埃尼石油 (E) 2012 Q2 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to our interim update and second quarter results conference call. Looking at the first half of 2012, there are three main highlights that I would like to draw your attention to; two of these are positive strategic developments, and one is a negative business trend.

First, we have made a good start on our non-core asset disposal program, unlocking value for shareholders, reducing debt, and refocusing the business.

Secondly, we have further built up the organic growth prospects of our E&P through a stream of truly exceptional exploration successes.

And third, we are facing challenging market conditions in our Italian and European businesses with Gas & Power, Refining & Marketing, and Chemical buffeted by euro area headwinds.

I will now take you through each of these points in a little more depth. Sandro will then present the financial performance in Q2.

Let's look at Snam and Galp. As for Snam, the disposal process is well underway. Following the signing of the sale of 30% to Cassa Depositi de Prestiti, we have placed a further 5% in the market, crystallizing value for our investors, reducing the overhang on Snam, and confirming the market's appetite for this asset.

For our remaining 20%, we are talking to potential investors. Depending on the evolution of these talks and market conditions, we will evaluate how best to progress on the disposal. Any transaction will take place following the closing of the Cassa Depositi e Prestiti deal, expected in the autumn.

With regards to Galp, we have recently executed the first step of our disposal process, completing the sale of 5% to Amorim Energia for EUR14.25 per share, and exited the Company's shareholder pact. We are now free to evaluate the different options to extract value from our stake with flexibility, and no time constraint.

As a result of these two disposals, by next year, Eni's business portfolio will look like that of its peers; and net debt will fall by around EUR20 billion, bringing our gearing below industry average. As a consequence, we will adjust the way we return cash to shareholders, in line with industry practices, accompanying our dividend with the recently approved share buyback program.

Let's now turn to the second highlight, exploration. For many years now, we have discovered around 1 billion boe of new resources a year, well in excess of our average production of about 600 million/700 million boe a year, providing fuel for future growth.

In the first six months of this year, through our discoveries and appraisals in the Barents Sea, Egypt and West Africa, we have discovered over 400 million boe. And on top of that, we have an extraordinary [game-changing] success in Mozambique, which brings total new resources discovered by June 30 to 2.2 billion boe.

This number does not include the results of the fifth well in Mozambique announced today, which increases gas in place to 60 tcf. Of this, 40 tcf are to be unitized with area one; and 20 tcf in structures which are fully in our block.

Following this success, we now estimate the overall potential, the discoveries in area four, is 70 tcf on gas in place.

We have also been working on our long-term exploration prospects, securing new and promising acreage in the Norwegian and Russian Barents Sea, in the Black Sea, in East Africa, and in the Far East.

Turning now to our operating performance, while in E&P we seized the benefit of rapid recovery of Libyan volumes, our Italian and European businesses faced strong economic headwinds.

In Gas & Power, gas demand continued to fall, driven by the weak economy and the competitiveness of coal renewables in power generation. For an idea of the impact this is having, normalized demand in the first six months of the year was 5% lower in Italy, and 7% lower in key European countries year on year; and as much as 13% and 18% lower compared to the pre-crisis first half of 2008.

This has prevented European oversupply from being absorbed and stock prices from closing the gap with oil-linked prices. In this context, we have leveraged on recent supply renegotiations to remain competitive and profitable.

In the first half, our Merchant business delivered a positive result, even excluding one-offs, of which the main one is the Gazprom extraordinary benefit.

R&M is also suffering from unprecedented demand decline. Italian consumption of refined products was down by around 10% in the first half of the year, adding further pressure to Europe's structural refining overcapacity.

We are working to offset the negative market environment through cost cuts, and temporary capacity reductions, such as the partial closure of our Gela refinery.

Lastly, our Chemicals unit, Versalis, almost broke even in Q2, but volumes have been suffering from low demand and the rest of the year will remain challenging. In this context, we are making steady progress on our turnaround strategy, with the closure of our Porto Torres cracker benefiting Versalis' results by around EUR20 million in the first half.

Thank you for your attention. I will now hand you over to Sandro, for an overview of Q2 financial results.

Thank you, Paolo. And good afternoon, ladies and gentlemen. In the second quarter of 2012, the market environment was broadly positive. Decline in Brent price, which averaged $108 a barrel in the quarter, down 8% year on year, was more than offset by the 11% appreciation of the dollar versus the euro, compared to one year ago.

