Earnings Call: Q1 2020

Apr 27, 2020

Ladies and gentlemen, good morning, and welcome to Galap's First Quarter 2020 Results and Certain Outlook Presentation. I will now pass the floor to Ortello Rovio, Head of Investor Relations. Please go ahead. Good morning, ladies and gentlemen. Welcome to GOV's Q1 2020 results conference call. I hope all is well with you and your families in these challenging times. By now, I guess, we have all adapted to this new way of working. As always, the IR team continues close to you and here to help. We look forward to seeing you soon as we are all safe. Today, Carlos will provide us with an overview of the recent developments and only a short term outlook given the current volatility. Felipe will then take us through the quarter results. At the end, we will be available to take your questions when Tore will join us as well. As always, I would like to remind you that we may be making several forward looking statements. Actual results may differ due to factors included in the cautionary statement available at the beginning of our presentation, which we would advise you to read. Thank you. Carlos, please go ahead. Thank you, Otteo, and good morning. I hope to find you all and your families safe and healthy during these unprecedented times, which are demanding the very best of us, both as human beings and as professionals. Before starting, let me welcome Otello to his new position and also thank Pero Rios for all his dedication as Head of Strategy and Investor Relations over the last 6 years. It has been a great journey, and I'm sure Pedro will continue to give the best of him acting now as the new CFO of our upstream business. Now starting on Slide 4. The extension and the full impacts of the current health crisis are still to be understood. Resilience, flexibility and also adaptation capacity are critical. Oil prices are currently 60% below their average of 1st Q level at just above $20 per barrel. The unforeseeable demand drop due to the pandemic emergency measures and the high levels of supply has led to very high crude and products inventory levels, which will put pressure on prices over the next several months. Such environment has an obvious impact in our upstream performance. As we were planning on oil prices of around $65 per barrel, as we have shared with you during the Capital Markets Day. On the product side, we demand at risk, and the inventory is increasing globally. Cracks are truly constrained for the upcoming bounces and signs pointing to further declines before stabilizing. Future contracts are still showing weak price levels, and we need some more signs of recovery for this to normalize. In Iberia, where we have our commercial activities, we are being significantly impacted by the economy slowdown and the driving restrictions. Oil products demand is expected to be down over 50% year on year during this month of April. In what respects to gas and power markets are also being hit, even if to a lower extent. It is too soon to anticipate the demand behavior once the lockdown periods end. All in all, uncertainty is a given. And whether recovery is faster or slower, we are focused on protecting our people, adopting a flexible and efficient business continuity according to the required utilization levels and market conditions during each phase of this crisis. Moving to Slide 5. And as a first step to provide a response to this situation, our main priority has been to safeguard the health and safety of our people and customers. We have been also determined to provide social support to the communities where we operate, having deployed a package of measures in coordination with several national health entities, which included the donation of ventilators and promoting free virus testing where it was needed, providing also energy solutions to new emergency facilities, while helping where we can. But at the same time, we remain focused on ensuring the company's operational continuity, asset integrity and cash preservation. On the upstream, the operations are quite in line with our production plans. We have adopted our commercial activities and prepared ourselves to increase the flexibility of our refining and lead stream operations. We must be ready to react promptly and to any disruption or rapid degradation of market conditions. In our refining system, we had slowed down our operations given pretty full inventory levels. We are also prepared for the post lockdown designing an exit strategy to allow us to respond quickly once the economic picks up. We have also adapted our short term plan, stress tested hits to different macro scenarios to evaluate the financial impacts, which may result from this crises. I'm now on Slide 6. In all scenarios, Iberia demands will be substantially weaker than initially expected for this Q2. We could have a potential impact of over EUR 1,000,000,000 in our 2020 cash flow from operations under a pessimistic scenario and have now in place measures to protect the company's financial position under such circumstances. Apart of adopting and adapting our operations, we are preparing a set of initiatives MX reserving the company's liquidity and financial strength started to implement internal measures and are preparing others alongside our upstream partners. As a result and as announced earlier this month, we are now expecting a substantial reduction in the group's cash spending during 2020 and 2021 when compared with what we have presented to you all at the Capital Markets Day. So CapEx and OpEx are now expected to be reduced by more than €500,000,000 per annum over the next 2 years, so in 2020 and also in 2021. These initiatives include the deferral of some of the investments across the value chain, targeting our future growth, such as early stage or pre sanctioned projects as well as some project optimization and non essential short term spending adjustments. For this year, around 90% of this reduction relates to CapEx, with some measures already in place, which will also drive reductions well into 2021. So the cuts next year will depend on the evolution of the demand recovery and the global macro conditions. As you can see, Galp has a very high flexibility to adapt its investment plan to the current environment as most CapEx is geared towards our next growth cycle. So just you to know, over 70% of our CapEx is