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 taking the time to attend this conference on Repsol's Q1 2015 results. This presentation will be conducted by Mr. Miguel Martinez, our Chief Financial 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 or similar phrases. Present results may differ materially depending on a number of factors as indicated on the slide. And I now hand the conference over to Mr.
Miguel Martinez.
Thanks, Angel, and Thanks, Angel, and thank you all for attending this conference on Q1 2015 results. CCS adjusted net income of the quarter was 9 28,000,000 74% higher compared with the same period of last year. Before going into detail with the results, let's review the structure of the conference. And today, we will address 3 topics. 1st, an update on the acquisition of Talisman 2nd, the market environment for the quarter together with the main operational highlights and finally the quarter results.
We ended the year 2014 with the announcement of the agreement with Talisman's Board of Directors to acquire the company. In order to consolidate our strategic objective of growing in our Absinthe division, we decided to enter into this transformational transaction. During these months, many people from both organization have been devoting great efforts within the scope of the arrangement agreement in order to successfully close this transaction and achieve a smooth integration. As was already announced in the Annual General Meeting held on April 30, the closing of the transaction will take place tomorrow. Therefore, from tomorrow on, Talisman assets will be a part of Repsol and will consolidate within the Absinthe division.
Repsol enters into this new phase with almost no debt and the integration will take us to a pro form a net debt to capital employed ratio of 27%. After the closing, our pro form a consolidated liquidity will remain strong at more than $8,000,000,000 representing 2.7 times the short term debt. We will present information on data on the 2015 combined figures during the Q2 results presentation, once we assign every asset its corresponding acquisition value. Additionally, the Repsol Group will present a new strategic plan before the end of the year that will lay out the foundations for the expanded group's activity with a very special focus on value creation. With our broader portfolio, better opportunities will be created in order to unlock the value through portfolio management, streamlining CapEx and through the allocation of capital to the most valuable projects and assets.
I'm sure you understand that we are unable to make any comments regarding Talisman assets or results until after the closing. Let me now give you an update on the market environment and the operational activity of the quarter. Starting with the macroeconomic environment, during the Q1 of the year, the weakness in oil price continue, counterweighted by a strong U. S. Dollar.
Brent crude prices after a month of January which a minimum of $45 per barrel was recorded show a small upward rally ending the period at the same level with which 2014 closed around $54 per barrel. At the end of the quarter, we continue observing a certain upward trend in oil prices, which supports our medium term view of higher prices necessary to achieve the right balance between demand and supply. This scenario has occurred within a context of higher volatility, which we believe will still be the case in the short term. However, thanks to the reverse correlation between oil prices and the U. S.
Dollar, our earnings are somehow hedged given that we generate our earnings in U. S. Dollars while a significant part of our expenses are euro denominated. Nevertheless, what is more important is that our integrated model allow us to remain resilient even in a low crude oil price scenario. Sustained higher refining margins are protecting us in the short term from this situation.
Additionally, the significant portion of our gas production not linked to oil price provides further stability. Stake that provides a stake that provides further optionality to protect the company against any possible scenario. Let me now address the operational activity of the quarter. Starting with the upstream business, in exploration during this Q1, 6 wells, 5 exploratory and 1 appraisal were concluded. 1 exploratory well with a In April, we conclude 2 additional exploratory wells in Algeria and in Alaska both with positive results.
Let me highlight the finding Algeria where continuing with the successful exploratory campaign a new gas discovery was made the Teso II well. It's the 3rd one in the Illisi block a high potential area in Southeast Algeria. Repsol is the operator of the block with a 50 2.5% stake. Additionally, in April, we conclude 2 appraisal wells with positive results in Alaska. The ongoing exploratory and appraisal campaigns in Alaska, Russia and Brazil continue advancing with good expectations on the results already obtained.
In Alaska, where we have already accomplished all the drilling goals in the limited period of time available, the production tests were positive. In Russia, a new discovery well in Block K-one will add contingent resources. And in Brazil, the Pao de Acucar appraisal 1 well consolidated certievable volumes of resources in Campos 33. Let me highlight also our activity in the prolific Caipipendi area in Bolivia, where new discoveries in Wells Margarita 7 and 8 with a 5,000,000 cubic meters per day production capacity will add reserves and bolster Repsol gas production in the country. At 30th April, 12 exploratory and appraisal wells were ongoing, out of which 7 are exploratory in Angola, Brazil, Peru, Norway and Romania and 5 are appraisals: Brazil, Russia, Bolivia and the U.
S. Taking about our development projects, it's worth highlighting the progress in Sapa Nona in Brazil. In Sapa Nona North, the first well was connected our second FPSO in place, Ciudad de Ihabela in November 2014. During the Q1 of 2015, a second well producing 40,000 barrels per day gross was connected. The quality of the reservoir is excellent and economics per barrel will improve further with the opening of new wells.
