Hello. Welcome to the Repsol fourth quarter 2015 and full year 2015 results conference call. Today's conference will be conducted by Mr. Josu Jon Imaz, 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 fourth quarter and full year 2015 results conference call. Good day, ladies and gentlemen. I am Ángel Bautista, Head of Investor Relations at Repsol. On behalf of our company, I would like to thank you for taking the time to attend the conference call, as said before. This presentation will be conducted by Josu Jon Imaz, 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 now hand the conference to Mr. Imaz. Josu Jon?
Thank you, Ángel. Good day. Thank you for attending this conference on the fourth quarter and full year 2015 results. Let me start saying that CCS adjusted net income was EUR 461 million and EUR 1.86 billion for the quarter and the full year 2015, respectively. Net income was minus EUR 2.1 billion and minus EUR 1.2 billion for the quarter and the full year 2015, respectively. Impacted, 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 four main topics. First, 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. 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 of May 2015, we completed the acquisition of Talisman Energy, a transaction aligned with the key targets laid out in our previous strategic plan for 2012-2016. The incorporation of Talisman to the company's portfolio has been a main milestone. At the same time, we were achieving global scale and diversification. Over the course of this year, 2015, we achieved the successful integration of the two companies, we identified the potential synergies between both organizations, deploying a new organizational structure to include all the combined assets and operations of both companies.
This integration of Talisman was, let me say, complete under an increasingly difficult and volatile macro scenario, as you can see on this slide with the drop of oil and gas prices. 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 all the operational improvements already implemented in previous years, allow us to provide value even in this low price environment. As you can see in this slide that you 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 EUR 1 billion, excluding the effect of the payment of the Talisman acquisition. That means that our cash neutrality breakeven has been well below $50 per barrel in 2015, with just a limited 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 the 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, in a year marked by the Talisman integration and price turmoil 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 a per barrel basis. At this point, let me discuss our strategic plan in more depth. In our projections, we used two 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.
We used two sets of planning assumptions. Our base case and our stress case reflected the metrics of the plan under a $50 flat scenario. Considering the continued price weakness, we have carried out an exercise to review the projections of our base and stress cases, revisiting them under an even lower oil and gas price scenario. Our revised base case starts with a Brent price of $50 in 2016, $55, $65, $75, and ramps up to $85 by 2020. Our updated stress case goes down to $40 in 2016, $40 in 2017, and remains flat at $50 for the rest of the period. With regard to gas prices, our revised base case starts with a Henry Hub of $2.6. Our updated stress case is reduced to $2.6 per million of BTUs in 2016 and 2017, while remaining flat at $3.5 for the rest of the period.
We keep our refining margin assumptions in line with our strategic projections. As you could see, we are adapting and adjusting quickly, but of course, maintaining our strategic drivers untouched. Our CapEx for 2016 is reduced to EUR 3.9 billion. We are also anticipating the achievement of our efficiency objective. Our target is to capture EUR 1.1 billion from efficiencies plus synergies in 2016. 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 2016 and 2017 by around EUR 1 billion, of which EUR 300 million 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 2016 and 2017 and $50 per barrel for the rest of the period. You could also find in the previous slide our sensitivities to change in the macro assumptions. 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 two years after paying our dividends and our interest.
To achieve this figure, we are only including the downstream cash-in coming from the announced piped 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 EUR 3 billion in 2016, excluding these figures, G&G and G&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 our 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 2016, including G&G and G&A expenses, falls to just around $800 million versus our previous guidance of $1 billion. The greatest effort will be made in our North American operations, where we are postponing development and exploration activity, as you know, in Alaska, in some areas. 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. At the same time, we are also benefiting from a strong performance of legacy Talisman assets.
Regarding our efficiency plan, we are targeting EUR 2.1 billion 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 EUR 1.1 billion this year in 2016. With regard to efficiencies, we have identified hundreds of initiatives in a strong bottom-up approach. 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 2018, as I said before, will be achieved in 2016. 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 million per year of recurrent synergies coming from the Talisman integration. We have already implemented more than 50% of them. That means that today are entering in our P&L in the bottom line. This target is above the $350 million that we included on delivering the strategic plan and compares to the $220 million that we assumed, 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 million. This, together with additional smaller transactions that we executed in January, have allowed us to repurchase a total of $1.7 billion of Talisman bonds, generating capital gains of more than $240 million before taxes.
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 synergies from both companies and also in other areas like, for example, our corporate insurance program. At this point, let me update you on the progress of our divestment program. Since, aside from the mention of repurchase of Talisman bonds, we have closed a significant number of transactions that materially improve our free cash flow generation in the short and in the medium term. 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 Talisman. 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 EUR 240 million. This is a new milestone in the progress of our divestment program, and it'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 EUR 325 million back in October, generating around EUR 300 million in capital gains. We sold most of our piped LPG business in Spain for around EUR 800 million, with a very significant pre-tax capital gain of around EUR 470 million. You know that the proceeds and the corresponding capital gain will be cash in and accounted mostly in 2016.
We also reached an agreement with Armstrong Energy, our partner in the Alaska project to dilute our position in the North Slope, generating a positive impact on our cash flow of around EUR 700 million as we are avoiding carrying Armstrong Energy for that amount. I think that this point is important because I'd like to underline that this is a good example of win-win transaction that we can undertake to optimize our E&P portfolio even under the current low price scenario. Another example of this capacity we could have to deliver this kind of operations in our M&A even in this low price scenario is the agreement with Statoil to divest a part of our interest in Eagle Ford to acquire a stake in Norway's producing Gudrun field. Generating a significant improvement in the cash flow generation in the period 2015 to 2017.
