埃尼石油 (E) 2013 Q3 法說會逐字稿

Good afternoon, ladies and gentlemen. And welcome to Eni's 2013 third quarter results conference call hosted by 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'm 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.

Before I take you through the financial results, let me give you a summary of the main highlights of the quarter and a few words about the market environment. Highlights first.

In E&P, we finalized the sale to CNPC of a 20% stake of Area 4 in Mozambique. This sale realized EUR3 billion net cash, monetizing early our world class exploration success.

Q3 was another rewarding quarter in terms of exploration, with almost 700 million barrels of resources added through the drilling bit.

Production in the quarter was impacted by geopolitical factors with significant force majeure events in Nigeria and Libya.

In gas and power supply, contract negotiations are progressing while market conditions remain soft. In line with our plan, we are continuing to expand our retail base, particularly in Europe, and we recorded good result from our trading and LNG businesses.

In downstream, we are continuing to aggressively reshape our business. Around 13% of our refining capacity has been permanently taken offline. In addition, we are progressing with the rationalization of capacity in our chemical sector.

Finally, having received the Board approval, we are ready to start our buyback program.

In terms of market conditions, third quarter 2013 was quite calm. The average Brent price was $110.40 per barrel, slightly up year on year. However, Europe achieved a 6% versus US dollar to 1.32, reducing as a result by 5% euro denominated oil prices.

Refining margins were particularly depressed. The Brent/Ural margin averaged $1.70 per barrel, down 77% year on year. On top of this, Italian gas demand was down 14% year on year and also demand for refined products continued to decline in the quarter versus last year.

And now a few comments on our results. Adjusted operating profit was EUR3.44 billion, down 15.7% versus the third quarter of 2012. Exploration and production was down EUR419 million due to the (inaudible) effect and extraordinary disruptions of production.

Refining and marketing and gas and power divisions reported deeper losses as a result of the continued deterioration of market conditions. Adjusted net profit was EUR1.17 billion, down 29.4% versus the previous year. The decline was due to the reduced operating performance and increase of almost 9 percentage points year on year in the group adjusted tax rate due to the greater contribution of the E&P division, which is typically subject to higher fiscal take.

Turning to E&P, in third quarter 2013 Eni's total production was down 3.8% versus last year, reflecting significant force majeure events in Nigeria and Libya and divestments made in 2012. The decline was partially offset by the new fields' startups and continuing ramp ups in mainly Russia, Algeria, Angola and Egypt. Operating profit was down 9.7% due to lower production and the (inaudible) effect.

And now gas and power. Eni's gas sales declined by 1 billion cubic meters to 17.8 because of the ongoing downturn in demand. Sales in Italy reported a slight increase up to 2.9% due to higher spot sales offsetting continually lower supplies to the power generation segment. International sales decreased by 9.1% as a result of increased competitive pressure in the industrial segment. Gas and power division reported deeper losses of EUR356 million, EUR52 million worse versus third quarter of 2012 due to the continued deterioration in sales price and margins reflecting weak demand, oversupply and increasing competitive pressures.

It's worth mentioning that our results benefited only partially from certain price revisions at long-term supply contracts, some of which are still pending and therefore delaying the recognition of the associated economic effects.

As far as R&M, in the third quarter of 2013 the division reported an adjusted operating loss of EUR61 million. The reduction by EUR113 million year on year was mainly due to the falling of the refining margin, which on the contrary, was very high in third quarter 2012.

On the other hand, we recorded improved performance in our marketing business, notwithstanding depressed market environment. Refining throughput declined by 12%, in particular due to the scheduled standstill of those refineries most exposed to the ongoing industry downturn and the shutdown of Venice plant for its conversion to a green refinery.

Overall, sales declined by 6.6% year on year, driven by the fall in retail sales in Italy that was partially compensated by an increase in Europe and in the wholesale sector.

And finally, the other businesses. Versalis, our chemical branch, reported an adjusted operating loss of EUR111 million, improving by EUR62 million from the third quarter 2012. It was thanks to the recovery of the cracking margin and the continuous improvement of our operations.