At the end of 2015, peak production is expected to be reached in the second FPSO, which has a gross capacity of 150,000 barrels per day. Together with the first FPSO, the field will reach a plateau of 270,000 barrels per day. In Venezuela, first gas from Cardon is planned for mid-twenty 15. This first phase of the development will produce 150,000,000 standard cubic feet per day and we maintain the original dates for the other phases. Let me also give you an update on the situation in Libya.
Unfortunately, our production in the country continues to be interrupted and we have no visibility on when the situation may change. International efforts are concentrated on resolving the Libyan conflict and we will be ready to resume operations once the situation is normalized since our facilities have remained in good shape throughout the conflict. Turning to production. The average production for the quarter stood at 355,000 barrels of oil equivalent per day. The production was 4% higher year on year and 10% if leaders strip out from both years.
The main factors behind the increase are the ramp up of Sarpinoa and Mid Continent and the startup in March 2014 of Quinteironi, all partially offset by the suspension of activity in Libya. Compared to last quarter production of 371,000 barrels of oil equivalent per day, the decrease is mainly attributable to the effect of the total interruption of production in Libya during this quarter that compares to the 13,000 barrels of oil equivalent per day produced in the Q4 20 14 and other minor decreases in Quinteroni and Trinidad and Tobago. In relation with costs, Repsol has always especially in the current situation has applied strict cost efficiency culture. Several cost reduction initiatives are already in place and starting to deliver with regards to high impact drilling and logistic costs. Others has also been identified to be implemented in the near term.
This quarter, we already had a 5.7% year on year decrease of Apsim operating costs on a nonmongeous basis. Moving now to the operational highlights of the Downstream division. And with regards to the refining environment, we have average record margins during the quarter, thanks to the strengthening of the spreads of products linked and not linked to oil prices, together with lower energy costs. We were able to better capture the benefits of this advantageous situation due to the complexity of our refining system, reached after the strategic investments carry out in our refining system between 2,007 2011 and the self consumption efficiency program addressed under the CO2 emission reduction program. In 2014, this energy savings rendered an extra premium of $1 per barrel compared to 2011 when this program was put in place.
Our refining margin indicator in the quarter was $8.7 per barrel higher than the $3.9 per barrel reached during the Q1 of 2014. The distillation utilization rate was 82% during the quarter, while conversion capacity reached 99% of utilization. During the Q2, we continue enjoying solid refining margins. In petrochemicals, the competitiveness program that we put in place some quarters ago has allowed us to increase efficiency, creating operational improvements in our sites. This together with higher sales and improved margins allow us to enhance the positive results achieved in previous quarters.
In the commercial business, marketing and LPG, we had higher volumes. Let me emphasize that in the Q1 of 2015, sales in our marketing division in the Iberian Peninsula and the market in general continued the growth trend seen in 2014. In Gas and Power, while sales increased the price environment in North America was tougher. Price fell around 40% year on year and the gas price reference Algonquin lost almost $9 per 1,000,000 Btu. Despite these factors, our result was above breakeven.
Let me now move to the Q1 20 15 earnings performance. Q1 2015 CCS adjusted net income was €928,000,000 74 percent higher compared with the same period of last year. The good results in the Downstream business and the one off gains coming from the exchange rate positions due to the net asset dollar position held for the acquisition of Talisman more than compensated the lower results coming from the Absa business. It's worth noting that even in this challenging scenario, the company has been free cash flow positive during the quarter. Starting with the Absint business.
Adjusted net income for the Q1 was minus €190,000,000 The result has been affected by the lower oil prices, the suspension of our Libyan operations that has an impact of €148,000,000 income €51,000,000 at the net income level the exploration costs the unusual tax effects related to the depreciation of the real against the dollar in Brazil in an amount of €69,000,000 and the one off adjustments in Venezuela carried from 2014 coming from the operator in an amount of €50,000,000 The year on year performance excluding Libya is explained as follow. Lower crude and gas realization prices had a negative impact at the operating level of €349,000,000 Higher production, thanks to the ramp up of Chapinha and Mid Continent and the start up production in Kinteroni in March 2014 resulted in a positive impact of €76,000,000 Higher exploration costs lead to a decrease in the operating income of €75,000,000 The increased costs were mainly due to higher amortization of wells among which is worth highlighting Astrid in Canada, Mexico and Omoce in Angola. Higher depreciation charges due to higher production had a negative impact of €22,000,000 Taxes had a positive impact of However, the overall tax expense should have been much lower in this quarter given that the Absinthe division had a negative operating income during the quarter.