This transaction will, on top of that, benefit our Eagle Ford 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 Brynhild field, we also signed an agreement to transfer our stake in a field to the local player, Aker, with potential savings of EUR 200 million in the commissioning cost in the 2016, 2020 period, if the deal is closed by year-end. 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. Obviously, I'm not going to make any further comments on this matter in the Q&A session. 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 second FPSO in Sapinhoá North in Brazil will be complete in March, with our production in Brazil thus reaching around 45,000 barrels of oil equivalent per day net to Repsol. Also, in Block BM-S-9 in the Santos area, the development of Lapa is progressing on schedule and the FPSO, Cidade de Caraguatatuba, is expected to be in location by mid-year, with first oil planned for the fourth quarter. 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 Pakma 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 Flyndre Corridor, with advances to accelerate first oil expected early in 2017. At the same time, we are going to go on reducing CapEx in order to have a further improvement 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 first gas in 2018. In Colombia, we will continue with the appraisal campaign in Acacías. In Algeria, the execution of Reggane progresses with first gas maintained for 2017, while the conceptualization of Sud-Est Illizi continues in parallel with the successful appraisal phase, which is leading to a very material resource base. In North American conventionals, 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. With regard to our downstream businesses, this year, we expect to further improve the resilience of our margins through this battery of measures. First, a 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 the utilization of the conversion capacity of our refineries. We are going to boost the improvement of our differentiation program in our chemical business, thanks to our metallocene plant in Tarragona. Finally, the revamp of our La Pampilla refinery in Peru is progressing as scheduled.
Let's move on to the fourth quarter and full-year results and the main operational highlights. Fourth quarter CCS adjusted net income was EUR 461 million, 25% higher compared with the same period of last year and 189% higher than in the third quarter. Full year 2015 CCS adjusted net income was EUR 1.86 billion, a 9% increase compared with full-year 2014 results. These results were impacted by low oil and gas prices in the upstream. 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 EUR 5.4 billion in 2015, of course. I'd like to stress the fact that the outstanding performance of our downstream division that contribute more than EUR 4 billion to this figure. Looking at the results by division, starting with the upstream business, adjusted net income for the fourth quarter was minus EUR 276 million, EUR 280 million 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&P asset base, partially offset by lower exploration and other costs. Production reached an average of 697,000 barrels per day in oil equivalent terms in the quarter, higher than the third quarter, thanks to the ramp ups in Sapinhoá in Brazil, in Cardón IV in Venezuela, and the production increase in the U.K., 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 2.4 billion of proved reserves. This ratio is impacted by the increase in our stake in Venezuela, as well as from reserve increases in Trinidad and Tobago, North America, and Bolivia. Year-on-year performance, excluding the 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 EUR 307 million. Lower exploration expenses led to an increase in the operating income of EUR 89 million.
Lower depreciation and amortization charges increased the operating income by EUR 52 million as a consequence of lower amortizations in the U.S. and Russia, and lower production in Trinidad 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 EUR 11 million. Taxes, on the other hand, had a positive impact of EUR 132 million due to the lower results. There are other minor effects that could explain the remaining difference. The impact of the disruption in Libya was minus EUR 76 million and minus EUR 24 million in the operating and net adjusted income, respectively. Operating income of Talisman's assets was minus EUR 208 million. We had the most positive results in Indonesia that were offset by negative results in North America and Norway mainly. The contribution to the adjusted net income has been minus EUR 115 million.
I like now to go briefly on a 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 or the Marcellus, where we are continuously reducing cost and leveraging on our infrastructure position to reduce breakevens and remain free cash flow positive even in this challenging price scenario. Finally, I 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 EUR 2.9 billion to its 2015 earnings, of which, sorry, EUR 2.4 have been booked in the fourth quarter 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 EUR 495 million, significantly higher than the EUR 370 million of the fourth quarter of 2014. Full year adjusted net income was EUR 2.2 billion, 113% higher year-over-year. 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 first quarter of 2016. I hope that the same thing could happen over the whole year. The refining margin indicator was down quarter-over-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 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. Drilling down into the quarterly results in refining, higher utilization rates and improved refining margins produce a positive impact on the operating income of EUR 69 million compared with the fourth quarter of 2014. In chemicals, the enhanced efficiency as a result of operational improvements in our petrochemical sites, and at the same time, as a result of higher sales volumes and improved margins, helped of course, by a better international environment, generated a positive effect on the operating income of EUR 65 million. In the commercial businesses, operating income was EUR 29 million lower year-over-year, mainly due to lower LPG margins in Spain.
Moving to gas and power and trading, the operating income was EUR 8 million lower than that of the fourth quarter of 2014. 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 others, in fact year-on-year, was EUR 27 million. Results from equity affiliates and non-controlling interest and taxes and so on explained the remaining difference. With regard to Gas Natural Fenosa, adjusted net income in the fourth quarter of 2015 amounted to EUR 123 million, 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 Unión Fenosa gas plant in Egypt in the fourth quarter of 2014. Let's move now to the financial aspects.
Our fourth quarter financial result was nil, which compares to a net financial expense of EUR 85 million 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 fourth quarter of 2015 amounted to EUR 11.9 billion, a decrease of more than EUR 1 billion compared with the end of the third quarter of 2015. As I explained before, under this macro environment, it's a real priority to preserve the cash flow balance of the company. 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 EUR 0.3 per share with a script option, which represents a 40% reduction in the complementary dividend to be paid in June, July. 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 grade. Let me underline that following our strict and prudent financial policy, we maintain a solid liquidity position above EUR 9 billion, which covers our short-term maturities by more than two times. To conclude, I like to say that I am 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 EUR 1 billion 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. 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, 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 a leaner company. As a result, having already one of the lowest cash breakevens among our peers, if not the lowest, 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 two concepts to remember. Thank you very much, and I will answer to any question you may have in the Q&A.
Thank you very much. Let's go into the Q&A session. We are having some technical problems with the conference call system, but we hope to 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 investorrelations@repsol.com, and we'll try to contact you immediately. Well, let's go. We have first, Filipe Rosa from Haitong. Filipe, Go ahead with your question.
