Galp Energia, SGPS, S.A. (ELI:GALP)

CMD 2020

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Feb 18, 2020

Good morning, ladies and gentlemen, and welcome to Galp's Capital Markets Day 2020. It's a pleasure to be again in London. Well, the world has changed since the last time we have been here and so did Galp as you are going to see this morning. Today, we are going to present you the strategy and financial outlook and briefly going under the 2019 numbers. You will find as well the cautionary statement in your presentation, which I advise you to read. But before we start, we must advise you on some safety procedures. So in case of emergency, please follow the instructions of the hotel staff and make your way calmly to the exits which are duly marked. The evacuation meeting point is at the corner of Lincoln's Inn field just to the rear of the hotel. Carlos will begin today with the strategy update and then Filipe will follow with the financial outlook. After the break, Thor will give us an update on the upstream operations. At the end and usually as usually, we will have the Q and A session followed by a lunch that we invite you to with the executive team and as well with some of our directors. I hope you enjoyed this morning that we have a lot of material to cover for you guys. So Carlos, the floor is yours. Thank you, Pedro. Ladies and gentlemen, a big welcome and thank you for joining us today. It's a pleasure to be here in London again and have the chance to share with you our achievements and also our goals for the future. And ironically, in a fast changing world, it is playing in the safe mode the most riskiest thing you can do. And today, living in that fast changing world, we have to embrace the opportunities that world is presenting to us. And that is one thing that is for sure, that during this transition, the world will need more and more energy and cleaner solutions to embrace that new era. I will divide my presentations into divisions. The first one, we will look our achievements of 2019. And after that, let's look into the future. But starting reviewing our goals and our achievements in 2019, that whose opportunities and growing in the last 5 years. So starting by 2019, and as you can see, it was a strong and very cash generating year, both from the financial and the operational sides. And that has happened during a very macro challenging environment. The free cash flow, as you have saw, was over €900,000,000 and has increased 45% if we compare year on year. As we continue to execute our strategy, that was more than sufficient to cover our 15 dividend increase. We have started 3 new units production, 2 of them in Brazil and one in Angola. And that was the keystone for the 14% production increase in our yearly average. And that stays above the guidance that we have provided to you 1 year ago. Our natural gas activities has also played an important role during the year since they have successfully capturing market opportunities, namely in the trading activities. During the year, we have done an important reshaping in our organization. We have now split it in 4 different business units, which are more aligned with the risk return profile and the strategic challenges that every single one will have in the coming years. And the most transformational change was introduced in all our commercial activities, where we have merged all together in a single unit in order to moving our mindset and our focus and our attitude from product, which is very traditional in our industry, to service, to customer. So it's a big move. It's clearly something that it's disruptive when we look to what is the tradition in our industry. And while we are delivering today, we are also investing for the future to continue to address and to deliver profitable and sustainable long term value growth. In line with our strategy, we have also allocated 10% to 15% of our equity CapEx to renewables and new business for coming. And we have recently made the announcement of an important move in this area by acquiring 2.9 gigawatts of high quality solar PV projects in Spain. This is completely aligned with what we have mentioned to you. And for those that are following us for many, many years, we have just started to pointing this 4 years ago with a caveat. Once we became free cash flow positive for those that still remember what we have said, and we are complying with it. So over the last 5 years, and you have the chart here, Galp posted a consistent growth path. The cash that we have generated from our operations grew steadily, reaching €1,900,000,000 in 2019. I think this path is the result of a clear focus on execution. You may remember that we have defined for ourselves the 3 Es where the first was precisely related with execution. It's something that we have take that in our hands in a very serious and committed way. Execution, execution, execution has been the stepping stone to deliver these results. And don't forget, because we have done that during a very volatile market conditions. We are seeing and we are observing what is happening in the world every single day, every single month during the last couple of years. And that I think that demonstrates the resilience and the quality of having an integrated business model design. This growth has clearly been converted in value. Our total shareholders' return over the last years has reached 17% per year, while above our peers. So I will repeat because it's important, 17% per year in average. I think this is outstanding by any means. So having Galp has this distinctive long life asset base and having the possibility to share with you what brought us to 2019 with such a strong performance. I think now we have to move and to see our investment case and also the strategic guidelines to continue to deliver sustainable value growth, while we start to embracing the energy transition opportunities that are offering to all the industry. So looking to our distinctive and long life asset base that you know quite well, it is highly competitive and truly resilient to different macro assumptions. We look at energy transition as a new era, full of opportunities. I think it's the only way that we have to look into. The speed and the scale to take advantage of those opportunities will be the difference between the laggards and the successful companies. And we will invest for growth and transition simultaneously, but we will continue to be focused on attractive returns and on keeping a strong balance sheet. Integrating the so called energy transition into our strategy means that all our business and segments need to address the challenge. So this is not only a single responsibility for any one of the 4 divisions that we have now organized. Looking at the 4 divisions and starting by the upstream. So in upstream, we will continue to develop sizable and very low cost resources and to increase the weight of natural gas in our portfolio with the Mozambigan projects, as you know, which will continue to support the strong cash flow generation and also the value creation. Secondly, in refining and now the so called midstream, energy efficiency projects will be a priority to maintain our competitiveness, while we are adapting to evolving markets and to stringent environmental regulation in European countries, our Indo European zone. Thirdly, and looking at to our commercial division, we will leverage on a unique, cleaner and expanded integrated offer. And this is important because it's the I think we are 1 amongst very few that could provide to customers a full integrated offer in our sector that will be supported by innovation, the digital transformation and agile ways of working to provide the best in class customer experience. That's where we put our attention in our days. And 4th is not the last but not the least important division. It's our, I would say, our new baby, and we have to take care about our new babies, that we are committed to develop a competitive and profitable renewable business, but doing that by doing with innovative and differentiating solutions to capture new scalable and value pools. Let's now go over to in more details to every of one of these divisions. And of course, starting with our Upstream business. Here, you know that we have an impressive asset base that ranks the top quartile in the industry, and we plan to keep it that way. By doing so, that means that we have to ensure that we are creating value even in a below 2 degree scenario where oil prices could be materially different from what are expecting today. And sometimes we don't know what we are expecting in every single day. Our upstream portfolio of 2,400,000,000 barrels, I'm speaking about 2P2C reserves and resources, allow us to have enough resources to continue to grow. The breakeven of both sanction and pre sanction projects is below $25 per barrel, and that is considering an NPV10. And this is excluding potential upsides in any of these developments. I'm sure that Thor will cover that upsides in a very enthusiastic way. I'm looking to Tor's face and I have no doubts about that. By using the best technologies and practices in 2019, our portfolio has reached a low carbon intensity of 9.4 kilos of CO2 equivalent per barrel, well below the industry average of 18 kilos. So this is another example of the high quality of our portfolio. Our future developments will continue to fit in our low cost and low carbon portfolio strategy. So in a very summarized way, this is what we plan to do and guide in our upstream activities. Let's now move to the production profile because one thing is the guidelines, other thing is and what are the results? What are you expecting to do with those assets? So production is expected to grow over the next decade at a compounded annual rate of 10%. This is more front loaded and this is a cycle, but all over the next decade, it is a compounded annual rate growth of 10% and mostly from projects already being developed. Upsides to this production growth will come from, 1st, improvements in recovery factor and additional value extraction initiatives on the existing projects and secondly, from exploration results in a set of promising assets such as Wirapulu. I think we should have news on the potential of this project in the coming weeks or months. We are working hard on that. With the development of Mozambique and our Mozambican projects Coral FLNG and also Rovuma LNG, the gas weight is expected to increase significantly, reaching 30% after 2025, which is completely aligned with our strategic guidelines. So being covered the upstream activities, let's now move to our refining and midstream activities. We have at Galp a reliable refining system with technical cost, and we are using technical cost just