埃尼石油 (E) 2013 Q2 法說會逐字稿

(Audio in progress) 2013 interim update and the second quarter results conference call hosted by Paolo Scaroni, Chief Executive Officer and Massimo Mondazzi, Chief Financial Officer. For the duration of the call, you will be in listen-only mode. However, at the end of the call, you have the opportunity to ask questions. I am now handing you over to your hosts to begin today's conference. Thank you.

Good afternoon, ladies and gentlemen, and welcome to our interim update and second quarter results. In the first half of 2013, our Italian and European operations performed poorly, affected by a weak market context across the board. Meanwhile, our upstream activities performed well, but suffered from non-technical production shuttings in Libya and Nigeria.

While these decisions have impacted first half results, our underlying business has made strong strategic progress. Key start-ups for 2013 included Kashagan, our own track, we have closed major gas negotiations and we are continuing the restructuring of our downstream businesses.

On the corporate front, this has been an excellent first half. Our disposal program has unlocked a further EUR5.9 billion of value, including the recently completed transaction in CNPC.

Let's take a closer look at the first half, starting from upstream. The two key issues are Libya and Nigeria. In Libya, the security issues in Q1 and other disruptions in Q2 cost us around 20,000 boe per day in the first six months of the year. The situation in the country remains volatile and we cannot exclude further disruptions in the second half.

Meanwhile in the rest of North Africa, operations are only marginally affected by continuing unrest although the ramp-up of our [Nigerian] project has been slower than expected.

The major concern is however Nigeria where in the first half we lost around 30,000 boe per day from a combination of flooding, bunkering and sabotage. Production losses were even higher in July as a result of the LNG blockade, although this issue has now been resolved.

Turning now to the economic crisis, which is impacting European and Italian operations, this continued to worsen. Gas consumption in Italy fell by 11% in Q2, driven by a mere 30% decline in gas demand for power generation. Decline in electricity consumption and competition from coal, renewables and hydro means that gas demand for power generation is now 49% lower than in Q2 2008.

With regard to refined products, in the first quarter of 2013 we saw a further 7% contraction in Italian demand, bringing the total decline since 2008 to 26%, adding further pressure to structural refining overcapacity in the Mediterranean. And in Chemicals, demand continued to be depressed, in particular in the last summer segment, which was hit by lower sales to the tire industry. In this tough market context, we made a robust profit on our long-term objectives of growth and profitability.

In E&P we have already achieved six out of the eight key startups we announced in our strategy in March. Kashagan is on track and we can confirm production of at least 75,000 boe per day by the end of September.

Altogether new projects are performing well. Start-ups and ramp-ups contributed an additional 90,000 boe per day to Q2 production of setting the impact of the Karachaganak and Galp disposals, the disruptions in Libya and Nigeria and the heavier maintenance activities. And we expect their contributions to grow in the second half, bringing the overall additional equity production to 120,000 boe per day for the full year.

With regard to our longer-term prospects, exploration continues to deliver strong results. To date in 2013, we made 11 -- we made discoveries for almost 1 billion boe of new resources with major oil finds in Ghana, Pakistan, Egypt, continuing success in Mozambique and as you have seen today, Congo.

With regard to Mozambique, we are starting the results of our 10th well, which looks to be a play opener for the south of the block. In the rest of the year, we will bring promising prospects in Norway, Australia, Vietnam and the Gulf of Mexico.

At the same time, to fight the strong headwinds in Europe and in Italy, we have taken more incisive actions in our mid and downstream activities. In Gas & Power, we have closed good renegotiations with two major suppliers, Gazprom and Sonitek. We are determined to secure further significant cuts to supply prices through outstanding price reviews with GasTerra and Statoil.

With regard to GasTerra, we have made some progress, but we cannot exclude arbitration proceedings. With regard to Statoil, we believe that we have no alternative to arbitration and we have accordingly opened the proceeding.

