Hello, and welcome to the Repsol 4th Quarter 2015 and Full Year 2015 Results Conference Call. Today's conference will be conducted by Mr. Josu Jon Imas, CEO. A brief introduction will be given by Mr. Bautista, Head of Investor Relations.
I would now like to hand the call over to Mr. Bautista. Sir, you may begin.
Hello. Thank you for attending our Q4 and full year 2015 results conference call. Good day, ladies and gentlemen. I am Angel Bautista, Head of Investor Relations at Repsol. On behalf of our company, I would like you to thank you for taking the time to attend the conference call as said before.
This presentation will be conducted by Josujon Imas, our Chief Executive Officer. Other members of the Executive Committee will be joining us as well. Before we start, I invite you to read our disclaimer note. We may make forward looking statements, which are identified by the use of words such as will, expect and similar phrases. Present results may differ materially depending on a number of factors as indicated on the slide.
I'll now hand the conference to Mr. Imas Josephson.
Thank you, Angel. Good day and thank you for attending this conference on the Q4 and full year 2015 results. Let me start saying that CCS adjusted net income was 461,000,000 and €1,860,000,000 for the quarter and the full year 2015 respectively. Net income was minus €2,100,000,000 and minus €1,200,000,000 for the quarter and the full year 2015, respectively. Impact of course by extraordinary impairments mainly applied to align the book value of some of our upstream assets to the current price environment.
In today's call, we will address 4 main topics. 1st, a review of the main events of 2015 second, the progress of our strategic plan third, we will provide some information, some guidelines about our main activity forecast for 2016. And last the quarterly and full year results and the main operational highlights. Let's start with the main events of the year. You can see on our first slide a summary of the key achievements of Repsol during the year 2015.
Even in such an adverse macro environment, we can say that 2015 was a successful and transformational year for the company. On the 8th May 2015, we complete the acquisition of Talisman Energy, a transaction aligned with the key targets laid out in our previous strategic plan for 2012 to 2016. The incorporation of Talisman balance to the company's portfolio has been main milestone and at the same time we were achieving global scale and diversification. Over the course of this year 2015, we achieved a successful integration of the 2 companies and we identified the potential synergies between both organizations deploying a new organizational structure to include all the combined assets and operation of both companies. This integration of Talisman goes, let me say, complete under an increasingly difficult and volatile macro scenario.
As you can see on this slide with a drop of oil and gas prices. And once the integration was complete, we released our new strategic plan whose main objective is to provide value and to provide resilience under any price scenario. Portfolio management and efficiency together with the strength of our integrated model and or the operational improvements already implemented in previous years allow us to provide value even in this low price environment. And as you can see in this slide that have now in front of you with Brent being down by almost $50 per barrel in 2015, we have been able to keep our EBITDA at CCS at a similar level to the previous year. In hard and challenging scenarios like the one our industry is experiencing today, it's very important to protect the cash flow balance of the company.
In Repsol, we are managing our business under this principle. You can see that we have been able to generate cash to reduce our debt by more than €1,000,000,000 excluding the effect of the payment of the Talisman acquisition. And that means that our cash neutrality breakeven has been well below $50 per barrel in 2015 with just a limit amount of divestments. Repsol is able to achieve all that thanks to our Tier 1 Downstream division and the right balance of downstream versus upstream in our portfolio. As you can see on this slide, Repsol is a company in which a profitable downstream division contributes most to the reduction of the company's global breakeven.
The weight of our downstream business in relation to our upstream overall and liquids production, as you could see in this slide, is the highest within our peer group. Our Upstream division has also made its contribution to cash neutrality in 2015. And the 9 year marked by the Talisman integration and price to more compared to 2014 and considering Talisman for the full year, our upstream has reduced CapEx by more than 50% and OpEx by 12% or by 13%, if we take up per barrel basis. And at this point, let me discuss our strategic plan in more depth. In our projections, we used 2 sets of planning assumptions as you could remember, because we had the opportunity to explain all that in October and to see most of you in the roadshow that followed that presentation.
I mean, we used to set of planning assumptions and our base case and high stress case reflected the metrics of the plan under a $50 flat scenario. But considering the continued price weakness, we have carried out an exercise to review the projections of our base and the stress cases, revisiting them under uneven lower oil and gas prices scenario. Our revised base case starts with a Brent price of $50 in 2016, dollars 55, dollars 65, dollars 75 ramps up to $85 by 20.20. Our updated stress case goes down to $40 in 2016, dollars 40 in 20.17 and remains flat at $50 for the rest of the period. With regard to gas prices, our revised base case starts with a hurry up of $2.6 and our updated stress case is reduced to 2 point $6 per million of BTUs in 20162017, while remaining flat at $3.5 for the rest of the period.
We keep our refining margin assumptions in line with our strategic projections. And as you can see, we are adapting and adjusting quickly, but of course, maintaining our strategic drivers and touch. Our CapEx for 2016 is reduced to €3,900,000,000 We are also anticipating the achievement of our efficiency objective. Our target is to capture €1,100,000,000 from efficiencies plus synergies in 2016. And this figure as you could remember is more than half of our objective in the strategic plan period.
We expect to maintain this effort in 2017, keeping our investment at the same level as in 2016. Overall, we are reducing the group's cumulative investment for 201620 17 by around €1,000,000,000 of which €300,000,000 correspond to efficiency measures. You may see that the economics of the strategic plan remain resilient and broadly unchanged even under our revisited stress case that as I said before is $40 per barrel in $2,036.17 $50 per barrel from for the rest of the period, sorry. All in all, in 2016, sorry, I forgot it. You could also find in the previous slide, our sensitivities to change in the macro assumptions.
So all in all, in 2016, we are anticipating the delivery of our key strategic targets and materially reducing our breakevens. We expect to achieve at $40 Brent per barrel cash neutrality in the next 2 years after paying our dividends and our interest. To achieve this figure, we are only including the downstream cash in coming from the announced pipe LPG sale, but we are not including any of the divestments that are going to be made or done in the period 2016, 2017. This objective will be achieved through CapEx, optimization and implementation of our efficiency measures. Most of this optimization in CapEx comes from our upstream, where we expect to invest around €3,000,000,000 in 2016, excluding these figures G and G and G and A.
The reduction arises from a combination of lower exploration, our efficiency program with the OpEx and CapEx optimization associated to this efficiency program and an inflation capture as well as deferring non critical investment in development and producing assets, while keeping at the same time our production level at around 700,000 barrels per day. Our exploration CapEx for 20 16 including G and G and G and A expenses forced to just around $800,000,000 versus our previous guidance of $1,000,000,000 The greatest effort will be made in our North American operations, where we are postponing development and exploration activity, as you know, in Alaska and in some areas. And moreover, we are reducing our development CapEx in Colombia and Brazil, while reducing exploration activity in Angola. As indicated before, our CapEx optimization will have no impact on our production profile, because we are benefiting from the end of the previous investment cycle from Repsol's legacy assets. And at the same time, we are also benefiting from unstrong performance of legacy Talisman assets.
Regarding our efficiency plan, we are targeting €2,100,000,000 of CapEx plus OpEx per tax cash savings by 2018, of which as I mentioned before, we expect to capture more than a half at around €1,100,000,000 this year in 2016. With regard to efficiencies, we have identified hundreds of initiatives in a strong bottom up approach. And let me say that the bonus payment of every manager of the company, including, of course, mine, will depend to a great extent on the achievement of this target. More than 50% of efficiency plus synergies target in 20 18 as I said before will be achieved in 2016. And all in all, we will reduce our upstream OpEx in per barrel terms by more than 13% in 2016 comparing this figure with the cost with the OpEx in 2015.
Turning now to synergies that are an important part of our efficiency target. We have identified over $400,000,000 per year of recurrent synergies coming from the Talisman integration. And we have already implemented more than 50% of them. That means that today are entering in our P and L in the bottom line. This target is above the $350,000,000 that we included on delivering the strategic plan and compares to the $220,000,000 that we assume as you remember initially when the acquisition of Talisman was announced.
This improvement comes mostly from the repurchase of Talisman bonds that was executed in December that is going to reduce our annual interest payments by $60,000,000 and this together with additional smaller transactions that we executed in January have allowed us to repurchase a total of 1 point $7,000,000,000 of Talisman bonds, generating capital gains of more than 240 $1,000,000 before taxes. And on top of that, we are also capturing significant synergies in areas like people, organization, IT from the high grading of our exploration portfolio combining synergy from both companies and also in other areas like for example our corporate insurance program. And at this point, let me update you on the progress of our divestment program since aside from the mentioned repurchase of Talisman Bands, we have closed a significant number of transactions that materially improve our free cash flow generation in the short and in the medium term. And this is a result of the additional optionality we have, thanks to the portfolio management, we could in some way do thanks to the acquisition of Taliman. First, I'm glad that this morning, let me say that was this morning because we closed the deal last night, We announced the sale of our offshore wind power business in the U.
K. For around €240,000,000 This is a new milestone in the progress of our divestment program. And here's another example of the hidden value that we could crystallize within Repsol's portfolio. We sold, as you know, our stake in CLH for €325,000,000 back in October, generating around €300,000,000 in capital gains. We sold most of our pipe LPG business in Spain for around €800,000,000 with a very significant pretax capital gain of around €470,000,000 And you know that the proceeds and the corresponding capital gain will be cashing and accounted mostly in 2016.