The European refining scenario was [also supported], with an average Brent/Ural margin of $6.3 a barrel, almost a threefold increase from the second quarter of 2011.

Turning now to our results, you should note that following the announced divestment of Snam, their regulated businesses in Italy have been deconsolidated from Gas & Power results and represented in accordance with the applicable reporting standard; precisely, the IFRS 5.

Consequently, margins generated by transactions between Snam and Eni Group companies are considered as a part of the EBIT adjusted and net income adjusted from continuing operations, whilst margin generated by transactions between Snam and third parties have been classified as discontinued operations.

The same reporting standard has been applied also to Q2 2011 results in order to facilitate the year-on-year comparison.

In the second quarter of 2012, adjusted operating profit from continuing operations was EUR4.24 billion, up 14.2% from the second quarter of 2011. This result reflected a better operating performance by the Exploration & Production division due to the ongoing production recovery in Libya and organic growth.

In spite of continuing demand weakness and rising competitive pressure, the Merchant business of the Gas & Power division reported operating losses in line with the second quarter of 2011, leveraging for an improved cost position due to the benefits of renegotiated supply contracts.

On a similar note, Refining & Marketing and Chemicals reported stable losses in the face of a deteriorating trading environment.

Adjusted net profit from continuing operation was EUR1.38 billion; in line with a year ago.

The better operating performance was offset by a higher consolidated tax rate from continuing operations of approximately 4 percentage points. This was mainly due to the increased contribution of E&P, which has a higher than average tax rate.

Looking more closely at E&P, in the second quarter of 2012, Eni grew liquid and gas production by 10.6% to 1,647,000 boe per day. This performance was mainly driven by the ongoing recovery in Libyan production, and the startups and ramp-ups of the new fields in Russia, Australia, and Egypt.

These positives were partially offset by the shutdown of the Elgin Franklin field; the increase in bunkering in Nigeria; and mature field declines.

In the second quarter of 2012, E&P reported an adjusted operating profit of EUR4.23 billion, up by 10.8%, driven by increased daily production and the appreciation of the dollar versus the euro.

Turning now to Gas & Power, in the second quarter of 2012, Eni's worldwide natural gas sales declined by 3% to 19.6 bcm. This decrease was mainly due to weaker demand and ongoing competitive pressure.

In Italy, volumes sold declined 8.3% in the quarter; with the Power Generation segment showing a double-digit decline, owing to the increasing competitiveness of coal and growing use of renewables.

International sales excluding volumes sold to shippers increased by around 1%, benefiting from higher sales to retail, growing in excess of 18%; and stronger LNG sales in premium Far Eastern markets.

In terms of results, the Gas & Power division, which from this quarter includes just gas merchant, power, and international transport, reported an adjusted operating loss of EUR369 million, compared to a loss of EUR314 million in the second quarter of 2011. The decline is mainly attributable to the lower results of international transport after the sale of assets in the second half of 2011.

Turning now to Gas & Power adjusted pro forma EBITDA, while overall losses widened slightly, the impact was entirely attributable to us at sales in international transport.

Marketing profitability improved from the year earlier period with losses narrowing by EUR60 million to EUR231 million, owing to the improved results from associates.

The Refining & Marketing business reported an adjusted operating loss of EUR144 million; EUR20 million higher than in the previous period.

In Refining, margins were impacted by shrinking differential between light and heavy crudes, as well as higher expenses for oil-fueled utilities.

The negative trading environment and volatile margins were partially offset by efficiency announcements, the optimization of plant setup, and lower throughputs at the weakest refineries. The overall utilization index of our refineries is in line with the second quarter of 2011.

In marketing, results improved slightly, thanks to higher margin in wholesale, as compared to the lows of the second quarter of 2011. This was partially offset by lower sales volumes in the retail market due to declines in fuel demand.

In the second quarter of 2012, the Chemicals division reported an adjusted operating loss of EUR26 million, an improvement versus the second quarter of 2011, and, more remarkably, compared to the result achieved in the first quarter, in spite of weaker commodity demand, but supported by the higher benchmark margin of cracking.

The Engineering & Construction business reported a steady operating result at EUR388 million; up 2.6%. This trend reflected higher revenues and better margins on the works executed; mainly in the Engineering & Construction business unit.

Other Activities and Corporate showed an aggregate loss of EUR157 million, versus EUR129 million in the previous year, mainly due to higher insurance costs.

