Good morning, ladies and gentlemen. Rainer Seele, the entire BASF and Wintershall team and I, we would like to welcome you to our Oil and Gas Roundtable 2014. It is really a great pleasure to be here with you in London on this beautiful day today, and we very much look forward to spending the next few hours with you on the topic of oil and gas. Over the last year, BASF has continued to develop the oil and gas business. We have enhanced our portfolio and focus on achieving further profitable upstream growth. Now, you have witnessed there were a couple milestones which we have passed. Maybe we recently announced a transaction with our strategic partner, Statoil, regarding the acquisition of equity in fields in the North Sea.
We have sold certain assets to the Hungarian MOL Group, and then certainly we still are all awaiting the final closing of the asset swap with Gazprom. Oil and gas today is in even stronger position and is continuing to deliver significant value for the BASF Group as a whole, and this we would like to demonstrate to you today. With this, I'm very pleased to once again introduce to you Rainer Seele, the President of BASF's Oil and Gas segment, and he's with me today. Rainer will focus today on an update of our strategy. He will provide you with details on our new ambitious production targets for 2018 and our CapEx plan.
In addition, Rainer will talk about our measures to continuously optimize the portfolio, such as the recent transaction with Statoil, and also discuss major growth projects in each of the core regions. Finally, he will provide you with an outlook for the segment for the financial year 2014. Ladies and gentlemen, I have reserved plenty of time so that we can discuss all your questions that you may have. Before I start, ladies and gentlemen, I would just like to remind you that we are recording today's meeting here and that the session will be webcast, and then we'll put it on the webcast for all our international investors be it in the U.S., Canada or also in Asia, so they can look at it starting next week.
I would also please ask you that you turn off your mobile devices and BlackBerrys because they could maybe interfere with our microphone system. Finally, I would like to refer you to the disclosure language, which is please the next chart if you can click that for me. Yeah. This is the disclosure language. I ask you to please take a quick look at it and, with this then, I take the opportunity to turn the presentation over to Rainer Seele.
Yeah. Yeah. Thanks, Maggie. Good morning, ladies and gentlemen. Great pleasure to come to London and to present to you our oil and gas activities. If I'm going to headline my presentation today, it's going to be profitable growth in a challenging environment. Let me start about talking about the fundamentals in the markets, and I briefly would like to start with the oil markets. Well, definitely everybody is complaining about prices, but if we look into the fundamentals, definitely we do see an oil price which is below $100 per barrel, so we have to deal with a two-digit number right now. If I compare that a little bit with the geopolitical tensions we do see in the markets, definitely we have to look a little bit deeper into that to find out why the oil price is where it is.
Definitely, it has to do something on the supply side. The market shows a real good liquidity of crude oil, and the reason for that is that the production on the supply side is really not heavily impacted by the geopolitical tensions. Although we do have a crisis in Ukraine, the oil production of Russia is short term not impacted by all the sanctions which are in place. So oil production is still on a level of some 10 million barrels of oil per day. We will see some effects in Russia upcoming as we speak about the oil and gas production mid to long term because I do see that investments into oil and gas production is declining a bit in Russia.
On the other hand, as we speak about the tensions in the Arab world, just look what's going to happen, really no impact on the production quota of Iraq. Syria, well, we get used to this humanitarian catastrophe in the country. It's really not exporting crude oil. In Libya, to the contrary to what's happening in the country, they are able to increase their production from 0.2 MMbpd . We are now in the region of 0.7 MMbpd-0.8 MMbpd production with a positive outlook.
Let me have a small short comment on the gas markets, and I would like to focus myself on the European continental gas markets because this is impacting our business. As we speak about the European gas market, we are talking about a too well- supplied market. We do have a lot of gas in the market, and the reason for that is very easily explained. We have seen a mild winter in the first quarter, and therefore, the storage capacities were not withdrawn; therefore, we do have sufficient storage capacity. In summertime, there was really no storage market in place, so nobody was really asking for high quantities to be injected into the storages, and that was the reason why we have seen pretty low gas prices in summertime. Looking forward, of course, the winter hopefully will knock early on our door.
That's what I'm hoping every year. The winter can't be cold enough; the prices can't be high enough. Those are really determining our business in Wintershall oil and gas. Although we have a challenging environment, the oil and gas segment will has and will continue to be a significant contributor to BASF total EBITDA. As you can see, we have in the last five years contributed with a 24% share, and we have dedicated roughly 30% of the CapEx, which we have to the oil and gas segment, which we have spent to build up all the necessary oil and gas production.
The share of our CapEx in BASF Group will go down so that we are concentrating in BASF Group that the CapEx spending on additional chemical business is higher than in the past. This is demonstrating the real performance of our business in oil and gas. I'm really very much in favor to talk about earnings after taxes because my business is really highly impacted with taxation. Therefore, the real performance we can show as we look into the net income from the Oil and Gas segment. What you can see every year, it doesn't matter which year I'm going to pick, every year we had a positive net income from the Oil and Gas segment.
Also, in the year 2009, where we have seen a financial crisis, it doesn't matter what kind of oil or gas price we are going to talk in the past, always a positive track record as we speak about the net income from the oil and gas segment. What also is important, if you look to the last five years, five years in a row, we have increased the net income from oil and gas, which with a record number of EUR 1.78 billion last year. If we look into the first half of 2014, I do my best to show you also an impressive figure at the end of the year.
We have generated already EUR 835 million net income in the first half, and I do my best to continue to be on the same route. What is more important also is the cash flow from the oil and gas segment. The same story. Each year we have shown in the last 10 years a positive free cash flow. Also in 2009, when the overall environment was very, very much challenging for all of us. Every year, a positive free cash flow, which means that the huge investment program we have seen in the recent past was self-sufficiently financed out of our operative cash flow. We did not use the BASF cash flow to build up the oil and gas segment, the growth story.
To the contrary, 40% of the operative cash flow from the oil and gas segment we could make available to further grow our chemical business and to finance the investments over there. Honestly speaking, I don't see a change, neither as we speak about the year 2014, nor when I look into our plans for the future. We will continue to be a net positive free cash flow in the group, and you can count that roughly 30%-40% of our operative cash flow we will make available for the BASF Group so that we can further grow our chemical business. Let me give you just an update about our strategy. Nothing has changed. Our corporate strategy in the oil and gas segment is still the same. We will focus on the high margin upstream segment.
We will focus mainly all of our investments into oil and gas upstream because we can generate a much higher EBITDA margin in upstream than in the two segments, mid and downstream. We will step out of the downstream business. You know that with the asset swap, we are exiting the natural gas trading and storage business in Europe, and we will harvest the midstream business, the pipeline business. How is the strategy in the upstream business segment? Well, the strategy is based on three pillars: focus, technology, and partnership. Given the size of our company, we are well advised that we don't discover the globe in all regions which are available, where we can smell a cubic meter of gas or a barrel of oil. We will focus on the regions where we do have a specific know-how built up over the last years and decades.
These regions are and will be the regions for the future. I will come back to that in the next slides to show you what core regions we are active as Wintershall. We will especially focus also on exploration. We will focus also for the next years, roughly half of our exploration expenditures towards Norway for a very good reason. It's just risk management. 78% of the exploration risk is taken by the Norwegian state. In case we are going to have a dry well, 78% of the costs are taken by the Norwegian state. I think this is a very attractive model if you would like to go and to discover new reserves in a country. The second pillar is technology. Technology is nothing than enhanced oil recovery. We are thinking about developing technologies where you have a high recovery rate.
Just get more oil out of the reservoir. Very easily explained with our schizophyllan project, we are injecting into the reservoir schizophyllan in a water composition, and we are washing out the oil like you're washing the dishes, and we are getting more oil at the detector well. Partnerships is a model which is very specific for Wintershall. Well, we started to have such a strategic idea when we started the cooperation with Gazprom. In each region, you will find out that Wintershall has chosen a specific partner. In the region Russia, it's Gazprom. In the North Sea, especially Norway, it's Statoil. In North Africa, it's BP. In the Middle East, it's ADNOC. Just to give you an example that we think that we can create always a win-win situation within the specific core areas.
We have shown that especially with these win-win mutual interest partnerships, we can generate more value, we can accelerate our projects, and we can learn much faster in such a combination than starting from scratch with each project in a new region, for example. Here you see our core areas. Well, first of all, we have four core areas where we are producing oil and gas. We do have Russia. We have a production capacity of 0.1 MMbpd of oil equivalent in Russia. We have Europe, around 0.1 MMbpd capacity. North Africa, and I'm talking about Libya, it's 0.1 MMbpd capacity. We have South America with 0.075 MMbpd capacity. We have one development region.