We also reached an agreement with Amstern, our partner in Alaska project to dilute our position in the North Slope, generating a positive impact on our cash flow of around €700,000,000 as we are avoiding carrying Armstrong for that amount. And I think that this point is important because I mean I'd like to underline that this is a good example of win win transaction that we can undertake to optimize our E and P portfolio even under the current low price scenario. And another example of this capacity we could have to deliver this kind of operations in our M and A even in this low price scenario is the agreement with Estatoil to divest part of our interest in Eagle Ford to acquire high stake in Norway's producing Gudrun field, generating a significant improvement in the cash flow generation in the period 2015 to 2017. And this track section will on top of that benefit our Eagle 4 operations through the nomination of a single operator that no doubt is going to optimize the current joint venture performance. Also in Norway, we have divested our 15% participation in the Brihild field and we also signed an agreement to transfer our stake in the INE field to the local player, OKEA, with potential savings of €200,000,000 in the commissioning cost in the 20 sixteen-twenty 20 period if the deal is closed by year end.
So you could see that we are actively working on a broad pipeline of further potential transactions under the principles that we outlined in our strategic plan presentation. And obviously, I'm not going to make any further comments on this matter in the Q and A session. But let me say that we are working hard to deliver what we announced in our strategic plan. Let's speak briefly about our projects for 2016. On the development side, the ramp up of the 2nd FPCO in Chapinoa North in Brazil in Brazil, sorry, will be complete in March with our production in Brazil thus reaching around 40,000, 45,000 barrels of oil equivalent per day net to Repsol.
Also in block BMS-nine in the Santos area, the development of LAPA is progressing on schedule on the FPCO, Sidade de la Carahua Toatuba is expected to be in location by mid year with first oil planned for the Q4. In 2016, we have scheduled the following selective development milestones, significant activity firstly in Southeast Asia in projects with moderate CapEx and relatively short term delivery, progressing on the development of the Kinabalu and Bunga Pacma projects in Malaysia and the final investment decision expected for the CRD project also known as Red Emperor in Vietnam. In the U. K, we will continue advancing with the redevelopment of Monarch and Flinder corridor with advances to accelerate first ore expected early in 2017. And at the same time, we are going to go on reducing CapEx in order to have further improving in per barrel performance in our North Sea assets.
In Peru, the Sagari project received the environmental approval and development work continues as planned for 1st gas in 2018. In Colombia, we will continue with a price sale campaign in Akacias. In Algeria, the execution of Regan progresses with first gas maintained for 2017, while the conceptualization of Sides TDC continues in parallel with the successful appraisal phase, which is leading to a very material resource base. In North American Conventional, development CapEx will be, of course, contained in these hard times, driven by short term cash preservation and valuable land retention objectives. On the exploration side, our program for 2016 will focus mainly on appraisals and lower risk prospects with wells in Southeast Asia, Gulf of Mexico, Brazil, Algeria and Colombia among others.
And with regard to our downstream business, downstream businesses, Pedro said, this year we expect to further improve the resilience of our margins through these battery of measures. 1st, our reduction in losses, consumptions and CO2 emissions in our refineries and in our crackers coupled with additional efficiency measures. At the same time, we are going to enhance and to increase the reliability of our plants in order to increase utilization of the conversion capacity of our refineries. And we are going to boost the improvement of our differentiation program in our chemical business, thanks to our metallocene plant in Tarragona. And finally, the revamp of our La Pampaia refinery in Peru is progressing as scheduled.
Now let's move on to the 4th quarter and full year results and the main operational highlights. 4th quarter CCS adjusted net income was €461,000,000 25% higher compared with the same period of last year and 189% higher than in the Q3. Full year 2015 CCS adjusted net income was €1,860,000,000 a 9% increase compared with full year 2014 results. These results were impacted by low oil and gas prices in the upstream and all that was offset by a very strong downstream performance, especially in refining and chemicals. Despite the challenging and difficult context we are living, the strength of our downstream has more than offset the continuous decrease in crude oil and gas prices.
As you may see in the slide, this resilience of our results is quite exceptional within our peer group. The Repsol Group's cash flow from operations amounted to €5,400,000,000 in 2015, of course. I'd like to stress the fact that the outstanding performance of our downstream division that contribute more than $4,000,000,000 to this figure. Looking at the results by division, starting with the upstream business, adjusted net income for the Q4 was minus €276,000,000 €280,000,000 lower than in the same period of 2014. All in all, the upstream results were mainly impacted by lower realization prices with a bigger E and P asset base, partially offset by lower exploration and other costs.
Production reached an average of 6 1,000 barrels per day in all equivalent terms in the quarter, higher than the Q3, thanks to the ramps ups in Sapingo in Brazil, in Cardon in Venezuela and the production increase in the UK where you know that we are reversing the decline. Current production is over 700,000 barrels of oil equivalent per day. And the reserve replacement ratio for 2015 has been 500%, of course, taking into account the inorganic part of this ratio. Excluding the acquisition of Talisman and other inorganic transactions, our organic reserve replacement ratio was 159%, ending the year with $2,400,000,000 of proof reserves. This rate is impacted by the increase in our stake in Venezuela, as well as from reserve contributions of Libya and Talisman is explained as follows: lower crude oil and gas realization prices, as you know, and all that has had a negative impact at the operating level of €307,000,000 Lower exploration expenses led to an increase in the operating income of €89,000,000 Lower depreciation and amortization charges increased the operating income by €52,000,000 as a consequence of lower amortizations in the U.
S. And Russia and lower production in Tunis and Tobago, partially compensated by the increase in production in Brazil and Venezuela. Higher production resulted in a positive impact on the operating income of €11,000,000 Taxes on the other hand had a positive impact of €132,000,000 due to the lower results and there are other minor effects that could explain the remaining difference. The impact of the disruption in Libya was minus €76,000,000 and minus €24,000,000 in the operating and net respectively. Operating income of Talisman's assets was minus €208,000,000 We had the most positive results in Indonesia that were offset by negative results in North America and Norway mainly.
And the contribution to the adjusted net income has been minus
€115,000,000
I'd like now to go briefly on the slide that shows examples of how we are progressing on improving the performance of some of the recently acquired assets. The U. K, the area with the most, let me say, significant challenges we could have in our hands. All the Marcellus were we are continuously reducing cost and leveraging our infrastructure position to reduce breakevens and remain free cash flow positive even in this challenging price scenario. Finally, I'd like to mention that in the current environment of low crude oil and gas prices, the Board of Directors of Repsol has agreed in application of the most rigorous and prudent financial criteria to apply extraordinary impairments totaling approximately €2,900,000,000 to its 2015 earnings, of which 20 sorry, EUR 2,400,000,000 have been booked in the Q4 of 2015.
These provisions can be of course reversed in future accounts when the price outlook changes. Turning to our downstream division. CCS adjusted net income in the quarter was €495,000,000 significantly higher than the €370,000,000 of the Q4 of 2014. Full year adjusted net income was €2,200,000,000 113 percent higher year on year. And this improvement is mainly driven by better refining and chemical margins and enhanced performance in the trading business, partially offset by lower results in Gas and Power and LPG.
Quarterly performance was underpinned by very strong chemicals results that let me say that continue in the Q1 of 2016. And I hope that all the same thing could happen over the whole year. The refining margin indicator was down quarter on quarter, but still average at a healthy $7.3 per barrel, 33% higher than in the same period of 2014. We have entered 2016 with a robust refining margin, averaging around above $7 per barrel, thanks to a strong gasoline spreads offset in some way by the weaker diesel spreads due to the mild winter. We continue to see heavy light spreads structurally strong looking forward.
And drilling down into the quarterly results in refining, higher utilization rates and improved refining margins produced a positive impact on operating income of €69,000,000 compared with the Q4 of 2014. In chemicals, the enhanced efficiency as a result of operational improvements in our helped of course by a better international environment generated a positive effect on the operating income of €65,000,000 In the commercial businesses, operating income was €29,000,000 lower year on year, mainly due to lower LPG margins in Spain. Moving to Gas and Power and trading, the operating income was €8,000,000 lower than that of the Q4 of 2014. But nevertheless, and even in this mild winter, we had positive results in our Gas and Power American Business, which is always good news. The exchange rate and other effect year on year was €27,000,000 Result from equity affiliates and non controlling interest and taxes and so on explain the remaining difference.
With regard to Casa Naturale Senosa, adjusted net income in the Q4 of 2015 amounted to €123,000,000 84% higher than that of the same quarter of 2014, mainly due to the contribution of the CGE, Chile and the impairment book last year in the Unferno gas plant in Egypt in the Q4 of 2013. Let's move now to the financial aspects. Our 4th quarter financial result was nil, which compares to a net financial expense of €85,000,000 in the same period of last year, 2014, mainly due to the higher positive results associated to exchange rate positions that were offset by higher net interest because of the acquisition of Talisman. The group's net financial debt at the end of the Q4 of 2015 amounted to €11,900,000,000 a decrease of more than €1,000,000,000 compared with the end of the Q3 of 2015. And as I explained before, under this macro environment is a real priority to preserve the cash flow balance of the company.
