埃尼石油 (E) 2006 Q3 法說會逐字稿

Thank you, and good afternoon, ladies and gentlemen. Welcome to this conference call, during which I'll comment on the 2006 third quarter results and business trends. I am pleased to say that the results we are reporting today are strong in all our core business lines, due both, to the positive market environment, and to our solid industrial performance.

Let me start with the market backdrop. In the third quarter of 2006, the Brent oil prices strengthened, averaging $69.5 per barrel, gaining 13% compared to the third quarter of 2005. European refining margins averaged $4.3 per barrel, decreasing significantly from the high level reached in the third quarter '05, on the back of the large-scale outages in the Gulf of Mexico.

Finally, the euro showed an appreciation of 4.4% versus the U.S. dollar, compared to the third quarter of 2005. As usual, I would like to remind you that, our results are affected by several issues, including the seasonal factor, affecting the demand for natural gas and petroleum products used for residential heating. The demand for which is highest in the first quarter of the year, the coldest months, and lowest in the third quarter, the warmest months. Therefore, any [suppurating] profit and change in net debt, in the first nine months, cannot be extrapolated for the full year.

Let me remind you that, as a consequence of the position adopted by the International Accounting Standards Board, Saipem and its subsidiaries have been, once again, included line-by-line in our IFRS consolidated financial statement. For the sake of comparison, we have accordingly restated our 2005 account. Having said this let us now [comment] the results.

In the third quarter adjusted net profit amounted to EUR2.6b, up around 7% if compared to the same period of 2005. Such a strong performance is attributable to a 15% increase in the operating adjusted result. This positive effect was partially offset by higher taxes, amounting to around EUR0.5b, related to the pre-tax profit increase, a higher contribution to E&P earnings from countries where higher -- with higher tax rates and the impact of the new [inaudible] taxation regime.

With reference to the later, let me add that the adjusted figure includes the current tax rate increase, which is retroactive to the start of the year and amounted to EUR84m, but excludes the one-off charge of EUR91m related to the restated deferred tax balance at January 1, '06.

In the third quarter of 2006, reported and adjusted EPS, based on an average number of shares of 3.69b, increased in euro terms by 6% and 9% respectively, compared to the same period of last year. In dollar terms, reported and adjusted EPS increased by 10% and 14% respectively.

Cash flow per share increased by around 7% on a reported basis, and by more than 12% on an adjusted basis in euro terms. Dollars will increase around 12% and around 17% respectively.

Leveraging on solid industrial performance, and on the positive market environment, adjusted operating profit increased by more than 15% over the third quarter of '05, totaling EUR5.1b. This result reflected the strong performance achieved across all our core business lines.

Let's have a look at the E&P where hydrocarbon production in the third quarter, usually affected by maintenance activities, totaled 1.709m boe per day, substantially flat, versus the corresponding period in 2005.

The slight decline versus the third quarter of '05 is the result of the PSA effect due to the high oil price recorded, which accounted for about 16,000 boe. The impact of the mandatory disposal of Dacion in Venezuela, about 60,000 boe per day, as well as the disruptions in Nigeria, which accounted for about 30,000 boe per day.

These negative effects were offset by the process build-ups in Libya, Wafa and Angola Kizomba B. The start up in Angola BBLT, Australia, Bayu Undan LNG, Nigeria, the fourth and the fifth trains in the Bonny [Coast], the recovery from the outages in the Gulf of Mexico.

Let me comment that if we strip out the impacts of both, the mandatory disposals of Dacion and the PSA, the production growth rate in the third quarter '06 is 4.2% versus the corresponding period of 2005.

Turning to the first nine months of '06, hydrocarbon production increased by about 2.7%, thus averaging 1.761m boe per day, before the impact of Dacion and PSA, the production increased by 6.7%. I would also like to point out that after the completion of the scheduled maintenance in the North Sea and the Caspian region, production in October reached approximately 1.790m boe per day.

Finally, I confirm that despite the disruption in Nigeria and the impact of Venezuela, at $25 average Brent price in '06, our production growth rates will be in the range of 3%.

