And welcome to the Repsol Third Quarter 2015 Results Conference Call. For your information, today's conference is being recorded. Today's conference will be conducted by Mr. Miguel Martinez, CFO. A brief introduction will be given by Mr.
Akel Bautista, Head of Investor Relations. I would now like to hand the call over to Mr. Bautista. Sir, you may begin.
Thank you.
Good day, ladies and gentlemen. This is Angel Bautista, Director of Investor Relations at Repsol. On behalf of our company, I would like to thank you for the time to attend this conference call on Repsol's Q3 2015 results. This presentation will be conducted by Miguel Martinez, our Chief Financial Officer. Other members of the Executive Committee will be joining us as well.
I invite you to read our disclaimer notes. We may make forward looking statements like 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 over to Mr. Miguel Martinez.
Thanks, Angel, and thank you all for attending this conference on the Q3 2015 results. In today's call, we will address 3 topics. First, some remarks on the strategic plan 2016 2020 that the company presented on October 15 second, the market environment for the quarter and thirdly, the quarterly results and the main operational highlights. Let me start with some remarks about the new strategic plan that we presented in last October. The acquisition of Talisman culminate our previous strategic plan in which we deliver all the targets that we committed to back in 2012.
Or to put it in a different way, it was the first step of our new strategic plan. Our strategy for the period 2016 2020 focuses on value and resilience, seeking to harness the group's increased scale and balanced portfolio to create value even in a low oil price environment through increased efficiency and flexible portfolio management. We are aiming for a more competitive and leaner company, adding value by avoiding unnecessary complexity. We will reduce our organic free cash flow breakeven after CapEx, dividends and financial costs below $50 a barrel by the end of this plan. Strong cash flow from the businesses together with a more efficient portfolio will allow us to generate more than €10,000,000,000 of cash for dividends and debt even under a $50 per barrel flat scenario.
The first driver to achieve our targets of value on resiliency would be efficiency. In this regard, we have launched a company wide with specific targets, monitoring and accountability. We aim to achieve OpEx savings up to €1,500,000,000 €500,000,000 correspond to the upstream division, €500,000,000 to the downstream and the rest will come from the corporation and the capture of synergies from the acquisition of Talisman. We will provide regular updates of the progress of this program from the Q1 of 20 16. Active portfolio management will be the 2nd driver for delivering value, an unimportant tool to increase focus on the areas where we can excel.
We will increase our resiliency through reduction of our free cash flow breakevens and company gearing under any scenario. We will divest more than €6,000,000,000 through 2020. Our strategic plan includes the impact of the disposals to be made over the next 5 years. DiCS target has been calculated with an estimated 6 times EV to EBITDA multiple without capital gains. For 2016 2017, our objective is to divest €3,100,000,000 We are not in a hurry, but we have already Spain, transaction that will be closed in cash in 2016, the dilution of our position in Alaska and the sale of our stake in CLH.
We will initially divest assets whose value is not linked to the oil price. The aforementioned sale of part of our pipe LPG business for a multiple close to 4 times EBITDA shows how Repsol keeps a wide range of assets with hidden value that can be divested in the near term, achieving great multiples without penalizing the company ability to generate cash. In Alaska, we have reached an agreement to transfer to Armstrong a 15% of Repsol's interest in the North Slope, plus an option for a further 6%. The value of this transaction is around $750,000,000 reflecting the quality of the asset as valued by a player with a deep knowledge of the area. Our upstream CapEx flexibility allow us to reduce our investment for 20 sixteen-twenty 17 by more than 35% compared to the combined amount of Repsol plus Talisman in 2014.
Of this €2,400,000,000 reduction, €1,100,000,000 corresponds to a lower exploration effort, 600 comes from the capture of cost deflation across the industry together with an operating efficiencies and the other $700,000,000 is a result of lower activity. Turning now to the Downstream, it will remain as a strong free cash flow generator of the expected EBITDA of our downstream comes from the refining division, with the other 50% being quite stable. Thanks to our commercial business and our chemicals division. In our strategic plan, we have established a $6.4 refining margin reference. I'd like to clarify that figure, which has raised some controversy among the oil and gas analyst.
The base Repsol crack margin indicator used for the plan is $2.7 per barrel, which would compare to the margin of an average European refinery. This figure is 25% lower than the average base margin of the last 10 year cycle, where we had periods of low, medium and high margins. We are using for the plan a premium of $3 which compares with an actual of $4.3 during 15. Our mitrogen indicator was $8.8 in the Q3 of the year and has averaged around $7 in October being currently around $9 To finish with this recap of the strategic plan, I would like to reaffirm Repsol's commitment with shareholder remuneration in line with our current practice. Our priority is to deleverage but nevertheless we firmly intend to analyze the potential removal of the scrip option from 2018 on provided that the conditions are favorable.
