Earnings Call: Q4 2018

Feb 11, 2019

Good morning, ladies and gentlemen. Welcome to Galp's Full Year 2018 Results and Outlook Conference Call. I will now pass the floor to Mr. Pedro Diaz, Head of Strategy and Investor Relations. Please go ahead. Good morning, ladies and gentlemen, and welcome to the Q4 and full year 2018 results conference call together with the short term outlook. Today, Carlos will start with a quick overview of Galp's strategy execution during 2018 and an update on what to expect in the medium term. Philippe will then briefly cover the Q4 full results and full year results and also update us on key financial metrics going forward. At the end of the presentation, we will be available to take any questions you may have. Thar is here with us as well. 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 statements available at the beginning of our presentation, which we advise you to read. Carlos, the floor is yours. Thank you. Thank you, Pedro, and good morning to you all. Welcome. I will start with a quick recap of 2018 year. During the year, during 2018, the energy sector faced very significant volatility, with oil prices moving up and down more than $20 per barrel throughout the year. This only reinforces, once again, the strategic importance of Galp's integrated business model. On the upstream front, we continue to develop the giant Lula and Iracema fields, ending the year with 8 producing units, with the deployment of P-sixty nine that has been located in Lula Extreme South at the end of October. Earlier this month, we had the first oil in Unit No. 9 that has been located in Lula North. Now the consortium is working on the enhancements that will allow us to maximize the value extraction from these outstanding assets with the ambition to reach a 40% recovery factor. In Angola, production from Kaombo North project that is in Block 32 started in July and the second unit for Kaombo South is already on location. In Mozambique, the development plan for the first phase of the Rovuma LNG project was submitted, now with much larger trains than the initial plan. On the Downstream side, we have taken advantage of the planned maintenance work in our refining system to implement some of the projects included in the 1 exodollar per barrel initiative that you all are aware of. We have also taken the opportunity to make some adjustments to meet the future demand specifications that will arise from the upcoming IMO regulations that will enter in force next year. We continue to deliver a solid performance from our oil and gas marketing activities in Iberia and also in Africa. And we have done so whilst continuing to develop our business with a more client centric approach, making progress in adapting our value proposition to meet customers' demand. Everything we do reflects our commitment to sustainable practices. And once again, I'm glad to reinforce that this year, Galp was recognized by several of the most important independent entities as an industry leader in environmental, social and governance matters. Jumping now to the next slide, in Slide 4, a quick note on the progress we made in building our upstream resource base. The successful development of our core assets, together with the increased exposure to a strong set of new wins, have led us to a 15% increase in 2P reserves and 2C resources to 2,400,000,000 barrels of oil equivalent. In respect to 2P reserves, we were slightly up due to the upward revision of Lula and Iracema Fuel's performance and update estimates on Yara from the newly drilled wells. These more than offset the 2018 production. 2C Resources were also up 23%, mostly considering the larger trains in Mozambique and the additional 3% stake that we bought in BMS 8, where we have now 20% shareholder. On top of these upward revisions related to our development portfolio, we have also acquired the interest in high potential exploration assets in Brazil, the Huirapuru and also in Campos Basin, the Block 791, where and which we will now work to appraise. So now on Slide 5 and to close my overview of 2018. Production growth was at the lower end of our guidance due to the late start ups of the new replicant units in Lula. We had already flagged this last summer. Financials were supportive, even adjusting macro assumptions with EBITDA reaching €2,200,000,000 In what respect to free cash flow, it was up more than 10% year on year despite the working capital build and covering 1.3 times the dividend paid during the year. Let's now talk about the future with a brief update of what you can expect from us until the end of the decade. In Slide number 7, you can see our upstream activities and the priority our priority will continue to be development of our world class portfolio. We have big and competitive projects in house, which will keep us busy for many years. In Lula and Iracema, we are ramping up the last 2 of 9 units already producing. In Iara, we expect first oil from the new FPSO that will be located in Berbigao and Sururu during the second half of twenty nineteen, while the new FPSO or Atapu is expected to start next year. In Carcara, we are moving towards a phased development. The first phase is now assuming a larger FPSO with 220,000 barrels per day of capacity with full reinjection capability since the 1st day to increase the options around the development plan. These projects should see first oil in the next decade between 2023 2024 and has a breakeven that should stand below $35 per barrel. Regarding appraisal works, which will support