Hi. Good morning, everyone. Thank you for the presentation. Three questions for me, if I may. The first one relates to the dividend cut. 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, 0.6 annualized, that we should have for instance, in 2016 and 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 a quite high yield. I know that probably this is not the best time, but historically you have compared the yield of your Gas Natural investment with the cost of debt. Now you have quite expensive debt that you could buyback with selling your Gas Natural 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?
Also related with this, of course, the third question. Your 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? Have you had to commit to any further measures that were not announced today to be able to avoid a downgrade to junk? Thank you very much.
Thank you, Filipe. 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. Let me elaborate a bit more. I believe that the dividend policy of a company must be dynamic. This dividend policy has to be approved and developed in accordance with both factors. First of all, the macro context we are living now, and secondly, the results of the company. Taking into account today, these both factors, 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 adopt this July's dividend to these current circumstances.
Let me say, that is a decision taken for this interim dividend, 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. This decision, one-shot decision, taken for June, July dividend. Related to your second question, I have in mind that, of course, Ángel 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. We are in a quite optimum situation. 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. As you know, that is not new.
We meet them in a very recurrent, quite often, in a fluent and transparent manner. 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. We discussed with them, 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 are delivering all the M&A measures we have in our hands, we are overcoming every day this figure. The battery of measures presented to the agencies should be enough to maintain the investment grade of this company. I hope that you may understand that I'm not going to comment on the measures discussed.
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 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 EUR 3 billion, either of divestment or CapEx reduction that are linked to M&A operation, we have developed this effort in 4 months. We have, of course, overcome that objective we have of EUR 1 billion agreed previously with the credit rating agencies. We are going to go on delivering, I think that all that should be enough to maintain the investment grade. I know what we have to do, let me say that I'm not going to deliver any additional specific measure.
Thank you, Filipe.
Thank you very much.
Thank you very much for your questions, Filipe. Now we're moving to Irene Himona. It's always very nice to speak with you from Société Générale. Go ahead, please, Irene.
Thank you, Ángel. Good morning. I had two questions, please. Firstly, on downstream, which was obviously the star 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 guide us on the other components of downstream, marketing, LPG, chemicals and so on. Basically what you anticipate in terms of 2016 downstream EBITDA or earnings. My second question, in the October strategy plan for 2016 to 2020, apart from OpEx, CapEx, et cetera, you had included a EUR 6 billion 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 EUR 6 billion?
In a context in light of the EUR 30 oil and your adjusted stress case, how is the board thinking about the Gas Natural holding? Thank you.
Thank you, Irene. Related to our downstream businesses, it's going to be easier to talk about the past because I know the past, but I only could forecast the future. That is a more difficult task. Let me say that from the 1st January to today, the refining margin we have captured in our system has been as average EUR 7.30 per barrel. That is the delivery from 1st January to today. I'm not going to hide you that we are out of the driving season, that the winter has been quite mild, not only in Europe till two weeks ago, even in the American East Coast. That is the fact. The future is always more difficult to forecast, but going to the fundamentals. Demand is growing due to the current GDP growth in Europe and in North America.
At the same time, at these low prices, demand is going to grow. Demand is growing. You could see the forecast of demand growth for this year could be 1.2, 1.3 million barrels per day. At the same time, you know that due to this deep financial crisis in many companies, many companies have deferring new projects for the future. You also know that last year, due to the high margins, many European refiners deferred some maintenance shutdowns and so on to 2016. Going to the fundamentals, we are quite comfortable regarding what could happen in 2016 related to our refining margins. Of course, as I said, that is a forecast, but I prefer to stop my position saying or looking at the facts, EUR 7.3 per barrel till today.
Chemical, I'm quite convinced, I think that we are going to repeat in 2016 a year quite similar in qualitative terms to 2015. Why? First of all, because demand is growing by polymers and cars and many products in Europe that are associated to the polymer consumption. We can't forget that the Spanish economy, I want to underline this fact today, has one of the highest or perhaps the highest growth in Europe today. All that is going to have consequences, of course, in our industrial activities. At the same time, at these oil low prices, I'm assuming in this EUR 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 U.S. shale, is over for our system. Our competitive position is better.
Let me also say, that we are in some way capturing the strong efficiency measures we put in place two years, three years ago in our petrochemical businesses. Marketing, I don't know, taking into account the current growth in the Spanish market and so on, I can't see clouds in our marketing business. Related to our businesses, trading, quite stable. OpEx, CapEx, you said that I deliver the figures, disposals. I want to stress the fact that we have been able to dispose almost EUR 2 billion in four months, and you know that we had a commitment with our own strategic plan of disposing EUR 3.1 billion in the first part of the period 2016-2017. Before, let me say, starting the game, we have delivered two-thirds of this objective.
I can't forget that we have to fulfill all the commitments of our strategic plan, EUR 6 billion. We have four and a half years in front of us. That means that we have a basket of EUR 40, EUR 42, EUR 43 billion in assets. 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. We have outside our E&P business, many assets that are not related to the oil and gas prices, and we could extract and capture this hidden value. To you, Irene.
Thank you.
Others. Sorry. Gas Nat, no, there was some kind of decision in our board related to this issue. Let me say, we are not putting any focus in any specific asset. We have EUR 42, EUR 43 billion in assets. Don't forget that 25% of these assets are downstream assets. That even the E&P, we have shown over the last four 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 have a fixed price contracts or because they are PSC contracts and so on. We have enough basket of assets to take this kind of decisions. 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.
Yeah. Thanks for the question. I've got to say that I'm just a little confused by how quickly messages change from Repsol. You noted in your opening commentary about adjusting and adapting and trying to be quick and dynamic with your strategy. It was only in October that you presented a five-year strategy plan update, it seems almost weekly you're changing the CapEx number for 2016. It was EUR 4 billion on the trading statement. It's EUR 3.9 billion to 2016 today. You put a 2017 number in play. We're only four or five months on since October, I know this is good progress, but how realistic were those original targets in October? At the end of this year, will that EUR 3.9 billion CapEx actually be EUR 3.5 billion CapEx?