joining OpEx plus recurrent CapEx, which stands below $2.8 per barrel. And there's still room to improve. We have been able to fully accommodate the change in marine bunker specifications that have just entered in force in 1st July sorry, 1st January. And we are now producing 100 percent very low sulfur fuel oil. So for the discussions that with some of us we have been held during the last couple of months is so this is the proof that clearly we have adapt, we have a feasible and we are complying with what we have said. And we will continue to increase the competitiveness, the efficiency and also the sustainability of our refining system, primarily with incremental projects. The ongoing initiatives of $1 1 additional dollar per barrel contribution will be fully captured during this year. We are now doing some works at our Synes refinery that should be concluded during the first half of this year, which means that at least half of the year, we will have 100% of this dollar per barrel. So we are above 80% of this today, and we will complete this by the second half in a 100% basis. But we didn't stop here. We have been meanwhile launched as what we can call a second wave of initiatives, aiming at an additional $0.5 per barrel contribution between process enhancements and at the same time, by using digital initiatives. And these actions should contribute to improve margins or to reduce our cash costs during the next years, and we do think that we will implement them and having this full capture after 2022. So we entered in this process a couple of years ago for $1 per barrel and now the 2nd wave of an additional $0.5 per barrel that will be fully captured by 2022 onwards. Taking also advantage of the circular economy potential and of course new technologies and digital and transformation applies to all the divisions, we will work towards offering cleaner, more valuable energy solutions while we continue to reduce our carbon footprint. Now moving to commercial, the division that I have mentioned to you that is being experiencing the most drastic and relevant disruptive, I would say, transformation in the good and the right direction. So we made this significant transformation in our commercial activities to take advantage from our large client scale, diversified proposition and taking advantage also of a strong brand awareness in Iberia. With a more agile and customer driven organization, I think we will enhance our client experience and we will expand our offer through multiproduct and service solutions. Having what we can say, a holistic way of view our clients across their all needs in everyday life experience, at home, at work, on the move. So we are clients, we are consumers that we have. Sometimes we don't realize different needs all over the day and in different times in our lives. And it is crucial that we will be able to capture that value. We have also an important starting point, the high capability of our network with around 1500 service stations and 800 convenience stores will also be at the core of a diversified and tailored to each location, taking advantage of new mobility, commuting trends and urban space development. This is important because the world and the way we live, the way we move, the way we behave will change. And what we are doing, anticipating. It's not just adapting, it's anticipating the movements that the society, the human being behavior is taking. So this commercial division is set up to generate more than €500,000,000 in EBITDA by 2025, increasing at least 20% its current contribution. I think with this perspective and this visibility, you may have a more clear view of our plans, our actions and also our commitments going forward. On new energies, we advocate for technological diversity. We listen some people more focused in a certain technology that could be the stepping stone to solve the human problems. We do not. We continue to advocate on technological diversity as a principle to keep options, promoting innovation and creativity. And with this in mind, we are particularly interested in what we can call the green hydrogen deployment. As we believe that it must be one of the most efficient solutions to address challenges related with the decarbonization certain sectors, such as the industry feedstocks and high grade heat. At Galp, we believe that this is the right way and this is the best to keep options open. At Galp, we believe also that renewable generation will play an important role and is amongst the best opportunities to invest in the energy transition at a new at scale business, supporting a profound transformation that will be required to achieve the targets that has been set in the Paris agreement. And integrating in Galp's portfolio these businesses will allow also us to develop what we can call the natural hedge to our Iberian power market exposure. So we have a set of clients, of electrical clients, for which we are not having any electrons producing whatsoever. With this new approach, we will design our business in a full supply integrated, taking advantage of the existing asset client base. And we see there is a clear potential upside on top of just a pure generation business model. So don't look at this as being just a pure generation renewal business model. In addition to this platform, we see that we have levers to expand our activities from Iberia to other regions where we may combine power generation, storage and also supply. Building this renewable generation business will also allow Galp at least to 4 different things: 1st, to diversify our portfolio secondly, to reduce our carbon footprint 3rd, to increase the client sales and 4th, to tap new profit pools. And this is clearly one of the ways to summarize why we are embracing these new four divisions and these new businesses. We have the ambition to reach 10 gigawatts of total installed capacity by 2,030. We can say by the end of next decade. It depends on when we count the next decade, let's say, by 2,030. This is, of course, depending on our ability to find and to develop projects that may fit our investment criteria. And in that case, we will be and we will continue to be disciplined. By 2023, we expect to have 2 in 2 countries, so in Iberia, in Portugal and also in Spain, we intend and we plan to have, we expect to have 3.3 gigawatts of solar projects already operating from existing portfolio in both countries. We estimate more than €200,000,000 of key of cash flow from operations from these projects when we look at them in a stand alone basis. Philippe will go into details how we will plan to do this. So with our recent solar acquisition in Spain, I think we have made a significant move to accelerate the strategy I have just reaffirmed to you all. Galp has become market leader in solar power generation in Iberia. And I think this is a mile one of the key milestones that we have reached. And we are strengthening our position as an integrated energy provider for that region. So living in all the segments where we are present is and will continue to be one of our key ambitions. Our portfolio of 2.9 gigawatts of production benefits also from premium location, which is translating above average solar yields of more than 1800 hours. Over 900 megawatts are already operating, and we expect by year end this year approximately 1.4 gigawatts of production. All the remaining projects, as I've mentioned to you, have already secured grid connection and will be developed over the next 3 years. So all in all, you can see the quality and the profitability and the pace of development that we are putting our focus on these developments. So finally, and to give a word, what does that means in terms of financial contributions? So effectively, our metrics to drove this move into solar, we expect equity IRRs above 10%. Business integration with our remaining activities and other potential upsides, such as ancillary services or storage deployment, may create additional value and therefore increase the impact in our equity returns. And we will work on that in the coming years. Stepping into another level that has to do with the commitments and ambitions that we have during this energy transition and taking in consideration this move to the renewable businesses, I would say this is just part of our future. And being energy transition a reality, we have to assume our own commitments are to embrace and to address the challenges that energy transition presents to the human beings. And we have defined for that 5 levers to decarbonize our portfolio. So the first one is precisely to incorporating renewable energy. The second is increasing the weight of natural gas, and I have spoken about that with our Mozambican projects. The third one is improving the efficiency of our operations all across the supply chain. The 4th one is analyzing options to production of lower to no carbon products. And finally, we are developing and we are studying technologies like CCS and natural offset mechanisms as potential solutions to meet the energy challenges in an efficient way. So we come from, I think, a good starting point as we are growing our energy production well above industry average. So whatever we may decide to commit in the future, it should rely both environmentally and economically sustainable and the goals that we will set up to all of us as to address simultaneously those two elements. So moving now to capital allocation. You may recognize this slide. This is exactly the same that we have shared with you back in October as our capital allocation guidelines are unchanged. You can see that more than 40% of our equity CapEx intends to capture the opportunities coming from the future of the energy demand patterns, while at the same time, we continue to reduce our carbon footprint. Investments in renewables, as I've mentioned to you, and also in new businesses should account 10% to 15% of our equity CapEx in the coming years and provided that the returns are in line with our investment criteria. Project returns will vary across each different business due to size, risk profile and finance structure, as you can see in the center of the slide. But the competitiveness of our future investments will remain aligned with Galp's return on capital employed target of 15%. And we also renew our commitment to stay below 2x net debt to EBITDA and we will rotate assets if required to sustain this level. Our shareholders' distribution in that area, we reiterate what we have target of a dividend per share increase of 10% per year all over the 3 years. You may see 2019, 2021. That means the AGMs that goes from 2020 to 2022. I think this underpins the confidence we have in our plan's resilience. So and to conclude, ladies and gentlemen, let me tell you why