q3 of 2015, demonstrating our capacity to outperform in the lower part of the cycle. Now let's focus on the main operational highlights for the quarter. Starting with the upstream division, production averaged 671,000 barrels of oil equivalent per day, marginally lower than the Q2 of this year when volumes averaged 697,000 barrels of oil equivalent per day.
3rd quarter volumes were impacted by the cessation of production in the Bark Field in Norway and by plant maintenance mainly in Trinidad and Tobago, Malaysia and Vietnam. Production was also impacted by plant outage in the U. K. And in Trinidad and Tobago due to development projects. Year to date, average production for the 1st 9 months of the year is 600 and 94,000 barrels of oil equivalent per day, 36% higher than in the same period in 2015.
Thanks to the contribution of the acquired assets, the ramp up of Cardon in Venezuela and Sapingo in Brazil and higher production in Peru. We are expecting startup of Lapa in Brazil and the ramp up of production in Trinidad and Tobago in the Q4. Average production for the full year is still forecast to reach 690,000 up to 700,000 barrels of oil equivalent per day in line with our prior guidance. By the end of the Q3, 3 exploratory and 1 appraisal well has been completed. The appraisal was demand successful and the exploration wells are currently under evaluation.
As of today, there are 4 wells in progress, 1 appraisal and 3 exploration. Postquarterend, Repsol signed an agreement in Venezuela with PDVSA to provide a $1,200,000,000 tradeline to the Petroqui Quire joint venture. This strength the financial structure of the JV and secures funding for the investment program over the next 5 years. Under the terms of this agreement, Repsol has secured future dividends and debt servicing by leaking payment security to existing PDVSA debt instruments, thereby reducing overall financial risk. Moving into the Downstream division.
In refining, our margin indicator averaged $5.10 per barrel in the quarter, impacted by the weaker product demand and a tightening of light to heavier spreads compared to earlier in the year. The return of Cartagena and Tarragona refineries to full operation, post plant maintenance, improve our distillation and conversion utilization, increasing our total volumes and allowing us to generate a real CCS margin of $5.80 a material premium to the indicator. So far in the 4th quarter, it's worth noting that margins have recovered strongly with the indicator ranging between $7 $9 per barrel due to the strengthening demand and widening differentials. The chemical business continued its strong performance, thanks to the steady volumes and margins, both in line with the prior quarter. A reduction in derivative product prices was partially offset by the lower price of naphtha and a recovery in the market for basic petrochemicals.
The commercial business contribution improved compared to the prior quarter, mainly due to the seasonal higher sales in service stations. Spanish motor fuel demand maintained its ongoing recovery with the market growing in 2016 by 3.2%. Moving into financial results. 3rd quarter 2016 CCS adjusted net income was €307,000,000 148,000,000 higher than the 3rd quarter of 2015. CCS adjusted net income year to date was €1,200,000,000 €175,000,000 lower than the same period of last year, primarily due to the positive effect of exchange rate positions entered into in 2015.
In the upstream, adjusted net income for the quarter was €367,000,000 higher in the same period of 2015 at negative €28,000,000 Operating income in the quarter for the 2nd in a row was positive at €64,000,000 The adjusted net income for the 1st 9 months of 2016 amounted to €35,000,000 668,000,000 higher than in the same period in 2015. Year on year, 3rd quarter variances in Afzim are primarily due to the following: lower realized oil and gas price, net of royalties, had a negative impact on operating income of €121,000,000 Lower exploration activity and lower amortization of dry wells increased operating income by €157,000,000 excluding the impact of exchange rate movements. 3rd quarter results include the write off of 2 wells that were previously under evaluation. Lower depreciation and amortization charges principally as a consequence of a lower amortization rate in North America increased operating income by €88,000,000 Income tax expense impacted the adjusted net income negatively by €95,000,000 principally due to better results and a higher effective tax rate due to geographic mix. This was partially compensated by the effect of local currency devaluations in the Q3 of 2015.
Finally, income from equity affiliates and non controlling interest, exchange rate and other costs, which includes the effect of our synergy and efficiency program and the impact in Norway of our reduction in the provision for abandonment cost at Ime and Varg explain the remaining differences. Note that the revised cost estimate in Norway has a total after tax impact of approximately €28,000,000 In the Downstream division, CCS adjusted net income in the quarter was €395,000,000 287,000,000 euros lower than in the Q3 last year. Adjusted net income for the 1st 9 months of 2016 was €1,300,000,000, euros326,000,000 lower year on year. 3rd quarter variances in the Downstream are primarily due to the following. In refining, lower margins and lower utilization rates reduced operating income by €289,000,000 This was due to narrower mid diesel distillates, gasoline and light heavy crude spreads, partially offset by the lower energy costs.
In Chemicals, lower international margins, while still high, generated a negative impact on the quarterly operating income of €45,000,000 Marketing and LPG operating income was in line compared with the
Q3 last year.