In Refining & Chemical, we are structuring our footprint. On top of the announced closures and reconversions, such as the Priolo cracker scheduled for this summer and the Venice Refinery, which we will shut down in September, we have announced the additional closure of gasoline and polyethylene lines at our Gela plant. This brings the total cost in any refining capacity to 5 million tons and the total reduction in any polyethylene capacity to 23%.

Turning now to capital location, we continue to make excellent progress in streamlining our asset base, our locking value and strengthening our balance sheet. The EUR5.9 billion of assets paid so far this year brings total disposal benefit secured since June 2012 to over EUR24 billion. This has driven a substantial improvement in our financial position, adjusting Q2 net debt for the proceeds from the Mozambique disposal it is EUR13 billion, less than half the EUR27 billion we had in June 2012.

In what remains a bulletized context, the strengthened balance sheet is a key [feeler] of our strategy to create value, investing in high return growth opportunities, generated by our restoration success.

I will now hand you over to Massimo for a review of our financial results.

Thank you, Paolo. Good afternoon. The second quarter of 2013 the market environment was negative for all relevant parameters. The average stated Brent price was $102.40 a barrel, down 9% versus last quarter and down 5% year on year. The Brent/Ural refining margin weakened to $3.80 per barrel, representing a fall of 13% versus last quarter and a fall of 40% year on year.

In second quarter, the euro averaged $1.31. This represented a depreciation of 1% against US dollar versus the previous quarter and appreciation year on year of 2%.

In the second quarter of 2013, adjusted operating profit was EUR1.95 billion, down 51% when excluding Snam's contribution to continue operation in the second quarter of 2012. The decline reflected the significant losses incurred by Engineering & Construction due to a revision of profitability estimate on some large contracts. Excluding the Engineering & Construction impact, Eni's operating profit would have declined by 27.2%.

Adjusted net profit was EUR0.58 billion, down 55% when excluding Snam's contribution to continued operations in second quarter of 2012. The decline was due to a lower operating performance and higher group tax rate, which rose to 91.2% or almost 30 percentage points higher than a year ago. The increase was almost exclusively due to the absence of tax shield for the Saipem losses with residual effect due to higher contribution of profit before income taxes from E&P, which is subject to a larger fiscal stake than the other businesses.

We now expect our full-year tax rate to be around 66%. Excluding the effect of certain guidance revisions, this is current with our previous expectation of a range of 63% to 64%.

Turning to E&P, in the second quarter 2013 Eni's liquid and gas production of 1.640 million barrels per day was broadly in line with the second quarter of 2012 for the reason outlined by Paolo. Exploration & Production reported an adjusted operating profit of EUR3,409 million, down by 19.6% year on year. This was driven in roughly equal parts by the worsening scenario on one end and by lower oil production, increased OpEx and (inaudible) on the other.

And now gas and power. In the second quarter of 2013, gas sales declined by 6% to 18.4 billion cubic meters from the second quarter of 2012 or 3.4%, excluding the impact of the Galp divestment. Against the backdrop of the ongoing downturn in demand and intensified competitive pressure, Eni sales in Italy were broadly stable at 6.5 billion cubic meters while international gas sales were down by 9% to 11.9 billion cubic meters.

In the second quarter of 2013, the Gas & Power division reported an adjusted operating loss of EUR436 million, a deterioration of EUR35 million compared to second quarter 2012.

The marketing business reported an adjusted operating loss of EUR457 million, an improvement from the EUR494 million loss in Q2 of 2012. The effect of the worsening competitive environment were offset by the renegotiation of gas supply contract with retroactive effects to the beginning of the year. As you may recall, a number of our Gas & Power activities are not consolidated in EBITDA. Income from (inaudible) in the second quarter amounted to EUR56 million compared to EUR81 million the second quarter of 2012. This reflects the impact of Galp disposal and reduced (inaudible) gas profitability from the shutting in Damietta.