Last year, I was talking about two, which tells you that Wintershall is going for further focus to develop core regions. We have exited the development region Caspian Sea because we have not found the right opportunities over there to build up a core area. A core area is defined in our portfolio that we do have a minimum production of 0.05 MMbpd . That's more or less the number we are striving for when I'm talking about converting the development region, Middle East, into a core region. Within 10 years, we would like to build up a minimum production capacity of 0.05 MMbpd . I have to come back in 2024 at latest to present you 0.05 MMbpd . Sometimes we can make it quicker, like in Norway.
In Norway, we had estimated to show 0.05 MMbpd production next year, 2015. Given the fact that we have signed a new transaction, we will go up to 0.06 MMbpd already in 2015 in Norway. Our portfolio, as we speak about the production, is nicely balanced over the region. As you can see, with a main focus on Russia. Roughly 50% of the production we have shown last year is coming from Russia, and Europe is for 18%, North Africa 9%, and South America 20%. Russia is becoming more important when you look into the 1P reserves, which we have published last year. Around 65% of the reserves we do have in our portfolio are located in Russia. Russia has a dominant position in our portfolio.
Given the recent track records from the acquisition of new reserves in the North Sea, the share of Russia in the 1P reserves will go down to 60%, and the share of Europe will go up to 20%. This is explaining to you what we do have in mind, and I'm going to explain it to you with a chart later on, that all our activities are also now focusing strategically. That we would like to further balance out our portfolio into politically stable regions. Then I'm talking mainly about Europe. Well, the chart explains easily why I do like Russia in my portfolio.
You know, when you do have a production of 27% for sales from the region, which is good for half of the operating income, it tells you that our operations in Russia are highly profitable because of the size of the fields, because of the framework we do have, because of the contractual agreements we do have signed with Gazprom. The profitability which is coming with Russia, given the fact that we do see some risk associated to operating in Russia, I think the profitability is really giving us a good sleep at night that we have a good business over there. As we speak about North Africa, you can see that this is a high-tax country. You know, there is 26% of the sales is good for 1% of the operating income.
Therefore, I think this is not going to be a focus area where we're going to spend our investments in the next years. Last year, I told you that we have increased our 2015 target. Today, I would like to give you an outlook which tells you that the growth story for oil and gas will continue. The target for 2016 is 160 million barrels of oil equivalent, coming from 130 million barrels of oil equivalent in 2013. We would like to increase our production by another 19% from 160 million barrels of oil equivalent to 190 million barrels of oil equivalent in the year 2018. What you can see is that all regions will contribute to the production, but we do have three growth regions now in place. The biggest one is Russia, coming with the Achimov development.
This is the blue part of the bar. We have South America, which is short and midterm, the gas from the additional gas production from Tierra del Fuego, and long-term, the unconventionals. What you also can see is Europe, and mainly we are talking about Norway. Huge potential. From three core regions, we will have growth in our portfolio, which will continue until 2018. I will tell you later on that we do have definite projects underway which are bringing us the production. This is not a fantasy dream. This is underlined with all the projects in all the fields I'm going to show you later on. Besides the growth, we will take care of our costs because we would like to keep the leadership position as we speak about the low-cost producer of number one in our industry.
This is the position I do have as Wintershall. As you can see, we also can show a very attractive replacement cost as we do have to replenish our production year by year. We have shown a good track record last year. In 2013, we could manage to replenish 280% of our production. That's the reason why the 1P reserve jumped from 1.2 billion barrels to 1.5 billion barrels. That's the reason why also the R/P ratio is now 11 years, which is above our target. Well above. We would like to monitor something in between 8 years - 10 years.
Given the fact that we have closed the deal to acquire 170 million BOE of new fresh reserves from Statoil in the North Sea, you might have an idea already that we also will show up an impressive year in 2014 to replenish our production. Given the 170 million BOE and given the figure of 130 million barrels+, we might have more than 100% replenishment in 2014. As we are going to explore a bit and as we are going to invest a bit, definitely, I'm positive as we speak about the replenishment of our production in 2014. There is a good outlook. My geologists are great, and they are also great as we speak about the 2P reserves.
Last year, I have shown you a position of the 2P, the discovered resources of 1.7 billion BOE. The number has increased to 2.1 billion BOE, so the resource position grow from one year to another in 2013 by 400 million barrels of oil equivalent. Let me explain a little bit what we are going to focus on as we are going to increase and optimize our overall upstream business in Wintershall. We have been very active, especially in the last years, going for a portfolio optimization, and the portfolio optimization will be continued also over the next years. The portfolio optimization means that we have been very active in the M&A markets. We went for acquisitions. We did divestments, and we arranged swap agreements all together to optimize our portfolio. What stands behind each of these transactions?
Well, first of all, I have explained to you that we would like to focus on our profitable upstream business. I'll give you two examples. Exiting the downstream business. One example, the asset swap with Gazprom. We are handing over the downstream gas business, and we get a great perspective of a new gas field development in Russia, the third largest in the Russian Federation. We have sold our shares in the East German company, VNG, Verbundnetz Gas, which is a downstream company, and we will use the money to be reinvested into upstream to finance our growth, our growth targets in the upstream business. The second I would like to mention is the portfolio upgrading.
Well, there is an asset portfolio upgrading that we're going to buy and swap some shares in different oil and gas fields, where we think this oil field has very good economics, and we're going to increase our share. What is even more important is an example which you have seen in 2012 with our first swap deal with Statoil. When we have swapped a development asset for a producing asset. We have swapped 15% in Edvard Grieg investment project for a running, flowing barrel in Gjøa/Vega in Brage. Behind that was also a cash flow and a CapEx optimization, which is the third pillar here.
An example for that is that we are going to swap production from the future into current production so that we are generating the cash flow right now, which we will use to finance all our development projects and investment projects we do have. Another example for cash flow and CapEx management is a deal we have closed in April this year, a transaction with a Hungarian company, MOL, when we have sold our entire non-operated U.K. business for $375 million. What is even more important, in April this year, we have divested a CapEx commitment of $1 billion. This is how we started in the second quarter.
It's important that you have this figure in mind when we're going to talk about later on that I have signed a deal with Statoil that we are going to acquire CapEx. It's not a one-way street, but what we do have always in our mind and focus is that we do have a proper cash flow and CapEx management in place. The next is technology application. Schizophyllan. We are talking with our partners about new applications of schizophyllan because we need to prove the technology in the field. We do have a test field in Germany, in Bockstedt, in northern Germany. The test is running, and we will see the first test results at first quarter next year. The first results I have seen, I really look forward that I can present to you next year the results.
This is the last point: all our transactions are also focusing that we're increasing the share of operated assets. Wintershall likes operatorship for very good reason. The development is in our hands, and what is more important, the costs are in our hands. We are determining the costs. The project will be run by Wintershall, and we are in the driver's seat when we are going to be the operator. That's the reason why we have now a 40%, roughly a 40% share of the assets I'm going to show you in Norway, where Wintershall is the operator. We will continue to do so because the costs we would like to manage ourselves. Our M&A activities are summarized a little bit on this chart, and I only show you three years.
I show you three years where we have made six transactions as we speak about acquisitions, and four transactions as we speak about divestments. What you can see on this chart is that we had a focus on Norway. Where is the laser pointer? We have a focus on Norway. Over here. We started in 2011 to acquiring 25% share in Maria, which is our prominent oil field, which we are going to develop as in first development as an operator. As you can see, then we have the first transaction with Statoil. Now we have a second transaction with Statoil. As we speak about the optimization of the portfolio in the North Sea, it's not a one-way street. We are not acquiring and thinking we are happy to swallow all the assets. We are optimizing by divesting.
We have divested 14 licenses in Norway, and what is even more important, we have divested the non-operated business in the U.K. Of course, we have another transaction, which is the asset swap with Gazprom, and the transaction that we are going to sell our shares in the German company VNG. Those transactions we expecting to close this year. There are some two smaller transactions here that we have increased our share in Brage, and that we bought into Luno, which is the area of Edvard Grieg, which are smaller ones, which we also will close until the end of the year. What is very important are these two main transactions as we speak about the swap agreement with Gazprom and of course, the agreement with Statoil, and I would like to give you a brief update on these two transactions.
As we speak about Gazprom, you see the timeline over here. It's nothing where we are going to say, "Well, this is running, and by opportunity we might meet any certain point of time." No. It started in December, when we have signed the agreement, the framework agreement with Gazprom. We have received all the necessary approvals from the authorities in Brussels and in Belgium, so there is no approval we need to have in place. We think that for establishing the new companies, we need new companies in Russia, we need to establish new companies in the Netherlands, we need to have new companies established in Germany. We have to ask for these formal approvals, and this is determining the timeline.