uncommitted, and therefore, the adjustments are expected to be deferral rather than cancellations. We will not provide details on specific projects at this point, apart from the information already made public around the Rovuma LNG Postponement in Mozambique. However, we can say that the reductions will be felt across the different businesses and include exploration commitment adjustments, the reschedule of upstream uncommitted development activities the realignment of refining initiatives and commercial expansion projects the phasing of maintenance of activities and also cost reduction initiatives, which to some extent may become structural. Most of these initiatives can be resumed rapidly depending on market conditions evolution. As we said back in February, portfolio management initiatives are also part of our strategy, and we will continue to pursue value accretive opportunities. Considering the short term outlook, our results will be impacted versus what we anticipated during our Capital Markets Day. However, at this stage, we think it is too soon to provide a revised operational and financial guidance. Still, the cash spending reduction initiatives will increase the resilience of the company, with free cash flow neutrality reachable with Brent prices as low as $20 per barrel. And that also assumes, and I underline, a significant deterioration of the downstream contribution and a prudent approach on the upstream production profile, just to give you a clear idea of how we have stressed our operations. I'm now on Slide 7. And in this slide, although adjusting to the short term, our long term ambitions remain in place. We rely on Galp's financial robustness to handle the adverse circumstances ahead of us where liquidity is fundamental. And for speaking on liquidity, the total liquidity was over EUR 2,600,000,000 at the end of the quarter. Our 2020 net CapEx has now been reduced from the range between €1,000,000,000 and 1.2 €1,000,000,000 per year to a range of €500,000,000 to €700,000,000 a year. Our AGM last Friday approved the 2019 dividend of €0.70 per share, which is in line with what had been proposed. The 2019 dividend considers the performance during the year, also the current financial position and the identified initiatives to address the current circumstances. Going forward, our capital allocation strategy, including future dividend distributions, shall be adjusted according to actual evolution of market conditions, the cash generation and also the protection of our financial position. Finally, on my side, I'm on Slide 8 to provide you an overview on what we expect for the very short term I mean, for the 2nd Q of 2018. So starting by the upstream. In the upstream, and although our operations have been going according to plan, we need to be prudent. So ensuring the safety of our people may lead to operational restrictions. The supply chain may be affected, and inventories may cause logistic constraints. We are not in the position right now to maintain nor revise our production guidance for the full year, which stood, and just remember, you owe between 13% 17% increase in a year on year basis. On the refining side, we have been able to find outlets for our products, mainly for those that are May delivery related. We had some slowdown in fuels production in our Northern Refinery, so in at Puerto already during this month of April. And we are now planning to stop CIMS refinery during May. This stoppage is the consequence of the low expected demand and the already high inventory level. Depending on how the macro environment progresses, we will expect to start ramping up CIMS in June. In the midstream, our results should also be impacted, while commercial, we are currently seeing significant sales drop in Iberia, mostly in aviation, marine and retail segments. On the renewables front, the solar PV acquisition in Spain is going through the various closing pressures. We are also keeping our plans to share some of the equity with a partner, which should lead to the deconsolidation of the business. We would like all this to occur during Q2. We will continue to monitor the evolution of the market environment over the next weeks or months and get back to the market with an updated guidance based on a more stable view of the short term and its implications for the long run. So Philippe will now go through the quarterly results. And thank you, Alfred. Please, the floor is yours. Thank you, Carlos. Good morning, guys. I am on Slide 10. So group EBITDA was $469,000,000 in the quarter. That's down 5% year on year. This is driven by the lower contribution from upstream. So the sharp oil price decline impacted the realizations during the quarter, but we also had almost $140,000,000 in negative changes to our under lifting positions and over $70,000,000 in revaluation of inventory in the quarter. Upstream production in the quarter was 131,000 barrels a day, and that's higher year on year, but down quarter on quarter given the planned maintenance in 2 units in Brazil. Within refining and midstream, here we have different effects. Within refining itself, it's impacted by weak margins and the planned maintenance in the hydrocracker. And within midstream, gas supply and trading suffered from the lower volumes sold during the period, but oil supply saw a positive swing in price lag effects. Now here, we have also a base effect as the price lag had been negative in Q1 last year. The commercial activity was stable year on year, supported by the recent turnaround measures introduced in our commercial activities in Spain. Bear in mind, however, that from what we saw during the second half of March and from what we are observing now in April, Q2 should be weaker. Net income was down year on year, driven by the weaker upstream performance and entries below the line. And here we had noncash currency effects of €56,000,000 due to the Brazilian real depreciation impacts in Petrogal, Brazil. We also had negative mark to market and this is recovered as the underlying gas volumes get delivered to clients over the coming months. And on the plus side, we have a positive cash contribution of $105,000,000 from Brent's Derivatives, which we monetized in March. On a negative €257,000,000 and this is considering the post tax inventory effect of €278,000,000 euros And this takes me to Slide 11 and cash flow. Here