埃尼石油 (E) 2012 Q3 法說會逐字稿

I am now handing you over to your host to begin today's conference. Thank you.

Good afternoon, ladies and gentlemen, and welcome to our third quarter results conference call.

Let's start off with the highlights. With the sale of Snam and Galp progressing, the new Eni is starting to emerge. Our balance sheet at the end of Q3 is stronger, benefiting from cash inflows from the disposals of 5% (sic - see presentation 35%) of Snam, reported as an equity transaction, and 5% of Galp, and that deconsolidation for a total of around EUR11.1b. You should also be reminded that this figure doesn't include the EUR3.5b consideration from the completion of the sale of 30% of (inaudible) and the further debt deconsolidation from Snam in the region of EUR1b.

Our business is increasingly focused on an E&P division which, in the third quarter, continued to show strong performances driven by the ramp-up of Libyan production and exceptional exploration success.

Looking at Gas and Power, Refining and Marketing and Chemicals, we are making good progress on our plans to tackle challenging market conditions.

In Gas & Power, we are working on the renegotiation of our supply cost and have opened negotiations with counterparties including Statoil and GasTerra.

On the commercial front, we continue to grow in our target markets with sales in France, Germany and Austria up by 43% year on year, and to focus on higher margin segments such as retail and international LNG.

In Refining and Marketing, while benefiting from the current spike in refining margins, we continue to work on reducing overall capacity with an agreement to reconvert our Venice plant into a green refinery and on cost-cutting, which we expect to total almost EUR100m by year end 2012.

Lastly, we are working to improve our chemical footprint in the context of a very weak market. In particular, in the quarter we have signed joint ventures agreements leveraging on our elastomer expertise to grow our presence in the favorable Asian market.

And, now, I will take you through our Q3 results in more detail. In the third quarter of 2012, the market environment was broadly positive. The Brent price averaged $109.6 a barrel in the quarter, up 1% versus last quarter and down over 3% year on year. The appreciation of the dollar versus the euro continued also in this quarter, up over 2% versus last quarter and over 11% compared to one year ago. The European refining scenario was also supportive with an average Brent/Ural margin of $7.35 a barrel, almost a threefold increase from the third quarter of 2011.

Turning now to our results, you should remember that, following the divestment of Snam, the regulated businesses in Italy have been reconsolidated from Gas & Power results and represented as discontinued operations in accordance with the applicable reporting standard. Consequently, margins generated by transactions between Snam and Eni Group companies are considered as part of the EBIT adjusted and net income adjusted from continuing operations, whilst margins generated by transaction between Snam and third parties have been classified as discontinuing operations.

The same reporting standard has been applied also to Q3 2011 results in order to facilitate the year-on-year comparison. In the third quarter 2012, adjusted operating profit from continuing operation was EUR4.36b, up 2.2% from the third quarter 2011. The result reflected a better operating performance reported by the Exploration & Production division, up 10.8%, due to an ongoing production recorded in Libya.

The Refining & Marketing division improved its results supported by a positive trading environment and efficiency and optimization gains. These increases were partially offset by a large operating loss incurred in Gas & Power, down by 53%. In the third quarter 2012, adjusted net profit from continuing operations was EUR1.78b, increasing by 3.1% from the corresponding period of the previous year.

In the third quarter 2012, Eni's reported liquid and gas production of 1.718m barrels of oil equivalent per day was calculated assuming a new conversion rate of gas to barrels equivalent, which added 9,000 of barrels of oil equivalent per day to Q3 production. On a comparable basis, i.e. when excluding the effect of the new gas conversion rate, production increased by 16% in the quarter. The performance was driven by an ongoing recovery in Libyan production as well as the start-up and ramp-up of the new fields in Australia and Russia. These positives were partially offset by the shutdown of the Elgin/Franklin field in the UK and the impact of unexpected production standstills in particular in the Gulf of Mexico due to hurricanes, in addition to mature field declines.

In the third quarter of 2012, the Exploration & Production division reported an adjusted operating profit of EUR4.3, representing an increase of EUR422m from the third quarter of 2011, up by 10.8%.