Third quarter reported operating profit for the E&P division amounted to EUR4b, up 10% year-on-year. This result includes a negative special item for EUR54m many related to asset write-down.

On an adjusted basis, the operating profit totaled EUR4.1b, increasing by more than 7% on a like-for-like basis. This increase is due mainly to higher realization prices denominated in dollars, partially offset by the impact of the appreciation of the euro versus the dollar, the high operating cost and DD&A, as well as by increased exploration expanses.

As for the Gas and Power division, the overall gas volume sold, both consolidated and associated, increased by around 9% in the third quarter of '06, totaling around 18 bcm. In particular gas sales in Italy, including self consumption, decreased slightly to 10.9 bcm as a result of lower volume sold to industrial and some related customers. These negative trends were partially offset by higher sales to wholesalers and residential customers.

International gas sales rose by more than 27%, reaching 7 bcm mainly as a result of higher gas sales through the Blue Stream and Greenstream pipelines, as well as a higher volume sold in the Iberian Peninsula, Germany, and Austria.

In the first nine months of 2006, the overall Italian gas demand reached approximately 62 bcm, with a year-on-year increase of 1.2%. And in the same period, Italy's domestic gas sales increased by 1.3% also due to self consumption power generation.

International gas sales in the first nine months of 2006 totaled 26 bcm, up by around 17% compared to the same period of 2005, due to higher sales through the Blue Stream and Greenstream pipelines, as well as the higher volumes sold in Spain, France, Germany and Austria.

Turning to the Gas and Power division's financial results, reported operating profit for the third quarter [increased] by around 13% to around EUR592m. The third quarter results included negative special items of EUR33m, mainly related to environmental provisions, redundancy incentives, other items as well as inventory gain. The adjusted operating profit amounted to EUR619m, up around 32% over the same period of 2005.

Remaining in the gas and power segment, I would like to elaborate now on the adjusted operating profits by area of activity. The result for marketing and distribution activities increased, owing to the fact that, the third quarter '05 result was negatively affected by the 248 provision -- the so-called 248 provision of EUR140m relevant to the first nine months of 2005.

It's worth saying that, starting from last July, the 248 resolution has been replaced by the 134 resolution, which establishes, as we had the chance to comment already, a more favorable pricing mechanism.

The Marketing and Distribution segment also benefited from the favorable trend in energy parameters that, has affected more positively the sales prices and the gas purchase price, essentially in sales to [thermolite] users, and by the higher volumes sold in Europe.

Moving to the other business segments, International Transportation business posted an operating profit increase of 17%, mainly as a result of the higher volumes transported abroad.

The adjusted operating profit of Eni Power declined, as a consequence of the lower electricity margins attributable to the different trend, and the energy parameters used for the determination of gas cost, and the electricity selling prices. Finally, the contribution of [SRG] has decreased, as a consequence of the new tariffs set by the authorities for the second regulatory period.

Finally, in order to a full view of the financial results of this business, it is important to focus on the contribution of the net equity income from associates. The contribution from associates, in the third quarter of 2006, increased significantly, reaching EUR137m, up 90% compared to the same period of 2005. This is the result of the significant performance of our marketing activities in the Iberian Peninsula and in Germany.

The transportation segment increase is mainly relevant to Blue Stream. And it is due to accounting adjustments, affecting the third quarter of 2005.

Let me now turn to the R&M division. The third quarter 2006 reported operating profit totaled EUR250m, down 62% compared to the same period of 2005. The result includes a negative special item for [EUR30m] related to provisions for risks and contingencies relevant to environmental laws, and redundancy incentives.

In addition, we also counted for inventory loss of EUR83m. On an adjusted basis, the operating profits increased by more than 4%, notwithstanding the negative trend of the refining margins benchmark. This is the result of a high complexity of our refineries that, allow us to process a more profitable pool of crude oil. The result, also reflect a higher contribution of marketing activities in Italy and in the rest of Europe.

These positive effects were partially offset by the lower volume processes, due to maintenance activities and planned outages, as well as by appreciation of the euro versus the dollar.