on the left hand side bar, we have effectively EBITDA under IFRS, and this includes a large negative inventory effect. And this accounting effect leads to a large release in working capital as the mark to mark value of the capital tied up in inventories is also reduced. As a reminder, under IFRS, EBITDA is also negatively impacted as IFRS considers the last 3 months average high price for the refinery intakes. Taxes seem high given the context today, but this reflects payments related to previous periods when earnings were, of course, much higher. And net CapEx also includes payments from the previous quarter, and the balance is way more elevated than what you see on our Q1 economic CapEx. So in a nutshell, cash flow from operations was 2 €44,000,000 which after operating leases, interest, CapEx and derivative cash gains, this left us with $63,000,000 in positive free cash flow. And distributions to our Sinopec partner in Brazil were $108,000,000 The balance sheet on Slide 12 was quite stable compared to December 31. The inventory markdowns under IFRS reduced working capital, and this is this adjustment flows through the P and L and hence impact our equity as well. Net debt was also stable at around €1,500,000,000 and net debt to EBITDA unchanged at 0.7x. Debt redemptions for the remainder of 2020 are now only €50,000,000 and the average debt maturity has been extended. Our liquidity is high at over $2,600,000,000 and we are negotiating additional funding and liquidity facilities, and this is mostly to prefund our 2021 maturities. As alluded before, given the announced CapEx reductions, our free cash flow free distributions should remain positive as as long as Brent stays at over $20 this year and next. And this is very important for our creditors as well. So I will stop here, and we're happy to take your questions. We'll open our first line for the question and it comes from the line of Biraj Borkhatiera. Your line is open. Hi, thanks for taking my question. It's Biraj, RBC. Two questions, please. The first one, in the upstream, we're seeing some very significant divergences on the various crude benchmarks. So I was wondering if you could comment on what you're seeing in April and what you're achieving on the on your Brazilian crude sales versus kind of normal benchmarks like Brent? And maybe you can comment on Angola, too. And then the second question is on the $20 per barrel breakeven. Carlos, you mentioned you stress tested with a significant deterioration. Could you just give some details on what refining margins you're using and what utilization you assume? Thank you. So in terms of our upstream food benchmarks, so what I can say to you is that we are still continuing to reach our Asian markets. Clearly, the differentials over benchmark has slightly improved in the 1st Q. During the 2nd Q, the challenging is more that we were looking at the different alternatives outlets that we have been find. So, so far, I think we are acting pretty well under the circumstances because the key point is the price levels that we are experiencing. Our upstream operations have behaved quite well during the period and still up. So we are still slightly above what we had in the 1st Q. Relating to the assumptions, let's try to stress our to do our stress test, we are not releasing or disclosing to the market for the time being. But just to tell you just a couple of principles. So we are looking at refining margins close by to 0. We are looking at demand decreasing that is more than 50%. So we have been really stress tested and taking in consideration the constraint and the concealment to the situation that the emergency states have been imposing during the last couple of weeks. So effectively, you may trust that the $20 per barrel is one of our views. And as I mentioned during my intervention that are under pessimistic market conditions. As someone used to say, we have to prepare for the worst and hope for the best. Thank you. Thank you very much. Thank you. We will now take your next question. And your And your next question comes from the line of Oswald Clint. Thank you, and good afternoon to all 4 of you, and I hope you're all well. First question, Carlos, please. Yes, I'd just like to see if you could give us a bit more granularity around each of the product categories that you're experiencing in ports or at least gasoline and diesel, and I see you're producing quite a lot of VLSFO in the Q1. So perhaps you could just talk around each product specifically. And you mentioned that you're still exporting or you're still getting an outlet for most of your products. What about your exports, things like ex surplus gasoline that you would normally have put over to the U. S? And then second question, just obviously a lot of discussion around Petrobras closing fields and platforms, obviously, in other basins, Campos Basin, onshore. Any discussions or anything going on around the Santos Basin, please? Thank you. Oswald, good morning also and good to hear you. So from the demand side, and this is Priceline not only in Portugal, but this Portugal and Spain. So Spain has started before Portugal. This crisis migrates from East to West. So what we have done or what we have saw during especially during April because we had slightly being affected during March, So January February were completely good months, I would say. So what we are seeing is the diesel being affected of around 50%. In order to relate to gasoline is above 60%. And what is more challenging is what relates to jet fuels, which are above 90% reduction. So clearly, that's where we see less room space to recover. But in the opposite side, we have looked into the LPG, for instance, that has increased and it was it's behaving quite well. And the impacts of the middle distillates, it's quite flexible for us because we can do what is the migration from jet to diesel. And therefore, we are less concerned about that because we can produce full diesel and less jet and the portion objectives is relatively small in our P and L. You have also referred the very low sulfur fuel oil. We have only produced very low sulfur fuel oil during the Q. Actually, we were not producing almost any low or high sulfur fuel oil. But what the market has, again, surprised everyone was to see the cracks of high sulfur fuel oil and low sulfur fuel oil, not so negative