Eni S.p.A. (E) Q2 2012 Earnings Report, Transcript and Summary

Good afternoon, ladies and gentlemen, and welcome to Eni’s 2012 Second Quarter Results Conference Call hosted by Paolo Scaroni, Chief Executive Officer; and Alessandro Bernini, Chief Financial Officer. [Operator Instructions] 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 interim update and second quarter results conference call. Looking at the first half of 2012, there are 3 main highlights that I would like to draw your attention to. Two of these are positive strategic developments, and one is a negative business trend. First, we have made a good start on our non-core asset disposal program, unlocking value for shareholders, reducing debt and refocusing the business. Secondly, we have further built up the organic growth prospect of our E&P to a stream of truly exceptional exploration successes. And third, we are facing challenging market conditions in our Italian and European businesses with Gas & Power, refining marketing and chemicals buffeted by euro area headwinds. I will now take you through each of these points in a little more depth. Sandro will then present the financial performance in Q2. Let's look at Snam and Galp. As for Snam, the disposal process is well underway. Following the signing of the sale of 30% to Cassa Depositi e Prestiti, we have placed a field of 5% in the market, destabilizing value for our investors, reducing the overhang on Snam and confirming the market's appetite for this asset. For our remaining 20%, we are talking to potential investors. Depending on the evolution of the stocks and market conditions, we will evaluate how best to progress on the disposal. Any transaction will take place following the closing of the Cassa Depositi e Prestiti deal expected in the autumn. With regards to Galp, we have recently executed the first step of our disposal process, completing the sale of 5% to Amorim Energia for EUR 14.25 per share and exited the company's shareholder back. We are now free to evaluate the different options to start value from our stake with flexibility and no time constraint. As a result of these 2 disposals, by next year, Eni's business portfolio will look like better than its peers. And net debt will fall by around EUR 20 billion, taking our gearing below industry average. As a consequence, we will adjust the way we return cash to shareholders in line with industry practices, accompanying our dividend with a recently approved share buyback program. Let's now turn to the second highlight, exploration. For many years now, we have discovered around 1 billion boe of new resources a year, well in excess of our average production of about 600 million, 700 million boe a year, providing fuel for future growth. In the first 6 months of the this year, through our discoveries and appraisals in the Barents Sea, Egypt and West Africa, we have discovered over 400 million boe. And on top of that, we have an extraordinary game changing success in Mozambique, which brings total new resources discovered by June 30 to 2.2 billion boe. This number does not include the results of the fifth well in Mozambique announced today, which increases gas in place to 60 TCF. Of these, 40 TCF are to [indiscernible] with Area 1. And 20 TCF in structures, which are fully in our block. Following this success, we now estimate the overall potential of the discoveries in Area 4, 70 TCF of gas in place. We've also been working on our long-term exploration prospects, securing new and promising acreage in the Norwegian and Russian Barents Sea, in the Black Sea, East Africa and in the Far East. Turning now to our operating performance. While in E&P, we see the benefit of rapid recovery of Libyan volumes, our Italian European businesses faced strong economic headwinds. In Gas & Power, gas demand continued to fall, driven by the weak economy and the competitiveness of coal and renewables in power generation. For an idea of the impact this is having, normalized demand in the first 6 months of the year was 5% lower in Italy and 7% lower in key European countries year-on-year and as much as 13% and 18% lower compared to the precrisis first half of 2008. This has prevented European oversupply from being absorbed, stock prices from closing the gap with oil linked prices. In this context, we have leveraged on recent supply renegotiations to remain competitive and profitable. In the first half, our merchant business delivered a positive result, even excluding one-offs, of which the main one is the gas from extraordinary benefit. R&M is also suffering from unprecedented demand decline. Italian consumption of refined products was down by around 10% in the first half of the year, adding further pressure to Europe structural refining overcapacity. We are working to offset the negative market environment through cost cuts and temporary capacity reductions, such as the partial closure of our Gela refinery. Lastly, our chemicals unit Versalis almost broke even in Q2, where volumes had been suffering from low demand and the rest of the year will remain challenging. In this context, we are making steady progress in our turnaround strategy, with the closure of our Porto Torres cracker, benefiting Versalis' results by around EUR 20 million in the first half. Thank you for your attention. And we'll now hand you over to Sandro for an overview of Q2 financial results.