And this reduction in our net debt underlines Repsol's focus on maximizing cash from our operations and the protection of our balance sheet. The Board of Directors of Repsol approved yesterday to propose a dividend of €0.3 per share with scrip option, which represents a 40% reduction in the complementary dividend to be paid in June, July. And as you are probably aware, we met with the rating agencies some days ago and we showed them the plan and measures we have established to preserve our rating and investment rate. And let me underline that following our strict and prudent financial policy, we maintain a solid liquidity position above €9,000,000,000 which covers our short term maturities by more than 2 times. To conclude, I'd like to say that I'm satisfied with what Repsol has achieved in 2015.
Despite the challenges the industry is facing, we have been able to successfully integrate Talisman to generate adjusted results that are higher than in 2014 and to achieve cash neutrality below $40 Brent per barrel, thus reducing our debt by more than €1,000,000,000 in 2015. Thanks to the acquisition of Talisman based on a broader portfolio and with our unconventional resources, Repsol faces the current low price environment with enhanced flexibility to optimize capital allocation. And just as importantly, the ability to increase efficiency through the adoption of the best practices from both former companies, from both teams. Our new strategic plan lays out the well established and test grounds for our improved resilience and value delivery under any scenario. Thanks to the correct and right integration of our upstream and downstream businesses, the already delivering synergy and the efficiency program and of course the well advanced selective divestment package.
For 2016, we will firstly further optimize our CapEx, focusing only on the most valuable projects in our portfolio, because we want to protect our balance sheet. We are going to anticipate our efficiency targets under our objective of becoming leaner we will reduce this breakeven even more down to the $40 area. We will progress with our divestment program, but always with the principle of protecting the value of every asset of this company. Value and resilience are the 2 concepts to remember. Thank you very much and I will answer to any
Let's go into the Q and A session. We are having some problems with some technical problems with the conference call system, but we hope that we have them solved without major problems. In any case, if you run into technical problems for the connection, please address any incident to our email investorrelationsrepsol.com and we'll try to contact you immediately. Again, well, let's go. We have first Felipe Rocha from Haitong.
So Felipe, Cantelo de Ablartontigo, go ahead with your question.
Hi, good morning, everyone. So thank you for the presentation. Three questions for me, if I may. The first one relates to the dividend cut. So you the Board is going to propose a 40% dividend cut for the final part of the dividend for 2015.
My question is whether we should assume that this should be the new level $600,000,000 annualized that we should have, for instance, in 2016 2017? Or this will be managed on a case by case basis? That's my first question. My second question relates to your strong liquidity position and the fact that your hybrid bonds, they are trading at quite high yield. I know that probably this is not the best time, but historically you have compared the yield of your gas neutrality investment with the cost of debt.
Now you have quite expensive debt that you could rebuy we could buy again buyback selling your Gazotrao stake. Could you just elaborate a little bit on how you are seeing your cost of debt and whether you could have some further measures to optimize at that level? And also related with this, of course, you said the third question, okay? You are meeting with the rating agencies. Could you give us some idea on whether the announcements that you made so far in terms of CapEx cuts, OpEx savings, cutting the dividend, they will be enough to guarantee that you remain investment grade?
Or have you had to commit to any further measures that were not announced today to be able to avoid a downgrade to Jengk? Thank you very much.
Thank you, Felipe. I mean, I have announced a dividend cut of 40% only for the interim dividend to be paid in July 2016. The gross dividend in June, July to be paid will be €0.3 per share. We also maintain the scrip option. And let me say and let me elaborate a bit more.
I believe that the dividend policy of a company must be dynamic. And this dividend policy has to be approved and developed in accordance with both factors. First of all, the macro context we are living now. Secondly, the results of the company. And taking into account today these both factors, I mean the macro environment we are experiencing at the same time the results of the company I am presenting today, our Board took yesterday a prudent measure to adapt this July's dividend to this current circumstances.
But let me say, I mean, that is a decision taken for this interim dividend and the Board will analyze in the future case by case taking into account the macro environment and the situation of the company and the sector in the future. So these are the decision, one short decision taking for June, July dividend. Related to your second question, I have in mind that of course Angel could perhaps later to confirm this figure that the average cost of our current debt hybrid included is at around 3.5%, 3.6%. That is our current debt cost. So I mean, we are in a quite optimum situation.
And related with our meetings and our understanding about the credit rating agencies, yes, I could confirm that we have met the credit rating agencies recently last week, a part of them. And as you know, that is not new. I mean, we met them we meet them in a very recurrent quite often and in a fluent and transparent manner. I mean, we did the same thing last year after announcing the acquisition of Talisman. We met them again with the presentation of our strategic plan 2016, 2020.
And we discussed with them, I mean, what is Repsol? Repsol is a company that even in this tough crisis scenario is maintaining or even increasing its EBITDA, Repsol is able to maintain and even reduce our current debt level at current prices. We delivering all the M and A measures we have in our hands and we are overcoming every day this figure. And the battery of measures presented to the agencies should be enough to maintain the investment grade of this company. And I hope that you may understand that I'm not going to comment on the measures discussed, but please keep in mind that we have a track record of delivery in front of the credit rating agency.
We did that in let me remind you in a worse circumstance that that wasn't a circumstance for the whole sector. That was a single problem for Repsol after the confiscation of YPF. We have a track record of delivery. We are executing more than €3,000,000,000 either of divestment or CapEx reduction that are linked to M and A operation and we have developed this effort in 4 months. We have of course, overcome that objective we have of €1,000,000,000 agreed previously with the credit rating agencies.
I mean, we are going to go on delivering and I think that all that should be enough to maintain the investment grade. I know what we have to do, but let me say that I'm not going to deliver any additional specific measure. Thank you, Felipe.
[SPEAKER MARTIN PEREZ
DE SOLAY:]
Thank you very much. Thank you very much.
Mui Domingo, Felipe. Thank you very much for your questions Felipe. Now we're moving to Irene Himona. It's always very nice to speak with you from Societe Generale. Go ahead please, Irene.
Thank you, Angel. Good morning. I had two questions, please. Firstly, on Downstream, which was obviously the start of last year. Can you please talk about what is happening to margins so far this year, your outlook for 2016 on average?
And if you can perhaps guidance on the other components of downstream, marketing LPG, Chemicals and so on. So basically, what you anticipate in terms of 2016 Downstream EBITDA or earnings? And my second question, in the October asset disposal plan. Today, you adjusted asset disposal plan. Today, you adjusted the CapEx, OpEx and dividends, but you have made no reference to what asset disposals are still required to deliver the plan and protect the investment grade.
So I wonder if you can clarify, do you need more than the $6,000,000,000 And in a context in light of the $30 oil and your adjusted stress case, how is the Board thinking about the Gas Naturale holding? Thank you.
Thank you, Irene. I mean, related to our downstream businesses, I mean, it's going to be easier to talk about the past because I know the past, but I only could forecast the future. So that is a more difficult task. But let me say that from the 1st January to today, the refining margin we have captured in our system has been as average $7.3 per That is the delivery from 1st January to today. And I'm not going to hide you that I mean that we are out of the driving season that the winter has been quite mild not only in Europe till 2 weeks ago even in the American East Coast.
And that's the fact. The future I mean the future is more always more difficult to forecast, but going to the fundamentals, I mean demand is growing due to the current GDP growth in Europe and North America. And at the same time, at these low prices, demand is going to grow. Demand is growing. I mean, you could see the forecast of demand growth for this year could be 1,000,000, 1,200,000, 1,300,000 barrels per day.
At the same time, you know that due to this deep financial crisis in many companies, I mean, many companies have deferring new projects for the future. You also know that last year due to the high margins, I mean many European refiners deferred some shutdowns and so on to 2016. So going to the fundamentals, we are quite comfortable regarding the what could happen in 2016 related to our refining margins. But of course, as I said, that is a forecast, but I prefer to stop my position saying or looking at the facts, dollars 7.3 per barrel till today. Chemical, I mean, I'm quite convinced, I think, that we are going to repeat in 2016 a year quite similar in qualitative terms to 2015 year.
Why? First of all, because demand is growing in polymers and I mean cars and many products in Europe that are associated to the polymer consumption. We can forget the Spanish economy and I want to underline this fact today, has the one of the highest or perhaps the highest growth in Europe today and all that is going to have consequences of course in our industrial activities. At the same time at this all low prices, and I'm assuming in this $40 per barrel scenario that we are going to go on in this scenario over the year, The competition of the chemicals based in the American ethane, I mean, is over for our system. I mean, our competitive position is better.
And let me also say, and it could be a quite that we are in some way capturing the strong efficiency measures we put in place 2 years, 3 years ago in our petrochemical businesses. Marketing, I mean, I don't know, but taking into account the current growth in Spanish market and so on, I mean, I can't see clouds in our marketing business. And related to our you said the I mean, of course, the rest of our businesses, I mean, trading quite stable. OpEx, CapEx, you said that I delivered the figures, But disposals, I mean disposals, I want to stress the fact that we have been able to dispose almost €2,000,000,000 in 4 months. And you know that we had a commitment with our own strategic plan of disposing €3,100,000,000 in the 1st part of the period 2016, 2017.