And now R&M. In the second quarter of 2013, Refining & Marketing reported an adjusted operating loss of EUR174 million, increasing by EUR32 million or 22.5% from the second quarter of 2012. The performance reflected lower refining margins, impacted by the narrowing price differential between light and heavy crude and weak demand for refined products. The negative trading environment was partially counteracted by efficiency gain of EUR32 million compared to second quarter of 2012. This related to reduced energy costs, plant optimizations and lower throughput at less competitive refineries. Marketing results declined, driven by lower sales related to declining demand for fuel and mounting competitive pressures.

Passing to the other businesses, Versailles losses amounted to EUR82 million, EUR57 million more than in the second quarter of last year. But we should take into consideration that in the second quarter of 2012, Versailles benefited from a relatively favorable environment owing to the rapid and temporary decline in feed stock costs. Overall in the first half of this year, Versailles results show an improvement of EUR49 million or 25% as a result of a stronger scenario from (inaudible), efficiency gains of EUR14 million and higher revenues from licensing activities.

Engineering & Construction segment has been commented on previously and the combined other activities and corporate results improved by EUR28 million.

Commenting now on the overall debt evolution, net cash generated this quarter by operating activities and disposal amounted to EUR4.4 billion. It was made up of EUR2 billion from operating activities and EUR2.4 billion from divestments, mainly the disposal of Snam and Galp.

Top dollar expenditure amounted to EUR2.8 billion, mainly related to continued development of oil and gas reserves and exploration projects. Overall, investment in the first half of the year including both technical and financial, were EUR6.3 billion and we confirmed for the full-year 2013 CapEx broadly in line with 2012.

Dividends were paid in the quarter for EUR2.2 billion. As a result, net financial debt remained broadly stable as compared to first quarter. Following the close of the quarter, we received EUR3.5 billion cash from the sale of 20% of Mozambique Area 4. This will support an improvement in leverage at year-end 2013 compared to year-end 2012 at our scenario of $104 barrel rate for the full-year.

And now I'll hand you over to Paolo for the final remarks.

Thank you, Massimo. Looking forward to the rest of the year. E&P technical performance in terms of start-ups and ramp-ups is in line with our previous guidance of 3% growth and $90 a barrel. However, Libya and Nigeria remain key uncertainties on the assumption that Nigerian and Libyan production remains below levels as previously in the first half production at current oil prices will be broadly in line with last year.

For Gas & Power we confirm our expectation of a further significant cut in gas supply prices, although wherever regions are not closed before year-end the benefit relating to 2013 will be deferred to future periods. In any case, as a result of the renegotiation we have already closed, we expect no further take or pay prepayment this year.

In R&M we expect weak market conditions to continue largely offset by the benefits of cost cuts and capacity closures. In Versailles, results will improve, supported by the shutdown of unprofitable capacity. We are determined to bring these two businesses to profit and should the scenario prove more negative, we'll launch additional measures.

Looking ahead, we expect the second half to be significantly better than the first, driven by production growth from start-ups and ramp-ups and more incisive actions to face the deteriorating market environment in Europe.

We will continue to reward shareholders with a sustainable progressive dividend and we'll evaluate the (inaudible) of a buyback in Q3.

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

(Operator Instructions) Theepan Jothilingam, Nomura International.

Three please. Firstly, just on the balance sheet. I just wanted to talk about your discussions with credit rating agencies. Is there perhaps a target gearing level that you want to reach and does that sort of impact how and when you activate a buyback?

Secondly, just in the upstream two questions. Just on Kashagan, could you again sort of remind us where we are in the commissioning process, what you've budgeted and when exactly you plan for the second train to come on stream. Perhaps next year?

And then thirdly, I thought a very important discovery the Congo. Again could you talk perhaps about the Pecan upside case and also any follow-up prospectivity?

Massimo will answer your first question and Claudio the second two.

So as far as the credit agencies, as you know (inaudible) changed the (inaudible) recently as being the change in Italian ratings made by Standard & Poor's that (inaudible) aspect the rating of Eni. So for the first time we are retaining pre-notice of the Italian government. And now the discussion together with Standard & Poor's is about the qualification of Eni as a governmental related entity. So what we'd like to explain to Standard & Poor's that Eni now is running on its own legs and is betting on its balance sheet without any strong, I would say, effect on this from the government.