Turning now to Gas & Power, despite sluggish gas demand and rising competitive pressure, sales of natural gas from the third quarter of 2012 were 18.8 bcm, an increase of 8.7% from the third quarter of 2011. The better performance was due to increased volumes sold in European and international markets. This was partially offset by lower sales on the Italian market, in particular in the power generation segment.

Despite the increase in volumes, adjusted operating losses in the Marketing segment increased by 18% to EUR354m owing to deteriorating competitive environment, partially offset by the cost benefits of supply renegotiation and the increase in Libyan volumes. This number doesn't include the negative effects of price revisions with certain long-term gas suppliers pertaining to previous reporting periods as these have been presented as special items. It does, however, reflect temporarily inflated supply costs for these contracts, an issue which we have -- which we are already addressing through further renegotiations.

Gas & Power results also reflect a sharply lower contribution from International Transport, down from EUR104m to EUR50m, due to the divestment of the Company's interest in TENP and Transitgas executed at the end of 2011.

Let's now take a look at Gas & Power adjusted pro forma EBITDA. Compared to EBIT, this metric shows a deterioration versus Q3 2011, mainly caused by the lower contribution from associates. You should know that the Marketing segment is impacted by the reclassification of Galp in assets available for sale while International Transport results reflected a divestment of the Company's interest in TAG, as well as those in TENP and Transitgas.

In the third quarter of 2012, the Refining & Marketing division reported improved operating results amounting to EUR51m, up by EUR49m from the year-earlier quarter. This increase reflected the recovery in refining margins and gains achieved on efficiency and optimization measures. These positives were partially offset by shrinking price differentials between light and heavy crudes that impacted the profitability at complex refineries and lower demand of products due to the current economic downturn. Lower product demand also impacted results in the Marketing business where we reacted to the difficult scenario with a high profile promotion during summer weekends.

In the quarter, the Chemical division reported an adjusted operating loss of EUR173m, increasing by EUR96m from the third quarter of 2011. The escalating cost of oil-based feedstock against a backdrop of a weak product demand led to a negative benchmark margin of [correcting].

Saipem reported a solid operating performance, up by 15.9% in the third quarter to EUR386m. Other activities and corporate showed an aggregate loss of EUR106m versus EUR146m in the previous year.

Net cash generated by operating activities was GBP1.9b in the quarter. Cash outflows in the quarter included the dividend payments of EUR2b, which reflected the payment of the interim 2012 dividend. Capital expenditure amounted to EUR3.2b and mainly relates to the continuing development of oil and gas reserves and the upgrading of the Saipem offshore vessels and drilling units.

Disposals of assets mainly regarded a divestment of 5% interest in Galp for an amount close to EUR590m, the sale of 5% of Snam for EUR612m and other minor non-strategic assets. The change in net debt was impacted by other items, including the refinancing of the inter-company loan by Snam for around EUR9.9b in the quarter. As a result, net financial debt at September 30, 2012 was down by EUR7.3b from June 30, 2012.

Thank you for your attention and now, with Claudio Descalzi and Umberto Vergine, we are ready to answer to your questions.

Ladies and gentlemen, the Q&A session is now open. (Operator Instructions). Thank you.

This question comes from Mr. Theepan Jothilingam from Nomura International. Mr. Jothilingam, please.

Thank you. Good afternoon. A few questions, please. Alessandro, you talk about, in the press release, a debt/equity ratio in line with other majors. I was just wondering if you could provide a little bit more color on what the appropriate level you think for Eni is, given your credit rating.

Secondly, just in that context I was wondering where you thought your debt/equity ratio would be at the end of this year.

And, then, moving on to gas marketing, clearly still very difficult market, could you just talk about your thoughts on if, or how and when, you may go about potentially renegotiating contracts over the next 12 months? Thank you.

I will answer to the first two questions you have raised and then I pass to my friend Umberto Vergine for the appropriate answer to the question relating to gas business.

As far as what do we deem appropriate in terms of leverage, after having disposed of Snam and when we will have realized the disposal of the residual stake, we believe that an appropriate debt to equity ratio could be in the range between 20% and 25%, which more or less is the average of debt to equity ratio of most of the companies in our peer group. This is what we deem appropriate but, for sure, we have the possibility to achieve a better ratio thanks also to the disposal of the other investment that we have to realize. I'm referring to Galp in particular.