Trading and Gas and Power, the operating income was €24,000,000 lower than the Q3 of 2015, due to a challenging environment. Equity affiliates and non controlling interest, exchange rate and taxes account for the remaining variance. The corporate and other segment now includes the contribution from Gasnat following the sale of a 10% stake. In total, corporate and others accounted for a net expense of €60,000,000 in the quarter, compared to €128,000,000 negative in the prior year. In the 1st 9 months, this segment accounted for a net expense of €140,000,000 compared to the net gain of €377,000,000 in the same period of 2015, primarily due to significant gains from exchange rate positions in the Q1 of last year.
The contribution from Gasnat to Corporate and Other in the Q3 of this year amounted €80,000,000 lower year on year mainly due to lower profits in the gas commercialization business. In corporates and adjustments, the adjusted net income in the 3rd quarter was €80,000,000 negative, €23,000,000 higher year on Financial results in the 3rd quarter contribute a net income result of negative €123,000,000 which compares with a net expense of €223,000,000 in the Q3 of 2015. Moving on to the group net financial debt, at the end of the 3rd quarter was below €10,000,000,000 a decrease of around €1,700,000,000 in comparison to the end of the previous quarter. This was primarily due to the receipt of proceeds from the partial disposals of Repsol's stake in Gas Natural. Overall, operating cash flow excluding working capital covered investment, interest and dividend payments in the quarter.
The group's liquidity at the end of the 1st 9 months of 2016 was approximately €8,000,000,000 including undrawn credit lines, which represent roughly 2 times coverage of short term maturities. Finally, special items for the quarter include a net gain from the sale of Gasnat and the pipelines in Spain, partially offset by the impact of the Venezuelan devaluation. Let me now finish with an update on the progress of our strategic plan and the outlook to the end of the year. During this continued period of volatility, Repsol's strategy targeting value and resilience remains on track. The strength of our integrated model has allowed us to generate predictable results whilst continuing to strength our balance sheet through expenditure optimization, efficiencies, synergies and divestments.
Year to date, our delivery on strategic objectives has maintained good pace and by year end we expect to surpass some of the principal KPIs set for the year. Let's start with our efficiency and synergy program. By the end of the quarter, projects have commenced that will secure our original savings target for the year. The progress achieved in the 1st 9 months of the year put us on track to deliver well over our previously revised €1,200,000,000 target for 2016. In fact, we now believe an accelerated target of €1,400,000,000 is achievable this year.
More specifically, Synergy projects already in progress have delivered by the end of the 3rd quarter 90% of the run rate target for the year. Looking forward, more than 80% of action required to capture the $400,000,000 run rate for 2020 are already in place. Turning now to CapEx, we expect to be below our guidance for 2016. This reflects ongoing project optimization, strict cost control and the referral of non critical investments. Total CapEx is now projected to come in well below our previous €3,900,000,000 guidance for the year.
The divestment program has already surpassed the €3,100,000,000 target set in the strategic plan for the end of 2017. In fact, the partial sale of our stake in Gas Nat has put the total figure for proceeds and benefits capture since October 15 when we presented the strategic plan at around €5,000,000,000 In less than a year, we have been able to divest more than 10% of our capital employed at good value multiples and without sacrificing future optionality or delivery. In conclusion, despite lower Brent and Henry Hub prices and a decline in refining margin, the businesses line have been able to deliver improved recurring results year on year, both within the quarter and over the 1st 9 months. This demonstrates our resiliency in the lower part of the commodity cycle due to our integrated business model, capital optimization and highly effective synergy and efficiency program. In addition to the strong operating results, our divestment program has delivered cash to the balance sheet, allowing us to materially reduce net debt and strengthen our financial position.
We are now well placed to deliver on this year's target and are making strong progress towards our longer term strategic goals. I will now hand the call back to Paul, who will take us through our Q and A session.
Thank you, Miguel. Before we move to the Q and A session, I'd just like to remind everybody, if you run into any technical problems during the webcast or conference call, please address any problems to our e mail address, investorsrelationsrebsol.com, and we will contact you immediately to resolve it. Now I will ask the operator to just remind us of the process for placing
questions. Thank you,
Thank you, operator. We'll now move to our question and answer session. Our first question is from Haitham Rashid at Morgan Stanley. Haitham, please go ahead.
Thank you, Paul. Good afternoon, gentlemen. Thanks for the presentation, Miguel. Two questions from my side, please. Firstly, if I could perhaps just come back on your comments around investments and maybe just to provide a bit more color on where you think you'll end up for this year and actually sort of how that could look for 2017 because sort of prior CapEx guidance had been obviously sort of a fair bit higher than even the 3.9 percent.