The higher tax expense was largely driven by the effects related to the depreciation of the local currency against the dollar in Brazil. Income of equity affiliates and non controlling interest, the exchange rate effects and others explain the remaining differences. Turning to our Downstream division. CCS adjusted net income in the quarter was 534 €1,000,000 which compares with the €290,000,000 of Q1 2014. Drilling down into the quarterly results, in refining, we saw a year on year increase in margins per barrel due to a generalized strengthening of the product spread and to lower energy costs derived from the efforts in efficiency undertaken in the past years.
These higher margins and also a higher utilization rate had a positive impact at the operating level of €295,000,000 It's worth noting that €23,000,000 of the increase in operating income corresponds the allow us to improve the operating income by €97,000,000 This improvement is due to the competitiveness programs implemented together with a better market environment. In the Commercial division, the LPG was the main driver of the €74,000,000 increase in the operating income. Moving to Gas and Power, the operating income of this division was positive during the quarter. However sorry higher volumes were commercialized. However, there was a year on year decrease of €210,000,000 that is explained by on one hand the outstanding results of Q1 20 14 and on the other, the lower commercialization prices in North America.
Finally, trading results, the exchange rate effect and others explain the remaining differences. In Gas Natural Alfenosa, the €122,000,000 adjusted net income in the Q1 of 2015 was flat year on year. The contribution from the Chilean affiliate was offset by higher financial expenses and minority interests. In the quarter, it's worth highlighting the remarkable performance of the financial results, which registered a positive amount of €655,000,000 Since we monetize our Argentinean assets, we held a net long cash position in dollars. In December 2014, this dollar position was further lengthened when Repsol agreed to the acquisition of Talisman.
In order to pay the transaction and because our macroeconomic analysis forecasted strong signs of a dollar appreciation in the period to come. Let me explain the reasons behind our forecast based on the divergent eurozone and U. S. Economic and monetary policies. After the IMF increased the probability of a eurozone recession in October 2014, it has been clear that the euro would weaken trigger for our view for a further weakening of the euro and a strengthening of the dollar was the ECB announcement of a $1,000,000,000,000 increase in its balance sheet.
This announcement occurred just as the U. S. Fed finished the reversion of the previous These two actions in effect were a reversion of the previous 2 years of ECB contraction and Fed expansion and provided a clear indication of a changing relationship between the dollar and the euro. The results achieved have confirmed our view to be correct. And during the Q1, we have registered a significant and positive result in the context of the dollar appreciation.
From March onwards with the likelihood of closing of the Talisman acquisition, this dollar position has become accounting hedge with zero impact on the company's P and L. To finalize, I may say that this quarter in this quarter, we have delivered a solid set of results with improved performance of our Downstream business and the results obtained in financials offset the lower results in the Absinthe division. 2015 is the year in which Repsol will consolidate the transformation that began last year with the definite exit from Argentina and the appreciation of Talisman. During this quarter, we have taken the steps in order to achieve this transformation and we have been able to demonstrate that our integrated model is resilient even in this low price oil scenario. We are now focusing on a smooth integration of Talisman, which is already a reality and thereafter on establishing the strategy of RevPAR.
Thank you very much. And we will be pleased to answer any questions you may wish to ask.
Thank you, Lazar.
Thank you very much. We are now yes? Thank you. Let's move into the Q and A session. We'll address your questions in principle only by phone, but we will also enable a chat just in case we have any connection problems, but please only use it in case we actually have these connection problems.
Espiritu Santo Investment. Felipe, go ahead with your question.
Hi, good morning. Good morning to you all. Three questions for me. The first one I would like to know whether at this stage with the strong results that you delivered in Down for for downstream EBITDA from current I think that currently it's €2,500,000,000 Would you at this stage the fact that you already delivered close to 40% of that amount in Q1, would you be willing to raise your guidance and to what level? That's my first question.
My second question just to follow-up on the financial impact from the FX. I don't know if I understood it correctly, but so you booked in the Q1 an impact of €655,000,000 I don't know whether this is in terms of net income or in terms of financial income. But my question is just trying to understand the fact that the euro dollar has now moved to 1.13 Would this have any impact on your P and L? Or because then you say that your dollar position will become an accounting hedge, so no impact on P and L. Just trying to understand on a full year basis, okay, for 2015, what will be the impact we should expect?
Just the Q1 or you will not account any impact at all? And my third question relates to the fact that you have booked tax revenues in your cash flow statement, okay? So instead of paying taxes you have received taxes. And in your P and L you have taxes that you're supposed to pay. So there is a gap between your cash taxes and your P and L taxes.