Thank you, Paolo, and good afternoon, ladies and gentlemen. In the second quarter of 2012, the market environment was broadly positive. Decline in Brent price, which averaged $108 a barrel in the quarter, around 8% year-on-year was more than offset by the 11% appreciation of the dollar versus the euro compared to 1 year ago. The European refining scenario was also supported with an average Brent euro margin of $6.30 a barrel, almost a threefold increase from the second quarter of 2011. Turning now to our results. You should note that following the announced divestment of Snam, the regulated businesses in Italy have been deconsolidated from Gas & Power results and represented in accordance with the applicable reporting standard, precisely the IFRS #5. Consequently, margins generated by transaction between Snam and Eni group companies are considered as a part of the EBIT adjusted and net income adjusted from continued operations, whilst margin generated by transaction between Snam and third parties have been classified as discontinued operations. Same reporting standard has been applied also to Q2 2011 results in order to facilitate the year-on-year comparison. In the second quarter of 2012, adjusted operating profit from continuing operations was EUR 4.24 billion, up 14.2% profit from the second quarter 2011. This result reflected a better operating performance by the Exploration & Production division due to the ongoing production recovery in Libya and organic growth. In spite of continuing demand weakness and rising competitive pressure, the merchant business of the Gas & Power division reported operating losses in line with the second quarter of 2011, leveraging for an improved cost position due to the benefits of renegotiated supply contracts. On a similar note, Refining and Marketing and Chemicals reported stable losses in the face of a deteriorating trading environment. Adjusted net profit from continuing operation was EUR 1.38 billion, in line with a year ago. Better operating performance was offset by a higher consolidated tax rate from continuing operation of approximately 4 percentage points. This was mainly due to the increased contribution of E&P, which has a higher than average tax rate. Looking more closely at the E&P. In the second quarter of 2012, Eni grew liquid and gas production by 10.6% to 1,647,000 boe per day. This performance was mainly driven by the ongoing recovery in Libyan production and the startups and ramp-ups of the new fleets in Russia, Australia and Egypt. These positives were partially offset by the shutdown of the Elgin Franklin field, the increase in bunkering in Nigeria and mature field declines. In the second quarter of 2012, E&P reported an adjusted operating profit of EUR 4.23 billion, up by 10.8%, driven by increased daily production and the appreciation of the dollar versus the euro. Turning now to Gas & Power. In the second quarter of 2012, Eni's worldwide and natural gas sales declined by 3% to 19.6 bcm. This decrease was mainly due to weaker demand and ongoing competitive pressure. Italy, volumes sold declined 8.3% in the quarter and the power generation segment showing a double-digit decline owing to the increasing competitiveness of coal and growing use of renewables. International sales, excluding volumes sold per shipments, increased by around 1%, benefiting from higher sales to retail, growing in excess of 18% and the stronger LNG sales in premium far eastern markets. In terms of results, the Gas & Power division from this quarter includes just gas merger, power and international transport reported an adjusted operating loss of EUR 369 million compared to a loss of EUR 314 million in the second quarter of 2011. The decline is mainly attributable to the lower results of international transport after the sale of assets in the second half of 2011. Turning now to Gas & Power adjusted pro forma EBITDA. Pile overall losses widened slightly. The impact was entirely attributable to asset sales in international transport. Marketing profitability improved from the year-earlier period with losses narrowing by 60 million to 231 million, owing to the improved results from associates. The Refining and Marketing business reported an adjusted operating loss of EUR 144 million, EUR 20 million higher than in the previous period. The refining margins were impacted by shrinking differential between light and heavy crudes, as well as higher expenses for oil-fueled utilities. A negative trading environment and volatile margins were partially offset by efficiency announcements, the optimization of plant setup and lower throughputs at the weakest refineries. The overall utilization index of our refineries is in line with the second quarter of 2011. In Marketing, results improved slightly. Thanks to higher margin in wholesales as compared to the lows of the second quarter of 2011. This was partially offset by lower sales volumes in the retail market due to decline in fuel demand. In the second quarter of 2012, the Chemical division reported an adjusted operating loss of EUR 26 million, an improvement versus the second quarter of 2011 and more remarkably compared to the result achieved in the first quarter, in spite of weaker commodity demand, are supported by the higher benchmark margin of cracking. The Engineering & Construction business reported a steady operating result at EUR 388 million, up 2.6%. This trend reflected higher revenues and better margins [indiscernible] executed mainly in the Engineering and Construction business unit. Other activities in corporate showed an aggregate loss of EUR 157 million versus EUR 129 million in the previous year, mainly due to higher insurance cost. Net cash generated by operating activities amount to EUR 4.2 billion in the quarter. Cash outflows in the quarter included dividend payments of EUR 2.3 billion, which reflected the payment of the final 2011 dividend, as well as dividends paid to Snam and certain minorities. Capital expenditure, including Snam, amounted to EUR 3.3 billion and mainly relates to the continuing development of oil and gas reserves and the upgrading of rich [ph] and offshore vessels in Engineering and Construction. We also completed the divestment for EUR 729 million, including the [indiscernible] of the Republic of Kazakhstan in Karachaganak and the disposal of Oyo in Nigeria. The change in net debt was positively impacted by other items, including the initial refinancing of an intercompany loan due by Snam for around EUR 1.5 billion. As a result, net financial debt at the 30th of June 2012 was down EUR 100 million from March 31. Thank you for your attention, and I now hand you over to Paolo for his final remarks.