So and before let me say starting the game, we have delivered 2 thirds of this objective. So I can't forget that I mean we have to fulfill all the commitments of our strategic plan, EUR 6,000,000,000 We have 4.5 years in front of us. That means that we have a basket of €40,000,000,000 €42,000,000 €43,000,000,000 in assets. And we have shown last time this morning our capability to crystallize hidden value from many businesses that let me say market is not in my opinion perhaps sufficiently taken into account. I mean we have outside our E and P business, I mean, many assets that are not related to the oil and prices, oil and gas prices and we could extract and capture this hidden value.
Thank you, Irene. Thank you. Abhis, it's Brie. I guess not but no, there was any kind of decision in our board related to this issue. And let me say, I mean, we are not putting any focus in any specific asset.
We have EUR 42,000,000,000 EUR 43,000,000,000 in assets. Don't forget that 25% of these assets are downstream assets. That given the E and P, we have been able we have shown over the last 4 months that we are able to deliver disposals in this tough scenario and that we could have a 30% of our upstream assets that are not directly related to the commodity prices either because they are they have a fixed price contracts or because they are PSC contracts and so on. So we have enough basket of assets to take this kind of decisions. And let me say that we are going to prioritize every time the protection of the value of this company.
Thank you very much, Irene. Well, moving on, Jason Kenney from Santander. How are you, Jason? Go ahead.
Yes. Thanks for the question. I've got to say that I'm just a little confused by how quickly messages change from Repsol. I noted in your opening commentary about adjusting and adapting and trying to be quick and dynamic with your strategy. But it was only in October that you presented a 5 year strategy plan update.
And it seems almost weekly you're changing the CapEx number for 2016. It was €4,000,000,000 on the trading statement to €3,900,000,000 for 2016 today. You put a 2017 number in play. We're only 4 or 5 months on since October. And I know this is good progress, but how realistic were those original targets in October?
And at the end of this year, will that $3,900,000,000 CapEx actually be $3,500,000,000 CapEx? And I think you need to have a stability in the message that you've given across to investors because remodeling Repsol is challenging at the best of times, but the message is a smacking of an inability to understand exactly what it is that you can really squeeze out of this business. And on the back of that, I think the dividend cut today also indicates some confusion in the cash management objectives. I don't really see on a post script basis, I don't really see the materiality of the cash saving from the dividend cut that you've announced on a one off interim basis. I could understand that if it was going to be a consistent cut going forward, but on a one off interim basis, the amount of cash being saved by that 40% cut in the second half interim payment is not that relevant compared to the big ticket items of disinvestment, divestments, asset sales, the CapEx savings and the synergy targets.
And I don't really understand where it all fits in. Maybe you can relate some of that together and give me a comment. And then secondly, I've just got a question on the press coverage of Repsol. How is it that we constantly get so many quotes from people that are apparently in quotes close to the Board on very key decisions and insights about strategy 2 days, 3 days ahead of big investor commentary like this. I mean, there must be some sort of controls within Repsol that's got to stop the kind of leakage discussion about things that these guys don't necessarily know a lot about.
And ultimately, for investors to have a consistent approach, only the messages from you and the management should be the ones that should be listened to. That's just my view.
Thank you, Jason. I mean, be sure that we try to be coherent even in these tough times. But remember, Jason, because I remember that when we had many one to ones with I mean many analysts and investors in October, when we deliver the figure of CapEx of 2016, the question of that everybody put on the table was, yes, but what is the flexibility you have for 2016 related to this CapEx? I'm sure that many of you remember that question. And my answer that those days was we could have a 20%, 25% of flexibility that is not going to be easy to be achieved, but we are going to try it.
And I presume that many people were quite skeptic and I could understand perhaps my position will be quite similar being on the other side of the table. After understatement like that, that someone after reducing a 30% 38%, I think I remember the figure. The CapEx from 2015 to 2016 was announcing that they could have an additional 20%, 25% flexibility to cut our CapEx. That is the proof we had that flexibility, Jason, and we have been able over the last 4 months to deliver this figure. How?
I mean, I could put many examples on the table. The Alaska operation was Hawaii to defer CapEx commitments and CapEx in 2016. The Eagle Ford Goodrum swap goes away to reduce the CapEx reduction for 2016. The IME operation was another way to reduce this CapEx. I mean to work every day with our people in North America, in Marcellus and in the Great Teton mainly trying to optimize in cash flow terms the CapEx we are consuming at the same time maintaining the production that are not going to be key in this price scenario is another way.
Increasing our efficiencies in CapEx that in $260,000,000 $280,000,000 is another way. And let me say, I'm giving you a guideline, but from this afternoon on with Luis Cabrera, our Managing Director of upstream, I'm going to go on trying to reduce the CapEx figure. Now I'm giving you as a guideline for this year. And let me say, we are not going to affect the 700,000 barrels per day of production as average this year, we are not going to affect the production for coming 2, 3 years of the company. We are going to maintain the objectives of production we have for the whole strategic plan.
And I'm going to be very clear, transparent and frank. We are going to reduce more or less the reserves replacement ratio this year in a 9% or 10% due to this CapEx deferral, sorry. But I mean in this oil and gas price scenario, my duty is to preserve the value of the company. And I think that this reduction of 9, 8, 10 points in the reserves replacement ratio mainly when as you could see, we had an organic replacement of €159,000,000 last year. And taking in organic terms €500,000,000 was I mean, a good figure.
So that is the real reason of this coherency, Jason, in delivering our strategic plan. We are maintaining the same main targets, but our duty because the scenario is different, I mean, we are at $50 per barrel. So I can't maintain, I can't put on the table the same kind of measures we had when we were at $50 per barrel scenario. And that was the average in 2015. I mean, now I like to be tougher and that is my duty to adapt maintaining the main objectives and targets, but adapting the measures I have to decide I have to take.
The dividend, I mean, it's true when you say that that is not a big saving, I mean, to reduce to €0.3 per share the complementary dividend for July. I mean, it's true if you take the script basis acceptance and you calculate the figure, I mean, it's not a big figure. But let me say, it's a signal. It's a signal that our board is concerned because the macro scenario and we are adapting the measures we are taking to the situation we are living. And I think that that is also consistency.
Consistency is to be able to weather a company in tough times, maintaining the main access, but at the same time taking different decisions. I mean, I respect a lot the work of the media. And perhaps sometimes the media has to, I mean, to analyze and to speculate about some kind of things. But there is no quote coming from Repsol in any of this information you were saying. So that is not a leakage and they are not information coming from Repsol.
Are in the free in a society that respect the free opinion and the free speech are analysis that free media deliver.
I mean, I hear your points and I take on board the positive progress of being more adaptive and more tough, as you say. But on Slide 11, you still only got the €10,000,000,000 of cash for dividend and debt. You've not changed that number. And yet you feel free to change the makeup of your cash management?
Repeat you, Christian.
I take your points and I realize that you want to be tough and I appreciate that you have to be tough in this kind of environment. And I think it is positive that you're being tough. But if you want to compare yourself to other oil companies with reasonably stable strategic objectives, but also want to be adaptive, then you should be adapting all of your metrics. And on that Slide 11, you still only got €10,000,000,000 of cash for dividend and debt, which is, in my view, mainly backloaded. You've not changed the investment number in that makeup there.
And I think there's just a disconnect between some of the things that you want to do versus the things that you are doing and the objectives are still out there from last October. And that can confuse the investment case in many ways, I think.
Thank you, Jason. But, I mean, you are right. We are maintaining our main priority. That is that after paying the dividend of Repsol, reducing our debt. And this figure is representing what you are saying.
And to achieve and to deliver this figure, we are going to increase the efficiencies, the OpEx reduction, the CapEx reduction we have in our hands and we are going to be active trying to capture value from our M and A operation. Thank you, Jason.
Thank you, Jason. Now we're moving on in our Q and A session. Now we have Nomura Matt Lofting. Good to speak with you again today, we met. Let's go ahead.
Thanks, Angel. Two questions, if I could. Firstly, just coming back to the dividend. Obviously, the cash saving from lowering the headline payment for the second half of twenty fifteen is small. Can I just ask, is a dividend reduction something that the credit agencies pushed for when you met with them recently?
Or is it something that's been led by the Board decision? Also, do you expect any or forecast any impact on the scrip take up from lowering the headline dividend? What script percentage are you now assuming? And I'm just wondering from a policy perspective, the industry has tended to emphasize the importance of dividend stability through the cycle and the message today is now more around adopting a dynamic approach. Do you think that's reflective of something that Repsol and the industry needs to move towards on a medium term basis, not just for the short term?
Secondly, just on CapEx, can I ask, you referred to the lower reserve replacement opportunity as a function of reducing CapEx and exploration spend? What is the production implications for a medium term perspective? Is the range that you gave in October still valid? Or do you now see production for 2016, 2017 lower than that range? Thank you.
Thank you, Matt. I mean, I'm going to be very clear. The decision of our board is a free decision of our board, not related and nothing to do with any kind of commitment with the rating agencies. I mean, stability is very important, Matt, and I agree with that. And we try, I mean, to change things in a quite smooth way.
But we can't close our eyes seeing what is happening in the macro environment in the sector. And protecting the balance sheet of this company is always to be an issue a target for Repsol. So our Board took this decision related and focus on the dividend that is going to be paid in July 2016. And I'm sure that our board will take the right decisions in the future. But be sure that the decisions are always to be in some way influenced by the macro environment we are living and also the results of the company.