So I would just like to understand what was the main driver for this and what should we expect over the next quarter should there be a difference between your or any major difference between your P and L taxes and your cash tax? Thank you very much.
Thanks, Felipe. Starting with the second question, I mean, the accountant rules shows you that you have to be really So what
we have
done and we have done that since May last year, So what we have done and we have done that since May last year was to be long in dollars through swaps. We increased that position in December, in January and in February. And if you remember, the first signals that we received that the transaction had good possibilities came after the General Assembly Talisman that was held in February 18. And then we have by the beginning of March also good input from the authorities that really can generate precedent conditions like Investment Canada. So at this moment in which the probability was clear we hedge.
So answering your question, no impact on the dollar would affect P and L in the following quarter due to the fact that we have hedged our position in the 1st part of March. In relation with the guidance for downstream EBITDA, it's true that results are much, much better than we initially estimate. And I have to say that in the other side, option was a little lower. So in global terms and it shows the resiliency, we are more or less where we should be. But I agree with you.
I mean, it looks like it's going to be higher, let's say, between €2,800,000,000 €3,000,000,000 at CCS. I think that the EBITDA would be there. And in relation with the last one, it's simply a cash situation. I mean, we had banked cash before to the authorities here in Spain basically. And at the year end, they have to turn it back to us.
So it's just I would say a timing difference between the accounting and the cash situation. Okay. Thank you very much.
Thank you very much.
You're welcome, Felipe. Thank you.
Gracias Felipe. Now let's move on. Let's move on to Brendan Warren, Bank of Montreal. Hi. Are you Brendan?
Go ahead with your questions.
Yes. Thank you and good afternoon gentlemen. It's Brendan Warne from BMO Capital Markets. Just want to ask a couple of questions focused on the upstream and just focused on a comment, if you can expand on a comment you made in your statement today is just that your operating income of the upstream division would have been positive excluding exploration costs in light of no contributions from Libya. And could you just expand upon if I correctly if I called it correctly that you've achieved 7.5% operating cost reductions year on year in the upstream.
Just what you believe will be achievable and what will remain? Could you just further expand that in terms
of the net CapEx
expenditure in the Upstream, if you could just split out or talk about what was expansion or development CapEx versus maintenance? And again, just what sort of structural maintenance CapEx cost savings do you believe you've been able to achieve and we'll see throughout this year? Thank you.
Thanks, Brendon. I mean, in relation with the first one, in a like for like basis, we obtained a reduction of $5.7 Looking forward, our objective is to cut $5 per barrel and gain $5 per barrel. From those, 1 will be main efficiency. 2 of them will come from a lower exploration cost. I mean, think that we are moving our CapEx program in comparison with last year from $1,900,000,000 down to $1,300,000,000 So $2 would be safe in exploration.
And finally, the entrance of Cardona and Saphignon, which will reduce the breakeven points. So in comparison with this quarter, we expect a cost reduction of a $5 per barrel on average. In relation with the net CapEx, we keep with the in the upstream division, we keep with the 27% reduction in comparison with last year in dollar terms. So that implies that from the 3 point last year, we are cutting it down to $2,700,000,000 I don't have the split with me between maintenance and development, but through our IR people, we'll send you the split of the €2,700,000,000 between development and maintenance. Okay?
Okay. Thanks, Miguel.
You're welcome, Brendan. Thank you, Brendan. Now let's move to Haitham Rashid from Morgan Stanley. Good to speak with you, Haitham. Go ahead with your questions.
Thank you, Angel. Good afternoon, gentlemen. Just two questions from my side, please. Perhaps if I could just pick up on the CapEx question or the discussion around CapEx in the last question. Perhaps just Miguel if you could talk a little bit about the phasing for the rest of the year.
So you mentioned, obviously, you maintained the 27% cut in dollar terms. So when I look at sort of 1Q, it looks like we haven't seen much of a decrease at least in euro terms. So just to be clear, the 27% cut, does that sort of incorporate a fairly substantial assumption around just FX and the sort of tailwind around FX moves? Or is that a sort of underlying 27% cut ex dollar euro moves? And second question that I had was just relating to the Mississippi Lime.
You talked about that being a sort of contributor to growth year on year. Looking sort of for the rest of this year, perhaps you could talk a little bit about how you think that will play out in the current oil price environment in terms of activity levels? But also last week we saw one of your peers take some substantial impairments in the U. S. Unconventional upstream.
I just wondered where you were at with your what you have on the balance sheet for the Mississippi line play whether that's something that you need to revisit or whether you're comfortable with where it is today? Thank you.