We are very much confident that we are going to close the deal in autumn this year. It's very important that we are going to close the deal because we are hungry to start building up the new production from in Russia because we would like to develop the gas condensate field in Area 41 of the Achimov formation in the Urengoy field. We have trained ourself to go for fast-track development of this field. The geology is just another section of the Achimov fields we have underway with Area 1A, which is developed by our 50/50 joint venture company with Gazprom, which with the name Achimgaz. What I have shown you over here is the production profile of this Area 1A development.
What you can see is that we have started with a pilot phase of four years with a production which was a few million barrels. We started and tested a long time the field, and we needed four years to learn and to train ourselves what is the right development concept, full field development concept for the field. Then we started in 2012 with the full field development. We are just in the full field development where we are going to drill the wells. What is important to be mentioned, over here in 2008, we started with one single rig. Right now, here in 2011, we hired a second rig. Right now in 2014, we are operating with four rigs.
As we speak about the development concept of Achimov 4A/5A, we will not start with a pilot phase. We will start immediately with the full field development, and we will not start with one rig, we will start with four rigs. That's the reason why we're going to accelerate not only the Area 1A development, we will go for a fast-track development for Area 4A/5A. We do have the right team in place, because we have in mind that the team of Achimgaz, who have all the know-how how to develop the structure in Achimov, will make the job also for Area 4A/5A. That's the reason why I think it's a very efficient approach we do have to develop Area 4A/5A. This will shut in with very substantial volumes in the future. A comment on our Statoil transaction.
Well, what was the reason for the Statoil transaction, which we have signed early September? Well, first of all, it was a very good opportunity for us to increase our production in a stable, politically stable region. We will go immediately from 40,000 barrels per day production to 60,000 barrels per day production. That's the reason why we are generating also cash flow. If I look into the package we have acquired from Statoil, we have two producing assets, Gjøa and Vega. The production from Gjøa and Vega, the 20,000 barrels per day, are sufficient to finance the next generation, the development project, Aasta Hansteen. It's a self-sufficient package as we speak about the cash flow. The cash flow we are generating from the producing assets is sufficient to finance the development of Aasta Hansteen.
Aasta Hansteen is the future production which will shut in as we will see later on in the year 2017, 2018. That's very important. The next point is that, of course, we are intensifying and expanding our strategic cooperation with our new partner, Statoil. We are now working together on the entire value chain of our industry. We own four licenses in exploration. We have signed an area of mutual interest in the basin. Go ahead, what's the name of the basin? Vøring Basin. We are going to have joint field development with the project Aasta Hansteen. We are producing oil together. We are together in the pipeline business. We are going to build the Polarled Pipeline, and we have signed, just to remind you, a gas contract of five BCM per annum with Statoil with our last transaction in 2012.
What I have not mentioned also is that we are working together in technology. It's a very well-defined integrated partnership which we have built up in only three years' time. I think we do have a very good perspective as we speak about our cooperation with Statoil.
The key data you see summarized over here, we have bought 170 million BOE 2P reserves for $1.25 billion, and we have agreed that we are going to pay another $50 million in case Aasta Hansteen will come on stream as planned in 2017. The effective date is retroactively the first of January this year, and closing is expected at the end of the year 2014. This chart is explaining to you what kind of portfolio optimization we did over the last two years in the North Sea, especially in Norway. These are the existing fields we do have in our portfolio right now. Over here, you see listed the new fields coming with the Statoil transaction we have signed a few days ago.
Over here, I have shown you that these are the fields we have divested in April this year. All right? If we talk about CapEx, this is a remaining CapEx of $1.8 billion. This is the CapEx figure, which is more than $1 billion. Let me move into a region which is challenging for us. It's Argentina. Well, when I talk about Argentina, I have to say I am very much impressed about the geology. We can show up so nice gas fields over there. There's a huge potential with the unconventionals in the countries. Although I have such a sunny face when I talk about underground, the problems are above ground. Situation in Argentina is shortly summarized. We are generating high profits, very good cash flow, but there is a tiny little thing. It's all in pesos.
We are rich in pesos, but we can't convert it into U.S. dollars, and we can't pay out the dividends towards Ludwigshafen. What kind of strategy do we have in mind? I don't think this will last forever. The country will end up in a nightmare if this is going to continue because no investor will have any incentive to come to Argentina. As we are there, we have decided that we would like to keep and to increase the value of our operations. What we have decided, especially to avoid a currency risk, that we are going to reinvest our cash flow in Argentina. We did that with one transaction.
Last year, we acquired a concession in the Vaca Muerta fields, where we have a region, Aguada Federal, a concession which is very, very promising as we speak about an unconventional play over there in Argentina. What we are doing in the first instance is not acquiring new assets. We did that because we wanted to participate in the unconventional development in Argentina. In the first instance, we are concentrating down in the south in Tierra del Fuego. I will show you later on the pipeline. We do have huge gas fields over there with a huge production capacity. We will go above the 0.075 MMbpd in the next years, and we will invest into additional gas production in Tierra del Fuego.
This is where the big reserves of Wintershall are located, and this is the future production we are going to show in our books. Mid and long term, we will go into Neuquén and Mendoza, by the way, which is nearby the industrial regions of Argentina where the market is. In Neuquén, we have already a tiny little shale gas production together with our partner, Total. In Mendoza, we are in a very embryonic stage. We are shooting seismic, and we are thinking that there is a good prospect. In Neuquén, as I have said, we will participate also in the Vaca Muerta development. We will focus long term on shale oil in Argentina. Let's talk about the Middle East. Well, the Middle East, we are talking about two countries in particular when we are talking about the activities of Wintershall.
We're talking about Qatar, and we are talking about Abu Dhabi. Well, in Qatar, we have published that we had a major discovery of 2.5 TCF. It's a gas condensate field in the Block 4N. The field has the name Al Radeef. We are going to study now all the development concepts, and we will go for a field development plan, which we will show to the authorities at earliest in the second quarter next year. Second quarter next year, we will look into the economics, whether or not we are going to make the investment over there to develop the field. As we speak about Abu Dhabi, we are talking about a sour gas field, which Wintershall is appraising right now.
We have spudded the well in May this year, and we will see the first result of the appraisal well at the end of this year if everything runs as planned, which I do expect. At the end of the year, we will decide whether or not and how we are going to place another two appraisal wells. Maybe we would go and shoot another 3D seismic. After that, I would say in 2016, we will sit together with ADNOC, and we will decide on the development plan of the field. The main question is, with the appraisal field, what do we have as a field? Well, first of all, we will have a look into the quality of the reservoir. The main question we do have, are we talking about a gas condensate or a condensate gas field?
Well, I would love to have a condensate gas field, but at the end of the day, we have to wait and see how the well will come in. Let's move to North Africa. North Africa, we are talking about Libya. I would like to make a short comment on Libya. As we speak about the country, I definitely have to say I'm very much disappointed for the people living in the country who paid a high price in blood for freedom and for a prosperous country development. What you see right now is instability, which I have never seen in the country before. We are talking about political instability. We have seen some interim governments, but definitely I don't see anybody who really takes over leadership role in the country right now.
I don't expect that we're going to see a major change in the country in the short term. What is even more important to be mentioned is the security situation in the country. It's even worse than before. The fight against Gaddafi turned into a fight against themselves. Now we have a situation that no expatriates of Wintershall are staying in the country, like other oil and gas firms decided that they have relocated their expatriates from Libya to the European continent. We don't have the experts in the country, and that's limiting a little bit our possibilities to come up with the new production. Libya, as I said, has restarted oil production. They are now back to 0.7 MMbpd . We are not participating in the numbers right now as Wintershall.
Our operations are waiting for a green light from the National Oil Corporation, NOC. Why? We had problems with the export terminals. They were blocked by some rebels. As they managed to come to an agreement with the terminals, the pipelines to the terminals were blocked. We are waiting for a green light that the pipelines to ship our crude to the export terminals will be freed up. Honestly speaking, I don't know when I will get the call. It's in the hand of NOC. We don't have any signs that we are going to come back with the production because NOC has to negotiate with the pipeline operators to find it. It can happen tomorrow, it can happen in a month, it can happen next year.
I can't give you better judgment right now because I'm not sitting at the table and negotiate with the pipeline operators. That's more or less the situation in Libya. This chart is underlying my growth story, which I have explained to you that we are on the way from 130 million barrels of oil equivalent through 160 million barrels of oil equivalent to 190 million barrels of oil equivalent annual production. As you can see, in all our regions, we do have projects underway for future production. Every region by itself, it doesn't matter what country I'm picking, do have a perspective for the future. I'm not talking about any risk elements in my portfolio.