So the dynamic approach, you are right, but I mean, let me in some way put this dynamism in the framework of something more stable, I mean, smoother changes that we are maintaining over the last year. What are the production implications you said of this CapEx reduction? 0. I mean 0 in next 2, 3, 4 years because we are always talking about projects that we're not going to see the 1st oil, either 1st oil or 1st gas before 2020. So now it's 0.
At the same time, you know that we have the ramp up coming from former projects. I remind you that in March, we are going to achieve the plateau in Sapignoa. At the end of this year, we are going to achieve the to see the 1st oil in LAPA, in Brazil. We are also increasing some productions in Malaysia. We have increased our production in Norway, thanks to the Goodrum swap, Cardon and the ramp up is also there and so on.
So I presume that the total production this year is going to be in an average of 700,000 barrels per day. And the impact in the period of strategic plan of these measures is going to be almost 0. And when you said the range in October, it's still valid or lower, I mean, we are working in this scenario of having at the end of the period in the absence of disposals in our E and P, I mean, our production that could be perhaps closer to 8 $150,000 $90,000 per barrel at the end of the period than 700,000 barrels per day. But you remember the reflection we reflected in our strategic plan related to the disposals and M and A more active position managing our portfolio in the upstream, but it's true that now is not the best time to be, I mean, quite active in these disposals. Thank you, Matt.
That was Matt Loftin from Nomura. And now we're moving on. Haifem Rashid from Morgan Stanley. Hi, Haitham. Good to speak with you as always.
Please, your questions.
Thank you, Angel. Thank you, Jose Jean. Good afternoon to you all. Two questions from my side, please. Firstly, just on La Pampaia and just thinking about your comments earlier about these kind of transactions where you kind of reduce exposure to CapEx and also monetize assets.
It seems at this kind of point in the cycle where downstream assets are probably a lot more coveted than others at the moment given the CapEx commitments you have around the upgrade. Is it something that you have looked at and just haven't found buyers for? Or actually, is this something you would rather not sell and you see it as more core than that, just in terms of as an additional disposal candidate? And the second question I have was just regards to time frame of delivery when you talked about earlier your conversations with the credit rating agencies. I would be really helpful just to understand the sense you're getting in terms of how what sort of time frame we're talking about.
I remember at the time of the closing of the Talisman deal, I remember sort of a comment about sort of 18 months to deliver some of the debt reduction measures that had been discussed before, such as the hybrid and others. But considering where we are now and if that is still the timeframe we're talking about, then we're talking sort of 6, 9 months, etcetera. I mean, is that something that is still the case? Or do you feel you into 2017 to be able to deliver some of these things given that these disposals might take a bit longer? Thank you.
[SPEAKER RAMON ALVAREZ PEDROSA:] Thank you, Ivan. First of all, related to La Pampia, I mean, I'm not going to put, of course, any name to any asset, as I said before. But our commitment with La Pampaia is this year by July more or less to fulfill the middle distillate hydrodisulfuration project to adapt ourselves to the new regulation in Peru. At the same time, of course, we are also revisiting every downstream business and every downstream assets also in terms of efficiency. I mean, we are now making a lot of money in our downstream businesses, but it's always time to try to be more efficient.
And as you could see in our strategic plan, we are going to reduce our cost in our downstream businesses in a figure above €200,000,000 this year 2016, thanks to the addition of all these efficiency measures. Related to the agencies, I mean, let me say that we have an open dialogue with them. I mean, the dialogue with them is open. Of course, we are going to wait their analysis and the battery of measures that we discussed with them, I think that should be enough to maintain the investment grade of the company. Thank you.
Thanks.
Thank you, guys. Thank you for your questions. Now let's move to Flora Trinidad from BPI. Hello, Flora, go ahead please.
Yes. Hello. Good afternoon. Very quickly, just trying to explore a bit on the rating agencies that I know that you have been answering several questions on this. But just wondering if you could share with us if there are any measures that you complete that you completely discard at this stage.
So that wouldn't be in your mindset because the price in Spain has been advancing several scenarios, including the sale of the whole stake in Ghaznat, including a potential capital increase. So is there anything that you believe is completely out of reach for now with the data that you have? And then secondly, just trying to see if you could give us a sense of what could be the level of free cash flow you expect this year considering the current oil price scenario and the adjustments you have given in terms of CapEx and efficiencies with and without the divestments you have in the meantime announced? Thank you.
Thank you, Flora. I mean, let me underline again related to the rating agencies. I mean, we have EUR 43,000,000,000 of assets in our hands. To play, to increase the value for the company and we are not going to deliver any specific measure. I mean, I know what I have to do, but my duty is to stay here, of course, and not to follow giving any kind of more information related to the assets of the company.
2016, I mean, our aim, our target this year is to reduce the debt level of the company even at this oil prices. And as you know, we are taking a deck for the year of $40 per barrel Brent and 2.6 dollars per million of BTUs in Henry Hub price. Even in this scenario, our target is to reduce in a quite
Sorry, just a follow-up because I believe that the debt reduction has a relevant contribution from divestments.
[SPEAKER CARLOS ALVAREZ DE SOTO:] I mean, let me stress the fact that to reduce our debt this year, the first way we have is the free cash flow generated by our businesses even in this tough scenario With a complement coming from the CapEx reduction, I expressed before and the efficiency measures that let me say are we are increasing these measures every day and it's not wishful thinking. I have a commitment with you. And the commitment is that every quarter, I'm going to deliver to the market. So to you, what is the fulfillment level of the efficiency measures in OpEx, in a corporate level, in OpEx for our E and P business and the OpEx of our downstream businesses. And I'm going to do that the day I will present the results of the first quarter of the year.
So free cash flow is the main way and the main tool to reduce the debt level this year. And I can't forget that you can't forget that we have some other additional measures or tools. The first one is the cash in that is going to come from the pipe LPG that as you know, those operations were closed in 2015, but they are going to be in our pocket, in our P and L in 2016. And secondly, I mean, we are going to go on trying to extract and capture value for the company through our M and A. We have a basket of assets that are hidden in some way and yesterday closing the disposal of wind farms in the North Sea.
Thank you.
Thank you, Flora. Now we're moving to Hamish Clegg from Bank of America Merrill Lynch. Hi, Hamish. Go ahead with your question.
Hi, thanks very much. Hi, Hamish. Hi, there. Congratulations on the salary maybe hear what some of your sort of assumptions on volumes are beyond 2020. Could you maybe comment on your assumptions on declines in the existing asset base?
Second thing relating to the same sort of thing really, CapEx, could you give us a split between downstream? It'd be quite useful to know. And then moving on to your synergies. You mentioned having done half your synergies in 2015. Can you explain if I heard this right?
You said that you took a €240,000,000 capital gain from the refinancing of Talisman debt. That's obviously not recurring. Or do you expect to make a similar sort of gain every year? And should we think of these as totally recurring? And then just finally, I know you're sick of hearing about the agencies, but could you tell us a little bit about the sort of options you have?
So number 1, just confirm that you are committed to investment grade. Secondly, there's a lot of talk about Gas Naturale, but could you confirm that actually you get a 1 notch modifier for owning Gas Naturale anyway and therefore it wouldn't make sense to sell it because it does contribute very, very stable cash flow? And finally, why would you not do an exchangeable bond ahead of selling a brilliant asset like Gas Natural?
[SPEAKER CARLOS GOMES DA SILVA:] Thank you, Hamish.
First of all,
let me say that when we present the strategic plan, I have a hidden slide that Angel told me that I mean it was better hidden because in some way it could be interpreted as a guideline for coming years. But with the continued resources we have, we could maintain this production level extrapolating till 2025 with no more new projects in our hands, only with the continued resources we have now in our hands. And we are going to be able to reverse the decline from now to the 2025 year. And let me say and let me stress the fact that when we bought Talisman, we were buying 2P reserves at $10 per barrel price and that is a fantastic base for the future development of the company. CapEx, upstream versus downstream more or less I have the figures in mind.
You could perhaps check this figure with Angel, but we are talking about €2,900,000,000 in CapEx in the upstream, €8 50,000,000 €900,000,000 in downstream, and stop 30,000,000 €40,000,000 in the corporate level, I mean nothing relevant. So in the downstream business, as you know, we are putting all our effort in 2 kind of projects. 1st of all, guaranteeing the reliability and the correct and right maintenance of our plants. And secondly, all the efficiency programs we are boosting in our industrial plants. And on top of that, of course, we can forget the hydroelectric operation project in Pampaia, as I mentioned before.
I mean, synergies, talisman bonds, I mean, there is not any the only recovering impact is the money we are saving and in financial cost, I mean, €60,000,000 per year that is the cost we are saving because we have now a lower financial cost. And of course this figure €60,000,000 per year is the figure that is included as synergy. Of course, there are some other one shot non recurring impact, not recurring at all. And you know that we have a one off, it was non recurrent in the last quarter. I mean, in the last quarter of the year that was I mean, the capital gain because the cost we were paying for this bond and the cost of this the price in the books.