Net cash generated by operating activities amount to EUR4.2 billion in the quarter.

Cash outflows in the quarter include the dividend payments of EUR2.3 billion, which reflect the payment of the final 2011 dividend, as well as dividends paid to Snam and certain minorities.

Capital expenditure including Snam amounted to EUR3.3 billion and mainly relates to the continuing development of oil and gas research, and the upgrading of rigs and offshore vessels in Engineering & Construction.

We also completed the divestment [for EUR729 million], including the (inaudible) of the Republic of Kazakhstan in Karachaganak, and the disposal of oil in Nigeria.

The change in net debt was positively impacted by other items, including the initial refinancing of an inter-company loan due by Snam for around EUR1.5 billion. As a result, net financial debt at June 30, 2012, was down EUR500 million from March 31.

Thank you for your attention. And I now will hand you over to Paolo for his final remarks.

Thank you, Sandro. Looking forward to the rest of the year. In E&P, production levels will continue to suffer from two unexpected events; namely, the closure of Elgin Franklin and the sharp increase in bunkering in Nigeria, which together reduced Q2 entitlements by over 30,000 boe per day, year on year.

Net of this impact, we confirm previous guidance of approximately 10% production growth before price effects, with better performance offsetting the shift of expected startups in Angola and Nigeria to the second part of the year.

In Gas & Power, by which we now mean our gas merchant, power, and international transport businesses, we confirm previous guidance of an improvement in operating profits compared to 2011. On reported figures, much of this improvement will come from one-off items, of which the largest is the retroactive impact of the Gazprom renegotiation.

In R&M, we expect weak market conditions to continue, offsetting the benefit of increasing efficiency and operating improvements.

Looking ahead, Eni is entering into a new era. Our balance sheet will be transformed by divestments, securing our capacity to finance long-term projects in any market environment.

We will continue to leverage on our exploration success to deliver organic production growth. And we will reward shareholders with a remuneration policy which guarantees a sustainable dividend and provides for further upside through buybacks.

Thank you for your attention. Sandro and I, plus the heads of our main business units, will now be pleased to take your questions.

Ladies and gentlemen, the Q&A session is now open. (Operator Instructions) Nitin Sharma, JPMorgan.

Two questions from my side; first one on Gas & Power. You've highlighted in detail the sort of challenging conditions you face for gas marketing business. But I was wondering, despite the renegotiated contracts of North African's Gazprom, the results are quite similar to Q2 in that business, obviously, impacted by the trading environment. But how should we be thinking about the outlook for this business the second half?

And second one, on Iraq, please update us on the pace of developments, how you're progressing on Zubair. Thank you.

Maybe on the first question I will ask Umberto to answer to you, while on the second Claudio, will tell you something about Zubair.

On the Gas & Power business, first of all, let's talk about the (technical difficulty) we expect to see the second half of the year, where also we expect to see a recovery, mainly in Europe, then in Italy, in the second half that will keep the overall figure in line with 2011.

On top of that, we are confident of the activity that we are going to perform on our commercial businesses, where we are certainly improving our performance, both in Italy, and also in Europe, in the retail, as well as in the business market.

Iraq, in that we are progressing. And in line with budget, we are producing about [240,000 to 250,000] (technical difficulty) our equity. At $110 a barrel, it is about 17,000/18,000 barrels per day. We are working towards the full-scale development. And we are confident that by the end of the year or early next year we can have the [SRG for the full field]. So we are progressing, and so far, so good.

Now let me just complete, because maybe the answer that Umberto gave you was not really complete. Now, as for the full-year 2012, the guidance we give on our Gas & Power business, defined as I defined before, is a number reported better than last year, but a number excluding one-offs worse than previous year.

And I'm not going to disclose you the one-offs, and particularly the benefits we get from the Gazprom retroactive activity. Okay?

Can I just ask one follow-up on dividends? I think you made it amply clear that you want to keep your dividends competitive and they'll be backed by buybacks. But is there any plan, post-SRG's -- Snam's stake sale either to revisit the dividend policy or the base dividend, i.e., in 2013?

We certainly will revisit our dividend policy with our strategy presentation, which we will be holding some time end of February/beginning of March. There, we will redefine our dividend policy. What I think I can tell you from now, that we are not planning any special dividend.

Thank you. Very clear.

Oswald Clint, Sanford Bernstein.