Turning now to the market environment and outlook for the full year Brent crude prices averaged $50.5 per barrel, more than $11 lower than the previous quarter and less than half the average price in the Q3 of 2014. In relation with gas prices, they were also weak during the quarter. Henry Hub averaged $2.8 per 1,000,000 Btu, a figure that compares with the $2.6 of the previous quarter and with the $4.1 seen in the Q3 2014. In refining, we saw a year on year increase in margins from $3.9 to $8.8 per barrel due to the strengthening of the products and light heavy spreads. On top of the lower energy costs derived from the efforts in efficiency undertaken in the past years, the margin premium thanks to our refinery upgrades has averaged $3.8 in the quarter.
Utilization rate of the distillation capacity was 94.5% during the quarter, while conversion continues to run at full speed. In our marketing activity, we have experienced a 1% growth in gasoline and diesel sales in services stations and 4% growth in the wholesale segment. Based on the current price environment, Repsol estimates CCS adjusted net income for the full year 2015 will be in the range of €1,600,000,000 €1,800,000,000 with an estimated net income in the range of €1, €1,250,000,000 and €1,500,000,000 Now let me move to the Q3 2015 earnings performance and operational highlights. 3rd quarter CCS adjusted net income was €159,000,000 62% lower compared with the same period of last year and 49% lower than in the 2nd quarter. Operating income stood at €511,000,000 in line with last quarter.
CCS adjusted net income for the 1st 9 months of the year was €1,400,000,000 5% higher compared to the same period of last year. 3rd quarter results have been impacted by several atypical effects. First, at the adjusted level, we suffered the effect in tax charges of the devaluation of several local currencies, mainly Brazil, Colombia and Malaysia. This made our negative operating income equal to our net adjusted result. Under nonrecurring items, we book impairments in the Mississippian Lime and in the Gas and Power Business Units, partially offset by the net gains from the sales our remaining 10% stake in CLH and our offshore exploration acreage in Canada.
Looking at the results by division, starting with the upstream business, adjusted net income for the Q3 was minus €395,000,000 which is €580,000,000 lower than the same period of 2014. This result has been mainly affected by low realization prices, high exploration expenses, the absence of production in Libya and the atypical effects in the tax charges previously mentioned. These effects were partially compensated by higher production, mainly as a result of the contribution of Talisman assets and the ramp up of the strategic projects in Brazil and Venezuela. Higher exploration expenses due to the write off of 2 wells in Angola that were previously under evaluation together with another negative well in Norway have materially impacted our results in the quarter. The remaining drilling schedule for the last quarter of the year in line with our strategic lines for 20 sixteen-twenty 20 is made up of less risky exploration.
The news come from the successful completion in November of the second appraisal of the Pal de Acucar discovery in Campos Basin. Before the end of 2015, Repsol Sinopec, Brazil plans to test a well in the Siad discovery in the same block. Average production in the quarter stood at 653,000 barrels of oil equivalent per day. This figure is 79% higher year on year and 24% higher than in the Q2 of 2015, which includes less than 2 months of production from Talisman assets. In October, daily production has averaged 685,000 barrels of oil equivalent per day.
Year on year, performance excluding the impacts in results of Libya's and Talisman contribution is explained as follows. Lower crude oil and gas realization price had a negative impact at the operating level of €464,000,000 Taxes had a positive $64,000,000
Taxes had a positive
impact of €185,000,000 due to the lower results, partially offset by the impact of the devaluation of the local currencies, mainly in Brazil. Higher exploration expenses lead to a a decrease in the operating income of €70,000,000 Higher production, thanks mainly to the ramp up of our sapinhoa project in Brazil and Cardon in Venezuela result in a positive impact on the operating income of €36,000,000 Other minor effects explain the remaining difference. The impact of the disruption in Libya was minus €131,000,000 and minus €42,000,000 in the operating and net adjusted income respectively. Operating income of Talisman asset was minus €57,000,000 We had positive results in Southeast Asia and Colombia that were offset by exploration expenses and the negative results in Norway, Australia and North America. The contribution to the adjusted net income has been minus €90,000,000 due to the mix of results with different effective tax rates and the impact in taxes of the devaluation of local currencies, mainly Malaysia and Colombia.