As far as other businesses are concerned, in the third quarter of 2006, the Petrochemicals division [inaudible] posted an adjusted operating profit of EUR37m. This increase versus the same period of 2005 was mainly due to the higher base chemical margin.

The adjusted operating profit of the Oilfield Services and Engineering business totaled EUR145m in the third quarter '06, up 142% [sic -- see Press Release] versus the same period of last year. This achievement was attributable to higher results in onshore construction, on top of orders acquired in '05, as well as the higher contribution from offshore drilling and construction activities.

The other activities that now refer to [single] only, contributed an operating loss of EUR94m, in line with the loss accounted for in the third quarter of '05. Lastly, corporate activities posted an adjusted operating loss of EUR57m, representing a decrease compared with the third quarter of '05.

The first nine months of 2006 were characterized by significant operating cash flow, which exceeded EUR15b, up 18% compared to the same period of 2005. In addition, disposals and [Forex] differences contributed for around EUR500m bringing the overall sources of cash to around EUR15m. Of our strong cash flow, EUR5b have been invested in our core business and EUR4.1m has been returned to our shareholders by dividends and share buyback.

During the first nine months of 2006, the financial structure has strengthened. As of the end of September, the net financial debt decreased to EUR3.9b, bringing our debt to equity ration to 0.09.

Let me underline that in the last quarter of 2006, there will be cash out related to capital expenditures, approximately in respect of to EUR3.8b, for interim dividend, which we paid in October, approximately EUR2.2b and a continuing buyback program. As a result, we expect a net debt to equity ratio in the range of 0.2 at year end.

CapEx in the third quarter of 2006 amounted to EUR1.8b, up 5% on a like-for-like basis, around 98% of capital investments were focused on the core business. In the first nine months of 2006, capital expenditures amounted to EUR4.9b, representing a decrease of around 1% compared to the same period of last year.

This was mainly due to lower expenditure in the upstream business, as a result of the completion of important projects in [Eni] and Libya, and was partially offset, by the higher capital expenditure Engineering and Oilfield Services, as a consequence of the construction of a new FPSO unit, and of the fleet] and logistic upgrading.

For the full year of 2006 we expect to post an overall CapEx in the range of EUR8.7b. The lower guidance, compared with the outlook given in the second quarter, is due to some project delays in E&P and R&M.

We are now at the end of our presentation, and are ready to answer to your questions.

Okay. Thank you. [OPERATOR INSTRUCTIONS]. The first question we have comes through from the line of Irene Himona of Exane BNP Paribas in London. Please go ahead with your question.

Good afternoon, Marco. I had a question concerning your CapEx guidance, which is down about 5 points for the year. Could you give us any detail as to what specific projects, and basically, whether the delays are likely to impact the near term volume goals in 2007?

My second question concerns Dacion. At what point would you decide whether a write off is appropriate?

And my final question concerns the tax guidance for the rest of the year. Thank you.

Yes, Irene. First is the CapEx for the projects, which are presently in the line of being delayed, are those which are supposed to take place in the Caspian region, some delays in Italy for [tariff] processes in obtaining authorizations, some projects in Nigeria, Algeria and [The Congo]. Also the R&M, the two investments in Sannazzaro and [inaudible] are presently facing some delay. As regards the impact on the 2007 production profile, we do not expect any impact because of these delays.

As regards Dacion, I wonder if I got correctly your question. Is it about the write down, well, we do not see, presently, reasons for writing down our -- the value, which we have posted in our balance sheet.

I would like to add, since it's a matter of these very needs that, we have presented the documentation relevant to the arbitration proceedings versus Venezuela. Today it occurred in Washington, before the International Center for Settlements of Investment Disputes.

And if it is evident that, despite this action, which has been also -- which has been the object of a press release, we are evidently still hopeful of negotiating a solution with [inaudible], to obtain the full compensation for the value which we have in our balance sheet.

And as regards that guidance, I think that 48 -- between 48 and 49 is an appropriate guidance on an adjusted basis.

Thank you very much.

You're welcome.