First question just on Galp. You talked about evaluating various options from this point onwards, now that the shareholder agreement has finished. Can you just remind us what those are from your perspective?

Secondly, on the Gas business again, given your comments on the macro within that division, and I think you've spoken about having the ability to talk more frequently with Russia, with Norway, on supply due, would you expect to enact any further discussions with those suppliers through the rest of the year?

And then just a small one on -- it was small, but impairments in the US and some reserve downward revisions. I wonder if you could just say which assets those were. Thank you.

Okay, on the first and the third question I think it would be Sandro, and on the second one, Umberto. You start, Sandro, with Galp.

Yes. Basically, with reference to 18% of the residual stake that we own in Galp, we have no limitation at all. We can have [our sales] to the wider range of disposal options, including structured market transactions, or as well as bilateral transactions with interested parties.

And by the way, we have already ongoing discussions with some interested parties; interested to buy quite a significant stake of our participation in Galp.

It is still too early to predict when those discussions will arrive at the end, but we are confident that before the closing of the third quarter results, the announcement of the third quarter result, we will be more precise about the timing and the strategy with respect to the receivable portion we have in Galp.

But, basically, we have no limitation at all. We maintain only [4% or 5%], but Amorim maintains the right of first refusal. But for the rest, we are free to do whatever we want.

Then, as far as the impairment, we have booked on -- as far as some E&P assets based in US are concerned, the figure relating to those assets is really negligible. Because we are talking about something close to EUR90 million, or more or less nothing, and is the result -- the impairment was the result of some increased development cost, as well as the deterioration in the gas market prices prevailing in the US market.

In relation to the long-term contract renegotiation, we are currently involved in several discussions with some of our suppliers in order to guarantee continuously cost competitiveness in our portfolio. More precisely, in 2012, these renegotiations will relate to a significant portion of our portfolio that is equivalent to 30% of its total value.

Besides 2011 and 2013, we are planning to reopen the renegotiations with other major suppliers, like Gazprom and Sonatrach.

That's very clear, thank you.

Yazhari Hootan, Bank of America.

I just wanted to get an update with regards to -- following the success of the Mozambique exploration program, I just wanted to see where you've gotten to in terms of unitization, and how you're thinking about your stake going forward from here.

What -- would you be comfortable selling down to 40%, 30%? Or is 70% how you want to take this development forward? Thank you.

Okay, I will leave Claudio to give you some hints about what we think.

Unitization, first. We are continuously talking, and we are working with Anadarko. As we said previously, we exchanged the entire (inaudible) information, and we are working on the future model of unitization, and also on the (inaudible). So there is no big news. The work is in progress.

For the future, as we said, the first objective is to analyze the exploration phase, so have a clear view about our resources and about how to develop these resources with our partners and, first, with the government. And we are thinking about possible future strategic alliance on the area. That's all. Thank you.

Like you said, it is early days to give you more detail on this. Exploration first, alliances second.

Okay. Thank you.

Jon Rigby, UBS.

I've got a few questions. The first is on the upstream. I notice that there's, as I think you mentioned, and certainly you've said in the release, there's been a couple of slips in the projects that are affecting this year. And I just wondered whether we could take the chance for Claudio just to run through where you are on the key startups that run through maybe for the next 12 months, so, i.e., for 2012 and 2013, versus the visibility you provided for us at the start of the year.

The second one is just going back to Mozambique. Once you've finished the exploration phase, as you reference, when you talk about strategic alliances, would that potentially involve some sort of monetization of what is a very large stake that you have in your block, 70%, which -- I guess to show value for what you've got on an early stage?

The last one, I think is for Sandro, is there's obviously a program in place for Snam to raise money externally and repay you back the cash that you've lent them. In terms of the next six months or nine months, are you able to give some visibility on when you would expect to be receiving that cash, and reflecting it on your balance sheet?

Okay, Claudio will give you an update on the startups.

Yes, startups, as we said, this year we experienced some delay in some startups, especially in Angola, and Egypt, and in Nigeria, [Emily] and [Casca], and also projects in Italy, Aquila. So that is a delay. We think that we will be able to start up these projects by the end of this year. That is the main delay.

For the rest of the period, looking forward, I think that for -- talking about Russia, we think it will be a contributor in the next couple of years. We don't think that we have any delay. The first project [Sambusia] has been started two/three months before expectation, so is good news from Russia.