Thanks, Ethan. Starting with the first one, I would say that the 27% in dollars refers to a 12% in euro terms. So with that, I think that you have the data. Also it may sound that the first I mean the figure of the Q1 in CapEx was a little higher, but you have to take into account that in Cardon we are waiting for the entrance of PDVSA, which will take will reduce our present stake down to a 32.5%. Right now, E and I and ourselves are holding the whole CapEx of Cardone.
So we expect to be aligned with the strategic budget with the budget that is shows the figure that I told you. 2.7 in $1,000,000,000 with a reduction of 27% in dollar terms and €2,500,000,000 which is a 12% reduction in euro terms. In relation with the Mississippi line, first, I have to say that last year we an impairment of approximately $300,000,000 and all impairments are analyzed in a long term view. So difficult to assess as of today whether or not there would be an extra impairment there. What I can tell you is that we have already paid all the carry of this investment and we are working now with 8 rigs along with the operator.
And the idea at least in this Q1 the production has been flat and we are only operating with 8 rigs, so looking more for value than for growth. I think that I answered your 2 questions.
Yes. Thank you, Miguel. That's very helpful. Thanks.
Thank you.
Hi, Thomas always. Now let's move to Thomas Hadal from Credit Suisse. Hi, Thomas. Good to speak again with you today. Go ahead with your questions.
Thanks, Angel. Hi, Miguel. Two questions, please. One on just free cash flow since Miguel is a good forecaster. Presumably, you have no visibility on Libya.
And let's say, there's no production in Libya for 2015. The U. S. Is the U. S.
Sandrich and Eagle Ford from Talisman debatable. KA's game will be tough. So if we take that into account with your revised view on down Second question is on BMS9. I probably know the answer, but I still want to ask you, you obviously have the first right of refusal. And I wondered whether you will be interested in it.
Thank you.
Thanks, Tomas. In relation well, first, thanks for the comment on my capability of prediction. I'm not that sure of it. But I mean in recurrent basis, we ended up the Q1 even and a little above. And taking only the recurring factors, I mean taking out the financial gains.
I expect the second I mean the 9 months that we have in front to be a little better than the one we have this quarter for several reasons. First, we believe that the price deck for the rest of the year would be better than the $54 on average we have had in the Q1. 2nd, we have some, I would say, issues in the upstream division like the €70,000,000 of penalty in Brazil, which doesn't imply cash, but it's a penalty on the taxation due to the relation between the real and the dollar. And also I think that the rest of the year would be less risky in exploration terms. We have more appraisals in front of us.
So basically the the Q1. We paid the dividend in January. So the quarter is affected by and penalized by the dividends we paid. So I'm a little more optimistic than the neutral free cash we obtained in the Q1. And in relation with the BMS-nine, we don't have the first right of refusal.
Okay. Thank you, Brian. I mean, normally this rights of refusal refers to a percentage of a global transaction. And BMMS9 in comparison with the whole transaction is doesn't reach the limit. So we don't have any right of refusal there.
Okay?
Thank you. Just a follow-up on the first question. When you say free cash flow neutrality a 6 print scrip take up and that and when you integrate them from tomorrow? For sure it doesn't. It doesn't.
Okay. Got it. It does. That's the reps on a standalone basis. Okay.
Thank you very much. You're welcome, Thomas.
Thank you, Thomas. Now let's move to Biraj Boghataria from Railbank of Canada. Go ahead with your question, Birar.
Hi, Angel and Miguel. Thanks for taking my question. I had a couple on Sapeno in Brazil, if I may. You mentioned the 40,000 barrels a day flow rate for the second well. I was wondering if you could comment on what you're seeing currently on the first well, the second FPSO.
Is that number close to 40? And also could you comment on when you expect the next wells there to be hooked up?
In relation with the first one, they are telling me that yes, the first tie in well was approximately giving the same results as the one I mentioned in my spec. And it has been typical for all the wells we have been tying in Sapingo. I mean in the first if you remember in the first FPSO initially our plan was to tie in 5 wells. But due to the productivity of those simply with 9 wells we were able to really do all the job there. So the answer is yes.
And in relation with the schedule, I'll say that it would be progressive and the last one would be connected by the end of the year. So if you split between now December, the 3 other wells will be connected in more or less with the same path,
okay? That's very helpful. Thanks. You're welcome. Thank you, Briar, as always.
Well, Matt Lofting from Nomura. Hello. How are you? Please go
ahead. Hey. Thanks, Angel. Two questions if I could. Firstly, just Miguel, I think on the sort of gearing perspective, you talked about 27% net debt to capital employed on the closure of the transaction.