Thank you, Sandro. Looking forward to the rest of the year. In E&P, production levels will continue to suffer from 2 unexpected events. Namely, the closure of Elgin Franklin and the sharp increase in bunkering in Nigeria, which together reduced 2Q entitlements by over 30,000 boe per day year-on-year. Net of this impact, we confirm the previous guidance of approximately 10% production growth before price effects, with better performance of setting the shift of respective startups in Angola and Nigeria in the second part of the year. In Gas & Power, by which we now mean our gas merchant, power and international transport businesses, we confirm our previous guidance of an improvement in operating profits compared to 2011. On reported figures, much of this improvement will come from one-offs items, of which the largest is the retroactive impact of the gas problem renegotiation. In R&M, expect weak market conditions to continue, offsetting the benefit of increasing efficiency and operating improvements. Looking ahead, Eni is entering into a new era. Our balance sheet will be transformed by divestments, securing our capacity to finance long-term projects in any market environment. We will continue to leverage on our exploration success to deliver organic production growth. We will reward shareholders with a remuneration policy, which guarantees a sustainable dividend and provides for further upside to buybacks. Thank you for your attention. Sandro and I, plus the heads of our main business units, will now be pleased to take your questions.

[Operator Instructions] First question comes from Miss -- sorry, Mr. Sharma Nitin from JPMorgan. Nitin Sharma - JP Morgan Chase & Co, Research Division: Two questions from my side. First one on Gas & Power. You've highlighted in detail the sort of challenging conditions you faced for gas Marketing business. But I was wondering, despite the renegotiated contract for the North African's gas from the results are quite similar to Q2 in that business, obviously impacted by the trading environment. But how should we be thinking about the outlook for this business in the second half? And second one, on Iraq please update us on the [indiscernible] developments, how you're progressing there?

So maybe on the first question, I will ask Umberto to answer to you. While on the second, Claudio will tell you something about [indiscernible].

On the Gas & Power business, first of all, we -- let's talk about the demand we expect to see in the second half of the year. Also we expect to see a recovery in Europe then in Italy in the second half. But we'll keep the overall figure in line with 2011. On top of that, we are confident of the activity that we're going to perform on our commercial businesses. But we are certainly improving our performance both in Italy and also in Europe, in the retail, as well as in the business markets.

So in Iraq, that we are projecting and in line with the budget, we are producing about 240,000, 250,000 barrel per day. Our equity at $110 per barrel is about 17,000, 18,000 barrel per day. We are working toward the [indiscernible] field developments. We are confident that by the end of the year, early next year, we can have the SADs for the [indiscernible]. So we are progressing and so far so good.