Then, as you know, as you have realized from our third-quarter report, we have a debt to equity ratio of 0.32% by the end of September and thanks to the monetization of the 30% stake that we have sold to CDP as well as some other minor disposals in the last part of the year but predominantly because of the strong cash flow generated by the recurring operation which we expected to achieve in the last part of the year, we expect that the debt to equity ratio will be much lower compared to the level existing by the end of September.

If, how and when we are going to renegotiate, Eni is going to be involved in several discussions with its supplier in order to guarantee constantly the cost of gas is competitive. In 2012, this will relate to significant portion of our portfolio and it is equivalent to 30% in volume, and we expect that some of this renegotiation will be closed by the end of the year. In 2013, our contract will allow us to renegotiate another 40% of our portfolio.

And just coming back, then, if gearing does go below those levels, your preference would be to use the buyback to return cash to shareholders rather than any further rebasing of the dividend, is that right?

Buyback is one of the elements which the Board has already proposed to the shareholders' meeting but, as far as the buyback policy is concerned, this will be more -- will be announced in more detail when we will present our next four-year plan at the next strategy presentation in early March of 2013.

Okay. Thank you very much.

Next question comes from Mr. Iain Reid from Jeffries. Mr. Reid, please.

Hi, morning -- sorry, afternoon, gentlemen. Can I ask another question about the marketing supply contracts? I think Mr. Scaroni was talking, a few weeks ago, of perhaps a more radical solution to the gas supply contracts; potentially assigning them to some other company or maybe even the government itself. Is this something which you are discussing internally and perhaps with the government?

The statement of Mr. Scaroni that was made in front of the Italian parliament reflected the need of recognizing the value of the security of supply and therefore the cost associated with this value, particularly at the time when the marketing is moving very rapidly.

Okay and just one other point on this, given your expectation for the renegotiations that are currently taking place, what's your view on the recovery of the business into profit going into 2013? Do you think that's reasonable given your expectation of where prices might end up?

This year, we are extremely busy on the activity of negotiation and the ability to bring back the supply cost to the market price is the key to achieve this result. Of course, as you can understand, the game is played by two players, us and the supplier, so our intention is to use all the contractual means to achieve this result.

And if you achieve that you'll be back in profit in Marketing some time in 2013, is that what you're saying?

You see our guidance is to improve in operating profit compared to 2011 and this, of course, counts a lot on the result on the renegotiation of Gazprom. The same achievement that we're currently going to see renegotiation (technical difficulty) in our 2013 result.

Okay. Thanks very much.

Next question comes from Mr. Jon Rigby from UBS. Mr. Rigby, please.

Yes. Thank you. Just a couple of questions, actually. One is just to go back, sorry, to labor the point on these gas contracts. Isn't the issue that you have structural is that you're selling on an indexation partly to the spot if you're buying on an indexation to oil? So, ultimately, wouldn't the best solution, and is this the way you're going, be to rebase everything so that you're buying and selling on the same basis and to remove that basis risk? Is that ultimately where you would like to go on this in order to remove this kind of volatility?

And, I guess, following up on Iain's question, are we to understand that, at some point or other, there will be adjustments made in terms of catch-up that will restore, on average, the level of profitability for the Gas & Power business, although it will be lumpy so that say 2013 -- late 2013 or 2014 some sort of catch-up will make the average for 2012/13 something more recognizable for us to look at?

The second question is just on CapEx. I think Mr. Descalzi said at the E&P Seminar recently that his expectation was that there would be a slowly rising CapEx figure but nothing outstanding based on this year but rising a little. How should we understand, as you see it right now, that the CapEx burden for the rest of the business is? I guess, with the removal of Snam, optically it would be lower but what are we seeing around the rest of the business? And is there more CapEx to come in the downstream businesses, Refining & Marketing and Petchem, to try and realize some of the benefits you're talking about to finally bring these businesses back to profit? Thanks.