as it was anticipated. So it is more or less what has happened happening. In what relates to the United States. United States, our components, our heavy components are quite important to blend the American gasoline. And we still see room space. So we were exporting in the 1st Q in regular conditions. So we were above 240,000 tons during the Q. During April, we have been observing the gasoline demand in the United States to decrease to around 50%. If you ask me, do we continue to have room space to continue to export to gas lines to the United States? Yes, the answer is yes, because we have a grade, we have a component that is highly evaluated. But our decisions has to do with all the inventory levels that we are today and the global economic optimization. And therefore, we have taken the decision that I have shared with you. In what respects to the Petrobras curtailments or the global the worldwide curtailments and Brazil has committed also to contribute for that. So, so far, we don't have any impact in our operations, and we hope it won't be the case. But as I mentioned to you during our my introduction, it is important that we take in consideration that curtailments could be impacting everyone, not only due to the OPEC plus agreement, but also because we are still managing a pandemic crisis that puts people and people's safety on top of priority. There is a set of safety rules and procedures that have been implemented that protects and anticipates the safety of the production. But so far, nothing else to add to you. Thank you, Oswald. Thank you. Thank you. And we'll now take our next question. Your next question comes from the line of Thomas Adolff. Your line is open. Good afternoon. I've got two questions, please. Just firstly, I think you do have a net debt to EBITDA ceiling target of 2x or that ratio shouldn't exceed 2x. So would you cut or suspend your dividend only when that level is reached or breached? Or would you consider doing so much earlier than that? Secondly, just on your solar business, I might have misunderstood you during the presentation. You expect the deal to close in the Q2, but did you also say that you expect to announce a partner to the Solar Venture in the Q2? And does your net investment guidance of $500,000,000 to $700,000,000 include some proceeds from the farm out of the solar business or anything else? Thank you. Good morning, Thomas. Also good to hear you. So in what relates to the dividends, I think that has to do with global capital allocation. And of course, our capital allocation that includes the future dividend distributions has to take into consideration everything. So the actual evolution and of the market conditions, also our ability to generate cash and also to protect our financial position. So clearly, it is too soon to make any further questions rather than this one. I think it is prudent not to go ahead. But clearly, we will put the dependence of future dividend distributions on these three elements. In what respects to the solar acquisition? Yes, we are preparing ourselves to conclude to complete the deal during the second Q. And simultaneously, we are also working in a way to find out a partnership that allows that we can have the full deconsolidation of the business from our balance sheet. And yes, the net CapEx includes equity cash mix. Okay. And you expect this partner to I mean, this Farmout deal to happen in 2020, right? And the feedback you're getting so far, is that positive? Thomas, it's not in 2020. It's in the 2nd Q of 2020, which is our expectation. Okay. Thank you. So what I'm trying to tell to you is that we are working on to align the completion of this deal in one single shot. Thank you. We will now take our next question and it's from the line of Michael Alsford. Your line is open. Hello. Good morning. I hope you're all well. Just a couple of questions from me. You mentioned cash neutrality of $20 per barrel pre dividends. I just wondered if you could give us an indication of what you see the neutrality to be and what you think about the current dividend policy and also the payments to minorities during 2020. Secondly, on the upstream, I think clearly you announced the near Peru exploration well in Brazil recently. I think from memory at the Capital Markets Day, I think Tore said that this could prove up around 2,500,000,000 barrels of oil. So I just wondered whether those expectations are still valid. And then sorry, just to confirm what you said on the previous question. Are you assuming in your CapEx guidance other disposals to get you to your net $500,000,000 to $700,000,000 I'm thinking the natural gas business, does that include, let's just say, other potential disposals in the business? Thank you. Thank you, Michael. So I've so basically, you have addressed 3 questions. I've already addressed the net cap the free cash flow neutrality at $20 per barrel. But I will ask now Philippe to complement me on that and Thor to also to address the exploration well. Just in what respects to the other disposals. In what relates to other disposals, we are not considering that in what we have presented, even though what we are working is looking to the optimization of our node core assets. So you may see that natural gas regulated infrastructure is one of the assets that we clearly are putting on top of the priorities to be one of the candidates for that. So I will pass now to Filipe. Good morning, Michael. The cash neutrality, as you say, is pre distributions. And as Carlos said, it's too soon to tell what the Board will decide over the next few months. The integrity of our operations and our cash flow rank at the very, very top of our priorities. I will also add that if you look at our balance sheet, we have almost no goodwill. Our assets are booked at quite low historical devalued levels. Have a fully funded pension liabilities. We have no reserve base lending, so no redetermination risk. So the visibility that we have is really driven by rents. And the guidance of $20 gives you the comfort that as the management team and the Board will see, can we continue to generate cash in over $20 and then how it's distributed depends on how long this will take and how what the Brent levels will be. That's and that applies to both the Sanopec distributions and to the Galp distributions. Thank you. Thor? Yes. And with respect to Oria Portio, what I can tell you is that we have made a discovery, but it's very early days. We have now collected a huge set of data, which is now being very carefully analyzed. And before we've analyzed these thoroughly, there is we are not in a position to give you any further information. Thank you. We'll now take our next question. And your next question comes from the line of Mehdi Enabedi. Your line is open. Hi. Good afternoon, everybody, and thanks for taking my questions. So two questions, Steve. 