Now let me just complete maybe the answer that Umberto gave you was not really complete. Now as for the full year 2012, the guidance we gave on our Gas & Power business defined as I defined before, is a number reported better than last year but a number excluding one-offs worse than previous year. And I'm not going to disclose you the one-offs and particularly the benefits we get from the Gazprom retroactive activity. Nitin Sharma - JP Morgan Chase & Co, Research Division: Okay. Can I ask one follow-up on dividends? I think you made it amply clear that you want to keep your dividends competitive and they'll be backed by buybacks. But is there any planned post [indiscernible] stake sale, either to revisit the dividend policy or the base dividend, i.e., in 2013?

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

Next question comes from Mr. Clint Oswald from Sanford Bernstein. Oswald Clint - Sanford C. Bernstein & Co., LLC., Research Division: First question, just on Galp. You talked about evaluating various options from this point onwards now that the shareholder agreement has finished. Can you just remind us what those are from your perspective? Secondly, on the gas business again, given your sort of comments on the macro within that division and I think you've spoken about having greater -- or the ability to talk more frequently with Russia, with Norway on supply. Would you expect to enact any further discussions with those suppliers through the rest of the year? And then just a small one, on your small -- it was small but impairments in the U.S. and some reserve downward revisions, I wonder if you could just say which assets those were.

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

Yes. Basically, with reference to 18% of the residual stake that we own in Galp, we have no limitation at all. We can have access to the wider range of disposal optional, including market transactions, structure the market transaction, or as well as bilateral transaction with interested parties. And by the way, we have already ongoing discussions with some interested parties, interested to buy a quite significant stake of our participation in Galp. It is still too early to predict when those discussion will arrive at the end. But we are confident that before the closing of the third quarter results, the announcement of the third quarter result will be, we can be -- we will be more precise about the timing and the strategy with respect to the residual portion we have in Galp. But basically, we have no limitation at all. We maintain only a 5% -- for a 5%, Amorim maintains the right of first refusal. But for the rest, we are free to do whatever we want. Then as far as the impairment, we have booked on as far as some E&P assets based in U.S. are concerned, the figure relating to those asset is really negligible because we are talking about something close to EUR 90 million. So more or less, nothing. And is the result -- their impairment was the result of some increased development cost, as well as the deterioration in the gas market prices prevailing in the U.S. market.

And in relation to the long-term account renegotiation, we are currently involved in several discussion with some of our suppliers in order to guarantee continuously cost competitiveness in our portfolio. More precisely, in 2012, these renegotiations will relate to a significant portion of our portfolio that is equivalent to 30% of its total volume. Besides 2011 and 2013, we are planning to reopen the renegotiation with other major supplier like Gazprom and Sonatrach.

Next question comes from Mr. Yazhari Hootan from Bank of America.

I just wanted to get an update with regards to -- following the successes of the Mozambique exploration program. I just wanted to see where you've gotten to in terms of unitization and how you are thinking about your stake going forward from here. What -- would you be comfortable selling down to 40%, 30% or is 70% how you want to take this development forward.

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

Unitization first. We are continuously -- we are in continuous talk and we are working with Anadarko. And as we said previously, we exchange data and information and we are working on the future model of unitization and also on the P&L developments. So there's not big news, the work is in progress. For the future, as we said, the first objective is to analyze the exploration phase. So as a clear view about our resources and about how to develop these resources with our partners and first with the government. And we are thinking about possible future strategic alliance on the area. That's all. Thank you.

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

Next question comes from Mr. Jon Rigby from UBS.

Two questions. The first is on the upstream. I noticed that the -- I think you mentioned and certainly you said in the release, in a couple of slips in projects that are affecting this year, and I just wondered whether we can take the chance for either just to run through where you are on the key startups run through maybe for the next 12 months, so, i.e., for 2012 and 2013 versus sort of visibility you provided for us at the start of the year. Second one is just going back to Mozambique, once you've finished the exploration phase that you referenced, when you talk about strategic alliances, would that potentially involve some sort of monetization of what is a very large stake that you have or blocks, 70%, which I guess to show value for what you've got on early stage. The last one, I think is, Sandro, is there's obviously a program in place for Snam to raise money externally and repay you back the cash that you've lent them. In terms of the next 6 months or 9 months, are you able to give some visibility on when you would expect to receiving that cash and reflecting it on your balance sheet?