Okay, thank you. The next question comes through from the line of Mr. Iain Reid of UBS. Mr. Reed, please go ahead.

Good afternoon, Marco. I had a question for exploration activity and expense. You've had a reasonably significant increase in exploration expense this quarter. I wonder if you can tell us what you think that might be for the full year? And also, give us an indication of the activity level in terms of number of wells drilled for 2006, versus what you did in 2005?

Secondly, on the Gazprom deal, I think you said you were going to announce something a couple of weeks ago, and that didn't happen. I wonder if you can give us an indication of what's going on, and what sort of time you get in terms of finalizing that deal?

Listen as regards the exploration activity which has been carried out in '06, we can say that we have carried out 53 explorations and appraisals wells up to the end of September, and 16 wells still in progress at that time. The main areas are Egypt, Nigeria, Italy, Norway and the US Gulf of Mexico.

In the third quarter, the activity -- the exploration activity is expected to remain high. And we are planning 21 exploration wells going ahead at the beginning of November. Totally, if you want for '06, we are expecting to drill approximately 90 exploration and appraisal wells.

As regards the Gazprom exercise, it's true that we had mentioned October 15, as a possible date. But it's also true that we elaborated on that, by saying that, it could have been postponed according to the evolution of the negotiation, which I can confirm still are going ahead. And to be quite frank, we do not have any specific deadline to announce.

As regards the exploration costs in 2006, we expected to have something like EUR1.3b at the year end, including the payment of the Angolan bonds, which should take place in -- before year end.

Sorry Marco, the Angolan [signature] bonds for block 15, is it?

Exactly. Sorry, I thought -- I took it for granted.

And how much is that, exactly?

its 200 -- well, in the range of 300.

Okay. I'm sorry, just one other thing. How does that 90 wells you're going to drill in '06 compared to '05?

The -- please, now let me check. I'll come back to you, Iain.

Okay.

Versus [inaudible], 67% more than in '05.

Okay. Thank you very much, Marco.

You're welcome Iain.

Okay, thank you. The next question we have comes through the line of Theepan Jothilingham of Morgan Stanley. Please go ahead.

Hi. Good afternoon, gentlemen. Just a couple of questions, actually, one just to follow up on the CapEx question, the reduction in CapEx, is that just simply going to be followed through into 2007? And I think you've given sort of a phasing in March of guidance around EUR8.4b. I just want to know if we simply add that on?

Secondly, just wanted know -- an update, in terms of discussions with Maurel & Prom. I believe you were in negotiations there, just wanted to know whether you'd highlight -- what assets that you are attracted to within that portfolio?

And lastly, just on the guidance on gearing. It appears that if you return back to 20%, it does mean that your buyback does step up in Q4. I just wanted to know, again, whether you would give any sort of guidance or indications on the buyback for Q4? Thank you.

Listen, as regards CapEx, I would say that it is reasonable to think that a good portion of what will not be recorded in '06 will be made up in '07. To be quite frank, we are not in a position to say how much. Probably in February, when we will be presenting the full-year plan, there will be larger evidence of the '07 CapEx.

As regards Maurel & Prom, well, there has been some news around the market that we have some talks going ahead. Not on the company itself, as it has been wrongly quoted by some press. In fact, we have been talking with them about some African assets. There is evidence in that specific country worthwhile mentioning, Congo. We already have a substantial presence. And we think we could add, with our expertise, in getting additional exposure to that country.

As regards gearing, well I wouldn't attach it to the step up of the buyback the reason for going up to the point the 20%. There is no doubt that the buyback program will continue on the basis of the, how can you say, the methodology or the rules, which we have given ourselves from the very beginning.

Okay. Thank you very much.

You're welcome.

Okay. Thank you. The next question we have comes through from the line of Lucy Haskins of Lehman Brothers. Miss. Haskins, please go ahead.

Good afternoon, Marco. I wondered when we might expect to hear a bit more about how Kashagan is proceeding. Will we need to wait until February and discuss your review then, or will we hear something by this calendar year-end?

Well listen, probably the February occasion could be the right one. But we are still hoping to have the possibility to update you before year end, as we have been saying throughout the year.