Galp is and will continue to be a distinctive value and growth story. I would like just you to retain 3 key messages. Firstly, we will continue to deliver profitable growth. Our upstream production will double during the next decade, supported in projects already being developed and with low breakeven. I've shared with you below $25 per barrel. And we will enhance and transform our downstream businesses. This so called legacy business or conventional businesses will be key contributors to the next chapter to write our story. Simultaneously, during our transition journey, we will also pay relevance and impact in the next decade. Galp will be a €3,000,000,000 plus cash company by 2025 onwards. This is clearly a great statement and an ambition that we have set to all of us. Secondly, we will remain committed with our solid financial position and with also our clear capital allocation. And thirdly, we will balance between growth investments from one side and progressive shareholders' distribution. So you may know Hans Rosling, the Swedish physician that has described as no one the secret silent miracle of human progress, alluded to that with figures, not just with words. So to say that we are living phenomenal times today, with important human challenges, with unique opportunities. So in a fast changing and very and predictable world, embracing the energy transition is surely a lifetime opportunity for Galp and to position Galp as part of the solution in the same tenable and profitable way that brought us to this day. So I sincerely appreciate your attention today. And now I will hand over to Philippe. Philippe? Thank you. Thank you, Carlos. Good morning, guys. Thank you for joining us today. I will start with the recap of the 2019 cash flow, and then I'll move on to the divisional cash flows going forward. So the plans are very much on track. You will see very little changes from what we have told you back in October other than we have now factored in lower refining margins. And I start with my favorite slide, 2018 cash flow. This is the best slide to understand the fundamental competitiveness of the Galp asset base. It also helps to understand how we will fund our capital allocations going forward. So on the left hand side, we effectively have EBITDA plus associates that's over 2,500,000,000 last year. And the key drivers here were much higher production in Upstream, but we have lower brands and we had a difficult refining year as you know. And taking out taxes and working capital, cash flow from operations was CHF 1,900,000,000 that's 7% up if you strip out the IFRS 16 adjustments. And after paying for the operating leases, interests and CapEx, we're left with EUR 9.22 of free cash flow. Now this free cash flow is quite unusual for a business that is growing as quickly as Galp. As you know, we have a very high proportion of our CapEx going into new developments that are not generating any cash, And that's the new units in Brazil. That is Carcara, now Bacalhau. We have Jovuma and we have Coral. None of that is generating any cash, but is waiting on this cash flow. Of the €922,000,000 of free cash flow, about €130,000,000 went to Sinopec, 560 to the Galp shareholders and the rest was to delever our balance sheet that is now at 0.7 times net debt to EBITDA. So I think this slide says a lot about how strong the cash flow is from the existing asset base, I. E, if you park for a second, what's going into new projects. Now a few words on how we will be reporting our segments going forward. This reflects our new org chart, our new priorities and hopefully it will also help value our business more appropriately. E and P, no change. So this is the entire oil and gas upstream activity, €1,750,000,000 of EBITDA last year, major cash cow likely to remain a very large cash cow going forward given how long life and competitive the asset base is. Refining was previously bundled with marketing. And going forward, we have refining, as you know it, and midstream. And within midstream, we have all the core generation. We have all trading of all products, be it gas, electricity, oil products, electricity. And we also have within midstream all the infrastructure assets such as oil pipeline, gas pipelines, the stake in Gg and D. Commercial now includes all our client activities in all geographies. That's products and services. This combination went live last year, and our commercial workforce is already operating on a per client basis as opposed to a silo based product or service organization. In 2019, this was a €400,000,000 EBITDA activity coming from our commercial businesses in Spain and Portugal and certain African countries. And this spans service stations, LPG, lubes, natural gas and electricity. This is a low volatility, high multiple business, which was perhaps not very well understood when it was bundled with refining. Last but not least, our 4th division is Renewables and New Business, which includes the recent solar acquisition in Spain. Now we've hired a senior experienced solar team last year to help us with this under the leadership of Susana. Is it a spot, the woman in red? And this business is also very low cost of capital, low risk business, so quite different from our more traditional commodity business. Now as we report our numbers during 2020, we will be laying out the numbers under this new format so that you can reconcile 20 19 with 2020 numbers. Now I now have one slide for each of these four segments on our views going forward, and I'll then wrap up with the consolidated views. Starting with Upstream and for consistency, we have kept Brent unchanged from the October assumptions. So we have $65 flat this year 2020. Then we have $70 flats. This is nominal. So in 2020 5, it's still at 70. So this is nominal 70 flat going forward. We know this looks a bit rich today, but we have stopped changing our views on Brent every time we sit here. So on this basis, the upstream cash flow from operations should be over €4,000,000,000 cumulative during the 2022 period. And this is supported also by the higher cash margins of the forthcoming projects in Brazil. We've also planted here what cash flow the cumulative cash flow would have been assuming $60 flat nominal throughout the period. On CapEx, almost all of it is going for expansion, and we should have €700,000,000 to €900,000,000 per annum. And the bulk is going into Phase 1 of Bacalhau, Phase 1 of Jovuma LNG, and the remaining is going to the Yara areas and to exploration. On exploration, we have Huirra, Peru coming up shortly. We have Sao Tome, Namibia and we also have the appraisal of Sururu. And of course, we also have CapEx going into Angola and Coral, which is ongoing. And as you recall, Hovuma and Coral are project financed. So our CapEx numbers are net of that. Refining and midstream. Again midstream, you have all the pipelines, all the supply and trading activities and cogeneration. So we have assumed realized refining margins. So Galp realized refining margins of $4 to $5 per barrel. So this is more than $1 less than we had back in October. And refining cash costs as alluded by Carlos $2.8 under $2.8 per barrel. And cash costs means OpEx and recurring CapEx in the refining system. So refining and midstream EBITDA is expected at over €350,000,000 per annum during the 2022 period. And the midstream contributes with about CHF 150,000,000 of that, to which you need to add the stakes in the associates, which come on top. So this is GG and D, International Pipelines, comes on top of the EBITDA numbers here. Cash flow from operations, period and this includes associates. And CapEx should be on average about €100,000,000 per annum and this is mostly centered into energy efficiency measures, incremental conversion and maintenance. Commercial, we expect that this the integration of all of the group's products and services will put us in a much stronger position to extract much more value from our B2C and B2B clients going forward. This should be a cash flow contributor to the tune of €400,000,000 to €450,000,000 at the EBITDA level during 2020 to 2022. And cash flow from operation on a cumulative basis should be about €1,000,000,000 CapEx here should average €150,000,000 per year likely to be a bit lower than that. And this is centered around retail network upgrades, forecourts and digital and loyalty. Now we're spending quite a bit of money on digital and powerful CRM tools to enhance the client's experience and also to help us optimize our own operations. And finally, on Renewables and New Businesses. Now you know we had about 400 megawatts of solar PV projects in our Portuguese pipeline, but this recent acquisition in Spain is a step change for Galp. Now we had been looking at solar projects for quite some time in Iberia, but this was the very best for Galp given its scale, given its competitiveness and given its pure play nature in Iberia where we also have our power commercial activity. The €2,200,000,000 highlight figure considers the acquisition cost itself including for the recently commissioned 900 Megawatts and the development and construction of the other 2 gigawatts coming until 2023. And we have teamed up with the ACS group in Spain for this, a very experienced player to build this sort of projects. It's also great to see a new business generating cash flow from day 1. And by 2023, cash flow from operations of this business on a stand alone basis should be generating €200,000,000 plus of cash flow from operations. And here we are assuming €50 per megawatt hour in the pulp price in real terms. Now these projects will be levered and the partnership is most likely for the equity piece. So this will lead to deconsolidation and the impact the net impact into the Galp balance sheet from the acquisition, the development and the construction, so the whole cash out, the impact on our balance sheet should be no more than €700,000,000 or so over time. So the transaction does not change our commitment to the overall €1,000,000,000 to €1,200,000,000 of average CapEx net CapEx during the next 2 years. It does front load it to 2020 no debate about this. Equity IRRs from this acquisition are expected to be over 10% and this is aligned with our risk return ambitions given the risk of this project and its geography. Bear in mind that this business also brings an economic hedge to our electricity commercial activity, which we plan to expand. Now on a consolidated basis, if we put it all together for this year of 2020, we're guiding towards a group EBITDA of over €2,800,000,000 and cash flow from operations of about €2,200,000,000 or more. For the 2022 periods, cumulative cash flow should be well over €6,000,000,000 Now how are we planning to redeploy this money? CapEx 1 to 1.2 on