And this figure was at around $240,000,000 but that is a non recurring cost. The only recurring cost we are putting our P and L is the savings. Of course, we are in our interest rates that could account at around €60,000,000 per year. I mean, regarding the credit rating agencies, let me repeat that taking into account the EBITDA improvement in the company, the cash flow generation, the debt reduction, even in this scenario, the delivery in our M and A operation and the battery of measures we could put on the table anytime, we think that we should that should be enough to maintain the investment grade. Thank you, Hamish.
Thank you very much, Hamish. Now Lydia Rainforth from Barclays. Good to speak with you again. Hope you are having a nice day. Go ahead with your question.
Thanks, Michael. It's always nice talking to you. I'm going to ask 3 questions, if I could. Firstly, coming back to the rating agencies and the credit side. I know I understand what you're saying about protecting the balance sheet as priority.
But in the worst case scenario where it does get downgraded, what actually happens in that case? And what is the financial impact that you're actually facing at that point? The second one is actually just a clarifying question around cash operating costs. So Total was saying last week that they were cash positive above or above $10 a barrel. I was wondering if you can give us a comparable figure for that one.
And then the third one, just to take it away from the credit metrics, was coming back to the refining in the downstream side, so it does seem to be a longer term shift away from diesel and towards gasoline. And I'm just wondering in terms of we spend a lot of time thinking about the future of the upstream, but around that future of the downstream business within Spain, how you look at again moving back towards those sort of more gasoline based model within that? Thank you.
[SPEAKER CARLOS ALBERTO PEREZ DE SOLAY:] Thank you. First of all, Lydia, thank you for your questions. I mean, related to the rating agencies, you are going to allow me, I'm sure, I mean, not to discuss this hypothesis, because I'm convinced that taking into account our current scenario plus the battery of measures we have on the table, we are going to be able to maintain the investment grade. Anyway, I can't forget and I'm going to link of course with your concerns or your questions that we have now in our hands Miguel €9,000,000,000 9.5 €1,000,000,000 of liquidity and that could be 2.3 times the cash we need to cover the whole maturities of the company. I mean, we could achieve the year 2020 with no cash needs.
Anyway, that is not going to be the case. Cash operating cost, I presume Lydia that we were talking about the upstream. I mean in 2014, we had an operating cost and OpEx cost per barrel of $21.5 per barrel. We reduced this figure to $18.7 per barrel in 2015. I mean, it's an important decrease mainly due the OpEx cuts plus the production growth.
And our guideline, our target for this year 2016 is to reduce a 16% further our OpEx per barrel to $15.7 per barrel. That means it's a huge effort. We are reducing from $21.5 in 2014 to $15.7 per barrel in 2016. And let me say, these figures are in any case affected by the high cost of our North Sea operations that I'm not going to hide this fact. And without these figures, we could be at around $12,000,000 $12.5 per barrel.
But I mean the reality, the average, the target for our upstream business for the year is $15.7 per barrel. Future of downstream, I mean, let me say, we are in a strong importer diesel market. And at the same time, we are exporting gasoline every day. I mean, a third, 35%, 40% depending on the seasons of our gasoline are exported mainly to North America and Latin America, but mainly North America. I mean, any shift in from diesel to gasoline that could happen, I mean, I presume that in a moderate way, because we can't forget that the inertia of the market is very high.
We will be able, I mean, to maintain our position as diesel producer in a strong diesel importer market. And let me underline that the figure of the imports in Europe could be at around 50,000,000 tons of diesel per year. And at the same time we could reduce our gasoline exports to North America and that will be good news. Anyway, we have our flexibility in our operations without any investment that is higher, that is higher that the shift I suppose could have the market. I mean we could change a 5% of our full operation increasing our naphtha gasoline production that could be at around 19% of our refineries to a 23% and we are doing that for instance in January trying to capture the higher spreads in gasoline without any investment.
I mean we have flexible refineries. Thank you, Lydia.
That's really helpful. Thank you.
Thank you very much, Lydia. Moving to Biraj Pojalitadia from RBC Canada. Go ahead, Biraj. Go ahead with your questions.
Hi, thanks for taking my question. I just had one. Going back to the dividend, and you touched on it a couple of times, but I just wanted to clarify. In terms of modeling this going forward and looking at 2016, 2017, what we've seen from some other cyclical subsectors is they're moving from a progressive dividend to a payout ratio. Could you confirm whether this is something you are considering?
Thanks.
I'm sorry, but I'm not going to deliver any model for next year. I mean, let me remind and stress that our board yesterday take the decision of reducing 40% interim dividend to be paid in July, so to €0.3 per share. And that was decided because the current price scenario and so on. So be sure that I suppose that our board will be able to take the right decision depending on the circumstances next year.
Thank you, Birrah. Thank you for your question. Moving to Brendan Warren of Bank of Montreal BMO Capital.
So it's Brendan Warne from BMO Capital Markets. I guess I'm going to circle back around on a few of the a number of the questions already. Just firstly on flexibility, could you just perhaps quantify even just even for second half twenty sixteen then into 2017, just your capital or CapEx flexibility? And you can just talk, say, percent of committed CapEx. For example, Total have sort of 60% committed CapEx for that's into 2017.
So can you just give us some a better understanding of the flexibility around CapEx? Just secondly, I guess, following up on Hamish's question on could you talk through like you must have a plan B if the rating agencies cut you to junk. Just what reactions you can take in the short run to appease? Or what is your plan if you go to junk and just what it actually means? And then just a third question, I guess since what's it been about 10 months since you've had the full assets of Talisman under your belt now and you spent about $8,800,000,000 last year on those assets.
Can you just give us some insights on what you see in terms of your return on that investment and under the current scenario or under your current stress scenario, please?
Thank you, Brandon. I mean, I said to you to the market in October that I had at that time, I supposed at that time that we could have a flexibility of 20%, 25% in our CapEx. So we are today in some way confirming and delivering what could be at that time only an expectation. I mean, I have to realize that today it could be some way more difficult. I mean, we could I'm sure that we could have some additional flexibility coming mainly if we stay in this low oil prices scenario, let me say of $30 per barrel, I presume that the deflation of cost could be higher that we are forecasting now in our company in the sector, sorry.
Perhaps if we go on and we stay at $30 per barrel in 6, 7, 8 months, perhaps we could have some FID decisions that we could take or perhaps to defer. That could be an option. Today, we are thinking about the possibility to take, because it's a way to create value for the company in coming years. But let me say, if we are in a $30 per barrel scenario in 1 year from on, perhaps we could change our mind. And we have the whole company involved in a bottom up analysis, analyzing every single contract, every single cost, every single supplier, every the whole supply chain trying to analyze if we need every step we have in this chain.
So there is room for that, yes, but I have to realize that the flexibility is going to be lower we had in October related to the CapEx we are committed now. Then the second question was related to plan B. I mean, I said before that my perception is that all the current situation plus the measure presented has to be enough to maintain the investment grade. Anyway, I mean, my duty is not to put my shoulders in this kind of hypothesis, but to manage a company with responsibility and we have a position of over above €9,000,000,000 of liquidity at the end of the year. And over the last 3 weeks, we have increased this position with €2,000,000,000 from banking loans.
So today, our liquidity position is even higher that we deliver at the end of the year. Thank you.
Can I just have one follow-up question? Just obviously, you didn't have a
Excuse me, I want to I have not I note here the question about Talisman. Thank you. I mean under current scenario, first of all, I said before, we bought Talisman at $10 per barrel in our 2P reserves account. Secondly, that is an investment for 20, 25 years. Mean, it's not an investment for raw material.
Thirdly, it's clear that at this price deck we have now many of the assets of Talisman they have a lower value they had 6 months ago because we have to adapt the real value of these assets to the current price deck. Fourthly, of course, due to this adaptation of the value, let me say more or less a half of the impairment we took a 40% in the last quarter comes from the Talisman assets. I mean from almost all of them because I mean if we value these assets in May at a former price deck, I mean if we take every asset a new price deck the value is going to be reduced almost in every asset. But at the same time I want only to stress 2 facts. 1st, we are increasing the synergies identified are captured in Talisman.
So we are adding value to the value we saw in these assets. And that goes the first fact. And the second fact is that in technical terms, I mean, of course, you could have some assets that could be, I mean, a bit worse than expected and some orders that are better than expected. But if we take the whole basket of Stadismant assets today, the perception of our E and P business is that the average of this basket is better than we expected in May. Thank you.
Thank you very much. Now we're moving on to Alastair Syme from Citi.
A couple of quick questions. When you made the Talisman acquisition under the purchase price accounting, you signed a decommissioning liability. I just wonder, given the impairments you've taken, whether you've made any changes in that decommissioning assumption given the low oil prices? And secondly, can you just talk about the investment decisions you're making, particularly thinking about Red Emperor and Acacias in Colombia? Can you talk about what sort of oil prices you require to meet hurdle rates on those investments?
Thank you. I mean, there is no at the moment and with the information I have now in my hands no relevant change related to the commissioning liabilities in the North Sea. They are quite relevant operational OpEx cuts, CapEx cuts and we are reversing at the same time the decline in oil production increasing the oil production in 2015. Related to Red Emperor and Akacias, I mean, at the current price deck we have in our hands for coming years, we think that Red Emperor and Acacias are going to create value for this company. Anyway, if in some months from now on, we are in a different situation, we will have and we will take the right decision for the company taking into account that the objective has to be always to create value for Repsol.