the next development phases, we expect to spud a second well in the northern area very soon. Carcara looks quite promising based on its recoverable resource estimate of circa of 2,000,000,000 barrels of oil equivalent. Still in Brazilian pre salt, the first exploration well in Uirapuru is expected by 2020. In Mozambique, we are working towards an FID this summer for the first development phase of Rovuma LNG with offtaking, financing and DPC well underway. We have also been making good progress with the Coral FLNG project with activities intensifying significantly this year, both with the unit construction and as well in what respects to the drilling activities. In Angola, and I've mentioned before, the 2nd unit in Kaombo is already on location. We may see first oil slightly before what we consider in our plan, which was around mid year. Regarding exploration activities, we have started in January the 3 d seismic campaign in our operated Namibian deepwater offshore license in PEL 83. The survey will comprise an area of around 3,000 square kilometers and should be completed during March. Moving on to Slide number 8 with our production guidance. So our 2020 production is now reflecting the late start ups of the latest 2 units in Lula and the revised timeline for Iara. Lula North, the Unit P67, just started, having been originally expected to start last summer. And Berbigao Sururu in Iara is now expected to start in the second half of this year and Atapu next year. This is the guidance we have been sharing with you since the summer. So no surprises here. And as always, all our operational and financial projections include the expected outcome of the unitization processes in Brazil. So both plans are fully comparable. With these grounds, production is expected to grow 8% to 12% this year and at a 12% to 16% compound annual growth rate to 2020. Post to 2020, we are assuming a higher production versus the previous guidance. We expect to benefit from the increased contributions from LULAC and Iara, where we see positive signs that should lead to longer plateaus and an increased plant capacity and larger exposure to Carcara. And of course, the larger development solution for the Rovuma LNG project in Mozambique. Beyond 2025, the upward revision is even higher as we see additional upsides from the recent additions in Brazil. To sum it up, 2019 2020 production growth should be less steep compared with the previous plan, but production is higher in the medium to longer term. Now moving on to the downstream on Slide 9 and starting with the refining activity. 2019 so far has been challenging for refining, with margins impacted by the high levels of gasoline inventories. In addition, we are having some constraints in our system given a recent operational upside in our Matusinsk refinery, which may also lead to slightly suboptimal operations during the Q1. The planned 40 to 50 days outage on maintenance that is planned in the atmospheric distillation units in Syns during the second half of the year is not expected to compromise the operational availability of the conversion units that should run at the optimal capacity. We will use the opportunity to perform works to increase the efficiency and the conversion ability of our refining system towards achieving the full capture of the extra dollar per barrel in refining margin by 2020. Additionally, we aim to capture the benefits of data driven operations through various projects which are currently underway and which will leverage on the digitalization and the supply chain management to increase the efficiency and the profitability of our operations. And as we move closer to the start of the IMO sulfur cap, Taube is ready to supply compliance rule. We are actually expecting a more supportive environment for 2020 onwards, mainly driven by middle distillate crack increase. This effect should more than offset the increased sourcing costs from sweeter crude style. And please note that on the upstream, we will have the reverse effect of selling our medium gravity, low sulfur crudes at a higher price. All in all, IMO should be a clear net positive for Galp. And I will say that both in the upstream and also in the downstream. Regarding our marketing activities, we will continue to adapt our value proposition and invest in digital and innovative solutions to improve the customer's journey. In Gas and Power, we are ensuring the long term sustainability of our supply and trading activity, securing new natural gas sourcing contracts, for which we are considering alternative options, including our equity gas from Mozambique. We are also strengthening our commercial position in Iberia, leveraging from digital tools and innovative business models to provide gas, electricity and services as an integrated commercial offer. Additionally, and aligned with our strategy to develop low carbon businesses, we are building optionality and integration alongside our electricity value chain. We will continue to develop a portfolio of renewable energy projects. Our growing presence in the electric mobility business will also allow significant synergies with the existing network of retail stations. We plan to expand the EV network and associated services, positioning Galp as a leading brand in these segments. So ladies and gentlemen, and to conclude, these are the projects which will continue to strengthen our growth and value story for many, many years to come. Our organic developments are expected to generate over $1,000,000,000 of free cash flow per year