Engineering and construction segment reported operating profit of EUR238 million, down 39% from the third quarter of 2012.

Other activities and corporate posted an aggregate loss of EUR144 million versus a loss of EUR104 million in corresponding periods of last year, mainly due to one-off higher insurance claims.

Turning now to the debt. Net cash generated by operating activities and disposals amounted over to EUR6.5 billion, of which EUR3 billion from operating activities and EUR3.5 billion from divestment, quite also related to the Mozambique farm out.

Capital expenditure for the quarter amounted to EUR3.1 billion, of which 83% in the E&P sector. Total CapEx up in September amounted to EUR9 billion, while on a yearly basis, we expect an overall amount broadly in line with 2012. As a result, after dividends, net financial debt at September 2013 was down EUR1.4 billion, resulting in the leverage of 24%.

Before the Q&A session, a few words on buyback. Considering the strong fundamentals of our businesses, our board has approved the start of our buyback program. As we presented in March, Eni's multi-year buyback program is projected to be a flexible tool aimed at contributing to a progressive dividend policy. The pace will be therefore a function of our strategic achievements and prevailing market conditions. Share purchases will begin in the next weeks.

And now I'm pleased to answer your questions with colleagues such as Claudio and Marco Alvera are here with me.

(Operator instructions) Theepan Jothilingam, Nomura International.

Three questions please. Just firstly on the buyback and your comment on the satisfactory level of leverage. Can you just expand on that where you think that upper end of that range would be, particularly in relation to the credit rating?

Secondly, just in terms of Algeria, if you could perhaps tell us where we are in the ramp-up of assets there and perhaps how the relationship is evolving with Sonatrach.

And then thirdly, with the Q2 results you announced the Nene Marine discovery in the Congo. I was just wondering if there was a further update there.

I'll answer your question about buyback and then I'll hand you to Claudio to answer the question about Algeria.

So as far as the relationship between the buyback and the leverage, yes you are right. But let me expand a little bit more, maybe recapping what we already said starting from the strategy presentation we presented last March.

During the strategy presentation we said that we have a priority and that is our [cashing] and the priorities are the following. First investments, second dividends and third buyback. And definitely we said that this allocation would have been looked at together with the level of the leverage that you remember has been fixed up to 30%, so in the range of between 10% and 30%.

We are still there, so no news on this prospect, so I do not expect any kind of specific comment from the rating agencies.

Now on Algeria. We can say that after a difficult (inaudible), the main projects that (inaudible) are MLE, CAFC and El Merk. At the beginning of the year now I think that the ramp-up is going quite well. We reached about 250 million (inaudible) in MLE and CAFC and also El Merk is progressing very well. I've been just a few days ago in Algeria with the Chairman of Sonatrach to review all the project, and I think that from a relations point of view and from the also project point of view and new initiatives, because there are new initiatives in the shale gas with Sonatrach. Everything is going very, very well.

For Congo, as you know we may be discovering the pre salt in a fairly shallow water across the coast in Marine 12. We are still in an appraisal phase, but up to now we can say that we have discovered about 700 million barrels of oil reserves. This is really potential to about 2 billion, so it's really a giant discovery.

We had in mind a fast track with an early production phase and then a full field development. And so I think that that is absolutely very good news from an exploration point of view.

Alejandro Demichelis, Exane.

A couple of questions. Coming back to the buyback, Massimo, I think if we go back to the discussion in March, I think Mr. Scaroni was saying that there was also a level of the oil price that will determine whether the buyback would be on and off. Could you confirm what kind of level of oil price we're talking about here?

And then the second question is maybe you can give a bit of an update on Kashagan and how do you see the pace of the ramp-up here.

I'll answer the first question. So yes, for sure and the level of the Brent price is one of the key issues we are looking at in order to launch the buyback. There is no specific threshold I would like to comment. It goes without saying that the current level is enough to us to go ahead buying back our shares.