Turning to our Downstream division, CCS adjusted net income in the quarter was €682,000,000 significantly higher than the €190,000,000 of the Q3 of 2014, €243,000,000 above the result of the 2nd quarter. Adjusted net income for the 1st 9 months of the year was €1,700,000,000 158 percent higher year on year. This improvement in earnings is mainly driven by better refining and petrochemical margins and an enhanced performance in the commercial and trading businesses, partially offset by lower results in gas and power. Drilling down into the quarterly results in refining the higher margins together with higher utilization rates had a positive impact at the operating level of €273,000,000 In the petrochemical business, we continued to previous positive trend improving operating income by €186,000,000 We are In the commercial business, operating income increased €24,000,000 year on year, driven by sales growth in service stations and in wholesale business. Moving to Gas Power and Trading, these businesses increased their joint operating income by €65,000,000 With regard to Gas Natural Finosa, the €103,000,000 adjusted net income in the Q3 of 2015 was higher year on year, mainly due to the contribution of CG Chile that offset the lower result from gas commercialization and lower contribution from the gas and power distribution businesses in Latin America.
Moving now to the financial aspects. Our 3rd quarter financial result was €223,000,000 of net expense compared to a financial expense of €12,000,000 in the same period of last year, due mainly to 2 effects. We booked a positive exchange rate position result of over €100,000,000 in 2014, while accounting a small negative in 2015. The second reason is €65,000,000 increase in interest payments on debt as a consequence of the consolidation of Talisman. The group's net financial debt at the end of the 3rd quarter amounted €13,100,000,000 a decrease of €141,000,000 compared to the end of the Q2 of 2015.
Our liquidity positions stands above €9,000,000,000 As a conclusion, we may say that we ended a challenging quarter where atypical effects like the exchange rate impact on our taxes and non recurring items have lower our net income. Focusing on the underlying performance operating level, our results have been in line with those of the 2nd quarter. With a new strategic plan, we have begun a new era for Repsol. Thanks to our largest scale, we have given ourselves the tools to improve value for our shareholders through a more flexible and focused allocation of capital, while implementing our company wide efficiency program. Thanks so much.
Thank you very much. We are moving now to the Q and A session. In case you run into any technical problems during the webcast, please send an e mail to investorrelationsrepsol dotcom, and we will contact with you immediately and try to solve it. And now we are moving into the Q and A. Our first
Thank
Well, we are starting with Brendan Warm from BMO Capital Markets. Hi Brendan, how But I was going to say, Miguel, could you just talk through the sort of the 307,000 barrels a day contribution from Talisman and seeing this is our 1st full quarter, can you just talk through, call it, the margins you saw per barrel? And if you could just break it down a little bit further from region. Obviously, you got support from Southeast Asia. But could you just talk through which assets contributed positively and negatively and in terms of the price effect being at $50 this quarter, please?
Thank you for your question, Brendan. Basically, I may say that as you show, we clearly have a defense in the Southeast Asia assets because of the PSC type of contracts. So this has been the positive part along with Colombia and Algeria, also PSCs in Algeria, I mean. So basically, those have been the positives. I'm not going to disclose the operating margin 1 by 1, but in the other side of the equation for sure, Norway, it's in the negative part of the equation, while Canada and the U.
S. Have been almost even, but in the negative side of it. And this is as much as I can clarify.
Okay. Cheers, Miguel. Thanks, Brendon. Thank you very much, Brendon, for your questions. Now we're moving to Flora Trini Dadene from BPE.
Sorry Flora for that spelling of your name. Please go ahead with your questions.
Hello. Good morning. No problem. The first question is on the specifics of results. So considering the strong losses in upstream this quarter, Can you give us an idea of what are the trends for Q4 and effectively what this does mean for your expectations for EBIT in the upstream division throughout the year?
And then secondly, on downstream, the performance of the chemicals business has been outstanding. What part of this do you believe is sustainable? So what would be a reasonable level for next year, for instance? And then finally, I'd like to ask a question regarding the EBIT bonds. There was a decision by the S and P on the equity weightings.
Just wondering if you are working on any changes in the causes or if you are looking for alternative funding options. What are your thoughts on this? I noticed that you haven't changed the accounting in this quarter release. So just wondering if you could share what you think about it now? Thank you.
Thanks for the question, Flora. Starting by the for the last with the third point. First, we don't have to change the accounting because I mean what have changed is the ruling of an agency, but the IFRS remains exactly the same. So under an accounting point of view, the agencies at least in that area doesn't account too much. In relation with the rest of around the hybrid, I may say that in December as of December 14, we reached somehow an agreement in which it was a package, a package which includes €5,000,000,000 of issuance, plus €1,000,000,000 in divestments, plus €1,000,000,000 as net present value of the synergies.