The other project, Kashagan, our expectation, definitely, is always to start production by the end of this year. Practically all the [cut] is finished, and we are starting progress with the commissioning, and also we are in progress with handing over operatorship to Shell. So there is the huge process of checking and cross-checking all the procedures of the two companies.

And, again, we think that Angola is on track.

Goliat, as we said, is confirmed first by June, by the first half of 2014, so there is no bad news for Goliat.

And the rest is on track. So the main issues are in 2012 for the project [Nasan].

Okay.

On Mozambique, let me add something on that. Now, as you might have seen from our press release of today, we expect to have in total in our block for something in the region of 70 tcf; divided, roughly, 40/45 to be unitized with block one, 20/25 would be totally under our control. By our, I mean we will have 70% of it with our partners.

Now, when we look at the strategic alliance there, the first thing we are looking at that is the wishes of the Mozambique Government, because whatever we will do has to be approved by the government. It has to be approved, let's say, really, apart from a formal approval, it has to be really something that the Government wants us to do. Such a changing thing for Mozambique, this discovery, that this is the first thing we have in mind.

Now the second one is, of course, gas utilization. There will be a lot of gas produced there. It would be nice to have as partner the clients for this gas; at least partially. We have already [Cogas] with us, so Cogas is already a potential client. We might be interested in looking for other type.

Now the third point will be potentially monetization, even if this is not really our priority. Of course, we know that these resources have a huge value, and we will try to extract the maximum value doing our activity. If there would be a partner which fulfills the first two conditions, which is ready to pay, this would certainly be acceptable.

Now, on Snam?

Well, John, as you know, we have already mentioned that Snam already started repaying their loans to Eni before the closing of June 30, since they have already repaid EUR1.5 billion within the end of June.

Then, in July, thanks to the proceeds generated by the placement of bonds on the institutional market, Snam has repaid an additional EUR1 billion; totaling, in aggregate, so far, EUR2.5 billion.

Then, last Tuesday, Snam has secured proper financing with a club of banks, which have granted their support for an amount capable to repay entirely the outstanding loan. And now we are meeting with our former colleagues, but still friends, obviously, and we are defining with them a proper schedule.

And I am confident that very soon, probably within the end of September/early October, their repayment of the entire outstanding position will take place.

Very good. Thank you.

Matt Lofting, Nomura.

Just one remaining question, please. I just wondered if, in the context of the success in the first half of the year around resource additions, etc., that you talked to earlier on, if you could talk about some of the primary exploration prospects outside of Mozambique in the portfolio for the second half of the year, and into next year; and, in particular, which of those you're most excited about. Thanks.

Very good. So first question was about Mozambique. We got a very good result in Norway, in Egypt, Nigeria, the US, and Angola, and Qatar. And that are the main countries where we continue to drill wells also in the next six years. We have to add also Indonesia because we have in July drilled a very successful well in Indonesia.

And we drill until now 38 wells. We hope to reach about 90 wells, so that we can reach the target, excluding Mozambique, of about more than 1 billion resources for exploration, except Mozambique. And Indonesia, Angola again, and Norway will be the main target.

Okay, thanks.

Irene Himona, Societe Generale.

I had two questions, please. First, in the first half of the year your DD&A charges were up quite substantially; 22% year on year. I wonder if you can give us some guidance for full-year depreciation, and also for the tax rate.

And secondly, as you mentioned, Paolo, with the Snam and Galp disposals, Eni clearly becomes a pure play, a completely different risk profile. What sort of balance sheet gearing, what leverage do you think is appropriate to this new portfolio? Thank you.

Okay, well, I think Sandro will answer the first question.

Yes, more or less, the DD&A charges, the increase we have experienced over the first half of the year, you can maintain the same trend for the entire 2012, the entire -- all over the 2012 year. So, more or less, we do not expect any major fluctuation in the second half of the year.

Okay, as far the leverage, we expected to maintain after the disposal of Snam and Galp will be completed, and so far we expect it is reasonable to expect the completion of those two extraordinary transactions will take place only in the 2013.

Then, after the completion of those transactions, we believe -- we have not yet defined the precise leverage target, but our idea is to maintain leverage in line with the average of our peer group, which means something between 15% and 20% in terms of debt-to-equity ratio.

Yes, 15% and 20%. But even if we go down to 10%, we will feel perfectly at ease.

Thank you.

Rahim Karim, Barclays.