average for the next few years. To stay within that sort of range asset rotation is likely. And bear in mind that all this CapEx is going to high quality new projects, 40% of which fall into the energy transition buckets, LNG included. Then we have 2. We have distributions to Sinopec from our Brazilian subsidiary and we have distributions to the Galp shareholders as per the 10% compound annual growth rate, which we have announced previously. This is all in line with the messages we have been delivering that we can continue to fund our projects, move and diversify into low carbon, and we can increase distributions and keep our leverage low. That was our guidance to 2022. If we look a bit longer than that and I'll conclude with this, what do we see? We see a very large upstream portfolio of long life projects, which are super competitive. They sit at the bottom of the global cost curve. And with half the carbon intensity of the industry today. These are very sought after assets. We see a cash generating refining and midstream business. We see a client franchise, which we will leverage much better going forward. And this business commands higher multiples with a low cost of capital. And this includes, again, 4 courts convenience, B2B, B2C electricity sales, EV services and all the low carbon offers that we have in the pipeline. And we see a very competitive renewable energy platform. This is a business model where the economics work. It's also a low risk, low cost of capital business. So overall, different businesses with different criteria for valuation. Now some of our investors will think that our pace of transition is faster than they would have liked. Some will say we're not going fast enough. And we know we'll have to manage this and we will not be pleasing everyone. That's not just a Galp problem. It's a sector problem, but we are taking this transition very seriously. But one thing we can agree is that Galp is quite different from most of its peers. Given our very manageable size, the nature of our portfolio and our financial flexibility, we can be much more agile than certainly more than the big guys, and we will adapt as quickly as we want. And with cash flow from operations some 50% higher in 2025 compared to today. And with a lot more going on post 2025, Galp is indeed in a very distinctive place. And I will stop with this, and we break for 20 minutes or so, and Thor comes back to give us the Upstream update. Thank you. Good morning, ladies and gentlemen, and welcome back. It's a big pleasure to be here today and to give you a little bit more insight into Galp's upstream business. I have 4 key messages for you here today. 1, Galp holds an outstanding E and P portfolio that is of world class. 2, this portfolio will deliver on average 10% growth over the next decade. And this will be profitable growth with an NPV at 10, which will deliver a breakeven of below $25 per barrel. And this allows Galp to be really value focused on what we do. On upstream, our focus will be to maximize the value from our assets. And I think you see that we are delivering. Over the last 5 years, we have quadrupled the production from upstream in Gulf. Last year, we delivered a production of 122,000 barrels per day on average, which were 14% higher than the year before. We're doing this from a world class asset base that contains of less than 2,400,000,000 barrels of 2P reserves and 2C resources. And with a reserve replacement rate that has been running over the last 3 years at 125%. And with Revuma Phase 1 and Bacalao Phase 1 now moving soon to be sanctioned, we will move additional resources into reserves. And we do this with a low carbon footprint. At 9.4 kilo CO2 equivalence per BOE, we are doing and comparing quite well with the global average of 18. Characteristic for GULP's portfolio is that this is really profitable growth. To have a breakeven at NPV10 below $25 per barrel is very competitive in the industry and clearly 1st quarter. And this asset base will grew with 14% from 2018 to 2019. We believe it can grow with another 13% to 17% from 2019 to 2020. And as I said, over the next decade, on average, it will grow approximately 10% per year, truly a unique growth portfolio. And this allows us to focus on value. Galt do not need to take any moves on the E and P unless we see that this is really going to enhance the value of our portfolio, enhance the value for our shareholders. Now a few words about some of the key assets in the portfolio. And I have to start with Lula de Aracema, which really is our jewel in the crown. It now runs with 9 FPSOs with an installed capacity of around 1,300,000 barrels per day. This is all done in over a period of 10 years. And this is very profitable barrels. We see that there is a breakeven at NPV10 at around $15 per barrel from this asset. And it's turning into becoming a fantastic cash flow generator for PetroGulf. Some $750,000,000 of free cash flow is this asset generating for Petro Gal at this stage. And as you know, we believe there are some 20,000,000,000 barrels of oil and gas in place in this reservoir. So we have a lot to work with in order to further maximize recovery on this field. Our current development plan calls for recovery of around 34%. This is still a quite conservative ambition. And we are working with our partners now to further see what are the ways to further improve this through looking for tieback solutions, looking for further infill wells, looking for further usage of water alternating gas injection and also possibly looking for how we can extend the field life. Our ambition for this field remains to recover more than 40% of the oil and gas in place. And let me remind you that 1 percentage point improvement in recovery is nothing less than CHF 200,000,000. So this is very exciting opportunities to further improve the profitability of this field. But we have more fields that are contributing in a very, very nice way to the Gulf portfolio now. In Angola, Kaombo is and the 2nd unit, which reached Bato in December, is actually the asset with the highest cash margin for Galp in these days. And in Brazil, Berbigao and Sururu is ramping up ahead of plan and actually with only 2 wells is producing around 68,000 barrels per day, 68,000 barrels per day, which is quite remarkable. The 3rd well is expected to come into production in March. So the ramp up of this field is going very well. And in Mozambique, Coral is developing according to plan and is also on budget. Actually, year end 2019, there was a completion rate of 63%, which means that we are really well on our way to have first gas in the second half of twenty twenty two. Then these are the assets that are producing and delivering as we now speak. Then the 2nd wave of pre salt fields are on its way to into our portfolio. Bacalau, which was previously called Carcara, is now moving forward to FID this year. And it will be the well with the biggest FPSO that has been used in Brazil with an oil processing capacity of nothing less than 220,000 barrels per day. And this would be a significant asset for Galp. It actually will yield us at plateau something like 40,000 barrels of equity barrels for Galp and about 400,000,000 dollars in free cash flow. We believe that this field had a breakeven that is below significantly below $35 per barrel. So this is a very profitable additional asset to Gulf's portfolio. And as you know, we own 20% of this field. First, oil is targeted for end 2023, early 2024. And we're also now studying a Phase 2. We believe that we need to do some more appraisal in order to understand what would be the optimal development of Phase 2, but there are significantly additional reserves and resources that can be developed in the Bacalhau field. Then we have another really exciting opportunity in the portfolio, and that is our position in Mozambique and more specifically in the Vrumah Basin. Mozambique LNG can really be 1st class. Its location and position versus serving the market is really 1st class. We can serve customers in the Far East. We can serve customers in Europe. We can serve customers in South America. We believe that due to the size of these resources, we think there is around 85,000,000,000,000 cubic feet of natural gas in place just in Area 4. We have and the fact that it's very clean gas, no H2S, very little nitrogen And actually, the relatively benign temperatures in Mozambique makes it also cheaper to develop than, for instance, in Qatar, makes us that we can develop this in a very competitive way with a breakeven that is below $4,500,000 BTU. And it will turn into a fantastic cash machine for us. We expect at plateau that this field would generate, for Galp, around $400,000,000 of free cash flow. And contrary to an oilfield, which typically stays at plateau for 3, 4, 5 years. We expect the plateau period for the first phase of this to last for around 20 years, 20 years. And the work of maturing the subsequent phases is ongoing. And there's the real possibility that we can double this performance by developing Phase 2 and Phase 3 in Mozambique. And we have some quite exciting exploration opportunities in the Gulf portfolio. Let me highlight 2 from you today, which can yield very interesting results over the next 12 months. First, Oria Portio in Brazil. We are drilling as we speak. This is a very interesting opportunity, which and let me remind you that when AMP, the Petroleum Agency in Brazil, put this out for auction, they claimed there was something like 7.8 1,000,000,000 barrels of oil and gas in place in this reservoir. We believe that we understand this play concept quite well. This is on the trend line from Bacalao. And we are, as I said, drilling as we speak. We're getting closer to the reservoir per minute. The team is quite excited, but this is exploration and we need to drill before we know. But within a month or so, give and take, we should know whether this is an opportunity that will be working. Could be a world class, another world class asset if it works. And the second opportunity, which is very interesting, I find, is our opportunity in Sao Tome and Principe. This is actually a play concept that the Galp team developed. The acreage around us now is largely taken by other supermajors. But Galt, together with its partners, which is Kosmos and Shell in this field, I expect will be the first that will drill in this frontier area. And hopefully, will be spudding during the course of this year or early 2021. This is a very interesting opportunity if the concept works, but this is truly frontier and of course, with the associated high risk. So let me round this off by sort of just hopefully confirming for you that Gulf has a very interesting and globally very competitive E and P