As of today, and we had I mean, the agreement also include 18 months since the closing of the transaction of Talisman. So we still have almost a year to go ahead with to fulfill this agreement. But I have to say that it's a package. And right now, our synergies are their net present value is closer to $2,000,000,000 than to $1,000,000,000 I'll have to say that the divestments only in this 1st 6 months have been around €2,000,000,000 So we are doubling these two parts of the agreement. So we'll have meetings with the agencies once we have the closing of the year, probably by the end of February.
And then we will see, which is the new way we found out. But one thing is clear, I mean, we keep totally committed to maintain the investment grade. In relation with the first question about the results in upstream, I may say that for the Q4, if we take out the impact of the $127,000,000 due to the devaluation of different currencies. And also you take out, let's say, approximately $80,000,000 dollars from the exploration costs. So if the rest of the variables remain even with the 3rd quarter, we should improve this quarter results by $200,000,000 approximately.
And in relation with the downstream performance, especially in the chemical business, I would say that approximately 60% of the improvement comes from the market conditions and 40% is all the homework that has been done in the business in the last, I would say, 2 or 3 years, in which we have modified the structure of the business, we have downsized it. We have changed the feedstock of the whole business and additionally including extraordinary measures to be energy efficient. So I would say that 40% of the improvement is permanent and the rest will be on the market. Did I answer you, Flora?
Yes. Thank you.
Thank you very much, Flora, for your questions. Now we move to Felipe Rosa from Haitong. Hola Felipe, please go ahead with your questions.
Good morning to everyone. So three questions from me as well. The first one in terms of CapEx outlook. So I know that you have just done your strategic plan, but the Brent price continues to drop, the natural gas price in U. S.
Continues to drop versus I think like 3, 4 weeks ago. And my question relates to 2016. What will be your flexibility to lower your CapEx if the oil price in the area stay at the current level? And what could be if you could provide some guidance for the output in 2016 and what could be the risk associated to the need to lower CapEx because that CapEx would not be profitable at the current level of the brand and of the area? That will be my first question.
My second question relates to asset divestments. I would like to ask whether you feel more pressured now than you were 3 weeks ago to accelerate the asset divestments as the again, there's been a further deterioration of the pricing backdrop in the industry and whether you could announce you believe that you could announce further asset divestments still during this year. So that will be the second. And thirdly, just a follow-up on the Chemicals business. Could you just give us an idea what is the free cash flow or the EBITDA that you are considering in your guidance for the downstream business?
What is the component allocated to the chemicals? Just for us to have an idea what would be your expectation for recurrent EBIT coming from this division? Thank you very much.
Thanks, Felipe. Well, starting with the Capa's flexibility, I may say that the easiest part or the most flexible part would be the exploration wells that are not committed. So we have some room there. Other than that, I would say that there is no much flexibility. I mean, perhaps 100, but we are not talking about huge flexibility.
Having said so, you have to think that basically, we don't look in any of our investments just to today's price. So I would say that basically would be some 100s in the at the exploration level, but not much. This over the 4.8 $1,000,000,000 that was the CapEx estimate for the 2016.
Sorry, but just because but in U. S, you have some flexibility you have some flexibility because you're saying that you are now about breakeven. And the oil price in Q2 was higher than sorry, in Q3 was higher than it is now. The area was also higher than it is now. So you probably lose more money if you continue to invest there.
So could you, for instance, cut your CapEx in the U. S, if there is this persistently low oil and gas prices?
I mean, we are reducing the number of rigs to 1 in Marcellus and to 2 in Eagle Ford. I mean, it's going to depend much in where the price goes. If it remains at this level, we think that this is where we will keep working. If the prices and you are looking at a scenario totally different from the around $50 we are in today, for sure we will modify that. But was thinking more in this $50 world in which we have projected our figures.
But I mean, you are right in a sense that if it goes to a really low, low level, we'll take measures. I mean, basically, we're playing for cash, both in Marcellus and in Eagle Ford. So as mentioned in the strategic presentation, the production growth is not an objective anymore. So we will play for cash. And but in that sense, I mean that my perception is other than exploration other than some exploration, it would be only 100 what we can reduce.
Okay. Thank you.
In relation with the asset divestment and feeling more pressure, I don't feel any pressure at all, believe me. I haven't I mean, we haven't started yet the period of the strategic plan and we have already coped with 1 third of the divestments. So on average, I'll have to divest something like €800,000,000 per annum, having a total capital employed of around €43,000,000,000 44,000,000,000 Really, there's no I don't feel any pressure for the pricing backdrop. And in relation with the chemical business, can you repeat the question please?