I think you need to have a stability in the message that you're giving across to investors, because remodeling Repsol is challenging at the best of times, the message is a smacking of an inability to understand exactly what it is that you can really squeeze out of this business. On the back of that, I think that the dividend cut today also indicates some confusion in the cash management objectives. On a postscript 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 it if it was going to be a consistent cut going forward, 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. I don't really understand where it all fits in. Maybe you can relate some of that together and give me a comment. 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, "close to the board" on very key decisions and insights about strategy two days, three days ahead of big investor commentary like this?
There must be some sort of controls within Repsol that has got to stop the kind of leakage in discussion about things that these eyes don't necessarily know a lot about. 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. Be sure that we try to be coherent even in these tough times. Remember, Jason, because I remember that when we had many one-to-ones with many analysts and investors in October, when we deliver the figure of the CapEx of 2016, the question 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. My answer 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. 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 understanding like that someone, after reducing a 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. We have been able, over the last four months, to deliver this figure. How? I could put many examples on the table. The Alaska operation was a way to defer CapEx commitments and CapEx in 2016. The Eagle Ford Gudrun swap was a way to reduce the CapEx reduction for 2016. The IME operation was another way to reduce this CapEx.
To work every day with our people in North America, in Marcellus, and in the Greater Edson mainly trying to optimize in cash flow terms the CapEx we are consuming, at the same time maintaining the production at these tough times is another way. Deferring some other projects that are not going to be key in this price scenario is another way. Increasing our efficiencies in CapEx in EUR 260 million, EUR 280 million is another way. Let me say, I'm giving you a guideline, but from this afternoon on with Luis Cabra, our Managing Director of Upstream, I'm going to go on trying to reduce the CapEx figure. Now I'm giving you a guideline for this year. 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 two, three years of the company. We are going to maintain the objectives of production we have for the whole strategic plan. 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. In this oil and gas price scenario, my duty is to preserve the value of the company. 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 last year. Taking in organic terms, 500 was a good figure. That is the real reason of this coherency, Jason, in delivering our strategic plan.
We are maintaining the same main targets. Our duty, because the scenario is different, we are not at $50 per barrel. 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. That was the average in 2015. I like to be tougher. 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. It's true when you say that that is not a big saving, to reduce to EUR 0.3 per share the complementary dividend for July. It's true, if you take the script basis acceptance, you calculate the figure, it's not a big figure. Let me say, it's a signal.
It's a signal that our board is concerned because the macro scenario. We are adapting the measures we are taking to the situation we are living. 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 respect a lot the work of the media. Perhaps sometimes the media has to analyze and to speculate about some kind of things. There is no quote coming from Repsol in any of this information you were saying. That is not a leakage. They are not information coming from Repsol. In a society that respect the free opinion and the free speech are analysis that free media deliver.
Yeah. I hear your points. I take on board the positive progress of being more adaptive and more tough, as you say. On slide 11, you still only got the EUR 10 billion of cash for dividend and debt. You've not changed that number. Yet you feel free to change the makeup of your cash management.
Repeat your question.
I take your points, I realize that you want to be tough, I appreciate that you have to be tough in this kind of environment. I think it is positive that you're being tough. 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. On that slide 11, you still only got EUR 10 billion of cash for dividend and debt, which is, in my view, mainly back-loaded. You've not changed the investment number that's in that makeup there. 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 that are still out there from last October, and that can confuse the investment case in many ways, I think.
Thank you, Jason. You are right. We are maintaining our main priority. That is that after paying the dividend of Repsol, reducing our debt. This figure is representing what you are saying. 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&A operation. Thank you, Jason.
Thank you, Jason. Now we're moving on in our Q&A session. Now we have Nomura, Matt Lofting. Good to speak with you again today. Matt, let's go ahead.
Thanks, Ángel. 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 2015 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 script take-up from lowering the headline dividend? What script percentage are you now assuming? I'm just wondering from a policy perspective, the industry sort of tended to emphasize the importance of dividend stability through the cycle. 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 from 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'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. Stability is very important, Matt, I agree with that. We try to change things in a quite smooth way. We can't close our eyes, seeing what is happening in the macro environment in the sector. Protecting the balance sheet of this company is always to be an issue, a target for Repsol. Our board took this decision related and focused on the dividend that is going to be paid in July 2016. I'm sure that our board will take the right decisions in the future.
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. The dynamic approach, you are right. Let me, in some way, put this dynamism in the framework of something more stable, smoother changes that we are maintaining over the last year. What are the production implications you said of this CapEx reduction? Zero. Zero in next two, three, four years, because we are always talking about projects that we're not going to see the first oil or first gas before 2020. Now it's zero. 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 Sapinhoá.
At the end of the year, we are going to see the first oil in Lapa in Brazil. We are also increasing some productions in Malaysia. We have increased our production in Norway, thanks to the Gudrun swap. Cardon and the ramp-up is also there, and so on. I presume that the total production this year is going to be an average of 700,000 bpd . The impact in the period of strategic plan of these measures is going to be almost zero. When you said the range in October is still valid or lower, we are working in this scenario of having, at the end of the period, in the absence of disposals in our E&P, our production that could be perhaps closer to 850,000 bpd, $90,000 per barrel at the end of the period than 700,000 bpd .
You remember the reflection we reflected in our strategic plan related to the disposals and M&A, more active position managing our portfolio in the upstream. It's true that now is not the best time to be quite active in these disposals. Thank you, Matt.
That was Matt Lofting from Nomura. Now we're moving on. Haythem Rachdi from Morgan Stanley. Hi, Haythem. Good to speak with you as always. Please, your questions.
Thank you, Ángel. Thank you, Josu Jon. Good afternoon to you all. Two questions from my side, please.
Yeah.
Firstly, just on La Pampilla, just thinking about your comments earlier about these kind of transactions where you reduce exposure to CapEx and also monetize assets. It seems at this 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? The second question I have was just regards to timeframe of delivery when you talked about earlier your conversations with the credit rating agencies. It would be really helpful just to understand the sense you're getting in terms of what sort of timeframe we're talking about.