portfolio with a breakeven that is below $25 per barrel and which can grow at least with 10% per year over the next decade. And in addition, we have some interesting exploration opportunities that really can be disruptive in the growth patterns for Galp. So with those few words, I will conclude this session, and then I invite my colleagues to this podium for our Q and A. Thank you very much. Well, we are starting now the Q and A session. So if you want to make a question, please raise your hand, say your name and company, and on my indication assistant, we'll go to you. Thank you. So there's a question here on the first table. It's Sashikanth Chilukuru from Morgan Stanley. I just had a couple of questions. The first one on your ambition on the renewable side. When you talk about the 10 gigawatts by 2,030, is that an ambition on a net basis after you're farmed down? And also, the CapEx associated with it, is the CapEx that you have laid out for your current projects, is that any indication of what the CapEx levels will look like to scale up to that 10 gigawatts capacity? The second question I had was on your upstream carbon intensity. You talk about having it at $9 per $9 kilogram carbon dioxide BOE. I was just wondering what it would look like on your numbers for 2025 and beyond. Thank you. I think I will split with I will share with Flip the answer to your first question. Clearly, the 10 gigawatts, as we have mentioned before, it's based on a fully integrated power approach starting by Iberia. Effectively and as Filipe has mentioned, we have considered in terms of net CapEx after project financing. And assuming that we will leverage these positions, We will have the intention to find a partner or partners to clearly deconsolidate this from our balance sheet and to run this business according to multiples and according to the project financing that is typically its profile. So what applies to the first projects, we have exactly same intentions to do for the forthcoming additional gigawatts. In relation to the carbon intensity, effectively, I think our starting point is quite fantastic. So looking at the quality of our portfolio in terms of profitability and at the same time the carbon intensity, it's quite amazing. But we have to assume and to be aware that once we will continue to grow effectively our carbon will increase, our carbon exposure will increase. We have already embedded in our operations 0 flaring and other initiatives that some of the industry players are now starting to set up as ambitions and targets. So effectively, we have been working on that many, many years ago. And that has required that we have already invested in technologies to ensure that that is properly addressed. But Filip, I think in the Renewable, you can elaborate a little bit more. So the 10 gigas, bear in mind, 3.3 are kind of done from an access to the grid point of view. So to 2030, the 10 gigas, we're talking about 6 plus of extra capacity by then. Clearly, we had to pay an entry ticket to get into this one. So if you divide €2,200,000,000 divide by the €2,900,000,000 figures, that's 7.50 or so per megawatt. Going forward and that as the cost of this technology continues to fall, we're looking into 500,000 or so as you roll out the next project. So there's also a dilution effect coming. On top of the financial engineering on bringing in low cost of capital partnerships, low risk as well. So the impact to our balance sheet, we've mentioned CHF 700,000,000 for the existing portfolio. But to 2,030, the equity piece is very manageable for a company like Galp. And bear in mind, if you allow me to just to complement, bear in mind that we start by solar PV, but that doesn't mean that we will not look at different technologies and sources of different renewable sources of technologies. So you should also take that in consideration, which my lens or my hand with different partnership typologies. Thank you very much. Oswald, Clinton Bernstein. Yes, just following on Renewables, Carlos, you said the transition strategy or success depends on speed and speed will be the difference between the leaders and the laggards. So you're obviously coming up to a period of significant free cash flow expansion and we expect you to try and deploy that. But he also said the deal you just did was one of the very best you could find in Spanish solar. So just talk about the other ones you looked at, how much worse they were? And what happens if you can't find anything as good as the deal you've actually just done in terms of short term? And then secondly, a great chart on your upstream production. Thank you. I just wondered if you could talk about when do you start declining Lula Eresiba in that long term exhibit out to 2,030? But also you talk about infill wells and tie ins, but which we've heard about before. I just want to get a sense, is Petrobras an obstacle here in terms of expediting or executing those types of short term opportunities? I get the sense they may be talking to your other partner. So you identify them, you want to execute them, but perhaps there's a little bit of an obstacle there with Petrobras. Is that true? Thank you. Thank you, Oswald. So speaking with a geologist that is at the same time a great analyst is quite difficult to answer to your questions. But I will start by the second, but letting Thor to elaborate. Our partner is not an obstacle. Clearly, we have identified projects to recover our factor. And it seems that every year, we are expanding and expanding and expanding our production, but that will require different investment profile. So I will let Tore elaborate on that. In what relates to renewables, I think the first point was to find out a sizable, economically acceptable base to set up a team to learn inclusively to incorporate energy management skills inside of our organization and build up a platform to look into other geographies. That has to be completely different from the profile and the strategy that we are applying to Iberia. In Iberia, I should remember to all of you that we have a sizable base of clients and we have done this move looking at a business that is fully integrated. Looking to other geographies where we don't have exactly the same profile, we have to redesign completely the approach. And effectively, it depends on partnerships. It depends on regulatory framework. It depends on the cost of capital, on the risks. So but having that team that is handling a business and in geographies where we might have some strategic advantage and you can think some of them in Latin America and also in Africa could be the next move, but it's early to start to speak about that. So one step at a time, we have to digest and we have to be humble and to assume that we have done nothing. We are just starting this journey. We have a way forward to do. This is sizable. This branch to have the chance to position Magalp at the leading and not in the laggard side of the industry, but building step by step. And I think we have a lot of work to do in the next coming years. So, Bertor? Yes, I will. No, we and Galp are very impatient when it comes to sort of making that we are really extracting the maximum value out of Lula, Resema. And the others. And the others. But I think we are the most ambitious actually, Karlsson. So we are pushing, but that should be the role of a partner as well. Actually, we have really and the Galt team has spent a lot of time showing the business cases for why utilizing the existing urologists on the units is such a profitable way to use the equipment. So would we have liked Petrobras to go even faster? Yes. Are they moving and moving in the right direction? Also yes. There is actually already now commitment on 10 new infill wells for the field. We are going in the right direction, and we will continue to push for that, and we will continue to push for that. We need to be also agile when it comes to buying new gas injection lines so that we can have more water alternating gas injection capacity because we see it works really well in this reservoir. So it's moving. It's moving in the right direction. Would we have liked it to go even faster? Yes. But I think it will eventually go in the way we want it, which is to recover more than 40% of the oil and paste in this field. Here on the first table, first row. Thanks. Good morning. It's Michael Alsford from Citi. A couple of questions for me please. So firstly on your newly renamed Refining and Midstream Business. It seems like the focus is now very much on incremental investments and trying to improve the returns and margins in that business. I was just wondering whether you could talk more medium term as to whether you think the business is well positioned for the longer term trends of oil demand in Europe. And does that mean that you're rolling out any major investments in that area going forward? That was my first question. And then just sort of secondly, I just wanted to just sort of touch on the point you make on Brazil on Bacalhau. What sort of needs to be done in terms of the kind of remaining contracts for you to sanction the project? The remaining? The remaining contracts or anything you need to actually fully sanction the project. Okay. So refining and midstream. Both midstream means as Philippe has simplified trading activities, supply and trading activities everything that is related with our international pipelines and refineries. In refining, we have proved to you that during the last couple of years, we have been investing in incremental projects that allows us to increase the conversion capacity and also the energy efficiency. And that's our plans for the near term future. Europe is in a fast changing moment. So the Green Deal is becoming, so couple of weeks or months. And I think all the refining, European refining system will be under scrutiny going forward. So what we are doing today is analyzing alternatives for optimizing using different feedstocks. The example that I have provided to you looking at green hydrogen as a platform for new users in industry where high heat or different feedstocks are required, is could be paramount for us. So effectively, we have to look at it tentatively because the long life cycle of the refining system is no longer as it was previously. So there is no plans to invest heavily or whatsoever in our refining system except the ones that we have shared with you. So incremental projects to continue to position ourselves in a competitive way comparing with our European peers or competitors. In Bacalhau, the FID should be taken this year. But Thor? But you're right. So the biggest single item to still to be decided for Bacalhau is the cost associated with the drilling and completion. So that is being tendered as we