If you could just as a point of clarification flag what how much equity treatment on the hybrid issue you're assuming in there? And then secondly on hedging, I know you at this point you can't discuss Talisman's assets, but I just wondered if you could discuss the prevailing hedge issues they've had on the North American business and whether Repsol at this point would think about looking to continue running them or whether you think about monetizing them upfront and then taking the full spot exposure going forward into the second half of the
year? Thanks. Thanks Matt. The gearing that we provide was linked to the accounting system. So we are considering $1,000,000,000 out of the 2 as equity and the other one as debt, okay?
And in relation with hedges in North America, we are going to monetize it and we don't hedge our production. So we will keep ahead with our policy.
Great. Very clear. Thanks a lot.
You're welcome, Matt. Thanks, Matt. Now Nitin Sharma from JPMorgan. Hi, Nitin go ahead with your question.
Thanks. Two questions for me please. The first one on shareholder structure. And Miguel, I know there's limited what you can say on this, but recent press reports have suggested that one of your or rather your biggest shareholder, Cascio Bank, maybe looking at partial sale of stake. So could you share some thoughts on the subject please?
And second one coming back to the issue of impairments and this time on Libya, ongoing instability, shut production and the story has been same for some time in the region. When do you start looking at these assets in terms of impairing them? I ask this question because one of your peers has impaired all of their onshore Libyan assets. So I'm just wondering if some of your partners are thinking about those assets in these terms. Would that force reps also to reassess the carrying value of these assets?
Thanks.
Thanks, Nitin. In relation with the first one, the Chairman of Caixa Bank told us, I think it was last week, yes, it was last week that his idea is simply to allocate our shares in criteria instead of the bank. So there's not any sale process. It's simply a restructuring of their portfolio. These were his words.
And in relation with the impairment in Libya, I think that total impaired didn't write off and didn't make any write off in the reserves, at least they didn't announce it. We have, if I'm not wrong, till 2035 contract in our fields in Libya, 2,035. So I mean, in our opinion, it's a little too early to start with impairment. I mean, we have to see how the political situation evolve. And on top of that, no other operator as far as I know, impair their assets in Libya.
So as of today, we keep attached to our way of thinking and we will see hopefully the future would be better for the country, because I think it's totally needed for the people of Libya and for Europe to solve this situation as up.
Thanks again. Thank you.
Thank you very much. Hamish, Hamish Clegg, I'll go ahead with your question from Bank of America Merrill Lynch.
Good afternoon, gents. I just would echo Thomas' compliments on your predicting ability. So many hedge funds would be envious. I wondered if you could expand on the sort of the underlying position you took in the euro dollar. If I'm not mistaken, it's around €8,000,000,000 And given the gain you made, it implies you may have made slightly more than the 6.2% move between the currency.
Could you give us a bit more detail on that? And also, can you tell me if I'm right in thinking about this as more of a 0 sum gain because the effective price you'd be paying for Talisman is higher because of the move in the exchange rate. Would this reverse in the Q2 following closure of the deal? My second question is still on your predicting ability. Given refining margins are so strong right now and there's some skepticism in the market, would you consider hedging and locking in some of these high margins?
Those are my two questions.
The second one is easier and we don't hedge refining margin either. So we'll keep attached to our policy and we will see. So there would be no hedges there. And in relation with the first one, it's true that afterwards the in euro terms, the transaction will have a higher price. The only thing is that the only way that accounting you can hedge the position is when you have certainty of the transaction to happen.
So the only we have 2 options either don't do anything or really did what we did, which was take long positions in dollars. And at the moment in which the certainty of the transaction was there, we hedge. Having said so, fiscal year will not be a major damage because cash stocking we have shields that we can take in advance. So I would say it's no major impact other than the that we took the position upfront. If we haven't do it, we would be paying the transaction higher and we will not have made the €700,000,000 we made with the dollar euro game, okay?
So what was the underlying kind of investment? I know you said it was through swaps.
Yes. It was through all of them were through swaps. Buying and selling basically during December well during January, February and the 1st week March when the real rally between dollar and euro happened.
Okay.
Okay. Thank you, Hamish.
Thank
you. Thanks a lot guys.
Thank you, Hamish. Now Irene Haimona from Societe Generale. Hi, Irene. Good to speak with you again. Go ahead with your questions.
Hello. Hello. Good afternoon. I have two questions, please. So firstly, a question on the Down Michel, you could possibly talk about the drivers behind the near 10% year on year increase in your oil product sales.
There was a 13% increase in petrochemical sales. Is it demand related? Is it sustainable? What does the rest of the year look like? And within the downstream LPG, I mean, year on year, the EBIT nearly doubled.
Again, can you talk about the drivers and the sustainability into the rest of 2015? My second question, you indicated that by sort of year end November perhaps you will be announcing the new strategic plan for the enlarged Repsol Plus Talisman unit. The deal was obviously agreed in December last year. You had originally approached them in July. Why does the market have to wait nearly a year to get more visibility on this on the new Repsol?