I remember at the time of the closing of the Talisman deal, I remember a comment about 18 months to deliver some of the debt reduction measures that had been discussed before, such as the hybrid and others. Considering where we are now, and if that is still the timeframe we're talking about, then we're talking another six, nine months, et cetera. Is that something that is still the case, or do you feel you have into 2017 to be able to deliver some of these things, given that these disposals might take a bit longer? Thank you.
Thank you, Haythem. First of all, related to La Pampilla, I'm not going to put, of course, any name to any asset, as I said before. Our commitment with La Pampilla is this year, by July, more or less, to fulfill the middle distillate hydro desulfuration 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. We are now making a lot of money in our downstream businesses, but it's always time to try to be more efficient. As you could see in our strategic plan, we are going to reduce our cost in our downstream businesses in a figure above EUR 200 million this year, 2016, thanks to the addition of all these efficiency measures.
Related to the agencies, let me say that we have an open dialogue with them. The dialogue with them is open. Of course, we are going to wait their analysis. The battery of measures that we discuss with them, I think that should be enough to maintain the investment grade of the company. Thank you.
Thanks.
Thank you. Thank you for your questions. Let's move to Flora Trindade from BPI. Hello, Flora. Go ahead, please.
Yes. Hello, good afternoon. Very quickly, just trying to explore a bit on the rating agencies. I know that you have been answering several questions on this. Just wondering if you could share with us if there are any measures that you completely discard at this stage, 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 Gas Nat, including a potential capital increase. Is there anything that you believe is completely out of reach for now with the data that you have?
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. Let me underline again, related to the rating agencies, we have EUR 43 billion of assets in our hands. A relevant part of them are not related to the oil price. We are going to take advantage of this basket, to play, to increase the value for the company. We are not going to deliver any specific measure. I know what I have to do, 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. Our aim, our target this year, is to reduce the debt level of the company, even at these oil prices. As you know, we are taking a deck for the year of $40 per barrel Brent and $2.6 per million of BTUs in Henry Hub price.
Even in this scenario, our target is to reduce, in a quite significant way, the debt level of the company.
Thank you.
If I may.
Yes, Flora. Go ahead.
Sorry. Just a follow-up because I believe that the debt reduction has a relevant contribution from divestment. I don't know if you could give us the underlying excluding these divestments, please. Thank you.
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, 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&P business and the OpEx of our downstream businesses. I'm going to do that the day I will present the results of the first quarter of the year.
Free cash flow is the main way and the main tool to reduce the debt level this year. 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 piped LPG. That as you know, those operations were closed in 2015, but they are going to be in our pocket, in our P&L in 2016. Secondly, we are going to go on trying to extract and capture value for the company through our M&A. We have a basket of assets that are hidden in some way, and I'm sure we are going to be able to crystallize them as we were able yesterday closing the disposal of the 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.
Hi there. Congratulations on the salary increase, but more so on the CapEx reduction that you managed to put through. I wondered if we could just first maybe hear what some of your 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 upstream and downstream following the recent reductions? Is most of that in the upstream or the downstream? It'd be quite useful to know. 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 EUR 240 million capital gain from the refinancing of the Talisman debt.
That's obviously not recurring, or do you expect to make a similar sort of gain every year, and should we be thinking of these as totally recurring? 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? Number one, just confirm that you are committed to investment grade. Secondly, there's a lot of talk about Gas Natural, but could you confirm that actually you get a one-notch modifier for owning Gas Natural anyway, and therefore it wouldn't make sense to sell it because it does contribute very stable cash flow. Finally, why would you not do an exchangeable bond ahead of selling a brilliant asset like Gas Natural?
Thank you, Hamish. First of all, let me say that when we present the strategic plan, I had a hidden slide that Ángel told me that it was better hidden because in some way it could be interpreted as a guideline for coming years. 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. We are going to be able to reverse the decline from now to the 2025 year. Let me say, and let me stress the fact that when we bought Talisman, we were buying 2P reserves at $10 per barrel price. 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 Ángel, we are talking about EUR 2.9 billion in CapEx in the upstream, EUR 850 million, EUR 900 million in downstream, and some EUR 30, EUR 40 in the corporate level. Nothing relevant. In the downstream business, as you know, we are putting all our effort in two kind of projects. First of all, guaranteeing the reliability and the correct and right maintenance of our plants. Secondly, all the efficiency programs we are boosting in our industrial plants. On top of that, of course, we can't forget the hydrodesulfurization project in La Pampilla, as I mentioned before. Synergies, Talisman bond. The only recurring impact is the money we are saving and in financial cost, EUR 60 million per year. That is the cost we are saving because we have now a lower financial cost.
Of course, this figure, EUR 60 million 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. You know that we have a one-off non-recurring in the last quarter of the year. The capital gain because the cost we were paying for this bond and the cost of the price in the books. That figure was at around EUR 240 million. That is a non-recurring cost. The only recurring cost we are putting our P&L is the savings. Of course, we are in our interest rates that could account at around EUR 60 million per year.
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&A operation, and the battery of measures we could put on the table any time, we think that should be enough to maintain the investment grade. Thank you, Hamish.
Thank you very much, Hamish. Lydia Rainforth from Barclays, good to speak with you again. Hope you are having a nice day. Go ahead with your question.
Thanks, Miguel. It's always nice talking to you. I'm going to ask three questions if I could. Firstly, coming back to the rating agencies and the credit side, I know and understand what you're saying about protecting the policy as priority. 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. Total was saying last week that they were cash positive above $10 a barrel. I was wondering if you can give us a comparable figure for that one. The third one, just to take it away from the credit metrics, was coming back to the refining and the downstream side.
There does seem to be a longer-term shift away from diesel and towards gasoline. 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 the sort of more gasoline bias model within that. Thank you.