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

Yes, startups, as we said this year, we are seeing some delay in some startups, especially in Angola and in Nigeria and [indiscernible] and also projects in Italy [indiscernible], so that is a delay. We think that we would be able to startup this project by the end of this year, and that is the main delay. For the rest of the period, looking forward, I think that's all talking about Russia, this will be contributing in the next couple of years, we don't think that we have any delay and the first project [indiscernible] has been started 2, 3 months before the expectations. So it's good news from Russia. The other project, cash again [ph] , we -- our expectation, technically, is always to start production by the end of this year, practically all the new [indiscernible] is finished and we are progress with the commissioning and also -- we are in progress handing over operation to Shell. So there's a huge process of checking and crosschecking all the procedurals of the 2 companies. And again, within that Angola and is on track. [indiscernible] as we said is confirmed first by the first June -- sorry, by the first half of 2014. So there's no bad news for [indiscernible] and the rest stays on track. So the main issue our 2012 for the project [indiscernible].

Okay. On Mozambique, let me add something on that. Now, as you might have seen from our press release of today, we expect to having total in our block for something in the region of 70 TCF, divided roughly, 40 45 we unitize with block 1 and 20 25, which would be totally under our control, by our I mean, we will have 70% of it with our partners. Now when we look at the strategic alliances there, the first thing we are looking at that is the wishes of the Mozambican government because whatever we will do, has to be approved by the government, it has to be approved, let's say, really apart from a formal approval, it has to be really something that the government want us to do. It's such a changing things for Mozambique, the discovery that this is the first thing we have in mind. Now the second one is, of course, gas utilization. It will be a lot of gas produced there. It's nice to have, as partner, the clients for this gas, at least partial. We have already [indiscernible] with us. [indiscernible] is already a potential client. We might be interested in looking from other type. Now the third point will be potentially monetization, even if this is not really our priority. Of course, know that these resources have a huge value, and we will try to start the maximum value doing our activity. If there would be a partner, which fulfills the first 2 conditions, which is ready to pay, this will serve them, maybe acceptable. Now on Snam.

Well, John, as you know, we have already mentioned that Snam already started repaying their loans to Eni before the closing of the 30 of June, since they have already repaid EUR 1.5 billion within the end of June. Then in July, thanks to the proceeds generated by the placement of bonds on the institutional market, Snam has repaid an additional EUR 1 billion, totaling in aggregate, so far, EUR 2.5 billion. Then last Tuesday, Snam has secured proper financing with a club of banks which have granted that they will support for an amount capable to repay entirely the outstanding loan. And now, we are meeting with our former colleagues, but still France obviously, and we are defining with them appropriate schedule, and I am confident that very soon, within the end -- probably within the end of September, early October, the repayment of the entire outstanding position will take place.

Next question comes from Mr. Matt Lofting from Nomura.

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

Very good. First question, what's -- for Mozambique, we got very good results in Norway, in Egypt, Nigeria, the U.S. and Angola. And that was the main country where we continue to drill wells also in the next 6 years. We also have to add also Indonesia because we have in July drilled a very successful well in Indonesia and we drill until now 38 wells. We have reached about 90 wells. So in that we can reach the target, excluding Mozambique, of about 1 billion -- more than 1 billion resources for exploration except Mozambique. And Indonesia, Angola and Norway will be the main targets.

Next question comes from Ms. Irene Himona from Societe General.

I had 2 questions please. First, in the first half of the year, your DD&A charges were up quite substantially, 22% year-on-year. I wonder if you can give us some guidance for full year depreciation and also for the tax rate. And secondly, as you mentioned, Paolo, with the Snam and Galp disposals, Eni clearly becomes a pure play completely different risk profile, what sort of balance sheet gearing, what leverage do you think is appropriate to this new portfolio?

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

Yes. More or less, the DD&A charges, the increase we have experienced over the first half of the year, you can maintain the same trend for the entire 2012, the entire overall 2012 year. So more or less, we do not expect any major fluctuation in the second half of the year. And as far as the leverage, we expect to maintain half of the disposal of Snam and Galp will be completed and so far, we expect -- it is reasonable to expect that the completion of those 2 extraordinary transactions will take place only in the 2013. Then after the completion of those transaction, we believe we have not yet defined a precise leverage target, but our idea is to maintain a leverage in line with the average of our peers group, which means something between 15% and 20% in terms of debt-to-equity ratio.