Even if we have to reduce our CapEx level in a different circumstance. Thank you.
So can I just clarify on the price tag? Is that the base case price tag you present through the stress scenario?
Yes. I mean, when we are taking the let me say, I think I have more or less my the figures in my mind. So perhaps you could check these figures with Angel later. But I think that Red Emperor at $40 per barrel could be a profitable project. Nakatiya's $50 per barrel more or less could be profitable.
So but let me say, I have to see this project that could have the first oil in 2017 or 2018 in a quite broad perspective. I mean, I can't see only prices in 2016 to take this kind of decisions because in that case, my risk I mean, I have the risk of having the or taking the wrong decisions. Our wrong decisions could be avoid any kind of concern about the current oil price we are leaving today. But at the same time, I have also to maintain some kind of light on the over the future of the oil prices. So I think that 2 projects that could be profitable at 40 dollars or even $50 per barrel, I mean, we have to consider them and take the right decision.
Thank you.
Thank you.
Thank you very much. That was Alastair Syme from Citibank. And now John Rigby from UBS. Good to speak with you again. Go ahead, John.
Thank you, Angel. Two questions. Can you first help me disaggregate a little bit the impairment charges that you've taken, give some color on where you've taken them? And also, talk a little bit about the assumptions that you've made, that drove those impairments? And maybe as an aside, I noticed that actually your goodwill, which was generated from the Talisman transaction hasn't fallen very much.
In fact, it's high than it was in the Q1. So any comments you can make about the accounting structure of those impairment charges would be interesting. And then just second question, just for one final point of clarification, I hope, is in your stress scenario or something like that, is a disposal or a sale of Gas Natural credit positive or credit negative do you think? Thanks.
Thank you, John. Well, first of all, I'm sad, but I think that I'm not going to be able to give you many light regarding the disclose of the impairments. I could say that 60%, 55%, 60% comes from assets from the legacy Repsol. And we are here including some bonus and exploration assets that they were of course positive but at current prices at current price deck, I mean, we could have a strong doubt about the commerciality of these exploration assets. So we prefer to be realistic to impair them.
And 40%, 40%, 45%, I think that is close-up to 45% the figure I have in mind comes from a very broad bucket of Talisman assets. The goodwill, I think that the goodwill is at around $2,800,000,000 figure a bit lower than the figure we had when we delivered the previous I mean the acquisition in May that I think that at the time was at around $3,000,000,000 And in accounting terms, I mean, we have to support this goodwill delivering the synergies coming from the acquisition of Taliman. I mean, we are not able to the synergies. In that case, we'll have to impair this goodwill. But let me say that taking into account the previous figures we have either from synergies and goodwill and the current figures we have in both of them, I mean, are growing synergy and decreasing goodwill.
I suppose that is not going to be the case. And I mean the stress scenario, John, be sure we are going to put all our assets in the basket EUR 42,000,000,000 EUR 43,000,000,000 in assets and we are going to take if we need to dispose something to put on the table the asset that could be more valuable for Repsol in terms of value creation? Thank you.
That was John Rigby from UBS. Now let's move to TPA to Dorpickerin Holt. I need some idea. Go ahead.
Good afternoon. Couple of questions for me. Just given the CapEx cuts that we've seen, just wondering how do you see your North American production trending over the next few years, given you've got quite high decline assets onshore and offshore with Shenzi? And then the second one was just questions around your cash flow. You generated about €4,000,000,000 of cash flow in the Downstream in 2015.
I think there was some contribution from working capital benefits within that. In your base case scenario for 2016, what would you say the cash flow generation will be from the downstream? And how low could that get in a stress case scenario? And then finally on the cash flow, just wanted to get an idea of how you see your upstream cash flow trending over the next few years if you assume a flat oil price scenario? So just really trying to get an idea of how your cash margins evolve in the upstream over the next few years if you take commodity prices out of the equation?
Thank you.
[SPEAKER CARLOS ALBERTO PEREIRA DE OLIVEIRA:] Thank you, Anish. I mean, CapEx is true. I mean, but if we look at our North American assets, I mean, today after reducing our CapEx in Marcellus for instance where we are only operating with 1 rig now, we are maintaining a quite flat gas production operation of around 400, 500, 500 better said 1,000,000 of cubic meters per day. I see at this CapEx levels this production stable in coming 2 years. Same thing in the Greater Epsilon in Canada, perhaps we could have a reduction of 3% or something like that over these 2 years, it will maintain the current CapEx because our aim is not to maintain the production, but to optimize the free cash flow after CapEx in the operation.
In Eagle Ford, I mean, we have had a reduction because the disposal of 12% of Eagle Ford in the swap with EZATOL. But let me say that there is plenty of room in Eagle Ford to reduce cost because the new joint operation that is going to be developed between now with our partner, Estar Tolle. And I mean, I think that Duvernay could be a small growth, but let me say that at this price scenarios we are going to be prudent and we are going mainly to try to derisk the area and to maintain the land. So I see a flat production in North America in coming 2 years. In 2016, the free cash flow for our downstream business could be at around €3,000,000,000 more or less.
And I presume that the in the upstream business, the free cash flow is going to be negative €40 per barrel in €1,000,000,000 or a bit more perhaps, well, but around €1,000,000,000 That is my forecast for this stress scenario in 2016. And how about the cash flow upstream trending over next years? I mean, we are making a big effort as you know to reduce the free cash flow coming from our upstream business. And let me say since we presented our strategic plan in October, I think that we have reduced our free cash flow for our upstream business till a figure close to $80 per barrel to $65 $64 per barrel for our single upstream business. That means that we are delivering a capacity to reduce the cost and the OpEx and the CapEx of this business and we are going to go further in this effort.
But it's clear that €40 per barrel is negative. And for that reason, the cash flow is going to be negative €1,000,000,000 this year in 2016 in our upstream business. Thank you.
Okay. Thank you very much, Anish. Now let's move to Jefferies, Mark Koffler. Mark, how are you today? Please, what are your questions?
Thanks very much for taking my questions. There's just really a couple to circle back on, mainly clarifications, I guess. I appreciate the comments around net debt coming down. Apologies if I missed this, but did you talk about net debt EBITDA and the multiple there? I remember when you're now Talisman that was quite a critical consideration.
And I suppose what I'm really thinking is have you now put in place enough in terms of the planned divestment that net debt to EBITDA multiple may now be peaking and coming down from current levels? And then secondly, the question around the convertible bonds and gas net, again, I think I might have missed this. Is that something that you would consider? Thanks very much.
Thank you, Mark. I mean, if we take the figures at the end of 2015, our net debt is €11,900,000,000 and you could add because in accounting terms, it's not a debt, it will be €12,900,000,000 But I mean, in accounting terms, it's €11,900,000,000 That is a figure that if we take our EBITDA CCS at around €5,000,000,000 at the end of the year, it could be at around 2.4 times the EBITDA. But we have to take into account that we have taken the whole debt coming from the acquisition of Talisman, we are not taking these figures, the EBITDA of the 1st 5 months of the year from the former Talisman. I mean, we are going to capture also this EBITDAs over this year 2016. So if we are able to go on in this path of increasing the EBITDA of the company And at the same time, we are able to deliver this debt reduction we target for 2016 this year that changes both figures we are going to be able to reduce in a clear way this figure I said before.
Thank you. And I mean as I said before, we have we have considered and we have analyzed a battery of measures and a lot of measures are included. And we'll take in our opinion the right decisions and of course without announcing them before as we did this morning with the wind offshore project. Thank you.
Well, that was Mark Hoefer. Now we're moving to some to our 1st fixed income analyst to come in today on to the conference call. Shanshri Banerjee from Barclays.
So I won't ask about the rating agencies. I think we've covered that quite a few times over the call. In terms of hybrid issuance, do you still intend to issue $3,000,000,000 of hybrids given sort of current market conditions? And what are your thoughts on the hybrids you have issued, but don't receive equity credit from S and P? And then secondly, are you able to give an indicative pro form a number for talisman including the 5 months of the year not included as an EBITDA?
Thanks.
Thank you. Thank you, Escribio. I mean, it's clear and clearly speaking. I mean, today, the market is not open to hybrid issuance that is clear. But anyway, we are going to go on tracking the market.
And if over the year, we have an opportunity to issue a new hybrid at reasonable cost, we'll do it. But anyway, I mean, we could achieve the same effect in metrics, thanks to some other kind of measures like CapEx reduction as I said before or additional disposals. The EBITDA of Talisman, the additional EBITDA of the 1st 5 months that I mean in not a very orthodox way, I could include in the EBITDA figures at the end of 2015 in terms of calculating the debt, EBITDA ratio will be at around €400,000,000 €500,000,000 €100,000,000 per month more or less at current prices.
Great. Thank you very much. And just in terms of
Sorry, I forgot it a part of the hybrid. Yes, we are going to receive the equity credit from Standard and Poor's. Thank you.
Thank you.
Related to the hybrid, these ones, I mean.
Yes. Thank you.
Okay. Now moving to Burstein Oswald. How are you? Oswald Clint from Burstein. Go ahead with your question.