from 2020 onwards at $65 per barrel in $20.20 $70 thereafter. With strict financial discipline, we enter this upcoming cash cycle committed to shareholder value. Based on the recent performance, we will be proposing a 15% increase of our dividend related to the 2018 financial year to around €0.63 per share. Will now pass on to Filipe to go to the economic and financial matters. Filipe, please. Thank you, Carlos, and good morning. Let me start with a quick overview of Q4 2018 and the full year results. For Q4, and I'm looking at the bottom of Slide 13, Cash flow from operations was EUR402,000,000 that's down 18% year on year, driven by a lower contribution from refining. This was mostly the result of the lower gasoline cracks and the impact of refinery maintenance on volumes processed. Maintenance also impacted refining OpEx. In upstream, we reached a production of 113 barrels per day and continued to reduce our production costs after high maintenance during Q3. E and P was impacted by about €50,000,000 in under lifting adjustments related to production from the previous quarter. Now on the positive side, we had €156,000,000 of working capital released during the quarter. Net CapEx totaled €282,000,000 of which about half was allocated to the refining and marketing business, given refinery maintenance and the optimization investments during the period. Free cash flow reached €120,000,000 in the quarter. You will have seen on the P and L we published this morning a negative €71,000,000 in mark to market changes on the financial results. This is mostly related to financial derivatives we entered into to hedge the price risk of natural gas we place with, say, B2B clients in Iberia. The positive impact from these economic hedges should be realized over the coming quarters as the underlying gas volumes get delivered. Now for the full year and still on this Slide 13, EBITDA plus associates was over 2 point €4,000,000,000 and that's up 21% year on year with the increased contribution from E and P more than offsetting refining weakness. Cash flow from operations stood at about BRL 1,600,000,000 that's in line year on year, negatively impacted by a €230,000,000 working capital build. And after CapEx, interest and dividends to Sinopec, group free cash flow reached $6.19 This is a solid number if you consider the refinery maintenances, the working capital builds and that a full 70% of CapEx is expansion driven. Actually, E and P is already generating half of the group's cash flow from operations minus CapEx, which speaks for how important this business is fast becoming. Now let's now look at our plan to 2020, and I'm on Slide 14. Just for context, our Brent price assumptions remain unchanged from the previous plan at $60 per barrel in $2,019.65 in 2020. Same for the dollar, which stays at €1,200,000,000 to the euro throughout the period. We are revising upwards the Galp refining margin assumptions for 2019 to about $5, $6 per barrel. That's on the back of the expected strong demand for middle distillates. And for 2020, we add another dollar per barrel, driven by the full contribution from the refining efficiency initiatives and the expected AML disruptions during that year. Now I would highlight that our figures are now based on IFRS 16. Slides 19 and 21 provide some detail on the expected impacts to Galp, and this relates mainly to leased FPSOs and subsea equipment. So for clarity, IFRS 16 has no impact on free cash flows. On this basis, we are guiding towards organic cash flow from operations, annual growth of 10% to 15% compounds to 2020, mostly driven by upstream growth and a supportive refining environment. Even with oil prices lower than during 2018, upstream cash flow from operations should grow at above 10% compounded to 2020, benefiting from higher production, but also from higher unit cash margins in the upcoming Yara FPSOs, which are less heavily taxed. Downstream cash flow from operations should range between €800,000,000 €900,000,000 per year during the period, unchanged from previous guidance. This basically reflects a slightly better refining environment, which we expect later this year. As for Gas and Power, we expect to be at the lower end of the €100,000,000 to €150,000,000 EBITDA guidance due to the end of the structured contracts, and we need to add about €90,000,000 per annum from our associates. For 2019, group EBITDA is expected at €2,100,000,000 to €2,200,000,000 and this will trend towards €3,000,000,000 plus from 2020 onwards. Regarding CapEx on Slide 15, we are keeping our guidance at about €1,000,000,000 per annum in 2019 2020. E and P should still account for about 70% of group CapEx, now with Mozambique gaining traction given Coral and the larger onshore trains of the Rovuma LNG project. Our CapEx estimates assume that the unitization processes in Brazil will be completed by 2020. Now as of the end of 2018, considering the unitization processes under approval, Galp was in a net receiver position of about EUR 100,000,000 under the equalization calculations. We will be updating you on this net position over time as things progress. Non upstream CapEx is expected to average EUR 2 €50,000,000 to €300,000,000 per annum until 2020. This reflects a higher concentration of payments related to the $1 extra per barrel initiatives in the refineries, which are now nearing completion. After 2020, we expect this number to fall to a more normalized €200,000,000 to €250,000,000 including low carbon, renewable power production and the new business