And as you made reference to the buyback, [strictly] speaking our balance sheet now is very strong, but we didn't enter into any specific discussion with the Standard & Poor's about this specific issue that I guess is not under the spotlight for this time.

So Kashagan first. Kashagan is on track with the recent guidance. The project is progressing well to which case it be an (inaudible) 5,000 barrels per day by the end of September and around 180,000 barrels per day by the first part of 2014. And by the beginning on 2015 to reach 370,000 barrels per day.

Just in summary, this is technical situation of the project. The onshore facilities have been completed. The two trains onshore have been handed over to production. We've finalized all the dynamical tests, so we are ready to receive the first oil.

The A Island, which will provide initial production, has already been handed over to our possession and is ready for production. And on D Island the Train 1 is completed, the (inaudible) rise with sweet gas since 13 of July. We are finalizing the dynamical mission for the rest of the facility process and (inaudible). We think that by the end of August we can start the production and reach by the end of the September the KCP.

For the Train 2, I assume that you ask about when the Train 2 can start production, will be in the first quarter 2014, but that is following our schedule and program.

For Congo, Congo is a very important discovery in the pre-salt. I think that it's most important pre-salt discovery in the offshore of Congo (inaudible) 12. And we have at the moment drilled two wells and they are at this stage as we said, we have found about 600 million barrels of oil, very good oil, 33 degree and a very good discovery. This also from a production point of view will be good wells.

We have to continue the appraisal for these blocks, the name is Nene, but also on another block where we are drilling other wells, oil wells in a block called [Lechangele]. So I think that the potentiality of this area will increase and I think by September we will be ready also to issue the results of the Lechangele well.

Oswald Clint, Sanford Bernstein.

Maybe a question on Nigeria. Given the issues, and actually given what Royal Dutch Shell has activated this morning with a portfolio review is there something there? Is Eni considering something similar, or is it something you might think about going forward?

And then secondly just on Gas & Power, with your comments there about supply prices being deferred, but no take or pay payments, can you talk about your confidence about this business potentially turning positive in terms of earnings contribution in 2014?

Okay, let me say a few words about our Nigerian position and then I will hand it over to Marco about the prospect of Gas & Power.

Now we have been in Nigeria for the last 50 years. We have been leading through the Biafra War, so for us Nigeria is really a legacy country. Now of course we are quite worried of what happens in Nigeria and we have said frankly that the situation will not improve dramatically in the next few months.

We are reviewing our position. For the time being our decision is certain to try to be more offshore and less onshore in Nigeria. With the acquisition of block 245, you should read this intention of ours to decrease the impact of our onshore activities as compared to our total activities in Nigeria.

Now, in terms of disposals, well to dispose of onshore activities today in Nigeria is not exactly the easiest thing to do. That's our impression. Marco?

So on the gas business, as Paolo said, we are satisfied with the Gazprom and Sonitek agreements, which we consider complementary because the Gazprom agreement addresses prices and the Sonitek agreement addresses volumes. And Sonitek agreement is the one that allows us to essentially for this year stop incurring take or pay prepayments. So that's on the volume front.

And through these negotiations we've been able to offset the very weak trading environment we're in this year. It's particularly weak on the gas-fired power generation. There could be some one-off impacts due to the very high -- hydro power generation in Italy, but overall coal and renewables are squeezing gas demands.

In 2014, though we are not giving any guidance for 2014, we expect there should be more positive impacts from further supply discussions ongoing with GasTerra. The prices are continuing to align themselves through northern European and to hub prices across Europe. Also on the regulated tariff there will be alignment to hubs in Italy. So there should be pricing pressure in 2014 compared to 2013, although on the supply side we expect the benefits to continue to come.

As we said at the beginning of the year, we expect there to be a new round of pricing discussions as the discussions have a retroactive observation period to fully capture the deterioration we've really seen since last summer. We need to do a new round of negotiations which will probably involve a part of 2014 and 2015.

As regards to the arbitration, we expect that to last with Statoil around 18 months.