And could you give any guidance in terms of the lower CapEx for this year? And the delays on projects, you've referred to the Caspian region, but also talked about other areas as well. Can we assume that the major reasons for [inaudible] for taking back the forecast was what was happening at Kashagan?

Yes, I would say that, the reference to the Caspian region is exactly to the re-phasing of the Kashagan offshore portion or the offshore portion of the Kashagan project.

Right. Thank you.

Okay. Thank you. The next question we have comes through from the line of Michele Della Vigna of Goldman Sachs. Please go ahead.

Hi, Marco. I would like to ask three questions. The first one is if you could give us an idea of what kind of production growth you would expect for 2007.

Secondly, given the very strong gas results, was I just wondered if you could give us a guidance on your expectations for the 2006 gas EBIT?

And finally, in regards your strategy to enter Canadian heavy oil, I just wondered how that changed after Conoco/Phillips won the joint venture within EnCana? Thanks.

Listen, Michele as regards the production growth, I think we have given already a guidance for '07 I believe, last year on the occasion of the strategic presentation. And we have updated you, in fact, confirming during this more recent meeting. I wouldn't add anything to what we have said so far.

As regards the EBIT, if I understood properly, of the operating results of the gas and power division, I think that since we gave you the guidance of EUR3.5b, when was it, it was last July when we presented in the annual results. Today, after another three months, I think we are a little bit more optimistic. So could be slightly higher than that.

As regards the Canadian oil [inaudible], well the interest in which we have, how can I say, disclosed towards the best part of the oil industry is still there, even after the conclusion of the EnCana and Conoco deal. And so, we are still looking at that part of the -- as a part, which could properly fit in our portfolio of activities.

You know that we have, on top of that the, or think we have, a technological edge, because of our ESP technology, which by the way, is planned to be used in one of our plants in Italy. So, I would say all the reasons for looking at that part of the world with a certain degree of interest are still there.

Thank you.

You're welcome.

Okay. Thank you. The next question comes through from the line of Sven Del Posso of John Herold. Please go ahead.

Good afternoon. I'm interested in knowing a little more about Nigeria LNG, the trains 4 and 5. Basically, I'm looking at a gas realization in 2005 in the upstream for Eni in the West African gas realization, of approximately $0.80, U.S. cents, for MCS. And I would like to know from you, what might the evolution of this gas price be, in consideration of downstream margins from LNG marketing from the relatively recent train start-up?

Listen, I must admit, I am not in a position to answer to this -- so detailed questions about the fourth and fifth train in Nigeria. I'll ask you to stay in touch with our IR department, which will address your question.

Alright. And then my last question. How about [listing] costs for the first nine months of this year, as they compared to the same period last year?

Listen, listen, in the third and in three months and in the nine months of '06, we had a $4.1 per boe and a $3.8 per boe respectively, versus a $3.5 and a $3.3 per boe, which we had in the previous year. Please keep in mind that the underlining exchange rate was 1.26.

Thank you, Marco.

Okay. Thank you. The next question comes through from the line of Paolo Citi of Intermonte. Please go ahead.

Hello, good afternoon, everybody. I have just one question regarding the refining business. You gave an indication about the benchmark of around $4.03 per barrel, down 39% year-on-year. Is it possible to have a precise indication regarding your real margins you recorded Q3, in order to understand how was the performance of the company?

And another question, regarding the gas and oil division, I saw, for the first time, a detail regarding the EBIT you manage on the gas and power growth. And I saw quite impressive results in terms of growth. Is it possible to have also details regarding the volume? I think the majority is related to the gas, to the Greenstream pipeline, but if you can give us also some details regarding the volume of gas as quarterly growth. Thank you.

Listen, as regard the refining margins, we never gave a specific indication, so you should stick to what we have said so far. While, as regards the volumes transported in our international pipeline, you are totally right. The Greenstream, and even the Blue Stream, have been the two major components. And we will come back to you, if you want, on the order of magnitude of the volumes transported.