solutions. Finally, free cash flow on Slide 16. This is expected to be over €1,000,000,000 by 2020 and grow rapidly as we get into the mid-2020s. Now this is already net of the dividends to Sinopec, and we also assume long term Brent of $70 and Galp refining margins of about $6 per barrel. Net debt to EBITDA is expected at below one time from next year, and this already considering the IFRS 16 impact. New projects not currently in the plan would be expected to be funded by incremental cash flows and from a more active portfolio rotation strategy. I will stop here, and we're happy to take your questions. Thank you. We will now take our next question from Oswald Clint of Bernstein. Please go ahead, sir. Good morning, Carlos and Philippe. Just two questions, please. Firstly, on the Lula and Yara in terms of the reserve revisions upwards that you spoke about, could you just perhaps talk about that a little bit more? Is that really the wells performing better than you expected that led to the upward revision? Or is it are you talking about some of the enhanced oil recovery techniques yet, the WAG technique or gas injection? And ultimately, what does it mean for your assumptions or your expectations for the length of the plateau on each of these FPSOs? I remember you've moved that up over time to 35 and some of them potentially 7 years at plateau. I just want to get a sense of where that number may have moved to, please. And then secondly, just with the dividend going up this morning quite materially, does that signal, I guess, or I mean, almost you're happy with the size and scale of the Brazil portfolio? Or are you still interested in adding to that given things like transfer of rights and some of the new license runs in Brazil in the next year or 2? So that's the second question. Thank you. Oswald, good morning. I will share the first question with Thore, but starting by the dividend question. As we have mentioned before, we will continue to have a balanced approach on cash flow generation in terms of allocation between finding new optionalities to redeploy our CapEx and find new value creative assets, which we have been done. So you should bear in mind that we have increased our exposure in BM We have been present in the last bid rounds, and we have taken 71 in Campos Basin and also with Apuru. So we continue to look at that. But at the same time, as we are focused on value driven approach, we have also to look at how we can share that value with our shareholders. So we will continue to that, looking at both sides of the same question and having a balanced position in order to guarantee that we are all together in terms of total shareholders return in the same page. In what relates to the reserves and resources, I will let Toradev go in more details. But it is important that as time goes by, our experience in what respects to the plateau period of time and the initiatives that we have established and the experience that we get, the new units that have been put in practices, I would say, from the 5 to the 9th units, we have increased our revision in terms of plateau period of time by 1 year, one additional year. Just please recall that the first unit that I always have and mentioned that is a pilot, so it's a lab, a field lab unit, is now entering in the 8th year of production. And therefore, we have to look at this in a holistic way, but it is important also to guarantee that we have the proper and adequate management of the entire reservoirs going forward. Our ambition of having at least 40% of recovery factor means that we have to properly manage today in order to secure future value. But I will pass now to Thor. Thank you, Carlos. Let me try to give you a little bit more insight into our reserves portfolio and our resource portfolio. When it comes to the 1P reserves, you have seen that we have increased that to 389,000,000 barrels, which is a 2% increase since last year. Then you should factor in that we actually produced 38,000,000 barrels during the course of the year. But even so, we were able to add 44,000,000 to revisions. And the revisions are mainly increased expectations for Lula Racema, which continue to perform very well. And we have also actually increased the expected oil in place for Yara, which led them to the upgrade. And that impacts both the 1P and the 2P reserves, which is now 755,000,000 barrels. But let me also spend 2 words regarding the resources, which is also very important. During the course of 2018, we have increased the 1C resources with 43%. We've now reached 425,000,000 barrels. And the key factor for that has been an update of the Mamba reservoir and segment of the reservoir that is now, we believe, is going to be performed better than what we originally expected. And this also actually led to that the 2C resources was increased with 23% in totality now reaching 1,000,000,000 €1,000,000,000 So overall, a good maturation of the portfolio of Saal. And if we are able to FID Mozambique and Mamba in 2019, that would, of course, be a significant addition on reserves for 'nineteen. We will now take our next question from Flora Trindade, CaixaBank. Please go ahead. Yes. Hello. Thank you for taking my questions. The first one is on CapEx and the follow-up on what you've just said. Do you have any budget for these inorganic CapEx? And also I think you mentioned the potential for asset rotation. So what could be the kind of assets that you would be willing to rotate in this case? What are the characteristics? And then the second question is, if you can