Looking at sort of where your run rate is for the year, you could come in somewhere around 3.5%, 3.6% quite easily potentially. Is that sort of what we should be thinking about? And is that the sort of level that you could be running at in 2017? And then secondly, I just wondered if you could provide us an update with your recent discussions with the rating agencies, whether given the delivery you've had so far, given where the environment is, how comfortable they are with your plans, whether there are additional requirements here, how you're thinking about your different financing options to hybrid debt, Are there any other sort of further measures that you might want to think about taking? Thank you.
Hans, Ethan. In relation with the first question, I estimate we are going to end up this year around 3,500,000,000 dollars And regarding 2017, we have not finished yet the budget program. But I estimate that we are going to be around that figure as well. So 3.5%, 3.5%, I think it's a figure you can put in your models. We will be able to confirm that once we finish the budget.
And in relation with the meeting with the agencies, I met with them past 19th October And we review more or less all what we have been delivering all around because normally people tend to think that a hybrid is a solution or we have to look at the picture completely. So we are talking here about how the CapEx has been reduced, how the synergies have been delivered better than initially expected, the same with efficiencies, much, much better than expected in the divestment plan, not only within the figure, but in the multiples transactions. And it's true that we still have room to go and we have to do more things. We're still a little below, but the progression we have been able to achieve in the last 10 months, I think that has been well received by the agencies. And we'll keep working and we'll see how the market is and which at and in what moment it's going to be our best option.
But some small extra divestments are coming. Remember that we have not monetized yet all the prop LPG pipelines and we have some other minor assets that are really are not key for us that will come along. So it's a work in progress and we are progressing well. That's all I can tell you, Ethan.
Thank you very much. Very clear.
Thanks, Hytinen. Our next question comes from Felipe Rosa at Haitong. Felipe, please go ahead.
Hi, good morning, everyone. So 3 for me as well. So firstly, on working capital, you have had another investment this quarter. Could you help us understand how do you see this going forward? Whether you think that your working capital investment, for instance, even as well as already peaked, whether this new agreement that you have established with them could start having some positive impact on your working capital anytime soon?
So that will be the first one. The second one relates to your investment in Buckskin. Okay, your leading partner has given up on the project. Could you let us know what are the plans of Revsol for that project? And thirdly, if you could provide us a a going into next year?
We are close to the end of the year. Do you think that it will be a similar year than you have this? Or do you think that there could be some sort of deterioration going to next year? Thank you very much.
Thanks, Felipe. Well, in relation with the working capital, there has been 4 factors that really had penalized enormously approximately $1,100,000,000 in comparison with the beginning of the year. The four factors has been in one hand Venezuela. We think that once the credit line starts to work, we can solve partially this part of the working capital increase. We also have an impact that is a one off, which is the reduction in CapEx, which implies that we have less accounts payable.
3rd factor is the main prices. I mean, the prices had a clear impact. And finally, I would say that with the contango situation, traders are taking a more aggressive position with inventories. So all in, I'll say that we would be able to handle partially some of the four factors that have generated this increase in the working capital. Also to mention, and I think that the question will come at a given moment, there has been increase in the prepaid taxes in Spain that will affect us in the opposite direction for the end of next quarter.
All in, I expect that by the year end, the figure in comparison with the one we have right now will be lower, let's say around $300,000,000 $400,000,000 lower than the one we have right now. In relation with Baskin, I think that we are still analyzing the project and I don't perceive any decision to be taken before the 3rd or Q4 2017. And the final question regarding downstream, it's quite I mean to predict is difficult, especially the future, but the division is showing a tremendous strength. We keep with the idea of the $6.9 per barrel for the refining, while chemicals maintaining a good pace as long as the price of the barrel remains between $40 $50 So if I have to make an outlook, I will say that demand keeps growing in Spain. And we have passed throughout the year all the heavy maintenance we had in especially in Cartagena.
So I think it's going to be stable or slightly above for 2017. I don't I mean, right now today, the margin was $9 To be precise, dollars 8.99 the index. So if we put on top of that the $0.50 $0.60 we always make above it. I didn't expect this to continue, but I think that all in throughout the year, we will end up this year in the more or less around the figure we provide to the market $6.97 on average. And next year, I think it's going to be stable as long as the barrel remains there.
Okay?
Thank you very much, Miguel. Our next question comes from Oswald Clint at Bernstein. Please go ahead, Oswald.
Thank you very much, Paul. Yes, I just wanted to focus, Miguel, on your North American upstream segmental reporting. It looks like a decent profitability in the Q3, very similar to Q3 last year despite some lower volumes and obviously lower commodity prices. So is that a improvement in the cost structure of that North American upstream business? Could you talk about that?
Could you say if it's Canada or it's U. S. Specifically? And then maybe linked to that, just how does that make you think? If that is true, it is getting better, how does that think about the CapEx in that 3,500,000,000 dollars group CapEx that you spoke about for 2017?