Even if during the arbitration it is possible to continue negotiations.

Absolutely.

Lydia Rainforth, Barclays.

If I could just ask around Saipem and has the scenario that we've seen in the last sort of six months changed your view on that investment there?

And then secondly if I could just come back to North Africa and both Libya and Egypt. Is there anything that you can do within Libya to try and limit or anything more that you can do that you can limit the downtime there? And just any sort of comments on what you're seeing in Egypt at the moment.

Let me answer something about Saipem just to update you on our strategic thinking. And then I will try to give you some answer about North Africa. Maybe Claudio will help me on that.

Now on Saipem. Essentially, we have two objectives. The first is to support the Company whatever way is needed until it discovers profitability, financial solidity and reputation. The second is to try to unwind the contradiction in our relationship with Saipem, a Company that we consolidate, but we do not control, and we don't want to control.

Of course, these objectives do not necessarily go together at both times. However, when we are keen to protect any shareholders from risks that are not under our control, you should bear in mind that the site relationship is a contradiction that we have been living with for almost 30 years. So it's nothing really new.

We prefer to create value for Eni and for Saipem shareholders than to rush into a quick fix of this problem. Therefore, we continue to evaluate our strategic options with regard to our Saipem holding and we'll of course inform the market as a whole in the proper way if and when any decision is taken.

Now, moving to North Africa. Now, you should bear in mind that we are the major player in North Africa. From North Africa -- in North Africa, we produce almost 30% of our hydrocarbons and therefore for us it's certainly a very important part of our business. So far we have not had any major production problems neither in Egypt nor in Nigeria. The only country which we have been suffering in terms of production is Libya. We continue to keep certain optimism about the outcome of the situation both in Egypt and in Libya while we regard Nigeria as a solid country from which we should not expect in the short term any major problems.

I don't know if you want to add something, Claudio, on this.

For Libya, as you know in the first half we lost an average of 18,000 barrels per day, 20,000 barrels per day. What we experienced in Libya we don't have any problem with the terminals and in the tower 2 terminal, one is offshore that is Bouri and other is Mellitah, are in good shape. We have just some interruption of our production in our fields.

The situation is recovering. Also in July I have to highlight that we are suffering some big losses. We are following the situation, we have traveled into Libya every week. We are going to visit our fields. But what we remark that all the institution or all the state [continent] institution are really focused to recover the situation as soon as possible. So we are, as Paolo said, we are confident about the future.

Iain Reid, Jefferies.

Just a question on Mozambique, whether you can update us on the status of the development towards the unitization with Area 1? What are you thinking at the moment about the LNG developments?

And maybe you can also say something about this play at the well you're talking about. I think it's in a liquid focused reason of the block towards the south.

Claudio will take that.

So in terms of the explorations -- starting from exploration. I think we are very happy about the new (inaudible) is a new play for the Kashagan play, so completely segregated and far from Mamba complex. We are going to announce the results I hope in a couple of weeks and so I don't want to anticipate anything. But there are further developments.

So this version is continued, we already drilled 10 wells, so we're going to, after this well, we are going to drill an additional appraisal in the Mamba complex. And we finished the exploration and we take a break for some months.

On the development side, coal operation and working with the final (inaudible) are going very, very well in terms of LNG, in terms of development in (inaudible) on unitization. So we don't see any problem of big argument going through (inaudible).

We are together in all the discussions also with the state company and with the government. And that gives us a big push and big help in progressing on the development. So we are still -- we have the target 12 (inaudible) we start in 2014, in the second half of 2014 for the LNG. And as well for the (inaudible) development of the unitized area. So everything is on track and things are moving in a positive way.

Okay, just a follow-up. Is it too early to give us a rough idea what the total CapEx could be?

So I think I can confirm on the level of CapEx we said two months ago that we'll be financing in the next year at the (inaudible) of the project. But we talk about that $35 billion to $40 billion for the first two plus the two trains, so four trains to develop 24 PCF of that.

Jon Rigby, UBS.