speak. And of course, then we are doing the FEED for the SURF and the FPSO as we also speak. And we need to see that the costs are coming in line with what we had expected so that we are maintaining this the competitiveness of this field. As I said, for us in Galp, the focus is all about value, and we need to see this delivering below $35 per barrel. That's the sort of focus we have for this week. So drilling and well is the key focus right now. Thank you. We are on the first table, please. It's Biraj Mulkitari at RBC. Just one follow-up on the renewables business. I think you're using a €50 power price within that. Could you just talk a little bit about how you expect that to evolve over time, particularly as there's so much capacity coming online in solar? And also your views generally about taking on merchant risk over time as that portfolio builds up? And the second question is going back to the upstream is the 3 percentage point increase in recovery rate at Loulo is quite material. Could you just let us know whether that's worked its way back into your production guidance out to 2,030? Is there any change in the assumptions there? Thank you. So thank you for your questions. That gives me time to observe my colleagues to respond to you. Philippe? Power prices. Power prices. Over time, we today you still see a premium for the solar capture hours. Over time, we're building a very significant discount to the average pulp price into our models. We actually take the Poirier numbers. So these are not just scalp assumptions. So we take market use. Key drivers in Iberia will be how fast the nuclear fleet will be decommissioned, and there is a deadline for that in the middle of 30s. Coal fired power generation is being decommissioned very, very quickly as we speak. So most likely, the price of the pool will be marked by CCGTs that will be complementing the renewables business. So yes, we're building in a significant discount to average pulp prices in the long term. Just to complement to you. It is important that when we speak about the fully integrated power businesses, as we do in our oil business. That doesn't mean that we will sell our own electrons. So we always find out for trading activities that you know that I love it. So we will continue to set up a trading team that will continue to see and to search from the energy management point of view where are the best opportunities from our production and also where and how we can get the supply elections to feed up our commercial activities. And then to your question regarding the recovery factor, yes, I can confirm that in our business plan, we have factored in a 34% recovery rate for Lula Rissema in our business plan, but nothing beyond that at this stage. The impact in production guidance? No. That is already included in the production guidance that we have given you until 2030 years. With the prudence that you know, the ops profile. It's Josh Stonehenge from Barclays. Two questions, please. Firstly, on you talked about the upstream being a very cash generative highly cash generative business. Can you about what you think about the CapEx profile longer term for that business? And to what extent you'd be willing to sacrifice things like reserve life and reallocate some of that capital towards some of these lower carbon businesses? And then secondly, on exploration, you've talked about some pretty high impact potential wells coming up. Again, if you think longer term in that business, what role do you think exploration has as you move towards a lower carbon world as well? So I will start, but I will add to you. Just one point that I think it is important. We were looking at the period of 2022 and we have also gave to you a flavor of what might be this company by the middle of next decade and also what could be the company by the end of the decade. You should bear in mind that we have also a lot of projects developed and different phases, namely it's the case of our Mozambican project that will require lots of CapEx for the second and the third phases. So effectively, the sacrifice that we have mentioned is not really a question. So we have to rebalance our position. Effectively, the weight of natural gas will increase at the same pace that we are opening new avenues into renewables as long as it fits our sizable risk profile and returns. It's important that you kept that message because we will continue to have that profile and that discipline. And as I stated in the presentation, the key driver for GALP and GALP's upstream strategy is value. Value is what is going to drive our behavior and that also go for the exploration part. If that means that we will sacrifice on reserve lives, then so be it. It has to be barrels that are, and also Carlos said in his presentation, competitive also in a below 2 degree scenario world. And that is why we are so adamant about value and value and value. And those are the type of opportunities that we need to find. But we are screening opportunities. In 2018, we screened 64 different opportunities. We selected 3. Last year, we screened I don't actually remember the precise now, but it was more than 50. We did not do any deals because we did not see anything that was in the market that was offered to us that could compete with what we had in our portfolio. So we will be very selective and focusing on that. There on my right, please. 2nd row. Thank you. It's Irene Himone at Societe Generale. I had two questions, please. Firstly, Mozambique is obviously a key part of growing the portfolio in the energy transition. Can you talk a little bit about your views, your scenarios on natural gas prices going forwards, given that this is a rather challenged market? Secondly, Carlos, you presented the 5 levers of decarbonizing the portfolio, but I know these do not translate into explicit targets to reduce scope 1, 2, 3. You only communicate on the basis of reducing carbon intensity. Is that not of concern or relevance, do you think, to you given your scale? Thank you. Thank you so much. So we use not to have our views on going forward macro assumptions. I mean gas is one of the cases. But just not for quit from your question, actually we know that in the short medium term the gas market is fully supplied, I would say oversupplied. There's a lot of new projects coming on stream, mild winters, a lot of geopolitical questions, a lot of fightings between North Sea and the Russian gas. We are observing that they are competing for putting their molecules in Europe. So effectively in short, medium term, it seems to be a glut on that. But looking at more longer term perspective, gas has to play an important role in combination with renewables. Renewables as a main point that has to find out technologies and solutions for the intermittency of that generation capacity. And therefore, gas to power is one of the possible alternatives. And of course, there are others like storage and there are different technologies of storage. So effectively looking into the future, we do see gas, not only gas prices, but gas as one of the key elements to ensure that we will behave as a civilization, a smooth energy transition path. Delivers of the decarbonization. We do have established for ourselves and our Board and our remuneration committee has set up a KPI for the executive team related with carbon intensity index. So we have that. The key point is that suddenly everyone starts to set targets without measuring adequately and how sustainable they will be going forward. It seems to be more a movement that comes from the buzz in the entire world community rather than something that is organic and is well analyzed and adequately addressed. We are clearly working on that. And we will come to you with targets, ambitions and what we do think it's well balanced between sustainability and profitability because it's the two points and the two elements. It could be easier to us to come here than to make a brilliant statement saying that. But the good directions and the good the quality of the assets, I think it is the key element for all of us to analyze where we are. First, the starting point is good. We are of what we see in our industry in terms of emissions. We have technologies that we are investing since the last 5 to 10 years to guarantee that our operations are eco efficient. We have introduced in our different businesses eco efficiency initiatives to guarantee that clearly we are in that way. The renewables will play also a new important role in that perspective. But of course, addressing what could be the net zero world by 2,050 or so, it's something that we have to address seriously. It's a big topic and we will come with that after having a deep analysis with all the consequences, but taking in consideration that our position is much better. But with the humbleness of knowing that embracing the transition means that we have also to embrace those levers with specific targets. There on my right on this 3rd row please. Thank you. Thomas Adolff from Credit Suisse. I have three questions. I'm sorry. Firstly, on net CapEx or net investments, the EUR 1,000,000,000 to EUR 1,200,000,000 per annum. To stay within that range, is your base case the deconsolidation of the Renewable business as you bring in a partner? And selling part of the RAV business is not your base case, is that correct? Secondly, just going back to the renewables business, 3.3 gigawatts and then the longer term ambitions of 10 gigawatts. Do you plan to bring in 1 partner to grow together? Or do you do that with several partners depending on the geographies? And what makes Galp attractive to an outsider to develop this renewable portfolio? And then finally, just going to Uirapuru. Obviously, the A and P said EUR 7,800,000,000 of in place volumes. What if the first well is a dry well? Is that are there additional prospects there? Thank you. So the answer to your first question is yes. We have considered the in our base case, the deconsolidation. That would imply not only to sell back parts of the assets and as well to consider if needed to rotate assets and we have already mentioned to you this previously. Whether we will have 1 partner 2, 3 or 4, it depends. Partners that could be bringing valuable contribution like ship money or geographically strategic key advantage will be considered going forward. So we will keep all of that at open because we have to move project by project as we have done in the past. So you should remember that in the past we had also similar projects like this one. And so the regulated natural gas infrastructures is one of a kind. Uirapuru, again, Thor. Yes, there are more opportunities in Uirapuru as well. But of course, this is a very important well for us. Actually, in the ballpark