explain the change in the view on the IMO impact in downstream? I think you had mentioned higher cracks in Middle East. So it is also related this with investments that you are doing. Can you just update us on your more optimistic view on refining, both in terms of margins and the IPO and the IMO impact? Thank you. Flora, good morning. In terms of CapEx, the answer is no. We don't consider inorganic activities in our CapEx. Even though, as you have observed during 2018, we have taken the chance to continue to invest in opportunistic assets with high quality and high lead potential as it was the case of the Campos 791 and Uirapuru and also the BMS side. Anyway, we will be attentive, yes. But the word that is prevailing in our decision is value. So anything that we might think that could create value, we will be attentive. And therefore, that's the reason why we are saying that rotation is a must, because we will continue with our financial discipline that we will below stand below the net debt to EBITDA below twice. And therefore, we might be required to make some rotation if we think that there are other assets, business or optionalities that could create more value for the company. So let's not speculate on which of them. In due time, we will analyze that. In what relates to IMO, so effectively, we are ready to go. That is the first messages. I mentioned to you we have mentioned to you that we are reviewing our expectations, lowering a little bit due to the fact that we think that the differentials between sweets and sours could not stand so high, but still high, let's say, between at least between $2 $3 upper, which means that our upstream activities, which are medium sweet crudes, will benefit from that. In the refining, what we are observing is that the cracks in the middle distillate will tend to increase relevantly. And that's the reason why we are taking a more positive view on that, which should affect also positively our operations due to the fact that we will have our conversion units prepared to benefit and to capture that. So as time will goes by, we will see if this will be the case. But all the signs that we are getting for the market is that this should be in that direction. And I should also to remember all of us that there is no other alternatives because the global conversion capacity is not capable to address this without blending fuel with diesel. We have this compliant fuel. And they are not sufficient capacity in what relates to scrubbing alternatives in the market. So the disruption that the IMO could impose will stand in the market for a couple of years, at least between 2 3 years up to having some stabilization. Thank you. Thank you. We will now take our next question from Biraj Borkhataria. Please go ahead. Hi, thanks for taking my questions. Just a couple please. The first one is on refining margin and your hedging strategy for 2019. Could you just update us on where you are there? I'm assuming you're not hedging much, given the expectation is for higher margins later in the year? And the second question is just following up on Oswald's. The 2025 Brazil production, if I compare the numbers you've given today versus this time last year, it looks like Brazil has gone up significantly. Could you just clarify what decline rates you assume for the very like for the FPSOs? I think for the later ones, you assume a shorter plateau period. Is there any evidence to suggest that, that should be a longer plateau period? Thank you. Hi, Biraj. Good morning. From the edging refining strategy, we have hedged approximately 20% of our capacity for the year, which means around 20,000,000 barrels at around $4 per barrel. So it's what we have for this year. In terms of Brazilian production, so you know that we are now ramping up 2 units. In our plans, we continue to use the 15 ounces as a ramping up period of time. Nevertheless, the last unit, they have ramped up between 10 11 months. So that's the experience that we have and the plans that we have considered. So I think with that, you can have an idea of where we will stand in terms of Brazilian production. I will also ask Thore to complement. Thore? Thank you, Carlos. And in addition to this, what you will see as an impact as of 2025 is that in our production guidance now, we're expecting significantly bigger trains in Mozambique. We used 5,000,000 tonnes per year trains in Mozambique in our previous guiding to the market. Now we're using 7.6 as one effect. And in addition, on Carcara, we used in our previous plan, we expected a unit of 180,000 barrels per day. Now we're expecting 220,000 barrels per day. And we are now also having an ownership share of 20%. So all of these contribute to the fact that we now are more optimistic regarding our 2025 production than we were last year. Thank you. We will now take our next question from Rob Pulleyn, Morgan Stanley. Please go ahead, Hi, gentlemen. Just one question for me around refining. Could you provide a little bit of color as to how you think about the gasoline margins within the range of products you provide and within the refining guidance that you've given? I think many share your view on middle distillate, but it feels like gasoline is going to be under a lot of pressure. So could you give us the underlying sort of view in that refining margin guidance as it relates to gasoline? Thank you. In the end of last year and beginning of this year, we always expect so during the wintertime, gasoline cracks tend to depreciate. But what we are observing this