A couple of questions, if I may. The first was just around the impact that you're seeing in terms of the downstream from the pricing discounting that you're offering in Italy, and whether we should be looking out for anything in the course of the summer from that, in the downstream.

And the second question was just in terms of Venezuela. It wasn't among the countries that you talked about in the upstream about medium-term growth. I was just wondering if there was any changes there that we should be looking out for in terms of your perception of risk in that country, especially ahead of the elections later this year.

Okay, let me just touch on the first issue. Yes, you are right; we launched a major advertising campaign for a special discount we are offering during weekends to the Italian drivers.

Let me just start by saying that this has been a great success. We had our market share growing; lots of new clients coming to our service stations; good publicity; certainly, our reputation in the country has been enhanced quite a lot.

It's early days to tell you the total cost of this, but it will be a number, let's say, between EUR100 million and EUR200 million, depending upon how much total products we sell during the period.

We will be -- the campaign started on June 16, and will last until September 2, and then the campaign will stop. It is a kind of corporate investment, not just a refining and marketing division investment.

Of course, it will improve the market share. It will improve the visibility of our service station. You might be aware that we are changing the name of our service station from Agip into Eni, and this will help us on that. But, in total, we expect to have a reputational reward for the Company, as a whole.

Now as far as Venezuela is concerned, well, of course, Venezuela, you quite correctly mentioned the fact there will be an election later this year. We continue on our path to make out of Venezuela one of our major countries. If I well remember the number, we expect by 2020 to produce in Venezuela 200,000 barrels a day. Therefore, it will be a major country for us.

But, of course, the big investments are in 2014. So, let's say, we will have time to see how the situation will develop in that country before taking major investment decisions.

All right. Thank you.

No more questions at the moment. (Operator Instructions). Miss Kim Fustier, Credit Suisse.

Just two questions, if I could. Actually, two for Claudio. The first one is on the Gulf of Mexico. I think you and your partner, Exxon, have two rigs operating at the moment on Hadrian and I was just wondering if you could talk about your expectations in terms of recoverable resources, and the development timeline there.

And secondly, in terms of your latest developments on your global shale portfolio, whether you have any recent drilling results in Ukraine or Poland that you're happy to share with us. Thank you.

Yes, starting from the last question, because we operate in Poland/Ukraine. So I think that [I'm more] comfortable talking about an asset that I operate. We are drilling the second well in Poland, and we are in a [license] (inaudible). We are to drill a third well in September, and we think we'll start fracturing and real production, test production, by the end of the year.

So we are still in an inspirational appraisal phase (inaudible). In Ukraine. In Ukraine, we've got some 9 blocks, very good blocks, in term of shale gas. So that's -- we are in the early stage. We have to start from seismic, and then start [immediately] drilling. That is on track, and we are quite optimistic about that.

On Hadrian, honestly, I think that we are [sharing that], following the [operatorship], we are quite optimistic about Hadrian. There are additional resources. And I think that the plan of the government and the future operation are well led by Exxon. I think that is one of the major discovery and one of the major projects in Gulf of Mexico for us.

Thank you.

Mr. Alastair Syme, Citigroup.

Could I just clarify exactly what you're saying on the dividend? Is the EUR0.54 considered to be the last dividend of Eni as it stands today, and that into next year you're going to set a new policy for a new company? Or is the EUR0.54 a reference point for how you look at the dividend going forward?

I'm not sure I understood what your question, but --

I guess I'm saying are all bets off on the dividend as we come into next year? Are you sort of starting with [a clean sheet then]?

Because I want to be sure to have well understood, since dividend is quite a sensitive question. Please ask it again.

My question is, are all bets off on the dividend for next year? Are you going to start with a clean sheet of paper and say this is the new company, (multiple speakers) cash generation, etc., etc.? Or do we use the current dividend as a starting point to think about (multiple speakers).

No, no, we are not -- no, listen, we are not going to start with a clean piece of paper, at all. We know exactly what is the dividend we pay today. We know what have been our promises in the past. And, as usual, in the -- when we make the next presentation of our strategy, we want to ensure the market -- the dividend will be sustainable during the plan. This will remain [important].

[We start from the] EUR0.54 that we promise I'm going to bring to the Board on September, to make me think that quite likely the dividend for the full year will be in the region of EUR1.08.

Can I ask why you felt the necessity, in an environment of reasonable uncertainty, to actually raise the dividend?