Thank you. First of all, Lydia, thank you for your questions. Related to the rating agencies, you are going to allow me, I'm sure, 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 rate. 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, EUR 9.5 billion of liquidity, and that could be 2.3 times the cash we need to cover the whole maturities of the company. We could achieve the year 2020 with no cash needs. That is not going to be the case. Cash operating cost, I presume, Lydia, that we were talking about the upstream.
In 2014, we had an operating cost, an OpEx cost per barrel of $21.5 per barrel. We reduced this figure to $18.7 per barrel in 2015. It's an important decrease, mainly due to the OpEx cuts plus the production growth. 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. 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. Without these figures, we could be at around $12, $12.5 per barrel. The reality, the average, the target for our upstream business for this year is $15.7 per barrel. Future of downstream.
Let me say, we are in a strong importer diesel market. At the same time, we are exporting gasoline every day. A third, 35%, 40%, depending on the seasons of our gasoline, are exported mainly to North America and Latin America, but mainly North America. Any shifting from diesel to gasoline that could happen, 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 to maintain our position as diesel producer in a strong diesel importer market. Let me underline that the figure of the imports in Europe could be at around 50 million tons of diesel per year. At the same time, we could reduce our gasoline exports to North America. That would be good news.
Anyway, we have a flexibility in our operations without any investment that is higher than the shifts I suppose could have the market. We could change a 5% of our full operation, increasing our naphtha, gasoline production that could be at around 18% of our refineries to a 23%. We are doing that, for instance, in January, trying to capture the higher spreads in gasoline without any investment. We have flexible refineries. Thank you, Lydia.
That's really helpful. Thank you.
Thank you very much, Lydia. Moving to Biraj Borkhataria 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 sub-sectors 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. Let me remind and stress that our board yesterday took the decision of reducing a 40% interim dividend to be paid in July, so to EUR 0.3 per share. That was decided because the current price scenario and so on. Be sure that, I suppose that our board will be able to take the right decision depending on the circumstances next year. Thank you.
Thank you, Biraj. Thank you for your question. Moving to Brendan Warn of Bank of Montreal, BMO Capital. Go ahead, Brendan, how are you?
Yeah, good. Thank you. It's Brendan Warn from BMO Capital Markets. I guess I'm going to circle back around on a number of the questions already. Just firstly on flexibility, could you just perhaps quantify even for the second half of 2016 and then into 2017, just your capital or CapEx flexibility, and you can just talk, say, % of committed CapEx. For example, Total have 60% committed CapEx that's into 2017. If you can just give us a better understanding of flexibility around CapEx. Just secondly, I guess following up on Hamish's question, could you talk through, 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?
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, you spent about EUR 8.8 billion 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, Brendan. 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 a 20%-25% in our CapEx. We are today in some way confirming and delivering what could be at that time only an expectation. I have to realize that today it could be in some way more difficult. I'm sure that we could have some additional flexibility. Coming mainly, if we stay in this low oil price scenario, let me say, of $30 per barrel, I presume that the deflation of cost could be higher than we are forecasting now in our company. In the sector, sorry. Perhaps, if we go on, we stay at $30 per barrel in six, seven, eight 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 it, because it's a way to create value for the company in coming years. Let me say, if we are in a $30 per barrel scenario in one year from on, perhaps we could change our mind. We have the whole company involved in a bottom-up analysis, analyzing every single contract, every single cost, every single supplier. The whole supply chain trying to analyze if we need every step we have in this chain. There is room for that, yes. I have to realize that the flexibility is going to be lower than we had in October, related to the CapEx we are committing now. The second question was related to plan B.
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, my duty is not to put my shoulders in this kind of hypothesis, but to manage a company with responsibility, we have a position of above EUR 9 billion of liquidity at the end of the year. Over the last three weeks, we have increased this position with EUR 2 billion from banking loans. Today, our liquidity position is even higher than we delivered at the end of the year. Thank you.
All right. Can I just have one follow-up question? Just obviously, you didn't have.
Excuse me, I note here the question about Talisman.
Oh, thank you.
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. It's not an investment for one year. 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 six 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 half of the impairment we took of 40% in the last quarter, comes from the Talisman assets.
From almost all of them, because if we value these assets in May at a former price deck, if we take every asset at a new price deck, the value is going to be reduced almost in every asset. At the same time, I want only to stress two facts. First, we are increasing the synergies identified at capture in Talisman. We are adding value to the value we saw in these assets. That was the first fact. The second fact is that in technical terms, of course, you could have some assets that could be a bit worse than expected, and some others that are better than expected. If we take the whole basket of Talisman assets today, the perception of our E&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. Hi, Alastair. Go ahead with your question.
Thanks, Ángel. A couple 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. Secondly, can you just talk about the investment decisions you're making, I was particularly thinking about Red Emperor and Acacías in Colombia. Can you talk about what sort of oil prices you require to meet hurdle rates on those investments? Thank you.
Thank you. There is no, at the moment, 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 cut, we are reverting at the same time the decline in oil production, increasing the oil production in 2015. Related to Red Emperor and Acacías, at the current price deck we have in our hands for coming years, we think that Red Emperor and Acacías are going to create value for this company. If in some months from now on, we are in a different situation, we will have and we will take the righter 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.
Can I just clarify on the price tag, is that the base case price tag you presented or the stress scenario?
Yes. I have more or less the figures in my mind. Perhaps you could check these figures with Ángel later. I think that Red Emperor at $40 per barrel could be a profitable project. Acacías at $50 per barrel, more or less, could be profitable. 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 can't see only prices in 2016 to take these kind of decisions because, in that case, I have the risk of taking the wrong decisions. A wrong decision could be avoid any kind of concern about the current oil price we are living today. At the same time, I have also to maintain some kind of light over the future of the oil prices.
I think that two projects that could be profitable at $40 or even $50 per barrel, we have to consider them and take the right decision. Thank you.
Thank you.
Thank you very much. That was Alastair Syme from Citi. Now Jon Rigby from UBS. Good to speak with you again. Go ahead, Jon.