year comparing with the previous year is that they are being negatively impacted. And I mean, it's not only European grades, but also the RBOB rates. So that means that not it's not only the cracks of Eurobob, but also the arbitrage between Europe and the United States. So we hope that during the driving season, that could recover. But frankly speaking, we are less keen and optimistic on that than we are in mineral distillates and namely with diesel. So this is our view and that's the way we have considered that on building up our going forward refining margins estimations. Thank you. Okay. Thank you. I'll turn it over. We will now take our next question from Josh Stone of Barclays. Please go ahead, sir. Hi, good morning. Two questions, please. Firstly, on the optionality in the portfolio you talked about, can you give us an indication of the sort of options you're looking at? They mostly upstream? Or are you looking downstream as well? And then secondly, on the unitization in Brazil, can you just when you're expecting an agreement to happen? And can you give us an estimate of what production impact you're budgeting for in 2019? So going to your first point, optionality. During this energy transition moment that we are leaving today, we have to look attentively for alternatives and take very careful on the way we diversify our portfolio. So that said, we are looking broadly for value and creative opportunities, both in the upstream and also in the downstream. Of course, we have already released to you a couple of years ago that we progressively will start to redeploy some CapEx. The bandwidth was or is between 5% 15% of our CapEx to lower carbon business, which means that we are progressing and feeding our pipeline of renewable projects toward a less carbon intensive economy. In what respects to the upstream, we look attentively for the new coming bid rounds, and we will see. We will take the decisions in due time. And also, how we can maximizing and transforming our business in the downstream in a moment that we are in a I would say in the mature level of this activity and requires a transformation. And we are looking attentively and mainly investing on changing the client journey and the experience and the efficiency of the business. In what respect to unitization? So unitization, what can I say, should happen soon because the agreement between the partners and all the entities involved has been already achieved? So the process is no longer in none of us hands. On the ANP decision. And therefore, what we have done was considering in our plan as unitization happened since the 1st January. And what can I share with you is the fact that all combined with the units that will be put under operation and unitization impact within an annual basis? And imagine that we will not take unitization up to the end of the year. This will take an impact of about 2,500 barrels a day in annual basis. So it's today, as Philip has mentioned, we are net receivers. From the economic point of view, if as per source January, unitization will be enforced, we have to receive €100,000,000 So we have to update you as time goes by. But please also take in consideration that the range that we provide to you in terms of production growth already included this. So it's important for the full year already included this. Thank you. Thank you. We will now take our next question from Michael Alsford of Citibank. Please go ahead. Hi, there. Thanks for taking my questions. I've just got a couple, please. Just firstly on E and P, particularly, Lance, the exploration story. Forgive me, I might have missed what you said, but you're talking about Uruppuru potentially being drilled by 2020. It sounds like it's later than you previously guided. So maybe could you talk specifically on that well, but also the broader exploration plans for 2019? And then just secondly, coming back to refining. Clearly, refining OpEx was hit pretty hard through the turnaround activity that you had in 2018. So I was just wondering if you could give us a guide on what refining OpEx is expected to be for 2019. And then just finally on refining, could you give us a little bit more color as exactly what gasoline crack you are assuming in refining? As I say, it has started very weak as the previous comment you mentioned. But it does feel like you need a pretty big uplift to get towards that $5 to $6 refining margin even with a positive view on middle distillates. Michael, good morning. Yes, I've mentioned that the exploration well in Uirapuru should happen next year. Of course, we have to read it inside the consortium. And this is what we can say as the not longer than 2 If we will behave or we internally and the consortium to anticipate, we are more than keen. But it's too early to tell to you that 'nineteen will be the case. If possible, we are all working hard to anticipate as maximum as possible, and that is Galp's position, so just to sake of clarity. In what relates to the OpEx, yes, it has been higher due to the fact that we had several planned maintenance activities during the year. So if you take into consideration of our spend or our regularized OpEx should stand between $1.8 $2 per barrel. So that is the what you should consider. In terms of the crops, we are speaking about and we are considering about gasoline crack of about $100 per tonne. So I hope that answers your question. And if I could, just to sort of follow-up on the broader exploration strategy. Are there many sort of major wells that you're planning this year