Is there an increase going to happen as we look into 2017 for North for the kind of U. S? Thank you.
Sorry. In relation with the first one, I think that the advantage we have had in this year we're basing prior decisions. I mean, 1st, the impairments of the Mid Continent that were strong and have reduced the depreciation that has been a factor, so lower technical amortization. And in Eagle Ford, it's true that the agreement with Statoil, which has benefit the group. Instead of having 2 operators, we have just 1 operator.
And advantage per barrel, we are obtaining as a first estimate is a little around $10 $10 per barrel better having just one operator and also having just one rig. So I would say we have lower volumes, but the cost structure is improving. And
can you
repeat the second question, Oswald?
Yes. I just meant if we are seeing improvements in that underlying North American business, what's the outlook for CapEx for North America within the $3,500,000,000 that you mentioned that you might spend in 2017?
I will have to answer that question in the following months. I mean, I don't have the split of the $3,500,000,000 It's a figure that I have been commenting with both business areas, but I don't have the split of what North America will imply within this figure. But sorry about that.
Okay. Thank you.
Thank you, Oswald. Our next question comes from Jason Kenney at Santander. Jason, please go ahead.
Good morning or good afternoon, sorry. Are you able to comment on the Black Sea oil discovery offshore Bulgaria at all? Either way, I was looking at some guidance on the possible exploration effects going into the year end with what have we got left to look for from exploration? And then separately, on the tax rate, difficult time to be trying to forecast tax rates, but what is an underlying kind of tax rate that we could be using for going into 2017?
Well, in relation with the discovery in the Black Simbel area, it's definitely an oil and gas discovery. It's oligos in play. Its commerciality has not been proven and we need to appraise us to really know where we are. In relation with the second question about the guidance for exploration in the year end, I think that is we are not going to be really much impacted at that limit. I would say $120,000,000 100 and EUR 40,000,000 would be the figure of the impact in P and L.
And all year around, it's going to be around 700 $1,000,000 what we have been invested in 2016 for the exploration. And in relation with the tax rate 2017, we expected it to be around 30%, 32%. If we remain with these prices of the barrel and we remain with the split, because we have to think that the weight of the Downstream division in which our tax expenditure is in the mid-20s will compensate the option. So I would say 30%, 32% would be my guidance for next year. Is that right, Jason?
Yes, perfect. Thanks very much.
Thank you, Jason. Our next question comes from Anish Kapadia at TPH. Anish, please go ahead.
I have a few questions. Firstly, on Venezuela, please. I was wondering if you could just update on your receivable position and explain in a bit more detail that deal that you did. And maybe I'm not understanding it right, but a few years ago, I thought you said that the majority of all the cash coming out of Perla was going to be domiciled abroad. So you shouldn't have any impact from Venezuelan issues or depreciation.
So if you could just clarify that. Secondly, we've seen Repsol share count increase quite significantly since 2012 continues to increase with the script program. So I was just wondering what milestones are you looking at to be in a position to either remove the script or starting buybacks to offset the dilution? And then a final one on Alaska. I was wondering if you could give an update on the appraisal program in Alaska and potential timing of FID and development.
Thank you.
Well, in Venezuela, I mean, the basic figures we have there is a total capital employed of 2,500,000,000 dollars Within this capital employed, we have €667,000,000 in account receivables. The figure has increased in since throughout the year in approximately 240,000,000. Dollars So this is more or less the picture regarding receivables. The idea of the credit line is really to liquefy the financial circuit. So they will put cargoes assigned into a SCRO account that would be the one that will pay suppliers, pay taxes and pay the partners.
It's a model that I think Chevron has been working with it in the last 2 years, has proved effectively and the total agreement was signed this month I'm sorry, in October with all the authorities there. So it's just pending on administrative details to see how it start working. In relation with the second one, I would say that the end of the script and probably the initiation of the buybacks would be at the moment in which our rating feels stable in the BBB level. So depending on how things evolve, we would be able to return to regular dividends and to buybacks depending on the evolution of our ratios with the agencies. And appraisal program in Alaska, well, in 2017, we would be drilling an appraisal well.
And Konoco is also near our non ship discovery and it's also in appraisal mood. And final feed, if things goes well and the prices are there, would be between 2018 2019. Okay.
Thanks so much. Yes.
You're welcome. Thank you, Anish. Our next question comes from Bruno Silva at BPI. Bruno, please go ahead.
Hello. Good morning. I have just 2 small questions, pending. The first one, I'm not sure if Miguel has addressed this or not, I couldn't hear, regarding the gas realization price discount that widened significantly. So I don't know if you could enumerate the key drivers for this evolution and what would be a reasonable estimate for the coming quarters?