Just first to have an idea what could be your EBIT assumption in your plan, in your business plan, how much you are assuming in terms of contribution from chemicals? Because you spoke about the split between 60% market, 40% your own homework. Just for everybody, okay. So in terms you made €200,000,000 in a quarter, okay. Now, so what could be your expectation for the EBIT of Chemicals in, for instance, 2016?
What are you incorporating in your business plan?
Sorry, Felipe, but we don't give the split per business. Sorry about that. I was going to tell you, but
Thank you.
Sorry about that, Felipe. I'm the bad guy. I know. Thanks, Felipe. Thank you very much.
Now let's move to Hamish Clegg from Bank of America Merrill Lynch. Hi, Hamish. Go ahead, please.
Hi, guys. I've just come back from the U. S. Meeting a lot of U. S.
E and Ps who've been amazing me with the amount of efficiency gains they've managed to capture. I was wondering if sort of 6 months in, you could give us maybe a little bit of a guidance on what sort of efficiencies you're managing to get in your U. S. Onshore portfolio, maybe what some of the sort of easiest wins are you're seeing and what the challenges are? Any color on average drilling days, length of laterals or down spacing would be very, very welcome.
That was my upstream question. And then just in the downstream, looking at that chart where you showed us the real deltas between Q4 last year and where we are today, how much of that gain can we put down to the sort of Brent Myers spread? I wasn't sure where the feedstock element of that came in that chart. Would it be in the sort of refining bar or is it sort of spread equally between some of them?
Okay. Starting with the second one, the Maya spread has opened up to $14 and it's really sustaining the an important part of the margin in this quarter. We have moved from the driving season into the, I would say, winter season. And the I think that we are going to depend much on the temperatures for the year end in relation with the spread above the diesel. Right now, the whole margin, it's more or less at the same level we had in the 3rd quarter with a small reduction during October due to the contango situation of the diesel, but it has recovered quite well.
So it's difficult for me to an important part of it has been due to the increase in the spreads on heavy and light, okay? And in the guidance in relation to efficiency, I would say that the first thing we have to assess in at least in my opinion is to really gain efficiency in the Eagle Ford asset. Right now to have 2 operators in the same asset doesn't make much sense. So other than in operations, I think that we should reach agreements with Statoil in order to really improve the area. In relation with the drilling, Angel is telling me that 33% of improvement in drilling costs per foot is what we have obtained from 2014 full year to this quarter in 2015.
I don't know if that's much help or not, okay?
Yes, that's good. I think you're probably exceeding some of the U.
S. Peers of that.
I'm sorry for not being able to be with you in Florida in the previous days, because having the presentation of results just a day after it was difficult for me to move there. But next time, I promise I will be there. Okay?
Always a spot. Thank
you. Well, that was Hamish Clegg from Bank of America. Now we're moving to Biraj Bohataria from RBC. Hi, Biraj. Always nice to speak with you.
Go ahead.
Hi, guys. Thanks for taking my questions. I've got 2. First one on the downstream conversion utilization remains above 100% and has been for a few quarters now. So I was wondering what number is baked into your plan and how you what numbers should that be on a sustainable basis going forward?
And then the second one was on the portfolio as a whole. One of the historical problems with ttalizan is that there are a large number of potentially suboptimal assets with subscale. And you said before, you may look at asset swaps to concentrate the portfolio. So I was wondering if you see are you seeing opportunities at the moment to execute these asset swaps outside of the Eagle Ford potentially? Thanks.
Well, in relation with the first one, we can work our conversion at 100% permanently other than taking into account the maintenance, especially the pluriannual maintenance, which in fact for the next year will have a I mean Cartagena and Bilbao will have maintenance for basically for the cokers in both refineries. And the idea is to work almost at 100%. The assumptions in the strategic plan were that conversion will work at 96% in 2016 and for the rest of the year at 100%. And this 96% as mentioned is due to the maintenance both in Cartagena and Bilbao. And in relation with the suboptimal assets, I mean, we are looking to the market and we are primarily thinking on opportunities to really achieve this €6,200,000,000 of divestments as well as optimizing the main portfolio.
So I do not discard any transaction, but if there were any, for sure I will not tell you, sorry about that, okay? But we look permanently and any option we have, Biraj. Okay?
Thanks, guys. Thank you.
Thank you, Biraj. Now moving to Thomas Adolff, Credit Suisse. Hi, Thomas. How are you? Go ahead, please.