to talk to? I will let Stora to elaborate on that. Thank you. Michael, the most important thing for us on the exploration side during 2019 is, 1, to shoot our seismic and complete our seismic campaign in Namibia, where we are operating Number 2, to work together with, as Carlos said, the consortium to try to anticipate audio for 2019, but that needs the decision on the rig rather sooner than later. And thirdly, it is to agree with the partners in Santo Nem Principe to drill worthy prospects. We see some interesting opportunities in Santo Nem Principe, and the goal is to be ready to drill in the first well in 2020. Thank you. All right. Thank you. We will now take our next question from John Rigby of UBS. Please go ahead. Yes. Thank you. Hi, guys. Two questions. The first is, can you given the delays and everything, can you just maybe go through an update on status of the FPSOs that are directed at PR where they are, so we just have an idea about how far along the construction process or installation process they are? And maybe sort of maybe if you possibly can characterize where the sort of as yet unidentified FPSOs are in the sort of thought process or development process for those fields? And the second is just on dividend policy. Obviously, you now have a history of bumping the dividend up fairly meaningfully over the last few years. And I'm just trying to get really a handle on how you think about that in terms of sort of relating it to underlying performance because obviously there's a degree of volatility in pricing. Is there a way of thinking about it to just map it rather broadly, but map it towards your underlying production growth if we just assume that production growth is generating some kind of consistent operating or free cash flow contribution to the business. And I guess, therefore, implying that the prospects are that dividend growth can continue to a fairly rapid pace over the next few years. Starting by the dividend, and I will share the first question, which is for the dividend policy. Cash flow generation cycle dramatically different from what we had in the past. We have been frank for many years over investing We will get back those results. That's the case. Now we are in a more balanced position, so we are being capable to generate free cash flow. Oddities, continuing to reinvest the future. Dave had mentioned to you that 70%, seven-zero, has to do with future investments with the future of this business. Therefore, the volatility that you mentioned is there, if I said in the situation, but the capacity to generate cash is different from what we had in the past. Therefore, we are much more hopeful considering the value with our shareholders in both perspectives, looking at value, the total shareholders return. But dividend is one of the points that we are rebalancing our position and keeping a strong balance sheet meanwhile. In what relates to the delays in the FDIC, we have to point it out that the delay that we had clearly, it was with CPAT 67, Alunort, that was pointed out last year, a true start before almost 6 to 8 months and a 6 months. The key reason, like I've been also correct, was we should delay tail away from China. We have that clearly pointed out. So continue to work towards that. But I will let Thor to go into details. Thank you, Carlos. So to give you a bit of an update. Then on as Karl said, as we have mentioned, on the 1st February, P67 Lula North came into production. So that would be now an important ramp up. Then on P68, which is the unit that is going to go to Berbigao and Sur de Du, There is no very important finishing work that is happening at the Chiron shipyard in Brazil. And we are, as Carlos said in his opening statement, expecting first oil in the second half of this year. That is also dependent on successful execution on the finishing work in Brazil. Thereafter, it is Atapuzul, which is now has been delivered to the coax shipyard and is being completed there. But we are expecting 1st oil in 2020 for Then when it comes to Lula West, that is now being discussed in the consortium what is the best solution in our plans. We have factored in contribution of that as of that there is potential for fast ramp up and that should contribute to good performance. In addition, we're expecting now the second FPSO in Angola combo too, which we expect will also start in the first half of this year. So overall, and in the big picture, there's a good ramp We will now take our next question from Michel Bellavina of Goldman Sachs. Please go ahead. Hi, it's Michele from Goldman. Thank you for taking my questions. 2, if I may. The first one is on your Brazilian subsidiary. Now that it's cash flow generative, I was wondering what we should assume in terms of dividend to your Sinopec minority in the coming years. And then secondly, I was wondering if you could give us some guidance around the tax rate for 2019. Thank you. Michele, are you there? Yes. Could you hear me? No, I can, sorry. Petronal Brasil is yes, it is free cash flow positive and will be very significantly so as CapEx goes materially down and production ramps up. We the intention is that we distribute 100% of the free cash flow on an annual basis, 30% of that goes to Sinopec. Now we're not giving specific guidance because this will depend on opportunities for growth and value creation that would directly compete with the distributions out of Brazil. But plan A on the business plan is 100% of the free cash flows post tax come to Lisbon and Beijing. On the tax rates, we are