Two questions I think. The first is you mentioned how the -- you were going to look at the potential for share buybacks in the second half of the year. Can I just ask whether an active consideration was made of whether you would start right away? Just simply because I mean you have a unique insight into this sort of strategic progress that you're making, and clearly you can see where the share price is right now. So it was an opportunity, or still is an opportunity, I guess to arbitrage those two and use capital appropriately. And it's a great signaling device clearly.

The second question is just from a downstream. As I understand it I think there are three main events in the second half of the year that are important for people. You mentioned two, just Gela and Venice closures. And I think isn't the (inaudible) de-conversion unit starting up in the second half? I wondered is it possible to estimate or get some indication of what those three effects would have had on your earnings in the first half of the year if they had been in effect in the first half of the year? Just to get some idea about sort of momentum through the second half in the downstream.

Okay, now the second question requires a little calculation that I'm not sure I'll be able to give you right away. But certainly with the very weak demand, the closure of Venice will have a positive effect and also Gaela, both of the refining and the (inaudible) would have been a project. Now if you want some number, I might ask Camilla to give you more detailed information, which I don't have right now.

Now in terms of share buyback, now we -- well of course this is has to be a noted process because it did not meet taking the decision as to bring it to my board. And I clarified with my board to go there in September to make a proposal.

Now, I have to tell you from my point of view, I am very keen to start a buyback as I think of it as a very usable tool to contain the overall dividend payment while maintaining a progressive dividend policy. Now this is the purpose of the share buyback.

We have not yet been aligning the different elements of this decision, which we will in the next few weeks because I'm going to present it in September to my board. But I maintain the fact that I'm certainly keen to have in the future years a plan of share buyback active to contain the total dividend payment.

I mean just to come back on that, I mean also presumably will any kind of affirmation from this that should start it leave you with some flexibility over that following 12 months to decide how and when and what you do?

Yes, I'm planning to ask for a flexible decision, which we will include timing, amount, price, at which I will be making the share buyback. So this would be left to me and to Massimo to decide. We have also to propose which we have not done so far, an algorithm which we will be using to buyback those shares. So we are still a little behind in this process, but in September we will conclude the whole process.

Jason Kenney, Santander.

Sorry if you've already discussed some of this. I joined the call a bit late unfortunately. So just following up on the Congo, is it too early to think of a development scenario there or start-up timing for that particular find?

And then secondly, on effective tax guidance, could you just maybe talk around the moving parts of the impact of a very high effective tax rate in the second quarter of course, where you think that might play out for the rest the year.

Well, we have already said something about the Congo, but not exactly your question. Maybe Claudio can add something.

In that it is quite early to talk about the future development because we are -- frankly we discovered two structures. One structure that we announced today and the other (inaudible) wells in progress in the area. So we prefer to have a clear idea about the throughput (inaudible) before starting in the appraisal.

For sure it will be a project that will go behind this four-year plan, but we have to say also that we are in very shallow water. We are -- these blocks are 15 kilometers from the coast in a very good area with natural (inaudible) and so I think that the [one way] will be available all the data we can think about a very fast track development.

Yes, I think we can rate Congo as a near field discovery in some ways.

The harbor is a good harbor (inaudible) that that is so big that we (inaudible) a unique harbor that we are to rethink in terms of development.

Okay, Massimo.

Okay, so you're right. As already said we experienced a very high tax rate in the second quarter, amounting to 91.2%. A great majority of this increase is due to the site and review of its reserve. So if you strip out this tax, the tax rate will be in the range we already announced during our strategy in March, so I can confirm that the world tax rate we expect for the full year will be in the range of 66%. Again, on the full year, it will strictly tighten effect out will be come back to the range we gave at that time. It was between 63% and 64%.

Nitin Sharma, JPMorgan.

Two quick questions, please. First one, you've discovered close to 1 billion barrels of resources in H1. Could you maybe give us some more color on this, i.e., how much of this is Mozambique and how much is ex-Mozambique coming from other areas?

And sorry, one more on buyback. Guidance of Q3 potential start-up of buyback in Q3. Does the weakness in Saipem share price have any implications on your decision whether to start a buyback or not?