For Kashagan, as you know we start up -- we have the start up in September and the start up was successful. We have not fallen in the overall process on critical components such as rotating machinery and the salt processing units.

But, which is not usually supposed to be critical, the gas transport pipeline had leakage problems. Leaks were immediately identified and segregated with no environmental impact.

Joint venture experts are investigating the root cause of the leaks. These activities are expected to take several weeks. The oil and gas production remains shut in until we have all the elements identified because of the leaks.

The start of the facilities will be carried out only when full safety is guaranteed. Given the investigations are ongoing, we cannot disclose any further details.

Irene Himona, Societe Generale.

I have two questions please. Firstly on refining and marketing where the quarterly loss was certainly below expectations. Can you talk a little bit about the split of refining versus marketing this quarter and what are the -- what is improving basically versus a year ago.

Secondly, on gas and power. I mean obviously it's not sustainable to be losing EUR1.2 billion a year. Can you give us some sense of once you renegotiate the big contracts, what is your view of sort of normalized profitability in that business?

So I'll answer the question about R&M and we can ask Marco for the second question.

(Technical difficulty) strongly impacted by the very low refining margins. We experienced an average of $1.70 per barrel and at these days we're even lower level of margin.

On top of this, I commented that the marketing performance being better than the quarter in 2012 because of the level of margin, but as I also remember that the third quarter of 2012 we launched the (inaudible) campaign that is embedded in terms of numbers and the even numbers of the third quarter 2012. And now I lead it around to Marco.

On gas and power I would say we are on track on the negotiations as we had outlined. And we confirm what was our previous guidance. Just as a reminder that was to close 2013 broadly in line with underlining 2012, assuming other renegotiations are closed. Where if they aren't closed, we will simply be postponing the advantage from the renegotiation. So I don't think we will be closing all the negotiations. You heard at the last quarter we announced the initiation of an arbitration with Statoil. And negotiations are progressing, I would say positively on the GasTerra contract.

I would sum up confirming what we have previously said that on the price front we have sufficient provisions in the contracts to stabilize the prices to a level where we restore profitability. The other arbitrations that have been awarded all go in the direction of claiming that these take or pay contracts have, let's say, no clause in them that should be forcing a long-term loss.

Where I think the issue is on the timing of these negotiations, because from a pricing perspective they all have a backward looking formula. So we can only assume that we will recover the 2014 deterioration and 2013 deterioration that we're seeing into the future.

From a volume side there are no specific volume questions, so what we have achieved with Sonatrach in 2013 is really what is enabling us not to go into take or pay or further take or pay situation, notwithstanding a significant drop in volumes that Massimo has just mentioned because we're facing with a market that is shrinking in some sectors in power by 20% to 25% in Italy.

So I would say on the price front, over time we will recover profitability certainly. On the volume side, it's a continuation of playing our portfolio within the different contracts, taking into consideration that there's no volume clause per se in the contracts.

Jon Rigby, UBS.

I think one of my questions is to Marco and the other one for Claudio, if that's all right. So Marco, I always kind of ask you about this, but going back to the previous question, if you were to sort of normalize for demand and/or normalize for the contract pricing structure, how would each of those contribute to the restoration of your earnings? So if we were still operating under the existing pricing structure that you have now but you weren't selling a portion of your volumes on the spot market and were able to sell them sort of back-to-back into a restored demand scenario, how much different would your earnings be? And against normality, what are you having to sell on the spot market versus what would be your normal contractual demand?

And then secondly, just to Claudio, is it -- I mean your exploration success continues to be fairly extraordinary in the context of the other majors. Do you at some point sort of stand back and think well, we have a bit of an embarrassment of riches here and we need to think about where our CapEx going forward needs to be spent. And maybe start to optimize your portfolio in terms of countries, regions, et cetera and therefore, does that then prompt a degree of sort of portfolio management over the next couple of years just because you have so many options?