of that we expect and that if this well works, it could you could prove up around 2,500,000,000 barrels by just this well. So given the totality of what we expect there are, there are other opportunities as well. But if this was going to be dry, we would have to take a serious time out and really rethink what is it that we have not gotten in the right way in the first one. Yes. Yes, please, on the right. Marco Schmidt, KFW. Now to diversify the questions, a question regarding the legacy refining business. I would like to know just your summary of the IMO IMO 2020 effects on your refining business, especially what were when you contemplate your expectations last year and now the reality this year? Thank you. So when we start looking at IMO 2020, 1 year ago, we were all I would say, the markets were anticipating that the spreads between sweet and sour crudes will increase dramatically, that the cracks of high sulfur fuel oil will decrease also dramatically and that the new compliant fuel oil will take place, but it will be combined, it will be compound with marine diesel. So in diesel, due to the fact that the conversion capacity and especially and specifically the desulfurization capacity was limited, it has to be a combination of all of this. So coming to our days, it has been completely different. So the margins were not there. So we have internally assumed that the margins today could be between $5 $6 per barrel. We are telling you $4,000,000 $4,000,000 $4,000,000 $4,500,000,000 The geopolitical conflicts, what is now happening in Libya that has increased almost 1,000,000 barrels a day, what is going on still in Venezuela, the OPEC cuts. So I can continue to elaborate a set of things that is happening. Effectively, the differentials between sweet and sours are there, so approximately $5 per barrel. So it's not so different from what we have saw before. The key point is the cracks are completely different And the very low sulfur fuel oil, what we can call as the compliant fuel oil, became the primarily alternative solution to address this. So if you go to Singapore, which is one of the reference markets, more than 60% of the compliant fuel is being based on very low sulfur fuel oil. What happens to Galp? So first, we have told you that we have a compliant and feasible system and what is the case. What we have done, we have optimized our system, balancing between should we produce more very low sulfur fuel oil or should we continue to have some yields on high sulfur fuel oil. So with the market with cracks in high sulfur fuel oil that almost reached $300 per tonne discount over Brent. We clearly have been optimized our system and we are producing 100% very low sulfur fuel oil. So effectively, instead of being blending, we are doing it and we are moving in that side. And even though we are based more on our supply basket foods on sweet mid high range effectively is the solution that is the one that optimizes our system. So just to give you a brief overview of what happened and what is going on in this sector. Question here in the middle, please? I think there's a lot of hands in that side, and you are not seeing, Piotr. No. Sing the part. We have time. This is Nuno from Bank Difiti Medical 1 in Vas. I have a question. Petrobras says I'm not seeing you, sorry. Petrobras has been having some strikes in Brazil. Are these impacting your assets? And what's your view on these strikes? Could you have some are they going to impact the Q1 of 2020? Are they not? And just to also have a long term question. Your production costs per barrel have been going down quite quarter by quarter. Have we reached the plateau? Or is there some more efficiency to be had in Brazil? Thank you. So strikes, up to now no impact. Secondly, efficiency measures as Tore has mentioned, yes, it has to be continuously an optimization of our system and has to be a positive impact. But we are guiding that the production cost that you saw now in the Q4 is what you can expect for 2020 as sort of as a reference to what we have taken significant reduction, including that our logistic cost was reduced with around 20% last year. So efficiencies has been pursued. Our guidance for 2020 is that you can expect production cost to be what you saw in the Q4. So on the far left then. Thank you, gentlemen. Yuri Kotanj from Deutsche Bank. One question really from me, please. As your production in Brazil is growing, could you please elaborate on relative pricing of your Brazilian volumes and sales structure? And more specifically, whether in the post IMO world, the pricing formula has changed for your Brazilian production? And on structure, how much volumes do you have contracted from Brazil, if at all? Whether Portuguese refining has any contracted volumes from Brazil? And how do Brazilian volumes fit into your $4 to $5 refining margin outlook? So once our Lula and Iracema crudes are gaining more liquidity and when I say ours, it means the entire production effectively they start to have a price that is being set in the markets and is increasing over time. So we are observing that sweet midrange crudes are being well appreciated by the refining system, mainly from the Asian part of the world. So we do not have any contracts whatsoever. In longer term, we are always in the spot market. And that applies not only for Lula and Iracema, but also for our Angolan grades. Actually, Angolan grades and in nowadays some Brazilian grades, they fit very well our refining system. But we are not using them often because balancing in the optimization of our entire system, we are being able to sell them better most of the time for agent clients and doing the supply of our refining operations with different basket compounds. There is just a twist on this. In more recent times with the IMO implementation, we do see and the constraints that I have already referred previously, we do see that Brazilian crudes and also Angolan crudes become more and more fitting the European refining system. It's not just Galp's refining system. Thank you. Cheer, on the right. And there's the back is in the back is well. It's John Rigby from UBS. Two questions, if I may. One on well, actually both on Brazil. The first operationally, as you look out over the performance of the fields, what do you think is going to be the driver of the eventual decline? Is it going to be reservoir pressure, water handling, gas handling? What should we be looking for in terms of the maturity or the maturing nature of what you're seeing just to understand the performance? The second question is, obviously, and I think the market appreciated the fact that you stood back from the transfer of rights auction last year. I think there was a widespread feeling that the returns on offer were not appropriate. But there is clearly a lot of logic behind alignment of joint venture partners and the opportunity to sort of consolidate positions where fields extend across different license blocks. So is there the opportunity or do you sense that there may be the opportunity at some point or other to revisit some of that operational logic, but at a financial solution that makes more sense for all parties? Yes. Thank you, John. Let me take the second question and let Tore to address the first one. Brazilian is clearly one of the key spots for Galp. And effectively, we were not active even though we have been analyzing all the possible alternative solutions to participate in the auction. And we were concerned because the prices were completely out of market. And even the fact that we have referred about JV arrangements is something that we have taken into consideration. So going forward, I think the unique word that we will continue to use, whether we will participate or not in future auctions is value. And that is should be with all the respect for all the partners that we have that are highly qualified and capable. But effectively in our case, we will always drive our decisions throughout value. And that might imply different asset management decisions going forward. So it will be dependent on what it will go on in the future auctions, because one thing is for sure, keep immaterial stakes or shareholding in projects makes no sense. But at the same time, increasing our exposure has to be clearly value driven. So we have to balance between both of those. And when it comes to the decline and what would eventually lead to decline in the key assets in Brazil, it's really is depletion. It's and for us, it's then it's all about trying to keep the mass balance in an adequate dimension by trying to replace the reduction in reservoir pressure that naturally leads from the production of the crude and then finding the optimal solution between water injection, gas injection in order to keep up the mass balance. For now, the water breakthroughs has not been any issue at all in Lula Re Serma. And it's really behaving according to the reservoir model. And so far, the performance of the reservoir has really been good. And it's one of the reasons why we have also been able to increase the recovery factors because the reservoir is really performing well. Thank you, John. One question on the left then, please, on the back. Thanks. It's Jason Gammel with Jefferies. I had two questions, please. The first is on the new Commercial division. I wanted to think about I wonder if you could comment on the volatility that you would expect to see in that business. I appreciate you've given an EBITDA range of €400,000,000 to €450,000,000 But trying to think of that within the context of, say, a refining business that can fluctuate by $100,000,000 based upon a dollar change in refining margins and what growth potential you would see in that commercial business? And then the second question comes back to the diversity of technologies for dealing with energy transition. You've mentioned a couple of times green hydrogen. You've also mentioned CCS in the presentation. Can you talk about what you think needs to happen to make those economic technologies? And if it's just carbon pricing, can you talk about a carbon price that would be necessary? Yes. So the yes, all of us that we are familiar with the industry for many years, we know what is the beauty of the integration between refining and the marketing. And our logistics plays an important role here. But what we are speaking about on giving independence to our commercial division is clearly to have a focus on client journey experience. It's like to be the so the I will put the spot now in the lady in black, not the lady in red. It's like being the Amazon of the energy. That's what we have in our mind. So the volatility on that is quite small, because effectively if you look at what is the balance and what is the frame between refining