1, regarding the asset disposals. So you highlighted that regarding Surlakji, you might find a partner in the second quarter. Regarding GTNG, you said that this is non core. Are you making some progress here? You were pretty, let's say, optimistic during the Capital Market Day. Should we consider that an asset disposal of DGMD might be made in 2020? Or do you think that the current macroeconomic environment is probably pushing forward any GJ and D asset disposal? First question. 2nd question, regarding the refining. So you've announced 1 month maintenance of Cines refinery in May. Can you please tell us what level of cash cost should we expect in the Q2 for your refinery? And what utilization rate are you targeting in the Q2? And maybe one question on the high secured oil. So you said that, which I understood well, that your output of high secure fuel oil was relatively low in the first quarter. The market totally changed. Do you intend to increase your high sulfur fuel output in the coming months? Thank you. Hi, Mehdi, and good morning. So in what respects to disposal? So we don't we tend not to disclose any potential divestment, but you know that GG and D is one of the candidates. That's the only thing that I can tell you. And if and when we consider that should be at the right price. In what relates to the cash costs for our refineries and utilization rate, it's too soon. I have gave you just a flavor of what is going on. So our fuel plant in Magin's refinery has been suspended during April. We intend to suspend our Siemd refinery during May. And hopefully, we are expecting that we can ramp up during June. So the average utilization rate is quite in line with this approach. From the cash cost of the refinery and if you look at what happened in the 1st Q, the 1st Q was impacted by a planned turnaround in our hydrocracker, which is if we normalize the cost, you should consider they will stand between $2 $2.2 per barrel. I'm not sure I follow your third question, if it was related with very low sulfur fuel oil. Can you No, high sulfur fuel oil. Yes. So it's high sulfur fuel oil, not low sulfur fuel oil, but high sulfur fuel oil margin improved quite significantly. And I just wanted to know if you are able to increase your high sulfur fuel oil output. If I remember well, around 10% of your output could be high sulfur fuel oil. So just wanted to know if you intend to increase it and if there is a demand for that product currently? Okay. Thank you for clarifying that. So that decision is always based on a value driven optionality. So we normally look at this in a permanent way. We are quite flexible on this respect. And we can change for high sulfur fuel oil or keep on very low sulfur fuel oil depending on the cracks. And we will do what it will maximizes our P and L. That's what I can tell to you. So flexibility is part of the game. Thank you, Mehdi. Thank you. Thank you. We will now take our next question. And your next question comes from the line of Flora Trending. Your line is open. Yes. Hello. Thank you. Good morning. I have 2 questions, if I may. The first one on cash flow. You paid over $100,000,000 to Sinopec this quarter, but from what I could see, results from Brazil seem to have been very low. So can you just help us understand what kind of or what the level of dividends could be for Sinopec in the full year? And the second question on up upstream, very low production cost in the quarter. Can you give us also a reference for the full year? Thank you. Flora, good morning. Thank you for your two questions. So I think I will ask Filipe. So this is a minority payments, but I will ask Filipe to address the question to you. Thank you. Bondi, Florida. The dividends to minorities are based just like the dividends for Galp shareholders. It's based on the balance sheet and the cash flow rather than the earnings that you see. And we don't decide on dividends based on on our longer term views on the integrity of the balance sheet and the cash balances and our views on the severity of the current crisis. So I would not read much about the Q1 payments that is related to 2019. Thank you. Good morning, Flora. What I can say with respect to upstream costs is that we expect that we will be running more or less with the same rate as we have done in the Q1, namely around $2.5 dollars $2.7 per barrel, and that is also the outlook for the rest of the year. That's the best guidance we can give at this stage. Thank you. Thank you. We will now take our next question. And our next question comes from the line of Alwyn Thomas. Hi, good morning, gentlemen. A couple of questions from me. I just wanted to ask, going into 2Q and perhaps looking at 2Q, maybe 3Q earnings, given some of the measures you've taken and obviously some of the working capital benefit we got in the Q1, what perhaps what downside protection to cash flows and earnings do you see happening in the Q2 from what you have, whether it's hedging or on cash tax? Are there any sort of mitigating effects we should expect in the second and third quarter that might help you out? And my second question, a little bit more perhaps longer term. Perhaps, Carlos, if I could get your thoughts on what you think this crisis might do to longer term impacts on oil and oil product demand? Maybe does it accelerate your desire for low carbon ambitions? Or are you actively looking at M and A opportunities as a result? Good morning, Alwyn. I will address the second question, and I will ask Philippe to help me on the first one. So looking to more to the long term. So I think it is still soon, but we have different in the middle of a storm, it's quite difficult to anticipate what might happen. But there are things that will not stand like they were before. And I think the world will have to handle with many, many consequences from this crisis that open