I'm talking about a pipeline which is showing you that we will have, especially in the time frame of the next 3 years-4 years, many fields which are waiting to come on stream. Very, very prominent, I would like to say, is now Norway. Given the fact that we have done a perfect portfolio optimization, we have also optimized our future pipeline for Norway. We have increased our current production to 0.06 MMbpd , and as you can see, we have each year a new field waiting to come on stream. Knarr in the beginning of 2015, Edvard Grieg in the beginning of 2016, Aasta Hansteen, hopefully 2017, if Statoil is right, but latest in 2018. Maria will come in also 2018 in our plans.
That's a pipeline which is telling you, especially as we speak about Norway, the next three, four years, new production of Wintershall will come on stream. As we speak about volumes, volume-wise, we will have a huge increase in volumes as we speak about our Russian activities in Achimgaz. Just remember the blue chart, which I have shown for the increase from 160 million barrels of oil equivalent to 190 million barrels of oil equivalent. It's all about Area 4A/5A. It's all about Area 1A. What is more important, that the reinvestment of the cash flow in Argentina resulted in a huge pipeline of new production. All this year until 2018 is Tierra del Fuego, with the biggest gas fields we do have in our portfolio outside Russia. Argentina, with the strategy that we have to reinvest cash flow, is accelerating our growth perspective in Argentina.
As we speak about Europe, we also have a short-term project which we have already approved. We have made the final investment decision to develop an oil field in Denmark. Another oil field is hopefully waiting in Denmark with Hibonite. We have also a nice oil field in the Netherlands where we have to drill some appraisal well just to determine how big is the oil field and what kind of development concept are we going to have. As you can see here in our pipeline, mid- to long-term, the Middle East will slot into our portfolio and will expand our portfolio over there. Okay. Let's move to natural gas trading business. When we are talking about the natural gas trading business, I'm mainly talking about the pipeline business.
Because from my point of view, I'm talking about a divestment of the natural gas trading and the storage business will take place in autumn this year. Therefore, looking forward into our second segment in the oil and gas division, we are talking about a pure pipeline business. I repeat myself what I have said last year, it's not a strategic business of Wintershall. The pipeline business is attractive for us because it's a very stable cash flow, a cash cow in our portfolio. We are generating very nice EBIT, very nice cash flow with our pipeline business, and it's not depending on the external factors which are determining heavily the profitability of my upstream business. I don't care about the oil price. I don't care about the gas price.
I don't care about even the volume which are going to ship in my pipelines. It's a regulated business, but it's also, as we speak about the network of Gascade, and it's a non-regulated business which is based on 100% ship-or-pay. I don't care what they are going to pay or what they are going to ship. If they wanna ship methane or ethane, or if they wanna ship vodka, I have no problem with that. They only have to pay the capacities. What the business about is we're selling the capacities, and you can use the capacities or not use. All you have to do is you have to pay me. That's what the business is about. It's very stable, and we can count on these numbers.
Whatever will happen, we have long-term contracts in place with mainly Gazprom. Utilization of the pipelines right now, main grid, nearly 100%. When we talk about pipeline business in Wintershall, I do differentiate between two types of pipelines, the regulated pipelines and the non-regulated pipelines. As we speak about the regulated pipelines, I don't know who's going to invest for it. I will not spend a single penny. Why? The rate of return is by far not sufficient to show you impressive numbers to invest into our company. That's the reason why we have decided not to participate in regulated pipeline business as we speak about the WINGAS gas grid or the Gascade gas grid as of now. As we speak about non-regulated pipelines, we do have market mechanisms in place.
I'm a fan really of the market, of a free market, and that's in place when we are talking about the non-regulated pipelines. We are participating in two pipelines. One is the Nord Stream pipeline over here, and the other one is the South Stream pipeline. Well, as we speak about the Nord Stream pipeline, the job is done. We are harvesting in the way I have explained to you with 100% ship-or-pay contracts. So we are harvesting all over from the Nord Stream pipeline. The pipelines are in operations. No technical problems are there. The gas is flowing from Russia directly to the German coast. Job is done. As we speak about our investments for the next years to come, we are speaking about the South Stream pipeline. Well, the South Stream pipeline, we have taken the final investment decision.
We have decided on a development plan of the project. We have ordered the pipelines. We have signed the laying contracts with the contractor, Saipem. Everything is in place that we're going to start construction activities at the end of this year to keep our schedule in place that we are going to have the first pipe in operation at the end of 2015. It's a challenging project from the very beginning, and it's even more challenging in today's world. Over here, you are seeing the pipeline networks. In red, we have the pipeline network of Gascade. This is the regulated pipeline network in Germany, which we do have. Well, we have built it in times where there were no regulation.
Now we have a regulated pipeline system, and therefore, I can tell you, the rate of return is really not impressive as we speak about this one. As we speak about Nord Stream and the connecting pipelines, OPAL, for example, has an exemption from regulation. This pipeline is totally different than the red pipelines over here. We have different economics coming up with the OPAL, and that's the reason why we are differentiating between these two pipelines. Let me finalize with an outlook for the year 2014. Well, as we speak about the macroeconomic assumptions, I start from the bottom of the chart. The $110 per barrel, which we have calculated for 2014, well, right now we are a bit far away from the $110.
The $1.30 for the exchange rate from the U.S. dollar, we have to see how this is going to develop. As we speak about the macroeconomic assumptions, I don't get a tailwind from the market right now, so I have to do the job more efficiently as we are going to operate. As we speak about the production volumes, well, we would like to have expected on the same similar level like last year. This is something I can confirm because in this comment we already have mentioned that, Libyan production is suspended since July last year, and we don't see a recovery of the production in Libya in 2014. As we speak about the financial performance, I confirm my outlook, which you have seen here in the chart.
It's going to be tough. It's going to be tough as we speak about the missing backwind from the market. We are a little bit depending on that the winter will come, but that's every year the same story. We will do our best not to disappoint you, but it's going to be challenging as we speak about 2014. I will leave you with a summary of the chart, and I'm more than happy to answer your questions. Thank you.
Well, thank you, Rainer, for your interesting comments. Now I'm sure, ladies and gentlemen, you will have plenty of questions for Rainer. Basically, to structure the Q&A session and make it easier for us, I would ask you for your cooperation. Everybody could ask two questions today, so this gives you more room to ask questions, and we will start in different sections. If you allow me, we start with this section first. There's Andreas Heine, table number 11, please. Then we have table number 17. Michael Rae.
Thanks. I have a question on the cash flow. Could you run me through the cash outflow for the big project this year and next year? As far as I know, the first Statoil deal was split over two years with the tax payment split over two years, and it might be the same with the Statoil deal you have finalized this year and then the stuff with the pipelines where you start investment. So what you have in big projects, not the normal exploration spending, this year and next year? And secondly, only for the reporting, will you continue to have two lines of reporting for the oil and gas division, or will it be only one as of next year?
One more.
Should we go ahead with Michael? Michael, then we take your two questions too, and then we answer all four of them. Mm-hmm.
Thanks very much. Can you just provide a little bit of color on costs? Are you seeing any deflation from the oil service companies in terms of rig day rates? What's the benefit of that gonna be to you, both in terms of OpEx and CapEx? Secondly, just in terms of the Statoil deal announced last week, it seems to me to kind of generate excess economic value out of that deal. You have to kind of believe that either oil and gas prices are going higher or the reserves are greater than Statoil believes, or that you can run the fields more efficiently with lower costs. Which of those is it? Thanks.
Okay, I will start first. Well, Andreas, when you compare the two deals with Statoil, as I have said, we will close the deal with Statoil this year, therefore it will be not split over two years. Everything will go into 2014. As we speak about the cash flow. Well, first of all, we have a CapEx spending coming with the Aasta Hansteen project. We have that in our plans, in our investment plans reflected. We have some positive, let's say reductions of our cash flow coming with the EUR 1 billion CapEx commitments we have handed over in the deal with the Hungarian MOL.
Therefore, we will stay in our investment plan I have shown you within the corridor of the next four years, which is EUR 4 billion overall in our portfolio. What I also can tell you is, and this is what I have said, we will have and continue to have active portfolio management. Which means that we are going to have a year where we're going to divest CapEx, and there will be a transaction where we might acquire CapEx like we did with Statoil. Just taking the numbers of Statoil and the transaction we have signed in April, you will see that the $1.8 billion for the Aasta Hansteen development is diminished to less than half. That's more or less what we have in mind as we speak about the CapEx spending.
It's in the framework of the EUR 4 billion, and we will stay in our budget. As we speak about the reporting, I think maybe it's one-
It's one line, yeah.