I'll start, Jon. I think what we're seeing now with the market deteriorating quite rapidly is there's not -- first there's not a lot of volumes that we are selling directly at the hubs, as a result of the Sonatrach agreement this year. That may change as that agreement expires at the end of next year. But we don't see that much of a difference in selling directly to customers and in selling onto the hub as the price signaling effect of the PSV becoming a real hub has been very, very rapid.

Not only the regulator has on the retail side decided over time to introduce the PSV as the reference, but I would say 100% of our industrial customers are asking for a PSV pipe component into the contract structure, whether it's in reference terms or in absolute price level terms. So this is what we have on the present front. There's not that much of a gap between sales onto the market and sales to end users.

What we do expect as the market tightens up hopefully eventually is to see more value recognized for the quite unique flexibility that we have in the portfolio. So the reference Massimo made to trading before is really a portfolio optimization profits, where we move profits from what was historically a customer B2B activity to a more, let's say, advanced portfolio optimization activity.

Right, and just for -- are there two elements to any settlement going forward that i.e. one that stabilizes your profitability and at the sort of levels that you've described I think in the strategy presentation back in March. But also were you alluding to some catch-up as we've seen historically at some point as in when those contracts are agreed, i.e., to compensate you for the very large losses you've made through 2012 and 2013?

I would say yes, they do have retroactive, as you know, benefits and we do expect to recover the losses. I would say particularly with Statoil the numbers at play are significant because we have been out of the money significantly for a long period of time. So yes, you should see some retroactive compensation going forward as those numbers are settled.

I wouldn't say there's an absolute level on the pricing front I would target, and I would say from the volume front really the only problem is in Italy because of the lack of reverse flow and because of the Gazprom, Sonatrach, Libyan and Italian Equity Gas are physically delivered in a country that doesn't have yet reveres flow. So that's where we have the volume issue.

So exploration. I think exploration, you're right, is really doing very well. We are continuously growing our asset resource base and with not only gases, also with discovery of also oil. And we discover big field, giant field, where we have a very important working interest. And that gives us the flexibility for the future and several choices to optimize our portfolio.

And the first step, as you remark on the first step, we are reducing our working interests in some giant project where we own 70% or 60% or 50% in the recent discoveries. And that could be a trend also for the future to monetize and get value immediately on these assets.

So that is the first point. We are starting also a restructuring of our portfolio and that is not the moment to disclose about this, but I think that in the future meetings next year we can give more color and highlights about what we are doing.

Mark Bloomfield, Deutsche Bank.

Two if I may. Firstly just coming back to the share buyback, one of the three criteria you gave was that the dividend payment was fully covered. I just wonder if you can give us any sense of what oil price you think is needed to achieve that in 2014?

Second question, just turning to production in West Africa. Volumes, both oil and gas, looked pretty strong this quarter relative to the second quarter. Appreciate we've now got some volumes or had some volumes from Angola LNG. Perhaps you can walk us through the other moving parts there, just give us a sense of where Nigeria volumes are moving and if there were any major improvements elsewhere.

Besides the (technical difficulty) current dividend, I'd suggest that the best place to comment on this would be the next strategy presentation when we'll present an update, another update on our (inaudible). And then Claudio, (technical difficulty).

(Inaudible) West Africa (inaudible) and production. West Africa is doing quite well. The increased production in Congo, where we're now producing close to 110,000 barrels per day and that is oil, just oil. So that, yes is strong contribution, especially in the third quarter.

We increased production in Nigeria, but in offshore. That has been offset by the losses that we have in onshore. But the offshore has a very important value in PSV, and is where we have a strong share. So West Africa from the oil point of view, from discovery point of view and from a production point of view is going quite well.

The Angola LNG, as you know, we are missing a lot of production and about 15,000 barrels per day. That is the only critical point, let's say, in the West Africa production.

Michele Della Vigna, Goldman Sachs.

First of all, Marco, I was wondering if you could tell us if you see any sign of demand stabilizing in Italy on either gas or on the oil product side?

And Claudio, could you update us on progress for some of the key start-ups for 2014, such as Goliat and Block 15/06?