Okay. On the gas contract, you are right, we have two ways to achieve the market reflectivity in our accounts. One is to introduce more elements that link directly the price to the spot market prices. The other one is to work on the formula, on the namely the p0 that qualifies the fixed element of the formula. Depending on the type of contract and the structure of the contract we are applying either one or the other strategy or both at the same time.

As far as CapEx -- the question relating to CapEx, of course we can provide the guidance as we have -- we already did in our press release with reference to 2012, Jon.

As far as 2013 is concerned, now we are preparing our new estimates for both 2013 and the subsequent year, so I believe that it is too early to provide a specific guidance on what we are targeting for next year. However, since most of the spending relates to the upstream, we can already anticipate that we don't see any specific reason why the number -- the amount of the spending for next year should be significantly different compared to what we are forecasting for 2012.

As far as any particular transactions -- sale transactions affecting other businesses, presently we are not targeting any major transaction in this respect.

Right. Can I just follow up on -- I tried to hint at it but if I take a quick glance back through my model, I might be wrong but it looks to me that the Petrochemicals earnings were just about the worse quarterly earnings figure you've recorded in that business and, yet, there is an ongoing restructuring. When should we expect to see -- taking into account obviously the prevailing market but when should we expect to see something that we, as outsiders, can judge as being progress towards at least starting to stem some of these losses?

You are right. We have already announced at our strategy presentation but more specifically all over the last few months with a specific price release it is -- I believe that what we have already announced, confirms the intention of any two of the former complete downturn in our Petrochemical business. For sure, these moves can be divided into two big groups; one which affect, predominantly, the cost optimization, and the other one we're addressing the business into the production of those products which are capable to provide a higher return compared to what we are producing so far.

And as well as expanding the activity outside the Italian territory and this has been confirmed through the signature of joint venture, in particular with other operators in the Far East market.

The effect of those actions partially have been already realized and I am referring to those actions which has already delivered some cost reduction and efficiency. Unfortunately, this positive effect has been destroyed by the negative market environment. But the most significant effects are expected not -- starting probably something in 2013 but more significantly from 2014 onwards because from 2014 onwards some of the high initiatives which are presently under realization -- I am referring to, for example, to the new biochemical plants we are realizing in Sardinia -- these will be capable to provide a significant return only as from 2014 onwards.

So still let me say one year of sufferance but after that we expect a significant downturn in the earnings generation.

Okay. Thank you, Sandro.

The next question comes from Mr. Nitin Sharma from JP Morgan. Mr. Sharma, please?

Afternoon, gentlemen. Two questions if I may. The first one on upstream. Could you please explain the decline in (inaudible) realizations in this quarter despite the increase in benchmark? So why is it going the other way?

And the second one. You mentioned likely divestment of Galp stake by end 2013. Could you provide some more details on your plans and is offloading the stake in the market an option? Thank you.

So first upstream. The lower realization in Q3 versus Q2 are mainly due to two effects. One the weakness of some condensate prices include with high naphtha content and also mainly caused by low demand in pet chem. And secondly, some (inaudible). So as far as Eni in particular we have low realization -- lower realization price in Libya with [Bu Attina] condensate in NC-41. In Egypt in Abu Madi and [El Qar'a]. That are the main reasons of the lower realization for our (technical difficulty).

Well, with respect to Galp, you have mentioned -- you have remembered that in one of our previous statements we have committed ourselves based on your statement that we will sell our residual stake in Galp within the end of 2013. Well, for sure we are committed to monetize our stake in Galp as soon as possible but only to the extent we will be in a position to realize a consideration which satisfies our minimum expectation. And this depends of course on the market value of Galp shares.

But let me emphasize one issue. Since today our financial situation has been improved dramatically as a consequence of the disposal of Snam shares and thanks to the reimbursement of the loans that we have previously granted to Snam now we are not in a hurry to monetize nor Snam stake and Galp as well. And only to the extent I repeat it will be possible to realize a consideration capable to satisfy at least our minimum expectation then we will proceed. Otherwise since the investment is granting a quite remarkable return we will keep it.

However, just to give you an update, we have received quite recently a lot of interest from many financial institutions, so potential financial investors, and a market transaction based on this demonstration of interest -- a market transaction could be easily realized very soon. But since the benchmark is the prevailing market price today this doesn't satisfy our minimum expectation.