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

Next question comes from Mr. Rahim Karim from Barclays.

A couple of questions, if I may. The first was just around impact that you're seeing in terms of the downstream from the pricing discounting that you're offering in Italy and whether we should be looking out for anything in the course of the summer from that in the downstream. And the second question was just in terms of Venezuela. It wasn't among the countries that you talked about in the upstream about medium-term growth. I was just wondering if there was any changes that we should be looking out for in terms of your perception of risk in that country, especially ahead of the elections later this year.

Okay, let me just touch on the first issue. Yes. you are right. We launched a major advertising campaign for a special discount we are offering during weekends to the Italian drivers. Let me just start by saying that this has been a great success. We had -- our market share are growing, lots of new clients coming to our service stations, good publicity, certainly, our reputation in the country is being enhanced quite a lot. It's early days to tell you the total cost of this, but it will be a number, let's say, between EUR 100 million and EUR 200 million, depending upon how much [indiscernible] process we sell during the period. We will be -- the campaign started on the 16 of June and will last until September 2. And then the campaign will stop. It is a kind of corporate investment, not just a refining marketing division investment. Of course, it will improve the market share. It will improve the visibility of our service station. You might be aware, well aware that we are changing the name of our service station from [indiscernible] into Eni, this will help also in that. But in total, we expect to have a reputational reward for the company as a whole. Now as far as Venezuela is concerned, well, of course, Venezuela, you're quite correct you mentioned the fact that with the election later this year. We continue on our path to make out of Venezuela, one of our major countries, if I will remember the number we expect by 2020 to producing Venezuela 200,000 barrels a day. Therefore, it will be a major country for us. But of course, big investments are in 2014. So let's say, we will have time to see how the situation will develop in the country before taking major investment decisions.

No more question at the moment. [Operator Instructions] Next question comes from Ms. Kim Fustier from Crédit Suisse. Kim Fustier - Crédit Suisse AG, Research Division: Just 2 questions if I could, actually 2 for Claudio. First one is on the Gulf of Mexico. I think you and your partner Exxon have 2 rigs operating at the moment on Hadrian and I was just wondering if you could talk about your expectations in terms of recoverable resources and the development time line there? And secondly, in terms of your latest developments on your global shale portfolio, whether you have any recent drilling results in Ukraine or Poland that you're happy to share with us.

Starting from the last question, with the operating [indiscernible] talking about an asset that I operate. We are drilling the second well in Poland and we are analyzing the data. We have to drill a third well in September and within the structuring and real production, test production by the end of the year. So we are still in an exploration [indiscernible] phase in Ukraine and some 9 blocks, very good blocks in term of shale gas. So that we are in early stage from a seismic and then start immediate drilling. That is on track and we are quite optimistic about that. On Hadrian, honestly, I think that we are sharing, we are following the operator-ship, we are quite optimistic about Hadrian. With the additional resources and I think that planning regarding the future operation well, led by Exxon, I think it's one of the major discovery and one of the major projects in Gulf of Mexico for us.

Next question comes from Mr. Alastair Syme from Citigroup.

Could I just clarify, what you're saying on the dividend. Is the EUR 0.54 considered to be the last dividend the Eni stands today and into next year, you kind of -- you're going to set a new policy for a new company or is the EUR 0.54 a reference point to how you look at the dividend going forward?

I'm not sure I understood what your question but...

I guess I'm saying, are all bets off for the dividend, as we come into next year, you [indiscernible].

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

My question is, are all bets off on the dividend to next year? Are you going to start with a clean sheet of paper and say this is the new company that we're not going to cash in [indiscernible] et cetera, et cetera? Or do we use the current dividend as a starting point to think about [indiscernible].

No, no. No we are not -- no, listen we are not going to start with a clean piece of paper. Hello, we know exactly what is the dividend we pay today. We know what have been our promises in the past. And as usual in the -- when we make the next -- the next presentation of our strategy, we want to ensure the market that the dividend will be sustainable during the plan. This will remain -- we start from the EUR 0.54 that we promised -- I'm going to bring to the board on September, which make me think that quite likely, the dividend for the full year will be in the region of EUR 1.08.