and marketing, we are quite stable and resilient. Our position in Iberia is quite strong. So we are market leaders in Portugal. And we have the 3rd position in Spain. In our African operations, they are quite healthy and with good results. And what is transformative in this is how can we on top of what is the classic way of dealing with this, we address the new mobility requirements, the inter commuting urban solutions that will be required. Looking at our network service stations as different value pools, because we have ideas to expand the business using different business proposals. So there's a set of initiatives related with digital and client journey experience that could vary across the day, across the week, across the year that could be in our days saw as a surprise for a common client. So effectively this focus will relaunch a jewel that was quite even within our portfolio and with the room space to increase if we have this focus and if we have this attitude. Imagine just the upselling and the cross selling that we might take advantage. Looking at to a client with what we can call one stop shop. So it's completely different from the fact that we are doing today with different teams going there, different perspectives, different mindsets. And at the same time why digital is important, because we are transforming all the tools that are related with the sales force team to guarantee that the face time with clients will increase. So effectively, this is not to reduce people. This is clearly to increase the face time with clients and to allow that our sales team will be much more capable to redesign a pack of solutions that could fit and increase the profit pool from those clients. The diversity of technologies, what is going on? So effectively, the two examples that are out of the ones that I have before, something is going on. We are now starting a partnership in hydrogen in a green hydrogen project that will be set up based on solar PB 1 gigawatt power production plant, which is completely independent from this with a different partnership with the goal, with the ambition to produce hydrogen. And hydrogen will be one of the key elements to decarbonize our products because we position ourselves as one of the key off takers. So if we will increase our products with either gene content, we might supply our clients as feedstocks and as well as for high heat purposes, as I've mentioned to you, in a completely different way. And that answers also to our carbon intensity ambitions that have been mentioned before. The other one is related with carbon capture and storage. Effectively or actually, we won last year and we have just registered a patent precisely that is a reactor that has been developed with based on Portuguese, Brazilian and American technology. That could be one of a kind solutions precisely to address CCS solutions. And there are many others because over time storage capacity, alternative solutions for energy management. So things are happening. And we have when saying that we have to embrace the energy transition that also represents that we have to keep our mindset quite open to guarantee that we will not close ourselves in a shell that impedes that locks us from stepping out from the legacy traditional way of doing things. And that also applies to our refining system. So I have referred to you circular economy using different feedstocks from plastics up to garbage going to used oil. So we have so many things that we can do based on our internal and existing industrial skills that could clearly be complement and deliver to address this transition. But we have to do that very carefully. So consider my response to you as an open minded and a sharing moment rather than an action plan that we are clearly committed to you as we used to do. And when time comes, we will do it. Here on the right, on the back, please. There's all the way in the back. All right. It's Matt Lofting at JPMorgan. Two questions, please. First, just coming back to renewables and how you think about building the portfolio towards 10 gigawatts. Could you share some thoughts on the key, let's say, investment criteria or metrics that you're using when you assess the ACS portfolio or others that you've screened? And in particular, thinking about the extent to which you're sort of looking at returns versus needing to take a more holistic risk award approach to sort of capture the differing cash flow and risk and cost of capital profiles that come with these assets? And then secondly, can you just come back to the earlier question on net CapEx? There's obviously different moving parts that you're looking at in terms of introducing partners, portfolio rotation, project financing, etcetera. Can you help us understand what the order of priority is and what the minimum is that you need to deliver over sort of the next 12 months to ensure that you stay within the upper end of the range? Yes. I will start to answer to you and I've asked the support of Filippo as well. So one of the key criteria is equity IRR double digit. So let's be frank and direct on that. Secondly, is having independence of each and every single project, which means that we can have 1, 2, 3 ex partners, which one that best fits our investment case. And 3rd and to conclude just a brief summary on this, related with the initiatives that we have to set up during the year to comply with our net CapEx. We have committed ourselves to spend between €1,000,000,000 €1,200,000,000 a year in terms of CapEx and we will do it. And for taking that in consideration 2 or 3 elements will be required. First, we have to resell part of the assets that we have just bought. So that means we have to find out a partner to deconsolidate and to give independence to these projects. Secondly, and if required, we will also consider to have asset rotation. And you know that we always mention our natural gas infrastructure as one of the key candidates for that. And by the way, for doing that, we are just swapping equity IRRs that are more than doubling from coming from one to the other. And thirdly, it has to be a long term high quality partnership. Otherwise, it makes no sense. Filip, any compliment? Not much to add, Carlos. So I would say, of course, we take a view on what electricity prices will be. Key asset is access to the grid. Once you have that, access to land, how much you pay for land. There's plenty of finance today for this at very attractive rates, very long term money. This could change in the future, of course, so our views will also be adjusted accordingly. But one thing I will say, this has to be deconsolidated given the nature of our mostly oil and gas investor base. So this has to be seen as an equity RRR game, and we need to play the cost of capital game to make the numbers work. I'll just want to follow-up on the previous question because I think I'm not sure it was clear that commercial has an entirely different risk profile than midstream and upstream, of course. So upstream takes all the commodity risk. The refinery takes all the refining margin risk. You should think of commercial almost as if it's a cost plus activity. So they buy the markets and they price it in the markets, and they want to make money. So it's a margin business, and we don't operate in regulated fit in type of environment. So we have to operate and price our products commercially so that we make a return. But it's very, very stable. Thank you, Philippe. One more question here. Right. Good afternoon. It's Anish Kapadia from Policy Advisors. I had a few questions. Firstly, on Mozambique LNG. Just wondering if you could run through the delays on that project and whether it's the kind of large number of FIDs last year and Qatar's 50,000,000 tonne ambitions that slowed down that project. The second one is going back to the solar business. It's obviously a very highly leveraged business to kind of get those equity IRRs. So I was wondering what's the kind of sensitivity there of those IRRs getting wiped out by the higher CapEx, rising interest rates or downtime on the assets, if you can give some kind of idea around that? And then just a final one on the financial side. It feels like there's a few financial headwinds below the EBITDA line out to 2025. If you could just run through kind of the impact on the associates of some of the pipeline assets coming off, the increase in the minority interests and changes in cash tax rates and interest rates out to 2025? Thank you. Thank you, Anish. Thornd, first? Yes. So when it comes to Mozambique, the reason for why we did not take FID in October last year is the fact that we are really hunting for how to reduce costs further. We know that unit cost is going to be the alpha and omega in order to have a resilient long term product. As has been discussed here before, there are some risks associated with gas prices. What we can do is to work with unit cost. And actually, you have shaved some $1,200,000,000 of the product CapEx since October last year. So that is what we're doing right now, finding ways to make it even more efficient. Filip, can you take both? When we take decisions on new projects, solar projects, we tend other than power prices, of course, we tend to lock in for a very long term all the key drivers. So we rent land for 20, 30 years. That price is fixed. We know at what price we're going to buy the panels and that is likely to surprise us. I mean, it will continue in all likelihood to go down. So other than again, other than oil prices, no major surprises. Below the line, that's why we're so keen to focus on cash flow from operations so that we don't look at what's associates, what's EBITDA. Let's look at cash, whether we consolidate or not. But EBITDA is a function of refining margin and Brent prices versus production. I think that's been clear. We have this unit in Holland called 2 PBV, which has historically bought and rented out to the consortium in Brazil, FPSOs, for example, subsidy systems. That's likely to be unwound over the next few years as the laws have changed in Brazil. So all that equipment has been imported back into Brazil as we speak. That started last year. So that part of the associates will be will disappear and will go up to EBITDA. Minorities, this is we're assuming we're distributing 30% of the free cash flows of Brazil to Sanopec. So whatever the free cash flow, 30% is assumed to be paid out. And cash tax, 40%. So no change in guidance. We're assuming 40% cash tax on profit before tax. Yes. Thank you. So any other question? Well, we conclude the session. We invite you for a light lunch and continue the discussions with the management then. Thank you very much. Thank you so much.

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