Yes, I think finally we are seeing the early signs of some stabilization, particularly on the gas side. So yes, some encouraging signs of stabilization, but not to say growth, but then I would say that's what we see right now.

So for other projects, so next projects for talking about 2014 can just give you a few data on 2013 because in November we'll start up (inaudible), meaning it's quite important projects for us because it's going to be rather more than 30,000 barrels per day very quickly.

And then we have additional wealth in CAFC gas throughout these years and additional wealth next year and then we will add the full production in 2015.

In Block 15/06, we confirmed production startup in the first quarter in 2014 and that's the same for Goliat. We have also other projects in Yamal Peninsula, Urengoyskoye, that we start at the end of 2014. And Yaro as well we're starting in 2014. So that is the main contribution for the next year.

Marc Kofler, Macquarie.

Thanks for taking my questions. Just two please. I'm sorry, I didn't really catch many of the projects you're referring to in 2014. So at the risk of either repeating yourself or I was wondering just can you give a rough sort of expected contribution in terms of those new projects. That would be great.

And then secondly in the upstream again in Egypt, there has been some recent reports about Damietta potentially starting up again towards year-end. I'd be interested to get your view there.

I'll start with Damietta. It's Marco here. We manage Damietta through our 50/50 joint venture with Union Fenosa Gas. I would comment by saying that we expect two cargoes of LNG to come before the end of the year, so Damietta (inaudible).

So the product contribution of these projects. So when we talk about contributions in 2013, we don't just talk about new projects, but also (inaudible) existing projects we just started. So we have in terms of peak oil in 2014 we have about 30,000 barrels per day coming between MLE and CAFC. And 14,000 barrels per day at the end of 2014 for El Merk. Then we have for the block 15/06 West Hub, we have a steep production of 25,000 barrels per day. The contribution for 2013 is just for a few months.

Then Angola LNG that we really hope that we'll start in a [speedy] way in 2014 with a contribution of about 24,000 barrels per day. And other projects in 2014 is okay, Jasmine I said is a full-year growing at about -- starting from 30,000 barrels per day to 38,000 barrels per day in the peak production.

And then we have Goliat. Goliat is a peak production of about 55,000 barrels per day, but will start at the end of the year, so we'll give the full contribution only in 2015. And then we have also the startup at the end of the year 2014, of Jasmine that just for 2,000 barrels, because it's just a short period.

Lydia Rainforth, Barclays.

Two questions if I could please. Firstly on Mozambique. Can you talk about how the condensate discovery there impacts your thought process ongoing development (inaudible) and whether you would look at accelerating that -- the development of that discovery ahead of some of (inaudible) early discoveries?

And then secondly, in terms of the buyback program. You did talk about that the dividend should be covered, the balance sheet should be (inaudible), which it is as the moment. Does that mean that any divestments that you would consider when you talk about monetizing the exploration portfolio, that those would be returned to shareholders in the form of an accelerated version of the buyback over and above what you've set out within the -- of what the Company can do on an operational basis?

Mozambique, I think that you are referring to the last discovery (inaudible) that is being done in the new area and the new (inaudible) of the Block 4, so in the southern area. We had -- we are in the early stage we had to drill additional two private wells to understand exactly the lower section of these others that are internal the liquid or condensate or the quality of these hydrocarbons. So we cannot say anything at the moment.

Okay, and as far as your second question, Lydia, yes, for sure, as already said by Claudio, the portfolio management will become definitely part of our cash management in the future. And it will contribute as is the case, as well over all cash to (inaudible) order. But for greater view on this perspective, definitely the best time to comment on this would be next strategy presentation in February 2014.

Jason Kenney, Santander.

Just wanted to ask you a question about your position in Galp. Sometimes you have the option with Amorim or Amorim has an option with (technical difficulty) 5% stake. Could you tell me if you disclosed a closing date for the (technical difficulty)? Maybe discuss whether you're actively looking to sell that stake, perhaps with the 3.4% that's also standing upright?