Thank you very much. Yes, if I think about the Talisman, the negative 200,000,000 euros contribution last year, and I think about the Statoil joint venture, the operatorship of Statoil, the reduction in Marcellus costs, the kind of OpEx reduction in North America, but also your reduction in your gas price and oil price, does that number materially change as we think about 2016? Net net, is it going to be the same or should it worsen under the scenario you're kind of talking about today? And then secondly, just quickly, maybe just an update on Libya, the status of your operations there and if anything is included in 2016 or 2017 from that country? Thank you.
Thank you. I mean, let me say that I think that perhaps today is the last day I'm going to talk about Talisman assets because from now on, I mean, there are no legacy Repsol assets or legacy Talisman assets. I mean, every people from this team and I'm looking at the table where I am now and I only see people from Repsol. And some of them comes from Talisman and some of them comes from the legacy Repsol. But from now on, everything, every person, every people, every asset is from Repsol.
So we are not going to give any guidance about what is going to happen with former Talisman assets in 2016. We will have the E and P assets of the company. Related to Libya, I mean, I prefer to be very prudent. I mean, any relevant income from Libya is included in our figures and guidances for 2016. The situation in Libya is very complex.
I mean, it could be complex for Repsol, but it's not only complex for Repsol. I think that Libya is in geopolitical terms a problem for the whole Europe. I mean the risk to have a failed state in our borders and to have a next opposition for terrorist group is a high risk for the whole Europe. So I think that is urgent to come to a political solution in the country. And Europe and the international community must take responsibility in that matter.
Of course, for security reasons, we are not operating there now because our first duty is to protect our own people. But I think that I mean, the political solution for the country, I mean, could be on the track. And let me say, the day after, I think that the main priority is going to be the reconstruction, rebuilding Libya. And Libya will need the oil sector to work properly in order to be able to have revenues to recover the country. And for that reason, we are fully prepared to restart our operation in a very, very short term in 48 hours.
Today, we will be able to take or to retake the operations that in technical terms are well maintained. But unfortunately, that is not the case today. Thank you.
Well, Oswald, it's been a pleasure like I was to speak with you. Moving again to fixed income analyst from Bank of America Merrill Lynch, Emmanuel Usu.
I've got 4. Know you mentioned that you weren't planning to do hybrid bonds, but have you considered doing a mandatory convertible into Repsol shares, which is effectively a delayed capital increase? Secondly, you mentioned that you've raised 2,000,000,000 dollars in bank loans. Are these subject to covenants? Thirdly, there was some press reports about Repsol perhaps using concerning lines of banks to finance its payables, which is shown in the other payables line in your bank sorry, in your balance sheet as opposed to international debt.
Can you confirm whether that's the case or not? And 4th and finally, the rating, I know you've discussed this several times. Is the expectation that in a month's time when S and P and Moody's conclude their reviews that you'll be rated investment grade by both of those agencies. So is that what they've communicated to you? Or is that Repsol's own view?
And just an add on is where do you expect your FFO to debt ratio to be at the end of this year? Thanks.
Thank you. I mean, related to your first question, I said before, we are going to put our focus on all the alternatives we have for disposing our current assets. And we are going to have looking at these assets the best decision we are going to have or we could have every time. So that is the decision level we have in this moment. Any covenant to the bank loan, so there is no covenant or these bank loans are not subject to covenant.
Related to the credit rating agencies, of course, what I'm saying here, I'm telling you is our own perception, but it's a plan to give their opinion. And you perfectly know that the relevant opinion is going to be the opinion coming from the agencies. Anyway, I think that the current situation and the battery of measures we have in our hands should be enough in my opinion to maintain the investment grade. And that's my view. Thank you.
Thank you. Thank you, Emmanuel. And now continuing with fixed income, Rodolphe Randouille from RBS. Go ahead with your question.
Yes. I mean, I'm not going to thanks for taking my question. I'm not going to beat again the question on ratings and so on. I mean, we all know this is basically in the hands of the agencies. But my point is, if you get downgraded to non investment grade and plenty of companies live in the high double bay segment of the market, sometimes with spreads even tighter than Repsol's current spreads.
But where
would you draw the line as in what is unacceptable to the company? Let's say you slide to non IG 1 notch or BB plus is it where you will stick or will you let the ratings go down further?
I mean, first of all, let me say that I think that this is not going to be the scenario. We will do whatever is reasonable. I mean, we have a lot of tools in our hands and if we need it and we need that and if they are reasonable, we are going to use these tools. But we feel confident that we have committed more than enough to keep this investment rate. So I I mean, when I say and I'm going
to stress
this word, I mean, when I say and I'm going to stress this word, whatever is reasonable, I saying that we are not going in any case, we are not going to destroy value for the company. Thank you.
Okay. Thanks for that. Just as a side comment and I'll close here. The reason I'm saying this is because recent rating action in the natural resources sector have been particularly extreme. That's why I wanted
to ask. Yes. I mean your point is a good point, but I mean respecting the work of everything and of course, respecting the work and the job of the rating agencies because I mean they have to I mean to protect their technical targets and aims. But let me say that our position as a company is also quite different from mining or a pure extractive oil and gas company. I mean, it's not usual in our sector or in the respective sector, let me say, to see a company able to maintain the EBITDA in 2015 with this low commodity prices at the same time being able to reduce the debt in our hands.
I mean that we are between our peers, we are quite unique, let me say, company. Perhaps we could have one of the most lowest perhaps the lowest free cash flow breakeven after paying our dividends among our peers and our case could be quite different anyway. We assume that perhaps we have to take additional measures. We are ready to do that. We have assets in our hands to go on further.
And as I said before, I mean, we are going to take reasonable decisions, not destroying the value of the company. Thank you.
Makes sense. Thank you.
Okay. Now if I'm not if I am correct, and as I told you before, we have sometimes some problems with our system. We have the last question from Giacomo Romeo from Macquarie. Hi, how are you, Giacomo? Go ahead.
Thanks, Angel. Very good. Thanks. Three questions for me. First one on Talisman bonds.
Just wondering if you will consider buying back more of those bonds in a similar transaction you have done in 4Q and whether you think there is more room to do that? The other 2 are more on downstream. First one, I was wondering on if when we think about your refinery crude diet, just wondering how much is the role on certain South American crudes in keeping your refining margins higher? And whether you're starting to see crudes from Iran? And what's the role in sustaining your refining margin this could have in the coming quarters?
And finally, on just wondering if you can recap perhaps your planned maintenance and turnarounds and what's the potential impact on the refining margins for 2016?
Thank you, Giacomo. Multivate. I mean, the decision related to the repurchasing of Talisman bonds will be taken by our CFO and his team depending the situation in the market every moment. I mean, we are open to consider this buyback, but it's going to depend of course of the window we could have over this year in the market. I think that there is more room to do that, but it's going to depend on 2 things.
First of all, I mean, the savings in financial cost terms, we could capture and secondly, the impact on our P and L due to the price of these banks in the market. But our financial team will take, I presume, downstream and let me I mean, you know that I managed for 5 years the refining business of this company. And my main I have 2 main targets, flexibility and efficiency. Efficiency, of course, because we were experiencing a very deep crisis in the refining European refining and also in the petrochemical European sector that I was also leading in the company. And to cut cost and to be efficient was an issue.
And now we are trying to do the same thing in the whole company, included the E and P business. And let me say that Repsol has a strong experience weathering company weathering businesses in very tough times being efficient and cutting cash. But at the same time, flexibility was also a must. And that means that we could operate our refineries with supply basket from a 30% to heavy oils to 50% depending on the market circumstances and the relative spread of medium oil like a euro and so on and heavy oils that in a relevant part group come from Latin America like the Mexican Maya, Morichal from Venezuela or Castilla from Colombia or even differential margins. And when you were talking about Iran, we can't forget that the cold Iran heavy oil that is a medium oil that is competing with Ural could be also a catalyst to increase the spread of the medium oil in the market.
So could be an advantage for the basket of Repsol. So in structural terms, I see a broad spread for heavy oils in the future, I mean, going to the market fundamentals, but anyway you have the flexibility to modulate our basket. And about the maintenance, I have first of all, let me say that the first part was done that was the maintenance of the hydrocracker of Cartagena because we had to change the catalyst. So when I said that we have captured $7.3 per barrel over the last 50 years, I was including there the maintenance of our hydrocracker in Cartagena. So and step is done.
And we have in the second quarter the coker of Cartagena and the hydrocracker of Tarragona and Dishon Max in Tarragona. And I think that in the 3rd or 4th quarter, Angel could perhaps give you the but I think that this is the first one. We have the multi annual stop shutdown of Petronor only in the part associated with the coker because the rest of the refinery was shut down 1.5 years ago. So let me summarize. We have the coker of Cartagena 2nd quarter, coker Bilbao 4th quarter and hydrocracker and issue max of Tarragona 3rd quarter or Q2.
And we have passed the first step that was the hydrocracker of Cartagena. So thank you everybody and have a nice day. And thank you for your interest and for your questions.
With these last words from Joshua Yun, we finished our Q and A session. You know that any further queries, details that or clarifications you may need, the IR team is entirely at your service. And have a nice day.
Bye. Thank you. Ladies and gentlemen, that will conclude today's conference call. Thank you for your participation. You may now disconnect.