Thank you.

The next question comes from Mr. Michele Della Vigna from Goldman Sachs. Mr. Della Vigna, please?

Hi, thank you for the presentation. I have two quick questions. For the first one, sorry to go back to gas and power but what we've seen in the last couple of months is strengthening in the spot gas prices in Northern Europe and I was wondering if that would help the business with reducing the spread to the cost on your long-term contracts or if to see a recovery in market you really need to see a recovery in European and in particular in Italian demand?

And then the second question was on E&P. You clearly had high margins for your off-stream this quarter, the Gulf of Mexico, also Elgin/Franklin. I was wondering how quickly you thought you could resume these volumes? Thank you.

On the Gas & Power, the increase in spot in the new year in Northern Europe is one of the phenomena that as we said before we will try to reflect in our contract renegotiation, particularly in those that are directly supplying gas in Northern Europe.

The issue of demand, that is a peculiarity of these times is valid both in Europe and in Italy the impact of the lower demand of course has a peculiar impact on the creation of spread between the long-term contract and the market price.

Okay. So talking about Elgin/Franklin, as you know the operation has been successful. The well default been filled and now is completely under control and in November the same thing also on the other well, G5. So I think that our expectation is to resume production on this field in the first quarter but as you know that we are not the operator and we are always in contact with Total that is running all the operations, also the interface with the authorities in the UK. But that is our expectation.

And for the Gulf of Mexico field?

For the Gulf of Mexico field I think that we are approaching completion, we are at 95% and by the end of the year we can reach 100% so we resume completely our production.

Thank you.

The next question comes from Mr. Hootan Yazhari from Bank of America Merrill Lynch. Mr. Yazhari please?

Hi there, gentlemen. Just a couple of questions. Let's start with cash again, maybe a quick update in terms of whether -- where you are there, how comfortable you are about a March start-up as you recently guided and how much cash contribution we can expect from this in 2013?

And then also just to go back to the petchems business, you have some pretty ambitious plans there in terms of cutting costs and the like. However, if we start to look towards the United States, the increase in petrochemicals capacity and the ability to export there with an innate cost advantage on the natural gas side, that has to be a threat in the longer term. How do you feel about this and at what stage would you consider stepping down your petrochemical operations? Or is that just unthinkable given political practice? Thank you.

Thank you. Kashagan, there is no major news in respect of what I presented just 10 days during the Upstream seminar. I can say that we continue, the mechanical completions is going ahead and we focus to finish completely all the mechanical completion of the first rig by the year-end and so -- and the commissioning as well is continuing and the -- the weekly progress is in line with the budget. So we are still confident that we can reach this target of end of March. And absolutely we are sure that we can reach the target, the contractual target (inaudible) by production by the end of June. So, so far so good in terms of respecting our project target.

With reference to your question relating to the petrochemical business, since there is with us Daniele Ferrari, the Managing Director of Versalis, he will provide you with the detailed answer to your question.

Yes, Mr. Yazhari, let me come back to the petrochemical description of the structure that Alessandro read before. What we are trying to do is essentially deemphasize our business on the olefin, polyolefin side and try to maximize the output of our cracker more on the heavier fraction of poly (technical difficulty) products which are the most valuable for us and which are the ones that will not be available when you crack gas molecules like the United States market.

So we do realize that the shale game in the United States is going to create a lot of capacity, is generating capacity on products that we are not going to compete with because we couldn't do it. So we just target our strategy towards reducing our exposure on the products we cannot compete like polyethylene coming from Middle East or United States in future, and maximize the revenue that will come from international expansion, new products, biorefinery, systems that we will use to convert all the existing petrochemicals units, and elastomers and styrenics which are the products we feel more strongly about and which are the products we have based our technology for the joint venture that Alessandro was mentioning before.

I hope I've answered the meat of your question.

Yes. Thank you very much.

The next question comes from Mr. Oswald Clint from Sanford Bernstein. Mr. Clint please?