And then the second question is just a detail in your presentation. Notice that the cash flow neutrality breakeven has increased to 46 dollars year to date. I guess it's just a matter of criteria of what you use here versus the $40 you mentioned in the previous quarter. So if you could shed some light on that, I'd appreciate. Thank you very much.
Well, in relation with the second one, I think that if you look at the working capital, you find the solution. I mean, the increasing working capital is the in working capital is the one that is touching the cash flow neutrality. But if we to me, as everyone make different calculations here, I do prefer to analyze the whole company and the whole year. We have been at $42 on average for the year. And if we take out of the I mean, if we think in a like for like working capital, we have been able to pay our all our CapEx, pay the dividends with the scrip, pay our financial interest and be neutral.
So 2.7% would be the debt reduction in a like for like basis on the working capital, which precisely is the figures of divestments we have had in the year. In relation with the first question, gas natural gas price realization, there's a I have the same question when I look at the figures, because Henry Hub was moving up and our realization price was going down. The point there has been that despite a positive impact of basically Marcellus of $200,000 Btu, there has been a adjustment in Trinidad and Tobago prices coming from prior periods that has penalized the realization price of our gas in $0.3.0 per 1,000,000 BTU. So on average, despite having a better scenario, our price realization finally price has been lower due to this adjustment made in Trinidad and Tobago. Estimate gas realization price for the next quarters, I think that we have to go along with the split we have.
Basically, it's 33% of our gas is linked to the Henry Hub and the rest 20% 25% respectively are linked to oil price and to fixed price. So it's going to be aligned with the evolution of the barrel in one hand, 25 percent and the Henry Hub in the other, 33%. Is that okay, Bruno?
Yes. Thank you. Just to make it clear, the Trinidad tobacco effect has been exhausted in the Q3. Is that correct?
That's correct. I mean, we have adjusted it's an adjustment one off in the Q3 due to previous discussion about prices of our gas there. Okay? [SPEAKER RAMON
ALVAREZ
PEDROSA:] Okay. Okay, perfect. Thank you. [SPEAKER RAMON
ALVAREZ PEDROSA:]
Thank you.
Thank you, Bruno. Our next question comes from Thomas Adolff at Credit Suisse. Thomas, please go ahead.
Hi, guys. I've got a few questions as well. Firstly, just wanted to get a view from Miguel on the cross shareholding structure in Corporate Spain and whether that we should be seeing further changes there? Secondly, more specific to Repsol, these efficiency gains, which are leading to lower CapEx and lower OpEx, How do you make them stick? Has Repsol made any changes to the internal KPIs?
And if so, can you give some examples there? And the reduction in the CapEx that you talked to earlier on, can you just confirm that it is all efficiency led as opposed to activity led? And my final question is on the prepaid taxes that you talked earlier on. You mentioned also working capital reversal of about €300,000,000 to €400,000,000 in the Q4. Is this net of the around €600,000,000 prepaid taxes that will happen in the Q4?
Or is it before the $600,000,000 Thank you.
In the first question, in the cross shareholder structure, I think that you referred to some financial transactions from Saphir. Is that right, Thomas? Or
No, I'm just thinking Saucia could be 1, but also Gasnod could be the other thing, right? How should I think about the 20% shareholding? What's the whole point about this cross shareholding structure in corporate Spain? It seems very protectionist and outdated.
Well, now I understand. I think that we keep the way we were with the 10% reduction in our staking as not. But basically, the way we see it is that we have a shareholder, which is Caixa with a 10% more or less of our shareholding. And we own a 20% of a company, which also Caixa is the largest shareholder. But there's no any other game around it.
In relation with the efficiencies, I would say that they're going to stay. At least our estimate is that between 75% 80% of our efficiencies are not linked to the price reductions that the service companies have suffer in the last 2 years. So I will say that at least 80% of it will remain. And in relation with the KPIs, you know the profile of our COO. So he's going to keep pushing, pushing and tighten the objectives for next year.
No doubts on that. CapEx reduction, I would say that I would say partially it's a CapEx reduction by itself. And partially, it's also a lack or a delay in some of the programs. I mean, for the future, we have 3 basic large projects, which are Campos, Akaseas and Alaska. And we are going to delay those till the moment in which we feel that the price deck is sustainable enough to return good returns to our shareholders.
And in the last one, prepaid taxes, yes, I mean, we were charged $600,000,000 in taxes in this quarter in October. And the figure I gave that I expect to reduce between $304,000,000 the working capital includes the impact of the $600,000,000 So all in without this impact from the change in the laws by the authorities, law that by the way was issued in the 30th September, we will be able without this $600,000,000 to reach $900,000,000 So the net would be $300,000,000 $400,000,000 Is that okay?
Yes. Okay. And then the $600,000,000 you get back in 1Q?
Well, in 1Q, I'll get back 20.15 prepaid taxes, which were $300,000,000 So I'll get back the $600,000,000 by January 18. Basically, we will present our corporate fiscal declaration in July 2017 corresponding to the year 2016 and the authorities have 6 months to return that money back.