clearly new business areas. And we are seeing that, for instance, digital commerce and last mile logistics are becoming more and more relevant. So there are things that, even for our legacy business will require an adaptation and a fast change. From the product demand point of view, there are products that for sure they will stay they will see require more time to recover, and I'm speaking about for the international travels. But they are all in the other side others that it might recover more in a more fast way due to the fact that the people to gain confidence and to gain trust, they will use public transportation with less people in the same vehicles, which means that we have to have more vehicles running in the streets. If this will fasten or not the low carbon ambitions, I'm not sure. I don't have the crystal ball. What I can tell to you is that as we are adapting and flexibising our short term operations, we keep our lighthouse, our strategy into the future and our ambitions untouchable because we will think that sooner or later, the world will move in that side. It could be more difficult due to the fact that we will be more focused on handle things that were more that becomes more priority in our lives as never so. I think we are fighting. We are in the middle of a war as and precedence as our generation has not lived since the 2nd World War. And therefore, I think it will be quite complex to manage the next coming years. And the allocation of the different priorities, it will be still difficult to see the fog that is in the horizon. So, Philippe, can you go through the first question, please? Good morning, Olwyn. Unlike Q1, where we had the drag of CapEx and cash So CapEx, cash CapEx goes down in line with the revised guidance we have provided you with. Clearly, taxes go very materially down going forward, assuming Brent is as low as we see today. And we will have a real working capital effect. And I say real because that's opposed to what we have seen in Q1. In Q1, you have accounting markdowns in balances, balance sheet balances of certain items such as inventories. That's not a real cash savings. That's a release of working capital, but it's effectively just a mark to market and against and that's also booked under IFRS EBITDA. From now on, we are saying already that we are buying crude at a fraction of the price that we used to. We're still getting money from clients at older invoice levels. And clearly, we will have less help from suppliers' balances, but that's less than what we gain on inventories and on the client side. So we should see working capital release on a cash basis going Thank you. Thank you, Philip. If I could just quickly touch on something else in that then. For the second maybe the second quarter is most important here. But just on that, on the physical crude prices you're receiving at the moment from your upstream operations in Angola and Brazil, Are you actually able to get cargoes away? And perhaps what discounts you're seeing on recent cargoes or future ones? How have you protected that in the next quarter? So Arvind, we are not doing protection on that because we the full integrated profile of Galp in somehow is self edging our position. And therefore, what is important is looking at what I have already mentioned. It's how we are selling our Lula and Irussema oil in comparison with Drent. And in that respect, we are taking outlets that are evaluating it more than our own refining system. I think that responds quite well to your concern. Thank you. Thanks. Thank you. We will now take our next question. Your next question comes from the line of Michel Dalla Vigina. Your line is open. Hi, thank you very much for taking the time for my question in these difficult times. It's Michel de la Vigna. Two quick ones. First of all, I wanted to ask you if you've already received a request from Angola to cut down some of the production in Block 32 on the back of the OPEC cut decision. And then second, I was wondering if you could expand a bit more on the potential impact of COVID-nineteen on your supply chain, particularly in Brazil and which parts of that chain you find most at risk? Thank you. Hi, Michel. Good morning. So answering to your both questions, the answer to the first one is no. And I think it's a clear point. In relation to the supply chain COVID-nineteen actions, I think Thor could help us because there's a set of actions that the operators are being implementing in order to guarantee that we have safe operations that could clearly protect our production. So Thor, can you please share with Michel some thoughts on some actions that we have implemented in this case? Yes. Thank you, Carlos. And Miguel, what I can share with you is that there is put in place quite rigorous systems, including quarantining of personnel before they go offshore in order to try to minimize COVID situation offshore. There is also ongoing measures being taken offshore in order to see if any of the personnel is being affected. So, so far, that has worked well. We have minimized exposures as much as possible. That means that non critical maintenance has been delayed. So maintenance activities that is now taking place is really focused on safety and maintaining production, I. E, so that the personnel that goes offshore is also being minimized. So, so far, that has worked quite well, but we all know that this is a strictly a virus, so we will have to monitor that on a daily basis. Thank you. Thank you. Question. And our next question comes from the line of Safikanth Chilikuru. Your line is open. Hi, this is Sashikanth Chilayriqiu from Morgan Stanley. Most of my questions have been answered, but I had one quick credit case, please. I was just trying if you can provide details of the hedging program in the upstream and in the downstream divisions, particularly in 2Q and for the rest of 2020? Sorry, Sassy, can you repeat the question? I can't hear you very well. Thank you. Yes. Sorry, I was just trying to understand if you could provide the details for the hedging program in the upstream and in the downstream for 2Q and 2020. Okay. Good morning, Sajik and so the ethylene program that we have in force, it's related with refining margins. What we can say is that we have around 10% of our throughput hedged in a yearly basis with a refinery margin of about 4.0 per barrel. That's