We are not raising the dividend. We are fulfilling on our promises, because we said that our dividend will follow the OECD inflation. The OECD inflation will bring us to EUR1.07, but we didn't like the idea of paying a dividend, a half dividend of EUR0.535 so we brought it to EUR0.54. This was the kind of reason; simply fulfilling on our promises.

Okay. Thank you very much.

Thank you.

Mr. Martijn Rats, Morgan Stanley.

I've got one more question left, most have been asked already. But I had a question for Mr. Scaroni. At the OPEC seminar a month or two ago, you made a presentation there, you said about global gas prices, that they were a puzzle, wrapped in a mystery, within an enigma, or something along those lines. And from that perspective, it's actually not that easy to formulate gas price to put in the sort of Mozambique model when you're going to discuss it with your partners out of the FID.

And I was wondering if, over the two months that have passed since, whether you have formulated your thoughts on the right gas price assumption for the investment planning of that particular project, whether you formulated your thoughts on that perhaps a little bit more clearly, and whether you are willing to share that with us.

But, listen, I can see that you remember quite well the speech I gave in Houston a few months ago. Now, the whole point I was making was at that time, gas prices in US were $2.50 per million btu, in Europe they were 10, in the Far East, they were 18, and that this situation was not sustainable.

In particular, considering that the calories in the US -- when you buy gas at $2.50 per million btu, you are buying the calories at 15% the price of what you pay the calories coming from oil. This was the whole point I was making.

Now, having said that, you are right that this is a big enigma for our future; not for what happens next year, but for what happens in 2020, 2022, 2024. For every investment in gas, including Mozambique, the variable, what will be the price in 2020, '22, '24, '25, is going to be the most difficult to define.

Now, lucky, in the case of Mozambique, we have to say that the upstream cost of that gas is so low that almost in every scenario Mozambique would be competitive. Therefore, we do not feel the pressure from that point of view. And we are sure that every potential partner will be very much interested in entering into this venture, due to the fact that the cost of gas in Mozambique is particularly low.

All right, fair enough. Thank you.

Mr. Andrea Scauri, Mediobanca.

A couple of questions from me. The first one is on South Stream. According to the Russian Government, it seems that the project should fly in October/November this year. Are you comfortable with this indication? And second point, what is the stake of CapEx from your side devoted to this project?

And second question, just a pure technical question on your accounting system. Should we see the split of continuing operation and discontinued operation also for the next couple of quarters?

And third question, could you please repeat again what is your guidance on tax rate for the full-year 2012 for the continuing operations? Thank you.

Sandro will answer the two accounting questions, then, well, we might -- either me or Umberto will answer the one on the South Stream.

You are right. We will maintain, let me say unfortunately, the same accounting criteria also for the third quarter, and as well as for the entire 2012 results.

So also by the end of September and by the end of the year, you will examine our numbers, our figures, divided between continuing and discontinuing operations. Then, effective from the first quarter 2013, Snam will definitively disappear from our consolidated figures and so I believe it will be more clear to understand our results.

Sorry, [what was] -- the consolidation of the debt, I suppose?

Correct. Well, you know, the consolidation of the debt more than an accounting effect will be a substantial effect because we expected to recover our own money within the end of the year. So it is not a matter of the consolidation, but it is real reimbursement of the outstanding loan.

Yes.

And as far as tax rate is concerned, our guidance with reference to the continuing operation, it approximates 60% of taxable income.

Okay, thank you.

Related to your question on South Stream, we can confirm what the other South Stream partners have announced; that there is an FID target by the end of this year. This, of course, is also depending on European authorization that, for a partner like us, is quite important. However, this FID will confirm the commitment of the parties to continue the development of the project in order to be ready to start with the subsequent execution.

Sorry, if I may, what is your planned CapEx for the entire project, if it's possible to have this figure?

Sorry, I missed your question.

The CapEx will be around EUR10 billion.

EUR 10 billion, your stake?

(inaudible), then there will be financing. Okay? On total, we need EUR10 billion. We expect to have roughly EUR3 billion of equity, of which we will have roughly 20%.

100%.

No, total. Expect to put us at equity something like EUR600 million/EUR700 million.

Okay, thank you.

No more question at the moment. (Operator Instructions). The control room confirm there are no more questions.

Great. Thank you. We'll be bringing the conference to a close. If there are any further questions later on, could you just get in touch on the Investor Relations number? Thank you.

Ladies and gentlemen, the conference is over. Thank you for calling.