Then secondly, just on the gas and power and return to profitability outlook, I mean should we really be modeling a positive underlying profit from gas and power within the next two, three years? I know you've not commented specifically, there's a lot of detail about this but just very broadly where you see as going to breakeven.

So I'll answer your first question about Galp. Yes, definitely you're correct. Amorim is retaining its call option to acquire 5%. This call option will definitely expire by the end of this year. And as far as the remaining 3.4% on which Amorim retained a right of first offer, I guess that all I could do is to confirm that our intention is to dispose of as soon as possible this [bank of] shares. And that the same comment will be very different (inaudible) which is respecting the rights within -- by Amorim. Marco?

On gas and power outlook, I would say the timing for the new guidance will certainly be around the February presentation. It's fair to say that because of the retroactive nature of the price negotiations we talked about, there's probably a one- to two-year time lag in between the market deterioration happens and when it's fully captured and reflected in the prices we pay. And 2013 was certainly a weaker market than 2012. So only in 2014-2015 we will be able to fully reflect that in the price negotiation.

Andrea Scauri, Mediobanca.

A couple of questions for me. The first one refers to your joint venture of SeverEnergia. I was wondering what are your plans for your 30% stake that you have there. If you are going to sell this stake or it is core?

Second question, could you please provide us an update on the situation in Libya? What is the situation there and what is the missing production that according to the current situation you're expecting fourth quarter?

As far as the (inaudible). Due is the fact that there is a current transaction on this asset, we would prefer not to comment on this. And Claudio, what --?

So Libya. And so the situation in Libya, as you know, is not very good. We are missing more than 120,000 barrels a day, so the production of today's is 135,000 barrels per day against a non-production this year of about 240,000 and a potential production of about 280,000 barrels per day. So we are really losing a lot of production.

We are losing more oil than gas. We are still sending to the domestic market about 7 million cubic meters per day and the rest and it will bring stream 9.4 million cubic meters per day.

So we hope that Wafa, that is the desert -- South Desert asset that is producing most of the gas for the domestic and oil and condensate we can restart in the next weeks. If that's not at then, I think that our average production for the next quarter in Libya will be around 130,000 to 135,000 barrels per day. So I think that situation is unpredictable, so we cannot say what is going to happen in the next days, but we are optimistic I can say for the meeting on terms because it's clear that this is a process. We are in a transition process at this country for 50 years. It gave a lot to Eni in terms of -- to Eni and to Italy in terms hydrocarbon and production. Now it is a transition phase. There are a lot of potentialities, so we have just looked at that moment as a spot moment, but I'm sure that in the future things will improve.

Neill Morton, Investec.

I had two follow-ups on earlier questions. Firstly in refining and marketing. If I look at the result in Q2, it was a loss of minus EUR174 million. I'm still struggling to understand that if refining got worse in Q3 versus Q2, where that improvement in profits has come from. Is it simply marketing or is it perhaps also treating?

And then just secondly a question for Marco on gas and power. You've reiterated your full-year 2013 guidance, assuming contract renegotiations are successful, would you care to give a full-year guidance assuming there are no renegotiated contracts by end of year?

I'll answer your first question about R&M. And the main reason why the first quarter has been better than the second quarter is because of the driving season, that you know in Italy is in the summertime. So (technical difficulty) third quarter. So the very (technical difficulty) is in the market inactivity.

On the 2013 guidance, I think the two outstanding contracts are Statoil and GasTerra. I think the results you see in this quarter do not reflect either of those. I think in the -- I would be happy to successfully complete one of those, which would bring upside to what you're seeing in the nine months to date, but I would think it would be overly optimistic to assume both. There's always a chance that you settle pre-arbitration, but I think to assume that both are closed at this point would be overly optimistic.

Would you care to quantify the impact if neither is negotiated by end of year?

No, I think it would not even be helpful because it's -- the lump sum impact is a combination of so many factors that I wouldn't do it, but it also wouldn't be helpful. I think you have nine months of performance that exclude those two. And I think you have what would be the guidance which is last year's performance, which just to remind everyone is about minus EUR200 million assuming both are closed I think. In between those two numbers you have the value of what these two collectively could be worth.