It's one line we are going to have. Michael, to your questions. What we do see is that the rig rates, especially in Norway, are going down right now. There is a cost benefit which will run into our investment project and into the exploration projects, of course. Well, we have committed, as all the others, to the rigs last year, so it will not show up in 2015. As we speak about committing for new rigs, I think in 2016 we will benefit from these positive cost developments also in the North Sea. In general, we can say that CapEx spending is increasing in our industry because the rig rates all over are in a totally different trend, as I have explained in Norway.
Norway, we are up high and we're going a little bit down. In general, we can say that rig rates, because of the growing activity in the industry, went up. What I do see as a trend in our industry is that many companies have overcommitted in CapEx spending, and that's the reason why one or the other company has to rethink their position, whether or not they go for the development of one of the other fields, as their cash flow is really not supporting the high CapEx spendings. What I do see is right now that, especially in the regions of the unconventionals, we see a development that there is, of course, a higher need for rigs, that there will be a development where we will not participate.
We are mainly locked in Russia, and we have very stable contracts over there. I don't see any costs, increase or decrease as we speak about our projects in Russia. They are more or less stable as we speak about the costs. As I have said, in Norway, definitely we will participate from the lower costs.
On the Statoil, the excess, the economic value of Statoil?
Oh, yes. Well, first of all, I think taking over operatorship, we have really some synergies. I don't wanna talk in the first instance now about synergies which are cost-based. You will understand that the type of operatorship we are taking with Vega is the same type of operatorship we have to train ourself for the two development projects, Maria and Skarfjell. That's why we are benefiting from getting the know-how that we are going to have better field developments in these two main or biggest CapEx spending we do have in Norway in our portfolio. You might not see the synergy in the first instance in the Statoil package, but we see some synergies also with our other portfolio in Wintershall.
On the other hand, of course, we have an upside potential in the assets we have acquired. What we have shown to you is the status quo of the reserve position we do have right now. As I have said, we are exploring together, and we have certain appraisal wells which we are going to drill. We know especially Gjøa and Vega because we are already participating in these two assets. That's the reason why I think we are going to generate in the two and the two aspects you have mentioned, as we would like to bring down the cost in terms of OpEx. We might have benefits as we speak about training ourself to reduce CapEx spending in Skarfjell and Maria. Thirdly, I think we hopefully benefit also to generate higher reserve numbers in the next years.
Now we move to the middle section. There is Kate Copp from Bernstein. Another question. Oh, okay. We have Albert. Yeah? Okay. Kate, would you like to start?
I have one question on enhanced oil recovery. I gather the industry average is 33%, and Statoil has 46%. How does your kind of average compare to that? You said 10% enhancement, is that from the industry average? Or how does that work?
Albert, yeah.
Okay. I have questions with regards to your Gazprom joint venture. You said you have to set up some Russian companies. Are you at any point concerned that given current sanctions or potential future sanctions, you might not be able to fund those joint ventures? In particular, since we are hearing that certain asset operators of vessels are unable to get vessels into Russia now. Secondly, I'd like to understand a bit more. You said in your opening remarks that midterm production in Russia could be impacted. Could you elaborate there a little bit more?
Well, Kate, short answer, we are also striving for the 10%. That's more or less the number we have in mind when we're talking about our schizophyllan project. Something around the 10% is what we are targeting. It depends from field to field. Definitely we would like to come up with a higher number, but we have to wait the test results. The first results are promising, but we are targeting the 10% you have mentioned.
Say a 10% increase. Is that on top of the industry average? Is that what you mean by that? I'm trying to understand how is it gonna compare to the industry average?
Well, I have no number in mind, but it's the industry average. It's on top of that.
Okay. Statoil is 46%, so you're saying it's below Statoil's already?
I don't know what is the reason with Statoil. Can you elaborate a little bit what you have with the 46% of Statoil?
I'm understanding that the industry numbers are 33% is the industry average for enhanced oil recovery.
Okay.
And then for Statoil is the industry leader with 46%. I was trying to understand how you see schizophyllan coming in kind of around the industry.
We are talking about a portfolio. When you talk about Statoil, you're talking about a portfolio, yeah, which has, which is a portfolio. What we have in mind is that we are looking from field to field. We're starting that we do have, for example, a recovery rate of, I don't know, 35%, and then we will go up to 45%. That's the 10% I have mentioned. That's more or less on a field-to-field basis. If you talk about an entire portfolio, you might have a field where you have 5%, and another one you are very lucky because you, I don't know, you go for CO2 flooding or something, and then you have a 25%. Yeah?
In average, I would say yes, it's an impressive number, but definitely, we would like to show that schizophyllan will have a higher percentage than compared to normal steam flooding, for example. That's more or less the incremental additional production we have in mind. Well talking about the sanctions, Albert, so far we don't see any impact of the existing sanctions on our operative business in Russia as we speak about the cooperation with Gazprom and the joint ventures. We also have no problems that some vessels cannot be imported. As we speak about the investment program, which I have shown with Area 1A, everything is underway. Also the financing is there, so we don't lack financing as we speak about our Achimgaz joint venture.
As we speak about Russia by itself, we are not directly so far impacted, but indirectly, like all the other players. We are talking about the ruble, the exchange rate of the ruble. The very weak ruble is of course impacting the business. We are also talking about the industry by itself. What we do see is a slowdown of the economy in Russia, and I'm now making reference to the numbers of the German-Russian Chamber of Commerce. They have published that the economy went down by 10%. The trade volume went down by more than 10% in the first half of this year already.
We do expect that the trade volume between Europe and Germany and Russia will further go down in the second half of this year. Therefore, we do see a very weak economy in Russia, but so far we haven't seen any impact on our production numbers, although the market is very weak in Russia. Talking about the sanctions, I definitely do hope that this sanction theater will end as early as possible and that we are going to find a political compromise on everything. I'm not in the front row to decide this, but this is more or less the scenario I would like to see coming up as early as possible, because I think all over Europe and especially the European economy needs such a solution as Russia did.
All the other sanctions which are coming, honestly speaking, it's pure speculation whether or not they are impacting. What we're doing is just taking the sanctions which are coming and are in place, and we are evaluating, and we are looking whether or not there is an impact on our business. The main question I have for the next time is more or less what kind of counter-sanctions are coming from Russia. I definitely don't know what's coming. When the sanctions are coming, if there are some sanctions coming from Russia, we have to wait and see.
Now we are moving to the next section on the left, and I had already questions from Laurent Favre, table number 7A, then Ronald Köhler, 8A, and Jaideep Pandya, 8B.
Good morning. It's really just one question. Going back to your summary line saying we are about profitable growth. You've also talked a lot about. There are many moving parts. You've talked a lot about de-risking, and you've talked a lot about acquisitions. I mean, if you take a step back, could you help us to understand really what you're trying to do right now? Is it growth? Is it de-risking? What are the checks, and in a way, what is the incentivization of, Wintershall management in terms of return on capital or, you know, any kind of metric that actually tell us that, there is some discipline on.
Not just on, it's not a one-way street, we also do disposals, but just in terms also of the targets on return on capital or cash flow generation, not just on CapEx, but also given, you know, all the investments on acquisitions. It's a long question, but basically the question is, apart from profitable growth, you know, how do we measure de-risked or risk-adjusted growth? Thank you.
Good. The next question from Ronald Köhler, 8A.
Yes. In your fact book, you provide a sensitivity to the oil price. Obviously, you get more and more geared now to natural gas in your business. Clearly, question number one on oil sensitivity, is that just for your oil production, or does it, so to say, include oil BOE equivalent for natural gas sensitivity? Second question is, when we think about natural gas price sensitivity, we have German border price or whatever price. Is there any kind of guidance you can give us on that as well?
We come to Jaideep.
Two questions. First one, if you look at your production costs per barrel average is about EUR 5.7, it's significantly below the super majors. If I compare your net income per barrel, it's about $14 or EUR 40, it's roughly the same or even slightly below. The question is really, why is West Africa and Brazil the two sort of missing pieces, and why are you not focusing on West Africa at all in your exploration plans or exploration region? The second question is really, your 190 million barrels of production, how much of that is organic growth and how much of that is really acquisitions?
All right. That's long. Laurent, I have to be careful that I'm going to stay in time because the question you are asking is really a long one. Well, first of all, what are the priorities, profitable growth or de-risking? I think it's a combination of both. The first priority is, of course, coming with growth because the growth translates into profitable growth. If I don't grow, I can't show up better numbers as we speak about all the other key performance indicators you have mentioned. Our priority is on growth, but we are not excluding the risk management we do have. Definitely, I cannot give you. I think, I'm not a professor of a university who could give you a better answer.