Got it. Perfect. Thank you very much.
It's the other way around. Thank you for asking questions, Thomas.
Thank you, Thomas. Our next question comes from Irene Himona at Societe Generale. Irene, please go ahead.
Thank you, Paul. Good afternoon, Miguel. Two quick questions. First of all, one on DD and A, which I think year to date is down about 20%. Is there some guidance for the full year this year and then into 20 17 on DD and A, please?
And then secondly, chemicals, which this quarter made about a third of your total sort of downstream EBIT. It made more money than marketing. It's up quite substantially year on year. Is there any guidance you can give us for, again, Q4? And I ask the question because a year ago, we had a substantial drop in Q4 Chemicals.
I don't recall the reason behind that. But if there is any guidance for the full year, I'd appreciate it. Thank you.
Well, difficult, the second one, because normally December is not a very good month for chemicals. And that's normally the reason why in the Q4, it comes a little lower. But other than that, I will expect something around €120,000,000 110 million for the 4th quarter at EBIT level more or less. It's my better estimate today. And in relation with the DDA, I would say that there has been 2 factors that have reduced in comparison with last year.
One for sure is the impairments we account in the Q4 last year And the other one is the depreciation of the exploration activity, which has been by far lower the year 2015. As a guidance, I would say by the year end for the whole company, it would be around $3,000,000,000 and from those $2,000,000,000 will be for the E and P division. And 2017, for sure, it will depend on how the exploration goes, but should be more or less at the same level that this year. Is that okay?
Thank you very much, Miguel. Thank you.
You're welcome. Thank you, Irene. Our next question comes from Lydia Rainforth of Barclays. Lydia, please go ahead.
Thanks and good afternoon. 2 hopefully relatively quick the post August not sold that was being the right number of the net debt for Repsol going forward and so where you're happy with that? And the second one, apologies, this is just a clarification question on the dividend. When we're looking at the dividend and the level that you're looking at going forward, should I be thinking about that €0.30 as the final dividend from 2015 and using that as a sort of multiply by 2 to the full year dividend going forward is €0.60 as a base? Or am I looking at the full year dividend from last year,
which was
€0.80 and that's what we should be projecting going forward? Thanks.
Thanks, Lydia. Well, the right net for us is the one that leave us in the 3B in the BBB stable. So it's not a figure that is fixed in many other things, because that implies a flow from operations versus a net debt. If we talk about, I would say, goals internally, I would say that to have EBITDA versus debt or debt versus EBITDA 1.2, 1.3, I think that this more or less will equal the BBB, which is the our goal in relation with the agencies. And in relation with the second one, for me, it doesn't correspond to me to decide the dividends, but it has to be the Board decision that will be taken by the end of this month.
But depending on the situation, I would say it would be more or less aligned with what we have last year as dividends.
Okay. Perfect.
Thanks, Dan.
That's all I can tell you. It's not my decision.
Okay. Thank you.
Thank you, Lydia. Thank you, Lydia. Our next question comes from Hamish Clegg of Bank of America Merrill Lynch. Hamish, please go ahead.
Hi, there. Thanks a lot. Hi, Miguel. Just wondered if you could expand a little bit on the tax position you talked about at the beginning of the call and how there's likely to be a cash cost in the quarter, but effectively, that's going to be higher than the real tax you'll pay. Could you maybe tell us about how that will sort of affect your tax in your in the 4th quarter earnings?
Also, my second question is just on the sale of Trinidad Tobago. You put that through in the quarter. Could you maybe allude to the price you paid for it and the effect on volumes? And then just finally, on the working capital, just to revisit that again because I understand the gain has been mostly related to Venezuela. Can we expect a potential reversal of that and when?
[SPEAKER SEBASTIEN DE MONTESSUS:]
Thank you, Amish. Well, let's see if I can explain the tax situation. Trying to simplify the equation, we prepaid taxes in Spain for the corporate tax in April, in October and in December. And normally, we have been following the fiscal rules. In September 30, they have changed that rules.
And instead of being fiscal rules, they have moved into accounting rules. In that sense, this year we have transfer, I would say, a lot of dividends for subsidiaries that really doesn't have any fiscal impact on the consolidated fiscal group that we have in Spain. We also have the net gains from Gas NAT plus the dividends of Gas NAT. So once they change the or they reverse from fiscal terms into accounting terms, we have to pay prepaid, sorry, a money that will be reversed in January 18. So it's not a cost, it's a prepaid money that we will be recovering in 13 months.
I think that may help. In relation with Trinidad and Tobago, the volumes we were talking, it's $8,000,000,000 sorry, dollars 8,000 barrels a day of production, basically liquids. And price stocking, we sold the whole thing for RUB 145,000,000
I think. Okay. Thank you.