Thank you, Ángel. Two questions. Can you first help me and 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 had drove those impairments. 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 higher than it was in the first quarter. Any comments you can make about the accounting structure of those impairment charges would be interesting. 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, Jon. Look, first of all, I'm sad, I think that I'm not going to be able to give you many lights regarding the disclose of the impairments. I could say that 60%, 55%-60% comes from assets from the legacy Repsol. We are here including some bonus on exploration assets that they were of course positive, but at current price deck, we could have strong doubts about the commerciality of these exploration assets. We prefer to be realistic and to impair them. 40%, 40%-45%, I think that is closer to 40 than to 45, the figure I have in mind, comes from a very broad basket of Talisman assets. The goodwill. I think that the goodwill is at around EUR 2.8 billion, a figure a bit lower than the figure we had when we delivered the acquisition in May.
I think that at that time was at around EUR 3 billion. In accounting terms, we have to support this goodwill, delivering the synergies coming from the acquisition of Talisman. If we are not able to deliver the synergies, in that case, we'll have to impair this goodwill. 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, a growing synergy and a decreasing goodwill, I suppose that is not going to be the case. The stress scenario, Jon, be sure we are going to put all our assets in the basket, EUR 42 billion-EUR 43 billion 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 Jon Rigby from UBS. Let's move to TPH, Tudor, Pickering, Holt & Co.
Anish, go ahead.
Sorry.
Hi. Good afternoon. A couple of questions from 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? The second one was just questions around your cash flow. You generated about EUR 4 billion 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? 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.
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.
Thank you, Anish. CapEx is true. If we look at our North American assets, today, after reducing our CapEx in Marcellus, for instance, where we are only operating with one rig now. We are maintaining a quite flat gas production operation at around 400, 500 better said, million of cubic meters per day. I see at these CapEx levels, this production stable in coming two years. Same thing in the Greater Edson in Canada. Perhaps we could have a reduction of 3% or something like that over these two years if we 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, we have had a reduction because the disposal of 12% of Eagle Ford in the swap with Statoil.
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, Statoil. I think that Duvernay could be a small growth, but let me say that at these price scenarios, we are going to be prudent, and we are mainly to try to de-risk the area and to maintain the land. I see a flat production in North America in coming two years. In 2016, the free cash flow for our downstream business could be at around EUR 3 billion, more or less. I presume that in the upstream business, the free cash flow is going to be negative at $40 per barrel in EUR 1 billion, a bit more perhaps. Around EUR 1 billion. That is my forecast for this stress scenario in 2016.
About our cash flow upstream trending over next years, we are making a big effort, as you know, to reduce the free cash flow coming from our upstream business. 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 to a figure close to $80 per barrel to $65, $64 per barrel for our own single upstream business. That means that we are delivering a capacity to reduce the cost and the OpEx and the CapEx of this business. We are going to go further in this effort. It's clear that $40 per barrel is negative, for that reason, the cash flow is going to be negative in EUR 1 billion this year, in 2016, in our upstream business. Thank you.
Thank you very much, Anish. Now let's move to Jefferies, Mark Sherlock. Mark, how are you today? Please, what are your questions?
Thanks very much for taking my questions. Just really a couple to circle back on, mainly clarifications, I guess. Appreciate the comments around net debt coming down. Apologies if I missed this, did you talk about net debt EBITDA, and the multiple there? I remember when you announced Talisman, that was quite a critical consideration. I suppose what I'm really thinking is, have you now put in place enough in terms of the planned divestments that that net debt to EBITDA multiple may now be peaking and coming down from current levels? Secondly, the question around the convertible bonds and Gas Nat. Again, I think I might have missed this. Is that something that you would consider? Thanks very much.
Thank you, Mark. If we take the figures at the end of 2015, our net debt is €11.9 billion. You could add, because in accounting terms, it's not a debt, it will be €12.9 billion, but in accounting terms, it's EUR 11.9. That is a figure that if we take our EBITDA CCS at around €5 billion at the end of the year, it could be at around 2.4 times the EBITDA. We have to take into account that we have taken the whole debt coming from the acquisition of Talisman, but we have not taken these figures, the EBITDA of the first five months of the year from the former Talisman. We are going to capture also these EBITDAs over this year, 2016.
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. As I said before, we have considered and we have analyzed a battery of measures, and a lot of measures are included. 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 Sherlock. Now we're moving to our first fixed income analyst to come in today onto the conference call. It's Roy Banerjee from Barclays. Hi, how are you? Go ahead with your question.
Hi, thank you for taking my question. 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 EUR 3 billion of hybrids, given sort of current market conditions? What are your thoughts on the hybrids you have issued but don't receive equity credit for from S&P? Secondly, are you able to give an indicative pro forma number for Talisman, including the five months of the year not included as an EBITDA? Thanks.
Thank you. It's clear, clearly speaking, today the market is not open to a hybrid issuance. That is clear. 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. Anyway, 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 the first five months, 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 EUR 400 million or EUR 500 million. EUR 100 million per month, more or less, at current prices.
Great. Thank you very much.
Sorry, I forgot it, a part of the hybrid. Yes, we are going to receive the equity credit from Standard & Poor's. Thank you.
Thank you.
Related to the hybrid issuance, I mean.
Yeah. Thank you.
Okay. Now moving to Bernstein, Oswald. How are you, Oswald Clint from Bernstein, go ahead with your question.
Thank you very much. Yes. If I think about the Talisman, the negative EUR 200 million contribution last year, I think about the Statoil joint venture, the operatorship of Statoil, the reduction in Marcellus costs, the kind of OpEx reduction North America, also your reduction in your gas price and your oil price, does that number materially change as we think about 2016? Net is it going to be the same or should it worsen under the scenario you're talking about today? 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. 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, there are no legacy Repsol assets or legacy Talisman assets. Every people from this team, 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. From now on, everything, every person, every people, every asset is from Repsol. 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&P assets of the company. Related to Libya, I prefer to be very prudent. Any relevant income from Libya is included in our figures and guidances for 2016. The situation in Libya is very complex.