I don't know how to measure and translate into numbers what the de-risking effect is. I do have a certain interest, given the fact that we are living in a world of uncertainties, that I do have some regions in my portfolio where the probability of production interruption is nearly zero. That's more or less when we are talking about Europe, that's more or less when we're talking about the United States, for example, or Canada. That's why we do think that we have to make some shifting in our portfolio, and this is what I have explained to you.
You see the effect that the reserve position we build up in Europe, where we are going to have a share of 20% right now, and that we are going to have a share in Russia, which is diminishing. On the other hand, we are very disciplined in our company. If we have a budget, we will stick to the budget. If we are going to promise, we will deliver the numbers we are promising to you. When I'm talking about the growth story, it's underlined that growth by itself is the result of also good cash flow management, is also a result of good portfolio management.
The way the growth is coming in is telling me, yes, we do have a portfolio structure in 2018 on a much higher production level, which is more or less similar to the structure we do have today. If I look back, we have run the company through all the years where we have seen ups and downs very more or less stable. I would like to balance out the regions. Although we are struggling in Libya, the other regions have compensated, and we are going smoothly. Ronald, the sensitivity is on our oil portfolio. The oil price sensitivity is the sensitivity of our oil portfolio because the majority of the gas we are selling is not linked to the oil price. Just take all the gas we are producing, for example, in Argentina. It's a regulated gas price, you know.
There I give you a positive story. The gas price was increased from 2.5% to 7.5%, so that's positive. Yeah. We have the gas in Russia. It's a regulated gas price for the volumes we are producing in Russia for the Russian market. We have the production in Europe, and as we speak about our production in the North Sea, it's mainly not oil-indexed gas. I think we have no oil indexation anymore in our production. That's the reason why. I cannot give you a gas price sensitivity. We will look into that a little bit more deeply because if we are going to talk about a gas price sensitivity, I have to see what is really the major impact, you know.
Because your question focus a little bit on Europe, because in Europe we see these volatilities, whereas I see no volatility and an upward trend of the prices in Argentina, where I see more or less stability of the price level right now in Russia. I really have to look into that, and we might come back with a number and of a sensitivity for you. Jordan, why is the low production cost not transferring into the net profit of the barrel? Well, it has to do with your portfolio, especially as I have shown to you in North Africa. You know, I'm turning such a big wheel there, and at the end, if I look to the net profit, I really have to count my fingers. So it's a question of taxation.
It's a question of taxation. That's the reason why you have to look into the portfolios. Also, if you compare our numbers, which I have shown with our peer groups, it really tells you something about the portfolio. We do have these impressive low numbers as we speak about cost because we have 50% Russia in our portfolio. We do have such low numbers because we have not been heavily engaged in unconventionals. As we speak about the net profit per barrel, you definitely have to have a different look into the portfolio. You have to look what kind of taxation due is coming with the production. Now your question, why are we not in West Africa and Brazil? Well, I love these two regions, you know, but I have a limited budget.
That's the reason why I've said, okay, if we decide we will double our budget, then I might also move into West Africa. But at the end of the day, it's not only a question of our budget we do have available, it's also a question, do we have really the know-how to enter in such a country? Just going to West Africa and say, "Well, this is a nice concession, I do like it." Then we are ending up in a deep water drilling over there, and all you can say is you are paying money. Therefore, if we are going to decide that we are going to enter a new region, it will take time.
Just take the example I have shown to you with the Middle East, how long it will take us to come up with the first production. Your question on the 190 million BOE, it's all organic growth. It's all organic growth. Because this chart corresponds to the pipeline I have shown to you. The 190 million BOE are coming from the CapEx spending, and acquisitions are coming on top. I have to say acquisitions might come on top, but I also would see divestments. It's an ongoing process. The 190 million BOE, as we have the portfolio right now, with all the projects I have shown to you, the 190 million BOE is organic growth.
Now we're moving back to the section here on the right. The first question comes from Markus Mayer , table number 11A. Do we have another question? Yeah. Very good. From Peter, table 5A.
Good morning. Two questions as well. Last year, Dr. Rainer Seele, you elaborated and also explained how successful you have been in the past in acquiring very good assets, in particular, coming from the very strong relationship with Gazprom. In this current political situation, how easy could it be for further acquisitions with Gazprom? Or is it then better or easier to focus then on partnerships like the Statoil partnership? That's the first question. The second question, can you remind us of your Russian volumes? How much are sold in Russia and therefore, what would be the currency impact here?
May we continue maybe with Peter?
It's related to Russia, actually. It's, you've given the picture obviously that Russia accounts for a lot of the volume growth when we look forward. Just wondering when in your mind you see Russia go below 50% and remain below 50% in terms of the production volume for the company. A simple question, but it might not be a simple answer.
I just wanna check whether I got you right. This is 50% below our current production?
When Russia goes below 50% of the total in terms of the production volume and stays below.
All right. Markus, further acquisitions in Russia, honestly speaking, I focus on with all my resources to close our deal we do have with Gazprom, the next transaction. We will focus, and we will step in into area four, five. Right now we don't have any other projects we are discussing. We are focusing in all our discussions on closing the deal, and I'm really, I really appreciate that you are doing one step after the other, you know? Definitely when we are going to close the deal, we have to implement the deal on both sides, and we will be busy with that. A clear statement, the partnership with Gazprom is the longest we do have in our history.
It goes back to nearly 25 years, and we will keep the partnership in place. If there are opportunities, our partner will discuss with us, we are very open to discuss it. Definitely I do have also in mind that I would like to broaden my portfolio. Broadening my portfolio means that I will build new partnerships which are needed to get a stable position in my portfolio. This is why, I think, we have now shown that we have developed a very nice partnership with Statoil. The partnership will develop in the future. I think it's like when you have a young partnership, you did in the beginning very much and so on, then you have to slow down a little bit, and then you should think about the next baby.
As we speak about the Russian volumes we are selling, it's something between, because we have two fields, it's something between 50% and 70%, yeah, depending on the field. The currency impact is, you should have to look into the development of the ruble, and then you should translate it, and that's more or less the currency impact. Well, Peter, definitely I have never thought about a scenario. Maybe the question is too easy what you have said. Below the 50%, it depends how the portfolio then will look like. Definitely. You know? If I'm going to see that, it will be compensated with something. That's more or less what I would have in mind.
If I will have the slowdown there, I have to find something which is compensating for that. That would be my strategy, what I would do, yeah? Definitely, and as we speak about the share or let's say the production we do generate from Russia, it's really determining the success in our upstream business. Therefore, I really need to look around to find a good equivalent for that.
It could be some time.
Yeah, you can't do that from one day to another. Well, we have shown very quick decision-making in the past, if you look into our M&A activities, you know? Definitely we will have a temporary impact in your scenario, but we will work hard to compensate for that.
Coming to the middle section, Andrew Stott and Andrew Benson, actually. Andrew Stott is table 10A and 9A, please.
Yeah, thanks for taking the question. It's really about your relationship with the center, with BASF overall. When you set your targets, the 160 million BOE, 190 million BOE, when you go into the market and buy assets like you did last week, is the overriding principle that BASF oil and gas can only be around a quarter of the group? Is that how it's managed on a long-term basis? When you think about the portfolio hedge or when the equity market thinks about that portfolio hedge, is it right to think along those lines that you can't be much bigger than a quarter of the group?
Yeah.
Is this working now? Yeah. Andrew Benson. Can you give us more details on the gas pipelines, the assets employed now? A bit, and also the percentage between regulated, unregulated, and if it is gonna be pretty predictable, perhaps if you can make life easy for me and tell me what sort of return you hope to get out of that looking forward just for modeling purposes. Secondly, on Qatari and Abu Dhabi, I guess that's quite a long way off, but if you could just give a bit more detail. I mean, you, I didn't really get much flavor of what you intend to achieve or what you hope to achieve in Qatar, for example, but just a bit more detail on both those areas. That'd be great.
Well, Andrew Stott was the first, yeah?
Scott, yeah. Mm-hmm.
Yeah. Well, Andrew, it's an interesting question you're asking. Well, first of all, what I'm going to present here and with all our corporate strategy in the segment, it's fully improved from the BASF board, of course. The question what kind of share we do have in BASF Group is also depending how are we going to develop our chemical business over the next year. This is what I have said also in my last meeting over here in London to all of you. Don't underestimate the potential we do have in chemistry. As we speak about the development of our chemical business, it will also determine the share we do have in oil and gas. I'm a sportsman. I'm really a sportsman.
I'm gonna be the front runner, and I'm sure my chemical colleagues will follow. Andrew, return on the pipeline business. Well, as we speak about the regulated pipeline business in Germany, we are talking about a single-digit percentage rate of return. It's depending a little bit from pipe operator to pipe operator what he can agree with the regulator, regulatory authority. It's something between 4%-6%, I think, in the regulated business, what I do see after tax. Well, what I'm striving for is easily explained. It's a double-digit number. Yeah? How can we come up? Look, with all what we as BASF Group have promised to the market, it's not a single-digit percentage number.