You're telling me over here that we that I should have not disclosed that figure. Sorry.
145, I think, is the one you said. The local press was talking about 125, so there have been a number on that. One final, just quick and easy one. Is there going to be another strategic update from you guys? Obviously, the costs have been coming down more than expected and the efficiencies have been happening quicker.
Are we going to get an update on your sort of 4 to 5 year plan next year?
I would say not in the short term. And what I haven't answered your third question, which refers to the working capital. I think that the working capital may improve by the year end. Basically for, A, the agreement with Venezuela, if we are able to put it in place before the year end. 2nd, we will put more pressure on the traders in relation with the contangos.
3rd, the prices are not going to I hope in relation with the working capital are not going to suffer the impact that we have this quarter coming from by far lower prices. And finally, as mentioned before, we are going to monetize some divestments in this Q4. So that's the reason why all in and despite the impact of the taxes, I expect the working capital to be lower by approximately $300,000,000 Okay.
Hamish?
That's very clear. Thanks.
Thank you, Hamish. Our next question comes from Tom Robinson of Deutsche Bank. Tom, please go ahead.
Thank you and thanks for the presentation, Miguel. Couple of questions from me. First one on the upstream. Where do you think breakeven can get to in that business given the lower CapEx spend? And what is the split between sustaining and growth CapEx in the Upstream?
And the second question is on tax, and apologies to come back to this. But would you be able to just to clarify the impact of the prepayments and the recovery of those prepayments on the strategic plan? What, for instance, would be the impact on the free cash breakeven targets for 2016 2017? I'm presuming there would be an impact.
Thank you.
I will start with the second one. And in relation with this tax, it's a prepayment. So basically, you have a recovery in I mean, we are not going to pay taxes for all the factors I mentioned before, dividends on subsidiaries, net gains on subsidiaries, CASNAT and some others. So the government is taking a tax base on the accounting rules. So they are taking this $600,000,000 and they will pay it back to us in January 18.
This year sorry, in January 2017, we'll be recovering the taxes we prepaid in 2015. So a strategic impact, I mean or impact on the strategic plan, I will say, Neil, I mean basically because we have been suffering this year all these disposals and dividends that were initially not taxes, finally will not be taxes, but initially we have to prepay for them.
Yes, okay.
So it's just a timing issue. It's not a cost for us to say something. And in relation with the upstream breakeven, I think that it's that's something that depends much on your CapEx program. So it's not an easy question to be answered straight. I mean, any project that you develop day 1, you invest and you don't produce.
So it's not that easy to say that's my breakeven. We can talk about breakeven of fields that are already producing. We can talk about breakeven thinking in the long term, but it's not a so simple as to say, well, my breakeven today is $65 So it's not that easy. What I can show is that you have the results of the upstream division this year and you have the average price. And you can see that we have been more or less even at today prices.
And this is the best approach I can give you. And the split between sustaining and growth CapEx, there we have a couple of advantages I think in comparison with our peers. The first one is that our growth has come a) because of the acquisition of Talisman, we have doubled our size. And I'll say second, if you remember the 10 projects from former Repsol, they are either fully invested or almost as Lapa that will come on stream by the end of this year and Regan that will come will produce their first gas next year. But we have also the ramp ups there.
So CapEx is going to be small, while increasing production is going to be important in all these ramp up processes. But if I have to give a split of all the CapEx between what is growth and what is based on existing reserves, I would say it's forty-sixty, forty for growth and sixty for base reserves or 35, 65, 51. 2 thirds, 1 third to the limit. Okay?
Very good. Thanks, Nobel.
Thanks, Tom. Our next question comes from Alastair Syme at Citibank. Alastair, please go ahead.
Hi, Paul, Miguel. Thanks very much. Can you talk a little bit about decommissioning? Because you have quite a lot coming ahead of you. You took a $28,000,000 post tax charge on Vargen and IME this quarter.
Just to confirm that that closure costs rather than decommissioning costs, Are we going to see sort of closure costs regularly through the business in the coming periods? And I guess also related to that, as you go out into the market and get bids on the decommissioning of these assets, are they in line with what you provisioned in aggregate?
I think it's in line with what you have seen. Basically on there every year, we accrued what is expected and we follow the book and there is I have no a clear answer to your question. I mean, we accrue every year and we talk about a total provisions of well over €2,200,000,000 And every year we do our accounting, we analyze and that's it. This figure that I give you for sure excludes the UK assets. So it's a going on process that really doesn't have jumps or volatility.
It's all I can that I can tell you. It's true that initially and we have seen that we have seen the Ime and the bar decommissioning that has been by far lower than what we have as provisions. But this is just to example, I think we have to look at the whole company. And in that sense, we feel comfortable that the provisions grow every year in a reasonable basis. And right now, as mentioned, excluding the UK, it's €2,200,000,000 is what we have in our books.