more or less where we are. In the upstream, we don't have anything for the time being. Thank you. Can I just ask there's one point that I might it might be interesting to also, and I'm sorry, for complementing what you have asked because you asked the hedging program in force? And I didn't mention, and I think none of us, neither me nor field has referred to that. But we had a put option program for brands that we have monetized during the Q1 that is in the accounts of the PUBU, the Q1. So just for sake of clarity and to guarantee that I'm answering with full information to you. Thank you. Your next question comes from the line of Matt Lofting. Hi, gents, and thanks for taking the questions. Two questions, if I could, please. I mean, firstly, just on the impact of the cost reduction initiatives implemented for 2020 2021. If you put near term operational uncertainties to one side, could you share a sense of Galp's normalized ability to mitigate the impact of lower CapEx on early 2020's production and underlying cash flow linked, for example, to its high investment bias to longer term growth? And remind us, if you could, of the sort of the starting point breakdown of your CapEx mix? And then secondly, if I could just come back to and expand on the earlier points on cash flows. I think, Filipe, you've tended to refer in the past to the embedded cash flow hedge that the minority dividend stream to Sinopec in Brazil brings in particular. We've probably not seen that yet in the Q1 owing to the time lag. So when we look forward to the Q2 and beyond, could you just elaborate on the duration attached to each of the key cash flow time lags that have weighed on Q1, particularly the Sinopec payment and cash taxes and whether any of them extend into Q2 and beyond? Thank you. Hi, Matt. Good morning. I think good questions. They are quite related. I'll let the floor to Philip to address those questions. Thank you. Keep safe. Matt, if I understood your question was on the Brazilian distributions to Sinopec and how that interrelates with our CapEx cuts. Is that correct? Yes. The first question, Felipe, is the extent to which you can manage or mitigate medium term production in the context of the CapEx cuts that you've implemented for 2020 2021? In other words, the extent to which those CapEx cuts could impact not 2020 production, but when we think about '21 and 2022, absent of operational uncertainties, I. E. Put them to one side. And then secondly, the duration of the time lag on the cash flows related to both the Sinopec payment and the cash taxes? Thanks. Got it. Well, it's given where we are at Galp. As you know, we can take CapEx big time without compromising production over the 1st few years until 'twenty three, 'twenty four. And that's just the way where we are in the cycle. We have most of our CapEx going to growth CapEx, I. E, new projects. So most of Brazil is getting completed. So it's a recent portfolio. So Brazil was starting to have much, much lower CapEx before Bacalhau kicks in. And Mozambique was delayed, as you know. So it just so happens that from a production, we are going to ride the wave of past CapEx for quite a while until we have differences in production profile. So and as you know, Galp does not need to replenish reserves anytime soon given our production profile. On yes, some of the CapEx we're cutting is also related to Brazil. We won't go into details, but a lot of it is Mozambique driven and some in Iberia as well. So we would expect the ability of distributing out of Brazil to remain relatively strong for the 1st year in the future. Thank you. Thanks. We'll now take our next question. Your next question comes from the line of Jorg Rigby. Hi. Yes, thank you. Two questions. The first is on Brazil. If you look over the next 9 months, obviously, you're also, I guess, somewhat reliant on contractors supporting Santos operations. So I just wonder whether you could elaborate on whether there's any DULs, workovers or planned maintenance on any of the FPSOs due over the course of the 9 months that might be compromised as a result of COVID? And then the second question, just to go back to the option that you cashed in on the Brent contracts, what was the genesis of that? Why were you carrying that derivative in the first place? John, good morning. I will let the first question to Thor and try to answer it to the second one. So the derivatives that we have, basically, it's a mix part of our risk management program. It's a kind of insurance. So we have set up this based on our assumptions that was released to all of you. We were expecting $60 plus per barrel across this year. But at the same time, we have buys and puts in order to protect ourselves that very ship below a certain level of oil prices. So what do we have analyzed? These puts across the time will lose money, will lose value. And during this process, we have realized that this could be an important moment to cash in and to increase the cash position of the company. So contrarily to the insurance program that normally this should be used, This is one off decision that we have taken to reinforce our cash position. So Thor, can you help me on first question? Thank you. Thank you, Carlos. Hi, John. What I can do say is that and I alluded to that in my previous intervention as well actually, is that we are minimizing maintenance activities to really focusing on safety and production in order to try to reduce the exposure versus COVID. So far, that has been worked out well. So it is no major impact on our operation. And actually, as a matter of fact, in Mozambique, in connection with the cargo project, we had drilled 6 of the top holes, but decided to postpone the remaining of completing those wells until next year, which then leads to a saving this year and is then reducing also the possible COVID impact on it. So this has been an ongoing effort to try to optimize operations. So just to round off, it's fair to say you're trying to minimize the reliance on third parties through this year? I would say it is more that you're trying to optimize operation and reduce exposure as much as possible. That is really it is not per se a desire to minimize the usage of third parties, but it's a question of reducing risks related to the operation. And that implies as well actually that some of these operations that are