That would weaken our position, and that's the reason why I think that the pipeline business, as we speak about future investments, if you ask me, "Rainer, are you happy with 4%-6%?" I'm gonna tell you, "Forget about it." Yeah? Maybe a financial investor sees that a bit different. But from my point of view, as I'm an operator in oil and gas, that's not really the case. Well, talking about Qatar. In Qatar, we have two exploration wells in place. Based on the two exploration wells, one is an appraisal, we have appraised. We go for a fast-track development plan, and we are now working on the development concept.
The problem as I look into the field is not really or let's say the challenge, not the problem. The challenge is really coming from not the reservoir or the data as we have from the appraisal well. It's more or less the logistical concept. The logistics we need onshore because we have to tie in into North Field. That's more or less the concept. Then it's a question how and when do we adapt the capacities for the gas treatment facilities especially. That's more or less determining the headache we do have to come up with the development plan. At the end of the day, we have to negotiate with Qp, what are the terms we get to come up with the right economics.
Because as I have said also in the pipeline business to you, I need to have a certain rate of return to go for such an investment in Qatar. Talking about Abu Dhabi, Shuweihat, we have explained to you it's a huge range. We are talking about 50 million barrels-500 million barrels. You know, that was the number of my chart. We definitely have to wait until the end of the year what the appraisal well is telling us. Out of the seismic, we have a too huge uncertainty. Although there are some wells on Shuweihat which are pretty old, we have to drill the well, and we have to really look into the reservoir and have to make all the checks until the end of the year.
I think next year I can tell you a bit more about Shuweihat because we are pretty much too early. We have spudded the well, and it looks good as we have drilled the well. As you said in Germany, you know, it's a long dark way to go until we meet the target. In Abu Dhabi, definitely all counts on our success as an operator of Shuweihat. I think if we can show that we are good, prudent operator in Qatar who is able to deal with the technology of sour gas drilling and sour gas treatment, we definitely will have a perspective in the country. If this is coming in successfully, definitely Wintershall will go for more in Abu Dhabi. We do like the country very much.
Now we're moving further to the left. Herr Köhler. Okay. Then we have maybe James Knight first, and then Ronald Köhler. James Knight is 13A, and Ronald is 8A.
All right. Actually Dominique Frauendorf from Berenberg.
Oh, sorry.
That's all right. Two questions, one on the cash flow, coming back to the cash flow. You added about EUR 1 billion in net income since 2009, but the operating cash flow is flat and the free cash flow is actually down since then. Could you shed some light on that development, why that is, and how you think about cash flow going forward for oil and gas? Maybe back to Laurent's question, how you manage that business, especially in light of the super majors now increasingly focusing on cash flow and cash generation and reducing spending. The second one on back to Russia, do you see a risk of because the gas price in Russia is being regulated, that gas prices could be falling in Russia in an effort maybe to support the economy which you pointed out weakened? Thanks.
Yes. I have also a follow-up question on Russia. You said 50%-70% of the volumes domestic were right, or so, and then Russian ruble effect is translation. However, I would assume your, let's say, domestic volumes is much less profitable than your export volumes, which means the earnings are potentially very, very different to the number you have said. From that perspective, about ruble impact on EBIT, if you can elaborate on that a bit. I believe you have a lot of debt in Russia, which means your net income impact is potentially even less or perhaps not even meaningful. Can you elaborate a bit on, let's say, ruble FX impact on EBIT and net income, please?
Right. Okay.
Mm-hmm.
The cash flow. I have said that 40% of our free cash flow we will make available to BASF Group. How are we going to manage this? First of all, we are fine-tuning, of course, our M&A activities. What is the impact of the cash flow? We will avoid to come up with negative numbers from BASF Group as we speak about these activities. As we speak about the cash flow in our oil and gas division, I'm of course looking into the cash flow very carefully as we speak about the timing of our investment projects, so I can modulate. One of the big components is CapEx spending and how we modulate, and definitely we are shifting also on the CapEx side.
On the other hand, we also have to see how much of the exploration are we going to have. We have a little bit reduced the effect because 50% of the exploration I have dedicated to Norway, so the impact is very moderate. As we speak about Norway, roughly in exploration we have EUR 100 million-EUR 150 million. So that's more or less explaining to you that we are taking care about the impact of the cash flow over there.
As we speak about cash flow in the future, what I can say is, as we speak about 2014, the cash flow is positive, the free cash flow is positive, and the free cash flow is on the same level, like the free cash flow we have seen, first half of 2013. As we look into the future, we will have a positive cash flow every year. It's a little bit depending on also the group position and group development, how much cash flow do we really need from the oil and gas segment, given the fact that we are generating also positive cash flows from our chemical divisions. That's more or less how I'm going to fine-tune the cash flow.
I always take a look at the cash flow development in each year, and I'm going to decide from our CapEx spending whether or not we should shift. That's more or less the flexibility I have. All our investment plans, and I repeat myself that I have said, this is something which is showing you that Wintershall is different. We do not have over-committed to CapEx spending. If I compare us with other peers, we are low in CapEx spending. Yeah. Just take some American companies, for example, and you will find out that Wintershall, given the growth prognosis, given this growth ambitions, the CapEx spending we do have is really compared to the industry a low number we are talking about.
The investment and the CapEx spending, I have told you I will stay within the budget we have shown to you. We do have, of course, an annual profile coming with the CapEx spending, and this translates that we always have a strong, positive free cash flow which we can make available for the group. The ruble effect. Ronald, you are right. The economics are not really determined in our investment projects from the gas we are selling to the Russian market. We have take the example of Achimgaz. We have a 30% share of condensate in the production of Achimgaz. The 30% of condensate are very, very important. This is what I can say.
Very much, profits are coming from the condensate stream we do have in our production in Russia. That's the first point, and this is independent from the gas prices, the regulated gas prices in Russia. As we speak about the regulated gas prices in Russia, the Russian government has decided for a stable gas price for the next three years. I don't see anything on the horizon that this decision is being questioned. Right now, it was a period of three years when the Russian government decided for the regulated gas price. The ruble effect on EBIT, I would like to leave you alone.
You can confirm it is less than 30% in Russia.
Yeah.
Good. We are moving back for last round of questions, maybe to the section here on the right. Any final questions that you may wanna ask? Yes, please, Martin.
Bob here from [audio distortion]. Could you envision a scenario where the assets in Libya become stranded assets because of just the sheer impossibility of continuing business there?
Mm.
Okay. No further question here. Any in the middle section? Yes. Then this is Neil Tyler.
Thank you. A couple, actually. One on clarification firstly. Within the EUR 4 billion CapEx number, are the Middle Eastern aspirations included, including anything within there? And then secondly, just again clarifying your previous comments on cash flow management and looking at the chart on slide 6, do the free cash flow numbers include the investments you're making in associates, i.e., you know, 'cause there's obviously organic CapEx is one thing, but a lot of investment is made via the associates line. And with regards to your comments on cash contribution to the group, is the oil and gas CapEx budget effectively being managed backwards from what the group needs you to contribute from a cash flow perspective?
Well, well, I have to thank you. I get new ideas today. Well, well, Martin, let me elaborate a little bit on your scenario. I would say.
I'm sorry. This is Bob first.
Oh, Bob is next. Okay. Let me elaborate on the scenario in Libya. I think the scenario has a low probability, which you are asking for. If you look into the country, if Libya is without oil, you can say that roughly 90% of the state income is not there anymore. It will be a situation which is a real nightmare. I think your scenario that you say it's stranded assets, the problem we do see there is a security issue. We're just talking about the security. If we have a long-standing civil war in Libya, well, at a certain point of time, we have to think about what is the value of our assets.
I'm pretty much convinced the oil will not disappear if you have problems above ground. They are safe in 2,000 meters depth, so my oil will not be impacted. Maybe the operating facilities can be affected, but then we are going to rebuild the moment we do have a stable framework in Libya. Right now, I see just the contrary. I see that although we do have a civil war and much more coming in the country, the production is coming back, and the income for the state is coming back. Definitely they do need the income. I think at this certain point of time when the pain for the people living in Libya is so high, everybody will be ready at a certain point of time for a compromise.
There is only a compromise that they have to export the oil. The best for their country is that they are exporting oil. With such a view on Libya, I would say, I have problems to see a scenario that I would like to declare my assets as stranded assets. The investment budget of EUR 4 billion is covering the period until 2018. Everything which will come on track that we start investment activities until 2018 is within the budget. Right now we only have a reserve position for the Middle East in our budget. It's a flexible component, that part of the overall budget, because I really don't know whether or not I'm going to invest into these two fields. It will depend.