Dario Michi, Banca Akros.

I would like to ask the following questions. According to local press, there could be some penalties if production in the Kashagan really isn't restarted soon. Is it true? Could you please quantify these penalties?

And the second question is about the negotiation for the disposal of 10%, 15% stake in the Area 4 in Mozambique, how are they going?

So the first question is not attached to guidance, so from a contractual point of view there are no penalties. If you are not about to reach a KCP by the end of September. What happened, that joint venture cannot recover the costs incurred to reach after debate the KCP. But there isn't any contract clear penalties.

At the moment honestly, I'm not looking at the content or discussing about a contractual issue with the public. All the joint venture is focused to solve the problem with the leaks on the gas pipeline. So can you repeat the one on Mozambique? What are you asking?

How are the negotiations going?

Okay, so negotiations. I think that we can't disclose anything because that is a commercially sensitive issue. What we said, what (inaudible) has currently said that we have a very strong position in terms of working interest. We want to be the leading partner, keep the operatorship, and keep in all a material stake in our joint venture. But this the so big -- large project, in a terrific way we will analyze, I mean any proposal about this 10%, 15% maximum stake in the future. But I cannot say any more about that.

(Operator Instructions) Andrea Scauri; Mediobanca.

A follow-up question. I know that it is something that you do not usually comment, but siphon. We saw a good trend of results in the third quarter that might suggest an inflection point for siphon. I was wondering if you could comment what are your plan for siphon, if there is an update on your view on siphon in terms of potential deconsolidation of these assets or what else.

Andrea, as you know we spoke at length in the recent past about what we call the unbalanced position of Eni siphon. And this unbalanced position is still there. On top of that, I will say that we don't have anything to add unless that we are very pleased about the result that siphon committed yesterday. And secondly that definitely we repeat bond support in siphon from a financial point of view.

Alastair Syme, Citi.

Very quick question. At the beginning of the year, I think around the strategy presentation, you gave guidance on -- in the upstream on units' margins, particularly around BB&A charges, expecting to see some escalation this year. And I just note that hasn't really happened. Is that a production Libya effect or is that inflation in BB&A still to come in the fourth quarter?

So no, I think that's for me a cost point of view, an overall cost point of view. I think that we optimize our costs in terms of operating costs and also BB&A. So we didn't reach the moment value that we forecasted for different reasons. Also because there are some delays in some projects and some disruption (technical difficulty) in Libya where we are not able to evolve the projects that we (inaudible). So that created the reduction in the overall costs. And that is the main reason.

So as you look into the fourth quarter do you expect to see a significant change?

No, because as I said the main reason was Libya and what we couldn't develop in Libya and that we remain in the same range I think.

Roberto Letizia, Equita Sim.

Very quickly on the debt. On the guidance you gave on the leverage flat at year-end, I'm just asking if this guidance already includes the effects of the buyback of I think it won't be very big, but is it included in the guidance already? And if it includes the effect of any gas and power gas contract renegotiation? And any additional disposal that could happen by year-end?

So let me elaborate a bit on this. So what we are seeing now that we are giving a guidance now that would be around 0.25. So right in line with 2013. And this guidance is taking account some, I would say, negative issues that rose (technical difficulty) this same period.

Technically, the lower upstream production versus what we expected and what we said in June and July. Second, yes, we are taking into consideration the fact that probably not all (technical difficulty) possession will take place by the end of 2013. Third, we are taking into consideration a weaker downstream environment that has been some way as shown by these days. And even an exchange rate that's currently it appears worse than what could have been projected by June and July.

Having said that, as far as the disposals, no, we are not including any specific additional disposal in this guidance.

No more questions at the moment. (Operator Instructions)

Okay, I think that the call is over. If you have ever have any further questions, please do not hesitate to contact our Investor Relations team. And thank you all for your contribution. Bye.

Thank you very much. Bye.

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