Let me answer the second question, then I will ask Claudio to answer the first one.

The second question, the quick answer is no. Whatever is the share price of Saipem does not really have a major impact on our balance sheet. Besides, the share price of Saipem has been recovered in quite a lot in the (inaudible). Just as a reminder, no, just for you is a reminder. In 2009 the share price of Saipem was as low as EUR9. So the EUR16 of today, well it is some progress as compared to 2009 at least. But Claudio, maybe you have the second one.

So on the exploration and services, how to (inaudible) on July. We have 60% of the resources discovered in Mozambique and the rest in other discoveries like Congo or Ghana or Egypt or Pakistan. And we can also say that 40% is oil and 60% is gas. So that is more or less the data about the first half exploration result.

Michele Della Vigna, Goldman Sachs.

I would like to ask two questions. The first one is about demand for oil and gas in Italy. The first half was clearly very weak. I was wondering what kinds you're getting from the July data point in terms of whether there is any recovery or stabilization in demand.

And the second one is about your Gas & Power business. I was wondering if you could give us a guidance for EBIT for this year in view of the possibility that the start-up in GasTerra renegotiations do not happen this year?

Let me answer the first question then we'll hand it over to Marco. Unfortunately not, the market in Italy continues to be extremely weak while in the rest of Europe it's just weak. So but we do not see any sign of improvement, neither in gas nor in petroleum products. In particular petroleum products in July have been minus 7% as compared to July 2012, which was not exactly a very good month. So as you can see, the situation continues to be extremely difficult.

I would say, Michele, picking up on what Paolo said on oil and gas, July is also weak. We're now forecasting about 70 -- seven zero -- bcm for the whole of Italy for 2013.

Regarding the guidance, as we said, it's early to predict the outcome of the GasTerra discussion, which is ongoing. And that will determine very much what parts of the 2013 EBIT we can actually put into the 2013 year-end results. And I would say the same applies to Statoil. Of course, the arbitration decision on Statoil comes with that uncertainty. As Paolo mentioned, we can close sooner than the 18 months but certainly a deferral of the closures of those two negotiations will mean that we'll have to wait to recover those profits as they close.

Overall, I think with excluding these deferrals, we confirm the guidance we gave at the beginning of the year, which as you remember, was to close in line with last year, excluding one offs, which would bring last year's results to somewhere around minus 200. I don't know if that's clear.

Sorry, going back to that. So the minus 200 would be if Statoil and GasTerra were successfully close to bce, right?

Yes, which is what we said at the beginning of the year. That was the same guidance we're sticking to.

And you couldn't quantify how much those two negotiations could be worth on the --?

No.

Understood.

Irene Himona, Societe Generale.

I had firstly a question on production guidance. I know you reduced the data guidance for this year to flat effectively because of Libya and Nigeria. Thinking about the strategy presentation guidance, I was under the impression that the four-year plan already included a contingency. And I thought a contingency is meant to capture events, such as Libya and Nigeria. So I wonder how we can sort of reconcile the two?

My second question concerns cash flow (inaudible). I see in the second quarter you had a [$]440 million cash release from working capital. I think Saipem had EUR1 billion cash in free working capital. Would you look, just thinking about Saipem, would you look at their Q2 working capital and all of those, perhaps an indication of -- that all the kitchen sinking has happened and EBIT margins for them should improve going forward?

Let me try to answer precisely to your first question, then Claudio might help me on that.

Now, the guidance was 1.740 million barrels a day on an oil price of $90. This was the previous guidance. Today we stay roughly in line with last year, which means around 1.7 million barrels, at today's scenario of $104, more or less. This is delivered.

This assumption assumes that Libya and Nigeria will perform in the second half at the same level than the first half where it was a level not particularly satisfactory, but we do not foresee a worsening of the situation neither in Libya nor in Nigeria. This is where we stand today.