Hey, thanks. Sorry, I missed your strategy update. So I do have a few questions. The LPG assets, you've got some you sold some assets, very good valuation. Aside from those, I wondered how much more of the EBITDA you consider non core in the LPG business?
And question on Alaska, you may have put out a press release, might have gone into my spend, but $750,000,000 is a good value for 15%. I wonder whether that's cash straight in or whether there's some form of a structure around that and whether you can give some color on reserves, resources and commitments. Presumably, Armstrong isn't just going to hand over $750,000,000 and sit on it without it being developed? And then the last one maybe, since you've started production on CAD on, payment wise, has that been going smoothly? Thank you.
Thanks, Tomas. In relation with the assets sold, I mean, we still have an extra 200,000 contracts to dispose. We are already working on those. And probably we will add up to the transaction you just mentioned. And but both I expect both to be closed in 2016.
Remember that we sold in 18% I mean, the assets sold implied an 18% of the total EBITDA generated by the LPG. Other than the pipelines, I consider the rest as core business. So we'll keep the unit the way it is without the pipelines. In relation with Cardon, it's running smoothly. Yes, we have a minor incident in August, but it's running smoothly.
And we expect to increase production up to 400,000,000 cubic feet a day by the year end. So everything is working smoothly.
I was referring to payments?
Yes, we have received payments. July August have been paid, and we're expecting September. So no problem at all. And the contract also was a favorable one. The final agreement reached with authorities was a good one.
So no major deals no major problems on it. And in relation with the resources, we have announced 100. We haven't split much, but if you want through IR, they will provide you some more color.
Announced so far, you're not going to sell more of the LPG business or you said there is going to be another 200,000 contracts to be sold?
I will say that, yes, we are going to sell the rest of the contracts of the linked to the pipelines.
Okay, got it. Thank you.
Okay. You're welcome, Thomas.
Thank you very much, Thomas. Now it's Lydia Rainforth from Barclays. Lydia, good to speak with you again.
Thanks, Danielle, and good afternoon. Just two questions actually, if I could. Yigal, can
I get you to come back
to the non upstream Talisman upstream performance, because even if I adjust for the exploration and the deferred tax impact, it still looks like the core Repsol business lost money and under 12,000,000? Can you just talk through a little bit more detail around that and where the biggest area for concern actually is? And then the second one was very, very quick question just as to where you're seeing the indicator refining margin right now? Thank you.
Thanks, Lydia. The second one is 8.8 as of today as index, okay? So we are back in track with the margins we had in the 3rd quarter. October was a little weaker due to the diesel situation of high contango and we reached $7 on index in October. But we are back to the high 8s, lower 9s in November.
And in relation with the non Talisman upstream performance, I would say that you were asking me, Lydia, about the comparison with Repsol assets or Talisman itself?
So if I take out Talisman, if I just go back to what you would have had just a standalone Repsol without Talisman, I mean, if I even if I add back, the exploration charge and the deferred tax charge, it still looks like that business lost money in the existing environment. And I'm just wondering if there's a particular area that concerns you, be it Venezuela or one of the other areas or whether that's or whether it was anything unusual during the quarter?
Well, at operating level, we have 395 negative result for the whole division, okay? If I reduce that figure by the 2 $6,000,000 of exploration, I ended up with something like €130,000,000 of losses, From this €57,000,000 is, it's in the figure of Talisman. So Repsol assets has been around 63,000,000 Taking into account that we are a little larger in bottles produced on them, I think that we are more or less even on that. And if I have to mention areas of concern, I will say those that are more sensitive to the oil and gas prices. In that sense, I would say that Trinidad, Venezuela are areas of higher sensitivity than Southeast Asia to say something.
But on the quarter, I didn't perceive. I mean, if I move the figures through the operating results, I see more or less a similar behavior from both the assets of Talisman and those of Repsol. Okay, Olivia?
Perfect. Thank you very much.
Thanks for the questions. Now we're moving to Matt Lofting from Nomura. Hi, Matt. How are you today? Please go ahead with your questions.
Hi. Thanks, Angel. I'll limit myself to one question actually. Miguel, can I just ask about sort of exploration activity going forward and specifically the exploration expense line, I guess, partly sort of following up from Lydia's question? You talked, I think, earlier about the expectation of lower risk, lower crossed program going forward.
I guess, though, the exploration expense write downs that we continue to see coming through the P and L are sort of chunky again in Q3. Can you just confirm how you see the expense line trending going forward and whether there's any other sort of similar to Angola high cost work in progress asset sitting on the balance sheet that you see significant risk of needing to write down over the next few quarters? Thanks.