keeping our guidance from last year. On a P and L basis, about 50% of pretax income on a cash flow, about 40%. And as we move close to the 2020s, the two rates will converge at around 50%. Thank you. We will now take our next question from Alwyn Thomas of Exane. Please go ahead. Good morning, gentlemen. Could I ask on the IFRS uplift that you discussed, the 170 in the call this morning. Could I ask whether you're able to break that down amongst the divisions? And I guess the forward outlook, whether that changes any of your estimates for OpEx or basically how that's reflected in the business going forward for modeling purposes? And my second question just related I couldn't quite hear the answers before. Just going back to Birbigao and Atapu FPSOs, whether you're able to say what equity stake you're assuming for those 2 FPSOs when they come on field post unitization? Thank you. Hi, Halwyn. Good morning. I will take your second question, and Philippe will take the first. So we didn't mention. So we are providing global production guidance, which takes already in consideration the amortization impacts. But we don't still have the formal approval from the ANP, even though between parts, which means between the different parts of the consortium, the parties that also be included in the unitization and also ANP There's a full alignment in terms of the principles. And so we are still waiting for that. Our guidance is taking that in consideration, and the unit should be in place in the second half of this year. In respect to your first question, I will pass to Ferit. Thank you. On IFRS 16, I'll start by making a very broad statement that nothing changes but accounting. We're still paying MODEC or SPM the same €100,000,000 every month as we've always done. Accounting wise, now we will consider this lease payment as part as a reduction. So we will no longer have the cost the operating cost, and this goes into an interest and into amortization of principal lines. So it does introduce a bit of noise, but does not change taxation nor free cash flow. The bulk of the assets we have, which are subject to IFRS 16, so which assets do we have that have operating leases today? It is mostly FPSOs and Subsea. All the new FPSOs coming our way from last year onwards are actually replicants. They are owned. So the impact actually reduces very materially over time. So on day 1, and if we had booked IFRS 16 in 2018, which we have not, so it's only starting in 2019. But had we done it in 2018, our EBITDA would have gone up by €170,000,000 and our net debt would have gone up 1 point €2,000,000,000 And those numbers reduce significantly as we progress. And again, it's mostly E and P. In Iberia, we have a few buildings or few retail stations that we rent out. So there's a number there, but it's not very significant. We do plan to continue to publish our numbers the same way so that you have a view on what our real OpEx costs are per barrel. Okay. Sorry, just to could I just clarify that? You're still planning to do the adjusted EBITDA exactly as you did in 2018? No. From 2019 onwards, the EBITDA that you will see will be better by about 170 We will now take our next question from Yuri Kochanich. Please go ahead. Good afternoon, gentlemen. Very quickly, I have a follow-up question on your capital allocation. Could you please tell us whether you are going to spend any money or you're planning to spend any money on additional refining capacity outside Europe? Would it be one of the options that you would consider? And the second follow-up question is on your refining margin upgrade for 2019. You mentioned that you are now expecting higher distillate demand. And just could you please just discuss what exactly changed in that expectation for the higher distillate demand? Have you seen higher interest from your clients perhaps in Iberia? Thank you. To your first question, we don't have plans for additional refining capacity anywhere else, including outside of Europe. What we do have, we are studying and analyzing is how we can deepen our conversion capacity and improving the valuation of our throughputs. But no decision taken whatsoever, and you will be updated timely and periodically about these projects. In what relates to the middle distillation, today, we are observing a shortage in terms of availability. We are also looking at the demand that continues to grow. But moreover and more important is the IMO impacts that we are looking at this as a requirement in terms of a blending, increasing in terms of marine diesel, that will put more pressure in diesel. So that's the reason why we have considered in our plan and in our refining margin forecast that this will have an upside going forward. There is also, within the middle of Chile, another press up that is related with the jet. So the jet fuel, so the aviation fuel, continues to progress with the demand increasing heavily comparing with the other products. So all in all, that puts a lot of pressure in middle select products. So but what changed since your last guidance for the refining margin? It puts upward the cracks that we are seeing for the diesel. And we are in a shorter period of time evaluation comparing with what we had before. So we are now being more optimistic than we were in this respect. So ladies and gentlemen, thank you very much. We hope you have found this update useful. And I remind you that our IR team is always available for additional clarifications. Have a great day. Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.