Yes, thank you very much. Can I ask just on the Gas & Power business, is there a limit in terms of how far you can push Gaz -- somebody like Gazprom on the long-term contracts versus your ambitions to be ever-present in the Russian upstream and part of projects like South Stream, et cetera? Or is it two separate divisions, separately having these discussions?

And then the second question just on Iraq. If you could just let us know what the volumes were in the third quarter and also if you have -- have you started recovering some of the early CapEx from that development? Thank you.

Well, we treat the matter of the renegotiation independently from other business. With Gazprom we don't have upstream activity anyway. Of course, the general partnership is always behind the company relationship but on the commercial side the matters are very separate.

So for Iraq, with respect to last year Iraq is doing quite well because with respect to 2011, we had about 11,000, 12,000 barrels per day. So the budget for Iraq this year is about 18,000 barrels per day. And the project, the rehabilitation project is progressing. Now we are producing about 250,000 barrels per day and we hope that in 2013 we can increase this figure at about 350,000 barrels per day in line with our target.

Okay, thank you.

The next question comes from Miss Irene Himona from Societe Generale. Miss Himona, please?

Yes, good afternoon. I had three short questions. So first of all, Libya, if you can please update us on what we should expect for full-year production from Libya?

And then secondly, the tax rate in Q3 was below expectations. Again if you can remind us of your guidance for the full year on tax?

And also on depreciation, I note the nine-month depreciation charge was up about 22%. Is that the right sort of level for the full year? Thank you.

So first Libya. This quarter we have good production, about 250,000 barrels per day, a little bit more. We think -- we can confirm our outlook for 2012 of 240,000 barrels per day because we pushed through the [AR] and some maintenance program. So that is the update on Libya.

And we are -- as I already said a few days ago we are working on (inaudible) in a very positive and constructive way on six big projects and six big projects that are relating mainly to gas and condensates and oil that we hope that we can perform in the next full-year plan.

For tax rate, Alessandro.

Tax rate, you are right, (technical difficulty) our tax rate in the first quarter was -- tax rate adjusted was 54%, significantly lower compared either to the second quarter or to the corresponding quarter of last year. The main reason why the tax rate was so low in the third quarter, (inaudible) the most important reasons are predominantly two. The first relates to the income from associates, the amount of which -- the amount of dividends distributed by associates in the third quarter was significantly higher compared to both the third quarter of last year and the second quarter. And you know that dividends are under the participation exemption rule so they are almost without any taxation effect.

And then in the third quarter there was also a contribution of the fair value valuation of some currency derivatives, which by the way supported also the lower financial charge in the third quarter, which are taxed normally at a lower tax rate. And these are the two most important reasons why the tax rate in the third quarter was significantly lower compared to the normal adjusted tax rate.

As far as what we expect for the full year, I believe that it is useful to remember that the tax rate can fluctuate over the quarter because of some let me say extraordinary effects like the dividends which I have mentioned before. But for the full year our guidance remains in the region of 60% as we already announced previously since there will be -- and this 60% will be a little bit higher compared to 2011 since of course we expect a higher contribution from the earnings generated in Libya where the tax rate, local tax rate is significantly higher than the average tax rate of the impact of the upstream business.

As far as depreciation is concerned, yes, you are right, we have already accounted for a quite important increase, both in the third quarter compared to last year and in the nine-month period. And this, of course, relates to the startup of new projects, projects which have been realized in the recent years which carry normally a higher depreciation compared to the previous projects. So it is -- it was expected, it was in line, absolutely in line with our expectation and what we have registered so far is expected to be almost in line also for the rest of the year.

Thank you very much.

The next question comes from Mr. Andrea Scauri from Mediobanca. Mr. Scauri, please?

Yes, good afternoon. A question on Mozambique if I may. I was wondering if you could provide an update on the exploration activity on the back of the latest (inaudible). When you said that you are in your plan to drill four additional wells, when do you expect the exploration is going to be finished. Thank you.

So we just finished today the well that we are drilling on Mamba South East 2 and we tested. That is the first test that we are performing in the area and that has been very successful. We have not yet issued a press release but it's really more than confirming the quality of the reservoir. And now we're going to move the rig to drill Coral-2. Coral-2, Coral is the reservoir entirely in the Area 4. So that is the second well and I think that we can -- there is still space to drill an additional prospect before the end of the year. That is the update on Mozambique.