Matt, I would say that we still have some Matt, I would say that we still have some commitments that we have to go through. And talking about those high risk, I will mention that we have a commitment with ENI in Angola for the next year. Other than that, we have a commitment as well in Bulgaria, but it's not, I would say, a very expensive exploration program there. And finally, the rest is onshore Colombia, which will not be that expensive. And then we have lower risks in Vietnam, Malaysia and Indonesia.
So basically, we are moving as it was assigned in the strategic plan to lower risk exploration program. And also we are reducing, as mentioned before, from the 9.3 dollars per barrel produced at risk in exploration down to 3.2 we are aligned with the strategic plan other than the commitment with Angola. I don't see any major risk in front of us for the following
Hi, John. Good to speak with you again. Please go ahead, please. Hi, Angel. Hi, John.
Good to speak with you again. Please go ahead please.
Hi, Angel.
Miguel, can I ask question about Brazil? And there's 2 related questions actually. The first is that, if I look at the cash and receivables that you have sat in there and that come from the original relationship, it looks to me that they're actually starting to rise a little bit. So is it right to infer from that that Brazil is effectively self funding? In which case, I guess that begs the question, is there a mechanism that's starting to become relevant about clearing some of that cash back to Repsol itself?
And what that mechanism is? And the second is related to that. If you were to look to try as part of your disposal program to sell anything in Brazil or farm down, is there an issue with that between yourself and a third party with your existing partner that would complicate the structure of any kind of disposal or sold out? Thanks.
Thanks, Jan. If you remember, when we I mean, when Sinopec enter in Brazil, it was through a capital increase. So basically, we really have cash to self I mean, in Brazil, we'll be for sure self funding quite relaxed in a quite relaxed mood, I would say. The truth is that we don't need any claim cash back there. I mean, we already have both partners have a percentage of this of the accidents we have in of the guys we have in Brazil.
And each of the partners have the right to their percentage, 60% in our case, 40% from for the Chinese. So we don't need a claim to cash back because we already have the cash of the 60% of excess that we have there. And in relation with the second one, well, actually we'll have to look at any type of transaction. I mean, if the Sinopecs are with us and they want to sell combined, there wouldn't be any problem. If not, we'll have to analyze it.
But for sure, it's by far more complex when you have a partner within a company that when you are in a standalone basis. So I would say, yes, it will complicate the structure of the disposal.
Just one other follow-up, if I could. So on a previous question, I think we discussed the Angolan commitment wells Q1. I think you said then that the final well was at the sort of partner's discretion to drill. Is that still the case? And is it absolutely certain that you would have to drill the final well?
Yes. No, the NE1, it's I mean, the ENI well is a committed one. In other of the areas, we have the option to have a discretional one, but this is totally I mean, it's committed.
Okay. All right.
Thanks for the clarification.
Thank you, John. Now let's move to TPH, David or David Gamboa.
I just had one quick question on the operational side, particularly Sorry,
can you speak a bit louder?
Yes. Is that better? Can you hear me there? Hello?
Yes, yes, much better.
All right, all right. Sorry about that. Just one question on the operational side in the upstream in Brazil. Just wanted to know if you can give situation at BMC 33. We saw the last appraisal of the oil discovery there was a bit gassier and actually flowed a bit of condensate as well.
So just wanted to know about your updated thoughts of the discovery over there and if that impacts any potential timing on the FID? That will be it. Thank you.
Taking into account the size of the project, timing is not an issue. First comment, so we'll see and we have to agree with our partners where to go. I think that there was a lot of condensates. We're talking something like close to 200 or 180 barrels per 1,000,000 standard cubic feet of condensate. So we don't see a major problem there, though it's true your comment that the Discover was gassier and have to think of it.
In front of us, we have at least 2 years of appraisal before taking any final decision about Campos 33.
That's very clear. Thank you.
Thank you very much, David. Now we move to Irene Aymona from Societe Generale. Irene, how are you? Go ahead with your questions.
Hi, Angel. Thank you. Miguel, I had two questions, please. Firstly, obviously, the CCS adjusted tax rate is a little bit complicated by the effects of the currency devaluations. I just wondered if you can give us your sort of best estimate for full year 2015 CCS adjusted tax and then perhaps for 2016, 2017 under your $50 scenario?
And my second question is on the balance sheet. Obviously, this is Q3 is the 1st full quarter with Talisman. And you show a goodwill of €3,200,000,000 at the end of the quarter. I noticed that this is 16% higher than the €2,800,000,000 of goodwill at the end of June. But of course, in June, you had already consolidated Talisman.