Okay. Thank you. If I may, I have another question regarding another issue that impacted the gas and power division. You mentioned the opening studies within gas selling prices and purchase prices during Q3. Time lag aside, do you have a quantification of this issue, and also to understand if there could be a reversal in Q4 or in Q1 '07? Thank you.

Well, I would say that in Q4 we do not expect any reversal. But since you correctly referred to the time lag it might be the case that during '07, along with a possible different evolution of the parameters, then the [then] same parameters could work the other way round.

Okay. Thank. Thank you very much.

You're welcome.

Okay. Thank you. The next question we have comes through from the line of Mr. Huw Williams of Cazenove in London. Mr. Williams, please go ahead.

Thank you, Marco, I've just got a couple of questions. First, I just wondered if you could give us maybe a feel, for where you think there are any risks to upside growth, either for the latter part of this year or into 2007?

Secondly, and I understand your comments on both gearing and on buybacks. But I wondered whether you might be in a position to give us any indications of guidance as with respect to dividend payout, particularly clearly for the final event as of this year?

And then finally, on the Powergen side, which clearly, despite rising capacity, as you've bought out your [session] portfolio, clearly there was a little bit of weakness there I think in Q3 '05. I just wondered how much of that was due to maintenance effects, and how much was due to tariff pressures, please?

Listen, we do not see, at this point, major risks regarding the reaching of our growth target '06. So, as I said before, we still think that we might remain with the 55 -- with the 55 on price scenario in the range of [inaudible] for this year.

A comment on the possible anticipation of the change in policy, evidently I can't. I would like just to stress that, we already had an increase of about 33% in our EBIT interim in payment. And, as is usual, then we see an anticipation of the dividend policy after the Board which will take place in February.

As regards Powergen, I wouldn't say that it was -- the reduction was affected by any maintenance. The reason was simply a merging component.

Okay. Great. Thank you very much.

You're welcome.

The next question we have comes through from the line of Mr. Gordon Gray of JPMorgan. Mr. Gray, please go ahead.

Thanks very much, hi, Marco. Just a couple of minor things, firstly, on the strong performance in R&M, I know you don't want to give out specific company refining margin. But am I right in saying that your refining part of your business actually posted a positive EBIT year-on-year, despite the strength -- despite the pressure on refining margin?

And secondly, I wonder if you could just give us a bit of progress update on Brass River LNG. Thank you.

Well, I -- as regards the refining margins, yes, I -- you are right. The EBIT was positive, in spite of the [stickier] market conditions, thanks to the complexity of our refining system.

As regards Nigeria, the Brass LNG project, you may remember Gordon that, a shareholder agreement was signed in September between Eni, evidently, and MPC, ConocoPhillips and Total. As a consequence of that the partners are supposed to take the technical final investment decision before the end of this year.

You can remember that, the project we are talking about is a plan posed by two trains, with a total capacity of 10m tons per year of LNG. The first operations are expected to take place in the first half of 2011.

Brilliant. Thanks very much.

You're welcome.

Okay. Thank you. [OPERATOR INSTRUCTIONS]. The next question we have comes through from the line of Mr. Rory Stewart of Simmons & Co. Mr. Stewart, please go ahead.

Thanks. The reduced CapEx guidance still implies a relatively large amount of CapEx in the forth quarter. Is that Kashagan related in there, or are there other large amounts in there, or more potential downsides that the actual CapEx number comes in below the 8.7?

Now listen, it is, how can you say, it is in our interest that the last quarter of the year, for I would say across the business segments, we have a make-up of the investments, which haven't been accounted for during the first nine months of the year. There might be some discrepancy between what we have forecasted, and what we will see. But, at this point, the best guidance is the one which we have produced.

Okay. And I think you've half answered this with regard to refining and marketing. I was just wondering if you could give a rough idea of the size of the benefits you got, from the improved marketing margins, and the light heavy spread year-on-year, given the indicators being down but results up in that segment?

Listen, I think the only comment I can make is that the order of magnitude of the positive increase -- of the increase of the EBIT as versus last year, is marginal. The price differential between the Brent [inaudible] was about $5.7 per barrel in the third quarter, decreasing from the nine month average, which was $6 per barrel. But it was better than in the first three and nine months respectively of last year.