Next year, I will have a precise figure, and then it will run into the budget. As I have shown to you, we are talking about a late first oil. Middle East is really in the EUR 4 billion, not very much reflected.
Maybe there you get an update year by year in our annual report where we basically give you the updated 5-year planning for the-
Well, next year is even better for me. You know, then we start about talking about 2015-2019, you know? All right. The CapEx budget backwards, that's not the way we are doing. That's not the way we are doing. Definitely not. We take it more flexible within the BASF Group. The way we are going to to create our budget or agree on our budget is that we look into all our projects. Then we are going to make a ranking of the projects in terms of how attractive are they? What is the quality of the project? Is this really a high profit coming with the project or is there a high strategic value? That's more or less the way we are doing to create our budget.
We are coming from the project which are asking for the investment, and then we are ranking. At the end of the day, we have a certain idea about what is the total budget compared to the overall performance we would like to show. Within the ranking, we are making an adjustment. That's the way it is. There is not a single year where we as Wintershall decided to go for all the investment projects. That's very healthy because it's telling you that we are not lacking projects. That's the situation that I don't want to see, that I'm drying out because my experts are not bringing good high-quality projects. The pipeline is very good, but I have shown you the pipeline of the best projects we do have in our pipeline.
There are other projects where we're thinking about whether or not we are going to develop or whether or not we are going to divest. If you see the transaction with MOL, for example, we have divested purely development projects. This was not our number one project. The pipeline I showed to you is where I have dedicated my heart that I'm going to invest into these projects because these projects are first class with good economics coming in. I don't think about that I'm going to go for a divestment of my first class project. That's what we did with MOL, and it is explaining to you that although I do have an investment opportunity, these projects do have value.
We generated $375 billion just by selling CapEx commitments. Not a single barrel of producing oil we have sold in the transaction in April. Therefore, given the fact that there is a CapEx commitment there, yes, at a certain point of time, I do have it in my portfolio, but it's a kind of flexibility we have because we can divest also development projects.
That's a clear sign of passion for the best CapEx projects.
It is.
We go over to the left. Yeah, Jaideep Pandya and anybody else.
There's one more.
There's one more, yeah. That is, Pat. No.
Martty.
Martty. Sorry. Okay.
Yeah. Could you give us some color on the exploration and production cost? Will it remain stable? Because your portfolio is gonna change quite significantly, especially you're adding acreage in Norway, which is a slightly higher exploration production region, and you will lose acreage in Germany, which is supposed to be your, one of your most economical regions. Secondly, just coming back to your strategy, I appreciate that you are gonna grow production significantly, you know, through acquisitions and some of these projects, and you are selling or de-risking some of the, you know, exploration projects. You know, strategically, don't you think that oil companies tend to do the opposite, where they are spending or they like to keep optionality? You know, I'm just thinking from a Statoil point of view, while they're selling current acreage to you and, you know, happy to cash out.
Hi. My first question was just on, in terms of sort of exchanging longer term cash flows for more near-term cash flows, what's the thinking behind that? And is that based on a long-term view on oil and gas pricing? Secondly, could you just highlight what your expectations are for Libya in your 2015 targets and 2018 targets? And is Statoil, the new Statoil assets, are they included in there? And then finally, just on the South Stream project, growing pressure from Brussels on EU, Bulgaria and actually the build, what gives you confidence that that's gonna be in place by the end of next year? Thanks.
Is South Stream?
Mm-hmm. Yeah, South Stream.
All right. Jaideep, yes, exploration and production costs will slightly increase, but not very substantial. Because if you look into the structure of our portfolio, the structure of the production portfolio, you will see also in 2018, the main portion is from Russia. It's still there. More or less, the main impact on our overall average production and exploration costs will come from Russia. As the share is not really diminishing below the 50%, for example, we're more or less moving into that direction. You are right, especially as we are increasing the share of Norwegian assets in our portfolio, we will have a slight increase. Still, as I have said, I'm striving for my leading position also in 2018.
Oil and gas companies are hungry to keep optionalities. Me too. I love to have it. That's what I have said, when we are very disciplined. At the end of the day, yeah, I'm not driving my business because I love to have lots of optionalities. I'm driving the business because we want to meet certain financial key performance indicators. If we need to come up with impressive figures and we have to make portfolio adjustments, we are certainly going to do that. Definitely I think that optionalities per se only have a value if you really can see a value in the optionalities. If this is a sleeping asset with stranded gas somewhere on our planet, definitely I have to ask myself, what shall I do for that?
If it's going to cost me money, I really will start thinking about it. I also like optionalities as all the others, but I really be disciplined as I speak. My priorities are totally different than. Yeah, Mathew , our cash flow curves are really based on certain gas and oil price assumptions for the future. Yeah? I don't tell about my future oil price right now. That's right. Definitely you're right. The methodology we are applying for the cash flow, we do have a certain price assumption in place for the oil and for the gas prices, and then the cash flow curve is translating as we have presented.
As we speak about 2015 production, we have in our numbers the full production from Norway also coming with the additional Statoil assets. Because as I have said, we are going to close the deal end of this year. In 2015 this is coming on top on our Norwegian production. Libya, we are a bit cautious. You know, we have in our plans that Libya will come back on stream next year, but not with full capacity. The reason is that we cannot go to full capacity if the security situation doesn't allow to send the expats into the country. Right now, honestly speaking, I don't see it really upcoming that I can send my expats into Libya.
That's the reason why we have a reduced figure for Libya in our plans for next year. Now, South Stream. Well, I only can say we wanna build the pipeline as a consortium. We wanna build the pipeline, and we have dedicated ourselves to the South Stream pipeline. We are a prudent investor. We are a prudent partner. I see the same view coming with our European partners. Also, EDF and Eni are really behind the project. As a group of investors, we definitely would like to build the pipeline because we think it's also in the interest of Europe. The pipeline system in the Ukraine is really technically not in a good shape. You need to go for huge investments to come up with reliable capacities for the transit in the Ukraine.
I don't see any investor showing up who is now hungry to jump into Ukraine and to invest into the pipeline capacities over there. I can't ignore that because we in Europe do need the gas coming. We don't have any alternative. That's the reason why I think that also in the long term, the European Union will appreciate, especially also in Brussels, the Commission, that we will have such a pipeline in place. It will increase security of supply, and that's the reason why I'm very much supporting this pipeline. As we speak of the pipeline by itself, we have to say that BASF is participating purely in the offshore pipeline. As we speak about my investment commitment, we are talking about the pipeline running through the Black Sea.
I'm not talking about the pipeline sections onshore, which has to be built, for example, in Bulgaria. All the headlines which are concerning a lot of people, about the situation in Bulgaria, the onshore pipeline in Bulgaria. It has to do with regulation, and I can understand that this is an issue which is of importance to the main shipper Gazprom. Because, if you're going to build the pipeline and you have a certain need of capacities, given the framework we have with the EU directive, you cannot count on 100% capacities. The capacity utilization is more or less the issue they are discussing, when it comes to the problems, now for Bulgaria. I'm really not involved in these discussions. I cannot give you an idea whether or not they are going to be successful.
I definitely think that we shouldn't have any exemption from the rules in Europe for anybody, yeah. Therefore, we are really a good democracy over here in Europe. Definitely, if we do have certain rules in place, it should be applied to everyone.
Now, and as we come to a close, I have a question for you, ladies and gentlemen. This is the first analyst conference where my dear friend, Andreas Heine, has not asked a question on oil and gas.
You started.
Oh, you started with two.
Yeah.
Oh, I'm wrong. Sorry.
Sorry.
Okay, any other questions left? Okay. With this, ladies and gentlemen, this brings us to the end of the round table. I would like to thank Rainer for his, I think in very interesting and valuable comments and insights into the performance, the unique selling propositions of our oil and gas segment, and, definitely the value that this segment brings to BASF Group. I would like to thank you all for attending, this morning's presentation and for your lively discussion. We are now very happy to invite you, for a small lunch. Before that, I would also like to introduce to you the members of the team who are here with me today, with me and Rainer. I start with Mr. Lars Budde.
He's an IR manager on my team, and he was responsible for putting this event together this morning. I come to Mr. Heiko Meyer. He's a Vice President of strategy and portfolio management at our Wintershall Oil and Gas segment. With us is also Tobias Rapp. He's a Director of our oil and gas segment. Here in the back I have Martin Brudermüller , who is Investor Relations manager, and he's focusing on investors and analysts in the U.K. With this, we are all happy to see you during lunch, and we'll continue our discussion there. Thank you very much.