So I wonder if you can please explain where the goodwill increase has come from? What has changed between June September? Thank you.
I will start with the second one. That seems easy to me. I mean, when we change the price deck, something that we did in October, we have to reanalyze all the impairments of all the assets, both Repsol and Talisman. The accounting rules allowed you to have a year before finally closing the PPA. So what we did was really reanalyze all the Talisman assets with the new price deck.
And instead of the $2,600,000,000 we have accounted as goodwill at the end of the second quarter, we ended up with $3,000,000,000 by the end of this quarter. So we have increased the goodwill in $400,000,000 And in relation with the devaluation and tax rate base estimates, I would say the tax rate for the year, our best estimates today is going to be a little below 40%, so 39% between 39% 40%. And in relation with 2016 2017, I don't have the figure at hand. But basically, if you take the rule that we move from 25% around 25% at the downstream level. And at the upstream for sure depending on Libya will vary, but something around 40%, 45% would be the figure for the upstream.
That's one of the reasons why this quarter has been really strange because of the currency devaluation, which has impacted in $127,000,000 on due to the devaluation basically in Brazil. But this is the most color I can provide you. If you want, Angel will provide you with the tax rate we have been using for the wholly strategic plan on a yearly basis. Okay?
Thank you very much, Miguel. Thank you.
You're welcome, Irene.
Thank you, Irene. And now moving to Alastair Syme from Citi. How are you, Alastair? Good to speak with you again. Let's go ahead, please.
I'm good, Gal. Thank you very much. Can I just ask I think Thomas asked the question on the Armstrong deal, but I'm not sure that we got an answer? Can we just clarify the mechanics of that deal? And is it is the €750,000,000 relating to the 15%?
Or is it for the option as well? Thank you.
It refers to the 21% and it's $750,000,000 which is the carry that was pending on our side, okay?
Okay. So cash in is
It's an non cash out, putting it that way,
And just in terms of the resource base that you have in Alaska then?
Well, as mentioned, Angel will provide you some color about the resource base. We have been talking in our press release about 100, but Angel will let you know better, okay?
And finally, can I just quickly come back to your prepared remarks, you were summarizing the strategy presentation? You made a comment on the script dividend. Can I just clarify what your view is on moving to a point of getting rid of the script? Thank you.
I would say that for us the base is investment grade. So if we reach the comfort zone, which to me it's the BBB, medium range of the BBB, I think that then there would not be any reason to maintain the scrip dividend. We don't think we are going to reach that level in the 1st 2 years, so we'll keep the scrip for 1st 2 years. And then if the conditions are there and our level is a balance or a stable BBB, we will raise the scrip dividend.
Okay. Thank you very much.
Hi. Thanks a lot, Alastair. And now we have Nitin Sharma from JPMorgan. Hi, Nitin. How are you?
I'm good. Thanks. Afternoon, gentlemen. Two questions, if I may. First on downstream.
The contribution from petrochemicals business has been particularly strong. So maybe you could give us some color on the outlook for this business and an update on what sort of self help measures have helped you improve the profitability of this business? 2nd, more a clarification. This is in relation to divestment target of €6,200,000,000 Is it fair to say that you still see potential to meet this target even under your $50 oil price scenario, given that you suggest that you'll rely on non oil assets if oil price remains low? Thank you.
In relation with the first one, I think that Angel already kicked again my legs, so I cannot disclose more, but sorry about that. In relation with the second one, the answer is yes. Think that the $6,200,000,000 didn't include any net gain. With the first 2,000,000,000 dollars including and I'm including something that has not been signed, which is the last part of the pipeline gas, we will obtain all in $700,000,000 of net gains. So for the rest $4,000,000,000 I really have a I mean, it's not that difficult to really fulfill the EUR 6,200,000,000.
And if you look at the past, you will see it clearly. I mean, in the last 3 years, for different reasons, we de best more than EUR 10,000,000,000 dollars 4,500,000,000 in the LNG business in a good moment and $6,300,000,000 from Argentina. And even without starting the 2016 2020 period, we already have $2,000,000,000 So I don't see any problem at all to really obtain the extra $4,000,000,000 that are needed, even in a low scenario.
Thanks.
Thank you very much, Nitin. Well, with this, we have finished the Q and A session of our Q3 2015 results. You know that any further queries, clarifications you may need, the IR relation Investor Relations, sorry, Department of Repsol is entirely at your service and a nice day. Cheers. Bye.
Thank you. That will conclude today's conference call. Thank you for your participation. Ladies and gentlemen, you may now disconnect.