noncritical, they are being delayed also because of the focus on cash preservation in the sort of turbulences that we are in right now. This is Rafael Dubois from SocGen. Just would like to come back one second on the put options. Can you give us a feel for the sort of oil price at which you unloaded those products? And just to make sure I got it right, where are those products initially supposed to be unloaded more smoothly over the year? Was it purely opportunistic to unload them in one go? This is as I'm trying to explain to you, this makes part of our risk management strategy. So this is more like so like an insurance program to protect our position in global hedging strategy. And this is one off initiative, It was related to this market volatility. So we didn't mention, for instance, that we are in a contango position in the markets. We have several initiatives that we have set in place, really contango related, that we will capture in becoming mouses, not only queues, but mouses, because logistics today and tank farms today is a luxury. So effectively, it was one off initiative. Thank you. Thank you. Next question please, operator. Thank you. We will now take our last question, sir. And your last question comes And I just wanted to say thanks to Galp for all the commitment you've put into Portugal for the frontline workers, in particular. I noted some of the first commentary on that, very supportive of what you've been doing inside Portugal. I do have a question on the new commercial division. And I know in the trading statement, you're splitting out volumes, oil versus gas versus electricity. But I'm trying to get a sense of where the margin split will be on a normalized basis. I know we're not at a normal period at all, but it's obvious that we want to focus on the renewables business going forward. And the way that the divisions have been reset will help us understand the contribution of renewables. But in Commercial, I think the 3 different volumes, oil, gas versus electricity, still difficult to understand how best to model that really. And then secondly, on the liquidity position, euros 2,600,000,000 I think you mentioned. How much of that is undrawn credit facilities currently? And will you be looking to extend your debt and that liquidity position at similar levels going forward, please? Good morning, Jason. Good to hear you and thank you for your sympathy. So I will address the first one. The first question, Filipe will go from the second one. So the commercial division has been set up based in a way that we can have a one stop shop for all our customers and consumers. The way we optimize the business in any case is in an integrated way, I think, independently of where the margin is played. We always take in consideration the global Galp's optimization. That said, of course, and you have referred the cases of renewables, and we have referred the cases of the gas. Our native markets are the regional markets. And clearly, the optimization between, for instance, the sourcing of these markets as to take in consideration looking at the full entire supply chain. So there is a role play in every single business line that is quite important to guarantee that at the same time that we are doing our commercial activities, not only in Portugal and in Spain, but overseas in Africa, we are doing it maximizing the value for the company. So sometimes, you will see part of that in the commercial terms, so in the commercial P and L. Sometimes part of that is also related with the midstream activities. By in any case, it will be so the internal transfer price that is something that we don't speak about because it makes no sense. It's always market related. So it's in a way that we guarantee that we are optimizing our commercial activities. Like we have today in our refining activities, effectively, the decision to buy or produce, it's based on arm's length approach. And the way we sold locally, regionally or internationally is always based on value optimization driven and on an arm's length basis. So and I think the best explanation for that is that you see very few, very few cargoes we are processing in our refining system due to the fact that we are able to maximize the value by selling in the international markets instead of processing in our refining system. So basically to give you the idea that the main point is guaranteeing that we touch the consumers and clients and customers in an integrated way, which is important that we can have a portfolio that optimizes and that amplifies the cross selling and that we can have a single contact point with our clients in a way that we can provide a more a better service to all of them. So, Filipe, liquidity, please. Jason, on our Slide 17, you have the split of what is cash and what is undrawn credit facilities. So 1 point 485 cash and 1.16 undrawn credit facilities. And you are absolutely right. Investors and creditors now should be focusing on financial resilience, liquidity and balance sheet. And on that front, from our if you look at our operations, we're not bleeding even at these levels, which is quite shows how competitive our portfolio is. And more than looking at the changes in net debt, That's at the end of the day is where you see who is generating cash and who isn't. So EUR 2,600,000,000 overall liquidity. We're working on 2021 redemptions, so that would be debt to substitute all those debts. Okay, Mehdi. Maybe just one follow-up on the commercial division, if I may. Is there likely to be any seasonality in that earnings profile for that particular division that we should be thinking about? Jason, during the 2nd Q, it will be quite hard, as I mentioned to you. We are still revising the numbers. So it's still soon to see that. It depends how the market will the market demand will rebound. So the our previous guidance to all of you, it was between €400,000,000 4 €50,000,000 pre COVID-nineteen. So the second Q, it will be challenging. I think it is too soon. We will have to come to all of you possibly early in June or so to or July, I don't know, July at least during the second Q presentation. But as soon as we will have a more clear view, we will come to you and share our short term views. Thank you. So thank you all. That concludes today's call. Please call the team if you have any further questions. Have a great day and keep safe.