And just to confirm, as you close an asset like you had this quarter, should we expect these sort of charges of €30,000,000 a quarter to flow through just from that physical closure aspect?
[SPEAKER JOSE RAFAEL FERNANDEZ:] No,
I don't expect other charges. I think that we are going to keep the rhythm that we have right now. I don't expect major surprises there or in any case if some disruption appears technically talking, it will run-in our advantage because right now we are accruing with the existing technology. But other than that, we will follow the path that you have seen in the last quarters.
Okay. Great. Thank you very much.
Thank you, Alastair. Our next question comes from Mark Koffler at Jefferies. Mark, please go ahead.
I just had 2 quick questions, hopefully, from my side, please. I was wondering if you'd been able to get back into Libya at this point or if there's any update on the stages of your facilities or operations there? And then, more broadly, just in the upstream, given some of the changes you're making to the capital spending profile for this year and for next year, should we be thinking about any decline rates or should we be thinking about decline rates differently? Thank you.
Well, in relation with Libya, there are no news. We have that the installations remain stable. I mean, there has not been any damage to those. And we know that politically talking, especially the U. S, Italy and France are trying to put pressure in order to solve and help into a solution.
But till now, no major changes. So we keep at 0 production there. And in relation with the second one, our decline rate maybe for the existing assets a little below 4%. That's the average thing that is not that big because, A, we are quite gassy and B, some of our projects are most of them are plateau. So no major changes.
And capital spending profile for the next year, I have to wait as before in relation with the question about the U. S. CapEx. I have to wait to answer the question till I have the final figures from 2017 budget.
Okay? That's great. Thank you.
Thank you, Mark. Our next question is from Rodolphe Ranuille at Royal Bank of Scotland. Please go ahead.
Yes. Good afternoon. A quick question for me on the credit side. I mean, your the company's management in Q2 had guided towards €1,500,000,000 of potential hybrid issuance in the Q4 of this year. My question is, is that guidance maintained?
Or has the plan been altered by the gas natural disposal?
Well, as mentioned before, we still have to work in the strength of our equity structure or our capital structure. So it's not that one has taking out the other. And gas nat for sure has helped to improve the ratios, but we still have work in front of us. So I do not discard the issuance of hybrid or any other measures that will help to strengthen the capital structure. Okay.
Thank you, Huiz.
It just seems that your current guidance is a bit less precise than it used to be at the half year.
I mean, it's not less precise. I'm trying to give you the best to my knowledge. Right now and I look at the hybrids daily. Today, our yield was 4.6, 4.8. 3 weeks ago was 4.1, 4.2.
So it's something that we may consider as an option and perhaps we'll go for it. But it's something that we will see and if the opportunity is there, we'll go for it. But it's not that I'm trying to be less precise. Sorry if that was the feeling of my answer.
No, no, that's fine. Thank you.
Thank you, Rodolphe. Our next question comes from Giacomo Romeo at Macquarie. Go ahead, Giacomo.
Yes. Good afternoon. Thanks for taking my question. I have three questions. 1, Miguel, again on production for 2017, so you can't give an indication of where you see production because you're still waiting for the to see the CapEx projection for North America.
Now if we assume that rig count stays flat there, it's where we and assuming no further divestments, where do you see production for 2017 going? 2nd question is, when I look at upstream Europe operating profit, it's higher than the reported EBITDA. Just trying to reconcile there what type of FX you have had impacting. 3rd one is on Latin America. You had quite a big drop in your profitability there in Upstream.
Just wondering if it's entirely related to reduction in gas prices, if there are other items we should consider? Thanks.
[SPEAKER JOSE RAFAEL FERNANDEZ:] I
would say production guidance for next year is still as all the questions you put on 2017, we're still waiting to have the final figures of the budget. So I need the final figures of the budget and the approval of the budget before commenting anything about 2017 budget. In the Absint operating in EBITDA in Europe, it's true that there is a is higher the EBITDA, the EBITDA. This is basically due to the reversal as mentioned in the speech of the provisions of Varg and EMEA. The moment we reverse these provisions really affected I mean reduced the EBITDA.
But the impact the net impact after tax has been of the both Varg and EMEA has been €28,000,000 And finally, the drop in profitability basically refers to in one hand Trinidad and Tobago, I mentioned that there was a adjustment from prior quarters that was executed this Q3. And for sure also the impact of the oil price in the gas we sell from Bolivia. You know that it's indexed to the oil price with a lag of 6 months going to Argentina and 3 months going for the gas that goes to Brazil. So this is the other factor that has reduced the results in LatAm. Okay?
Perfect. Thanks.
Thank you, Giacomo. We have
no further questions at this time. So that brings to a conclusion Repsol's 3rd quarter results call. Thank you for spending some time with us today. Goodbye.