Thank you.
Starting with the second one that is easier. I mean, first, legally, I cannot have all the information till I close the deal, first comment. 2nd, you have to think that we have to restate all the balance sheet of Talisman, because we have to allocate the price to the purchase price to the different assets. So once we have hands on in the company is when we can really start to working. Having said so, our idea is to be within 2 weeks with a group of analysts in London just to establish a work plan to help you with the to see how can we help you with the modeling of the new company.
And we will have to restate all the figures with the new balance sheet for 2014 in order for you to have a better comparison next year in the next quarters. But it's the way it is. I mean legally today we do not own Talisman and we don't have the access to all the data that is required. In relation with the downstream, I have to say that the strong results in LPG also refers to the delay on the formula. I mean, we are taking advantage of I mean, the formula refers to a longer period in the past.
So there is an advantage that we have taken because the price formula refers to LPG prices with 6 months of differences more or less. The advantage is that most of the consumption comes during the winter. So we have taken the most of the volumes the moment in which the margins were higher. And in relation with chemicals, I would say that the national market is moving up. I mean, we are seeing really improvements in almost all the lines and the activity in Spain is growing probably would be this year well above 3% in GDP.
And what is important also related to our business is that the construction which is a high consumer, is starting to move up by 2%. So all things are moving in the right direction in so sales are looking in the right direction. Okay, Irene?
Thanks very much. Thank you, Mikhail.
Thank you very much, Irene. Now let's move to John Rigney from UBS. Hi, John. How are you? Go ahead with your questions, please.
Hi, guys. Yes, I'm well. Thank you. Thanks. I've got 2.5 questions, I guess.
The first is just on tax rates. Obviously, it's a weird quarter this quarter in the Upstream. I noticed there's a tick down a little bit in the Downstream tax rates as well. So can you just run through what your expectation is for segmental tax rates on a go forward basis around assumptions? I guess, Libya assumption is key in the upstream.
The second is just on the couple of the dry hole cost and their tax effects. Is it possible that some of those, I guess, tax credits can come back at some point or other, thinking Canada and the U. S. Once you start bringing in some more North American income with Talisman? And then the other big sort of main question is just on Angola.
Can you just run through for me what further commitments you have in Angola and what the carrying value of Angola is on your balance sheet please? Thanks.
Thanks, Jan, for the 2.5 questions. Starting with tax rate, I mean, it's going to depend much on prices. It's going to depend, as you mentioned, in Libya. As of today, if I have to make another assumption or to predict I will grab to something like 41% at the upstream level and 28% at the downstream level. In relation with Angola, we have already committed with all the conditions of the authorities.
Having said so, we still have 1 extra well that has been agreed with our partners. So after we finish the ongoing drilling, we have still one well to go, but it's not mandatory. It's just because we have decided to go for it. And in relation with the dry holes and tax effects in the U. S.
And Canada, I'll have to give it a second thought. In the U. S. Basically we are making money. So we are discounting the dry holes there.
The situation in Canada, it's something I may analyze. I'm not able to provide you a right answer right now. Okay, John?
Yes. And just on Angola, have you got sort of residual signature bonuses and things left in addition to the well commitment? I mean, there a trigger point if a final well is drilled and not found to be commercial that there's going to be a point at which you then have to look at the carrying value?
Okay. The whole thing that we have put in it has been 400,000,000 dollars as of today, around $400,000,000 Okay? Super. Thank you. Thank you.
You're welcome, John. Thank you very much, John. Now let's move to Lydia Rainforth from Barclays. Hi, Lydia. Good to speak with you.
Go ahead with the questions.
Thanks, Hengel and good afternoon. A couple of questions if I could. Firstly on Talison, I appreciate there isn't a huge amount you can say at the moment, but how long do you think it will be before you're able to make changes to that business? So effectively that integration process is it okay once the deal closes tomorrow it then just got to take time before you can do make any changes? Or are there things that you can do within the North Sea and the U.
S. Particularly that you can do much more quickly? And then the second one was just on the financing. And we've done €2,000,000,000 for the hybrid already. And I know the plan was up to €5,000,000,000 I just wanted to check that was still the case.
Thank you.
Well, in relation with the first one, I'll say that we would be in the driving seat next year. And probably to really obtain the full integration will take a little longer. But I mean this year basically all the commitments we're taking, so we cannot do much on 2015. Though I think that 2016 would be the 1st year in which we would be able to handle the combined entity in the direction we wanted. In relation with the issuance of hybrids, the answer is yes.