Okay, thank you. And if I may, are there chances to see a further increase in the 73 (inaudible) of resources in place that you announced recently?

That is our hope but you know 73 is really a big figure. So that is our hope and now we are testing because with this -- the last well we increased not -- we derisked other reserves only is in the limit of 72, 73 but at the moment our action is still really to be sure about 73. Now we are more or less at 65 and we are to derisk the other 73. So we have this hope especially with the future steps. As you know by March, April we'll finish the Mamba campaign and Coral and then we start a new campaign to start with other prospects, new, new prospects. And that we really hope can increase the amount of reserves (technical difficulty).

Okay, thank you.

No more questions at the moment. (Operator Instructions). The next question comes from Mr. Rahim Karim from Barclays. Mr. Karim, please.

Good afternoon, gentlemen. I had two questions if I may. The first was just around the cash flow statement for the quarter. It seems to have been quite a weak cash conversion during the 3Q. I was just wondering if there was anything specific that you would draw to our attention perhaps around working capital and how that might evolve over the course of 4Q?

And the second question was just around take-or-pay liabilities, if there was any guidance that you could give around that at this stage? Thank you.

Well, you are right. In the third quarter, the cash flow generated by recurring operation was a little bit disappointing. But at the same time, we are extremely confident that this situation will be improved and my sense is already supported by what has already happened during the month of October. In particular, in the third quarter, I believe that it is useful to remember that the third quarter is traditionally lower in terms of cash generation, in particular because of the lower cash generated by our Gas & Power division since during the summer season a portion, a quite important portion of the gas purchased is addressed to the gas storage in view of the new thermal season. So we have -- we incur a liability, we have to pay our supplier but in the meantime we have no proceeds generated by the disposal.

Then, of course, this situation is due to change in the last quarter because traditionally the last quarter of the year is quite important in terms of sales volume and cash flow generated by the normal sales of the Gas & Power division.

Then, as already announced, also Saipem, which we consolidate with the integral criteria, Saipem has already announced that it has experienced a quite significant increase in the working capital in the third quarter but also Saipem is expecting to reverse significantly this situation in the last quarter of the year.

So, all in all, the third quarter has been disappointing but because affected by all seasonal or extraordinary elements which are due to be reversed completely in the last part of the year. So we are confident, as I already mentioned in another previous answer to another question, that the last quarter will be extremely important in terms of cash flow generated by the recurring operations.

And on gas, despite having reduced 2012 minimum contractual quantity by our renegotiation we still expect to incur some take-or-pay prepayment in 2012, mainly due to the significant demand reduction particularly in Italy. This extra take-or-pay volume are anyway in the figure that we will be able to recover within the full life of the contract.

Just to complete -- excuse me, just to come back for a while to my previous sentence, the third quarter has been also negatively affected by a payment to one of our suppliers, GasTerra, as a consequence of the arbitration proceeding, which has been published by the end of -- within the end of September. And as a consequence of this arbitration proceeding we had to pay within the end of September the relevant amount which is -- which was a quite remarkable amount of money.

Perfect. If I could just press you, is there a number that you could provide in terms of the take-or-pay liability that we can expect for the end of the year? I understand you'll be able to recoup that in future years but just to help us model the cash flow is there a number that you're able to give us?

Well, I will integrate the answer which has been provided by Umberto. I am not so confident to provide a specific figure because it will depend a lot on the volumes of the sales that will be realized in the last quarter of the year and you know that the sales volumes also can be significantly affected by, for example, the weather conditions during the last part of the year and could be also affected by the ongoing -- the already ongoing renegotiation which normally affects both prices but also as well as the minimum quantity that we have to pay to our supplier.

So I repeat, we expect to face a payment within the end of the year in terms of take or pay but it is too early to provide a number which could be significantly modified thanks to the elements which I have mentioned before.

Okay, perfect. Thank you very much.

No more questions at the moment.

Great. If there are no more questions perhaps we can bring the conference to a close and if you have any questions at a later date feel free to call us on the Investor Relations number. Thank you.

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