And now, part of this difference between 1.740 million and 1.7 million, which is the guidance we give today in scenario. Part of this is a leader in Nigeria continuing to perform worse than expected. And part of this had been eating some of the reserves of the provisions of the contingency that we were having at the beginning of the year. I don't know if you want to add something, Claudio.

(Multiple speakers) you said everything that we cannot -- that the contingency that we put at the beginning of the year has been [bent] or by the slowdown of the (inaudible), so especially Algerian project that -- and Angola LNG that is a very slow ramp-up on LNG for technical reasons. And in Algeria because of the security issue that we experienced at the very beginning of the year. So that is the reasons.

We feel that Libya and Nigeria are something that we didn't consider in the continuance. It's something that is really force majeure and is an extraordinary event.

Okay, Irene. Your purpose is right. We had an advantage from the working capital movement of Saipem in the second quarter amounting to around EUR1 billion, that are 700 (inaudible) to the first half. Our expectation is that this advantage will be partially absorbed by the end of the year. So in line with the guidance of Saipem we received at the beginning of the year. So working capital (inaudible) as far as 2013 with the recovery beginning of 2014.

And exactly the same guideline can be applied to Eni. So Eni benefited from this advantage process, I mean in the second quarter. And the advantage has been amplified some way by the reduction -- the seasonal reduction of inventories from Gas & Power. But at the same time, we saw further increase in the commercial trade. So all in all we had a small advantage, around EUR0.5 billion as far as the second quarter, but again, the expectation for the full year would be (inaudible) as far as the working capital.

And would you look at Saipem as pretty much being at the bottom? And are you also looking for a recovery in their margins going forward?

We have the same information you have.

Mark Bloomfield, Deutsche Bank.

I have two questions, please. First, going back to gas profitability in Italy and pricing pressure on your sales. Can you perhaps indicate roughly what proportion of your Italian volumes are being sold on spots or spot link terms (inaudible) ideally split between industry power and residential? And maybe get some sense of how you expect that percentage to evolve over the next of months?

And second question. Could you perhaps update on the Goliat project, particularly when you expect it to start up and what the kind of key (inaudible) items are over the next 12 months?

So on the first point in Italy, I would say we still have in our current sales price some of the older contracts that had some oil indexation. Basically 100% of the contracts we are signing are hub indexed both for industry and for power. Regarding residential it's a regulated tariff that will move to 100% hub indexation as of the last quarter of this year.

And so in 2014, excluding some of the older contracts that are going to expire, we don't have a lot of long-term sales in the Italian market. And the Italian market tends to have a one-year time horizon, as opposed to two or three that we see in northern Europe in terms of length of industrial contracts. So I would say it's fair to assume that we have in 2013 some oil indexation that will disappear and is disappearing as we move into 2014.

So Goliat, we started the drilling completion activities in October 2012 and that is in progress and progressing well. The flow line advisor has been already installed and that is (inaudible) construction in (inaudible) yard in (inaudible) is in progress. And we foresee a (inaudible) away in second quarter 2014 and schedule the construction and the production in the third quarter 2014.

Alastair Syme, Citi.

Another question on gas actually. Given that you've seen over the last couple of years the sort of gradual convergence between spot and contract again in Europe, I just wonder how that changes the dynamics of the renegotiation talks. And does the seller say it doesn't really matter now, contract versus spot, we'll sell you either? Or have we not got that point yet?

I would answer that it is helping as the Italian market becomes more liquid and the BSP becomes more liquid it will over time become a reference for sales and for the long-term purchases, as is happening in other European countries.

As these renegotiations look backward, they still include periods of time when our sales mix had oil indexation in it. So that's why will take more than one round to get to a full hub-based pricing system. So yes indeed it is helping, but we're not able to fully reflect what's going on because of the time like in the contract and the retroactive -- backward looking nature of the observation period.

(Inaudible) market, do you therefore get much benefit if you (multiple speakers) renegotiate?

Yes, I think discounts we've achieved with Gazprom is a result of that convergence and that alignment.

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

Great. Thank you very much. So the conference call is over. If you've got any type of questions, please get in touch with us on the Investor Relations number.

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