And probably in the 2nd part of the year, we'll be issuing the other up to €3,000,000,000 extra in hybrids. This is a condition that we agreed with the agencies in December and we will deliver on it. Okay. Thank
you. And just as a very quick follow-up and just given the forecasting side, do you have an indication of where you think the pro form a gearing will end the
year at?
No idea at the present time Lydia.
I understand.
Yes. I referred to the combined entity. We have to look at it, but it shouldn't I don't expect that the combined entity will be really free cash a $27,000,000 probably it will increase a little, but we have to wait. I don't have the figures. I don't even have the new accounts that we have to generate.
So it's quite difficult to assess any comment because the first move have to be to assess our purchase price into the different assets of Talisman based on our valuation. So the whole accounting will change dramatically, I may suspect. And in relation with the hybrids, it's going also to depend on whether or not we issue it or not. So also a little early though. So cannot give you much input from the at the present time.
Sorry about that, Lidia.
No,
that's still hugely helpful. Thank you.
Bye. Thank you very much, Lydia. And now let's move to Anish Kapadia from TPH to Doctor. Greenhal. Go ahead, Anish.
Go ahead with your questions.
Hi. Thanks very much. I have three questions if possible. Firstly, just kind of going back to Talisman again. In their end of year reserve report, I think their proved reserves fell almost 20% in 2014 versus 2013.
I was just wondering if that was something that you were expecting at the time when you did the deal or if that came as a surprise to you? And then second question was on the U. S. SandRidge has announced a pretty large cut to the number of rigs running in the Mississippi line. I was wondering if you can outline what that means for production over the next kind of 12 months or so, but also in terms of cash flow CapEx for that JV?
And then the final question was just to kind of get your view on North American gas prices. Clearly, you're increasing your exposure into North American gas prices. And also quite importantly, your view on the differentials in Canada and the Northeast. We saw Canadian gas prices is averaging around $2 per Mcf so far this year. So I just wanted to get an idea of where you see gas prices going in terms of Henry Hub, but also the differentials in the kind of the key areas of Marcellus and Canada?
Thank you.
Thanks Anish. In relation with the research you mentioned no surprises and I think that part of it related to the sale of Bondi that were sold in 2014, but no surprises in our side. In relation with SandRidge, as mentioned, we are reducing the number of rigs we're using there and the basic idea is to play for value growth not for production. So CapEx will shrink approximately to a 50% this year in comparison with the last one. And finally, in relation with North America cash prices, I don't have any personal view or any comment may make.
But at the end, if you cut the number of rigs that are producing the gas associated with the liquids will imply that we'll have less gas in the offer side. So probably a figure a little higher than $3 which would be higher than the one we have the $2,500,000 we have this year probably I mean I may think optimistically because in the other side with this lower price demand will go up. So the logic shows us that demand will grow while at the same time the offer will shrink. So I'm optimistic today. So I may say that $3 is a figure that may be reachable.
Did I answer you Anish?
Yes. No, I suppose just to follow-up to that. Just to get an idea of the cuts that you're making with SandRidge, Just wondering what that kind of implies potentially for Talisman. Are those cuts because SandRidge can't afford the CapEx? Or are they because you think it's a prudent move in a kind of lower oil and gas price environment?
Because obviously, you've got the you've got to take a decision on Talisman whether you cut back the number of rigs that they're running. I'm just wondering why you made that decision with Sanderich?
Well, I referred to my previous answer. I mean, we are cutting CapEx by half and basically we expect the production flat. I don't see the relation the direct relation with Marcellus or with Eagle Ford or with Duvernay. We'll have to see which is the most efficient plan once we take control of the company. But I mean right now that we have only I mean no capability.
It's quite difficult for me to assess any comment in relation with Talisman assets whether in Canada or in the U. S. Okay, Anish?
Okay. Sure. That's great.
Thank you. Thanks, Anish. Okay. Thank you very much, Anish. Now we have Jason Kenney from Santander, Bank of Santander.
Hi, Jason. Go ahead with your question.
Hi, there. So I'm just looking at the Sinopec relationship. Obviously, Repsol is strong with Sinopec in Brazil and Talisman involved with Sinopec in the North Sea. And I was wondering about the potential for further strengthening of activity between Repsol and Sinopec going forward?
Thanks, Jason. I would say since day 1, I think it was 3.5 years ago that we have the first agreement with Sinopec. We have been looking forward to have more relations with them going forward and look for opportunities. So yes, the answer is yes. We are permanently looking for doing more things with Sinopec.
It's something we look forward. Okay, Jason?
Perfect. Thanks.
Well, with Jason, we finished this conference call of the first results of Repsol Q1 results of 2015. Thank you very much for attending it. You know that the IR area of Repsol is on your entire service for any further queries or clarifications you may need. And have a nice day. Thank you very much.