It could be complex for Repsol, it's not only complex for Repsol. I think that Libya is, in geopolitical terms, a problem for the whole Europe. The risk to have a failed state in our borders and to have a nest, a position for terrorist group is a high risk for the whole Europe. I think that it's urgent to come to a political solution in the country, 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. I think that the political solution for the country could be on the track. Let me say, the day after, I think that the main priority is going to be the reconstruction, rebuilding Libya.
Libya will need the oil sector to work properly in order to be able to have revenues to recover the country. For that reason, we are fully prepared to restart our operation in a 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. Unfortunately, that is not the case today. Thank you.
Well, Oswald, it's been a pleasure, like always, to speak with you. Moving again to a fixed income analyst from Bank of America Merrill Lynch, Emmanuel Wusu. Hi, Emmanuel, go ahead with your question.
Hi. Thanks for taking my questions. I've got four. I 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 EUR 2 billion 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 balance sheet as opposed to international debt. Fourth, and finally, rating. I know we've discussed this several times. Is the expectation that in a month's time, when S&P and Moody's conclude their reviews, that you'll be rated investment grade by both of those agencies?
Is that what they've communicated to you, or is that Repsol's own view? 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. 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. We are going to have, looking at these assets, the best decision we are going to have, or we could have every time. That is the decision level we have in this moment. Any covenant to the bank loan, 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. It's up to them 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. That's my view. Thank you.
Thank you. Thank you, Emmanuel. Now, continuing with fixed income, Roland Renduyl from RBS. Go ahead with your question.
Yes. Thanks for taking my question. I'm not going to beat again the question on ratings and so on. We all know this is basically in the hands of the agencies. My point is, if you get downgraded to non-investment grade, and plenty of companies live in the high BB segment of the market, sometimes with spreads even tighter than Repsol's current spreads. Where would you draw the line? As in, what is unacceptable to the company? Let's say you slide to non-IG, one notch of BB+. Is it where you will stick, or will you let the ratings go down further?
First of all, let me say that I think that this is not going to be the scenario. We will do whatever is reasonable. 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. We feel confident that we have committed more than enough to keep this investment grade. I presume that this is not going to be the scenario. Thank you.
Okay. Thank you very much.
In any case, 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. Well, thanks for that. Just as a side comment, 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.
Yes. Your point is a good point, but respecting the work of everything, and of course, respecting the work and the job of the rating agencies, because they have to protect their technical targets and aims. Let me say that our position as a company is also quite different from a mining or a pure extractive oil and gas company. It's not usual in our sector or in the extractive 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. Between our peers, we are a quite unique, let me say, company. Perhaps we could have one of the most lowest, perhaps the lowest, free cash flow break even after paying our dividends among our peers, and our case could be quite different.
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. As I said before, we are going to take reasonable decisions, not destroying the value of the company. Thank you.
Makes sense. Thank you.
Okay. Now, if I am correct, as I told you before, we have sometimes some problems with our system. We have the last questions from Giacomo Romeo from Macquarie. Hi, how are you, Giacomo? Go ahead.
Thanks, Ángel. 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 as you have done in Q4, and whether you think there is more room to do that. The other two are more on downstream. First one, I was wondering if when we think about your refinery crude diet, just wondering how much is the role of 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. Finally, we're 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. I mean, the decision related to the repatriation of Talisman bonds will be taken by our CFO and his team, depending the situation in the market every moment. We are open to consider this buyback, but it is going to depend, of course, on the window we could have over the year in the market. I think that there is more room to do that, but it is going to depend on two things. First of all, the savings in financial cost terms we could capture, and secondly, the impact on our P&L due to the price of these bonds in the market. Our financial team will take, I presume, the right decisions over this year. Related to our downstream, you know that I managed for five years the refining business of this company, and I have two main targets, flexibility and efficiency.
Efficiency, of course, because we were experiencing a very deep crisis in the European refining and also in the petrochemical European sector that I was also leading in the company. To cut costs and to be efficient was an issue, now we are trying to do the same thing in the whole company, including the E&P business. Let me say that Repsol has a strong experience weathering the company, weathering businesses in very tough times, being efficient and cutting costs. At the same time, flexibility was also a must.
That means that we could operate our refineries with a supply basket from 30% heavy oils to 50%, depending on the market circumstances and the relative spread of medium oil like Urals and so on, and heavy oils that in a relevant part could come from Latin America, like the Mexican Maya or Morichal from Venezuela or Castilla from Colombia, or even heavy oils coming from Canada. Remember that we have been the first European company processing Canadian heavy oils in our refineries. We could play with these differential margins. When you were talking about Iran, we cannot forget that the called Iran heavy oil, that is a medium oil that is competing with Urals, could be also a catalyst to increase the spread of the medium oils in the market. Could be an advantage for the basket of Repsol.
In structural terms, I see a broad spread for heavy oils in the future, going to the market fundamentals, but anyway, we have the flexibility to modulate our basket. About the maintenance, 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. 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. One step is done. We have in the second quarter, the coker of Cartagena and the hydrocracker of Tarragona and the Isomax in Tarragona. I think that in the third or fourth quarter, Ángel could perhaps give you. I think that is in the first one.
We have the multi-annual stop or shutdown of Petronor only in the part associated with the coker, because the rest of the refinery was shut down one and a half years ago. Let me summarize. We have the coker of Cartagena, second quarter, coker Bilbao, fourth quarter, and hydrocracker and Isomax of Tarragona, second quarter. We have passed the first step, that was the hydrocracker of Cartagena. Thank you, everybody, and have a nice day. Thank you for your interest and for your questions.
With these last words from Josu Jon, we've finished our Q&A session. You know that any further queries, details, or clarifications you may need, our team is entirely at your service. Have a nice day. Bye. Cheers.
Thank you. Ladies and gentlemen, that will conclude today's conference call. Thank you for your participation. You may now disconnect.