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

We are not raising the dividend. We are fulfilling on our promises because we said that our dividend, we follow the OECD inflation, the OECD inflation will bring us to EUR 1.07, but we didn't like the idea of paying a dividend, half dividend of 53.5, so we brought it to EUR 0.54. But this was the kind of reasoning, simply fulfilling on our promises.

Next question comes from Mr. Martijn Rats from Morgan Stanley.

I got one more question [indiscernible] been asked already. But I have a question for Mr. Scaroni. The OPEC seminar sort of a month or 2 ago, you made a presentation where you said about global gas prices that they were a puzzle wrapped in a mystery within an enigma or something along those lines. And from that perspective, it's actually not that easy to formulate gas price to put in the sort of Mozambique model when you're going to discuss it with your partners out of the FID. And I was wondering if over the 2 months left [indiscernible] whether you've formulated your thoughts on the gas price assumptions for the investments planning of that particular project, whether you've formulated your thoughts on that absolutely more clearly. And whether you're willing to share that with us.

Listen, I can see that you remember quite well the speech I gave in Houston a few months ago. Now although the point I was making was at that time, gas pricing in the U.S. were $2.50 per million btu. In euro, the [indiscernible] in the far east were 18 and that this situation was not sustainable. In particular, considering that the calories in the U.S., when you buy gas at $2.50 per medium btu, you are buying the calories at 15% the price what you pay the calories coming from oil. This was the whole point I was making. Now having said that, you're right that this is a big enigma for our future, not for what happens next year, but for what happens in 2020, 2022, 2024. For every investment in gas, including Mozambique, a variable what will be the price in 2020, '22, '24, '25, is going to be the most difficult to define. Now luckily in the case of Mozambique, I have to say that the upstream cost of that gas is so low, I could almost, in every scenario, Mozambique will be competitive and, therefore, we do not feel the pressure from that point of view and we are sure that every potential partner will be very much interested in entering into this venture due to the fact that the cost of gas in Mozambique is particularly low.

Next question comes from Mr. Andrea Scauri from Mediobanca.

A couple of questions from me. The first one is on the south stream. According to the Russian government, it seems that the project should fly in October, November this year. Are you comfortable with this indication and second point, what is the state of CapEx from your side devoted to this project? And the second question, just a pure technical question on your accounting system. Should we see a split of continuing operation and discontinued operation also for the next couple of quarters? And the third question, could you please repeat again what is our guidance on tax rate for the full year 2012 for the continuing operations?

Okay, Sandro will answer the 2 accounting questions and we might -- either me or Umberto, will answer the one on the south stream.

You are right. We will maintain, let me say, unfortunately, the same accounting, criteria also for the third quarter and as well as for the entire 2012 results. So also, by the end of September and by the end of the year, you will examine our numbers. Our figures divided between a continuing and discontinuing of operations. Then effective from the first quarter 2013, Snam will definitively disappear from our consolidated figures. And so, I believe it will be more clear to understand our results.

Sorry, what's the consolidation of the debt I suppose.

Correct, the consolidation of the debt, more than an accounting effect will be substantial effect because we expect it to recover our own money within the end of the year. So it is not a matter of the consolidation, but it is real reimbursement of the outstanding loan. And as far as tax rate is concerned our guidance with reference to the continuing operation approximate 60% of taxable income.

Your question on south stream, we can confirm what the other south stream partners have announced that there is an FAD target by the end of this year. This, of course, is also depending on European authorization that for partner like us is quite important. However, this FAD will confirm the commitment of the parties to continuing the development of the project in order to be ready to start with the subsequent execution.

If I may, what is your plan for CapEx for the entire project if it's possible to have this year?

Sorry, I missed your question?

The CapEx will be around EUR 10 billion.

10 billion your stake?

Let's say, then there will be financing. Okay? On total will be EUR 10 billion. We expect to have roughly EUR 3 billion of equity, which we'll have roughly 20%.

100%.

In total, we expect in equity, something like EUR 600 million, EUR 700 million.

No more question at the moment. [Operator Instructions] The control room confirmed. There are no more questions.

Great. Thank you. We'll be bringing the conference replay. If you have further questions later on, could you just get in touch on the Investor Relations number. Thank you.

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