Okay. Thanks.

Okay. Thank you. The next question comes through from the line of Mr. Neil McMahon of Sanford Bernstein. Mr. McMahon, please go ahead.

Hi, good afternoon. Just a few questions with regards to the CapEx profile going forward. Given the fact that we have pretty much had zero information on Kashagan, is it a safe thing for me to stick into my models, rising CapEx every year going up to 2010?

As it looks like we're seeing CapEx getting delayed into '07 as you said. But, from then on, it seems like a sensible assumption to me to keep it building going forward. And I've got a follow-up question.

Well, listen, it's hard to comment now on the 2010 -- up to 2010 profile. We are really drafting in these very days our four years plan. I would say that it would be reasonable to expect an increase of CapEx versus the last four years plan. But to -- I don't elaborate any more on this specific part.

Okay. We'll wait for the specifics on the Kashagan presentation [inaudible] then.

Yes, please.

Maybe just a sort of related one on that. Could you go into the Bosphorus bypass -- pipeline plan that you are -- that looks like is going ahead, -- going across Turkey? What state is that at? Have you actually got a detailed engineering plan? Is it up and running with contractors? And what is your estimate as the timing of putting this Turkish pipeline in place?

No, we haven't yet been, and we are not yet in the stage of having a detailed -- sorry, a detailed engineering. I don't know if it can be of help, for you, to give you anyway a broad indication of what we are speaking about. We are speaking about a line, which is supposed to be 500/550 kilometers long. And the pipeline should be between 48 and 42 inches large, with four pumping stations and storage tanks at [Sangachal] terminal. But this is really at, even before any more detail engineering accounts, we expected the CapEx to half -- presently $1.5b. And we expect the completion of the investment to take about three years from the final investment decision.

Presently, what we are mostly focus on is to complete a number of potential partners, which we are talking with in order to be, before year-end, with a defined group of partners to carry out the following part of the exercise.

Okay, so just following up on that. I, -- in terms of putting into my model, my Kashagan ramp up, in terms of full field production, it's probably going to happen more towards the middle of next decade, given the fact that the pipeline will be required to get that peak oil out of that field?

Hello.

Hello.

You may remember that the initial phase is -- well, the production, let me say, of the initial phase, is manageable with the existing transportation capacity in the area. So, it's fine.

It's really just thinking -- obviously there's a big difference between, even though they are significant volumes initially, versus the peak production of the field, which is world class. And I just wanted to get a thinking on the time on that. If this pipeline is required for this field to hit peak production at well over a million barrels per day?

Well listen, I would say that once the peak production will come [through], we will need to, probably, a number of alternatives for transporting the relevant quantity.

Okay, great, thank you.

You're welcome.

Okay. Thank you. The next question comes through from the line of Mr. Neil Morton of Man Group. Mr. Morton, please go ahead.

Good afternoon. I hope my faltering voice holds up. Back in July, with regards to delivering a 248, you mentioned that you might be in a position to release provisions going forward. I just wanted to ask whether there were any write backs in the Q3 results? And, also, whether you're full year guidance, of slightly higher than EUR3.5b, has used any write backs in Q4.

Well, so far we haven't released any provision. You should remember that I also mentioned that, the possibility to release part or totally that provision was a consequence of the approval by the authority or the negotiation with our suppliers. So, this is, in fact, what we are presently doing. And, as a consequence, we think that a portion of that provision could be released before year end, and then be accounted for in the '06 results.

So, just to clarify, the number you gave of 3.5 assumes some sort of portion of the provision being released?

Yes.

And also, can you confirm these are non-cash items we're talking about?

Yes.

Yes, they are. Okay.

Economic components.

Right. Fine, thank you very much.

You're welcome.

Okay, thank you. We have no further questions in the queue, so I'll hand you back to your host to wrap up today's call.

Well, many thanks, for joining us. I have just to confirm that, our team of Investor Relations will be at your disposal for the follow-up, for any question and further questions you might have. Thank you and have a nice weekend to everybody.