Eni S.p.A. (E) Q1 2014 Earnings Report, Transcript and Summary

Good afternoon, ladies and gentlemen. Welcome to Eni's 2014 First Quarter Results Conference Call hosted by Massimo Mondazzi, 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 first quarter results. Before I take you through the financial results, let me give you a summary of the main highlights of the quarter. Reported E&P production was flat versus the previous quarter. However, when taking into account the sale of our assets in Siberia that occurred at the end of last year, production was up more than 2.5%. In Exploration, we continue to report material successes, enlarging our resource base and increasing portfolio optionality. During the quarter, total discoveries, mainly oil, amounted to 200 million barrels. In line with our project, the unit exploration cost was $2 per barrel. In Gas & Power, Q1 results have benefited from the renegotiation of Norwegian gas supply contract whose retroactive effects, which will be cashed in during the second quarter, more than offset the backdrop of declining demand, weak prices and the very mild winter. We continue to improve our performance in Brazilian segments such as LNG and new structure products. Our Refining and Chemicals businesses were materially affected by a very weak scenario with lower demand and depressed margins. At the corporate level, we continued with our divestment program, selling a further 7% of Galp. Cash for this transaction will be accounted for in the second quarter. And now, on to our results. The market scenario was overall weaker than the corresponding period of last year. Brent averaged $108 per barrel, down 4%. Refining margins were dramatically depressed, posting a 52% reduction when compared to the first quarter of 2013. And finally, the euro kept on appreciating, averaging $1.37 over the quarter. Looking at the overall results. Adjusted operating profit was EUR 3.49 billion, down 7% versus last year. I will go through each component in the coming slides. Adjusted net profit was down 14% also due to a 3 percentage point increase in tax rate versus the first quarter of 2013 as a larger share of taxable income was generated by Exploration & Production subsidiaries exposed to a higher tax rate. Turning now to the results of each business. E&P first. When netting the effect of the disposal of our Russian assets, hydrocarbon production of 1,583,000,000 boe per day was up 1% over the same quarter of last year. Continued ramp-ups of production, mainly in U.K. and Algeria, offset mature field declines. Compared to the previous quarter, production was up more than 2.5%, or around 40,000 boe per day, principally due to the resumption of the Wafa Field in Libya, whose closure has weighted heavily on fourth quarter's performance. However, with new protests that is currently affecting Wafa and bunkering activity continuing in Nigeria, we confirm the guidance of a flat 2014 production profile. E&P adjusted operating profit was EUR 3.45 billion, down almost 14%, mainly driven by a lower oil prices and by the appreciation of the euro against the dollar. Turning now to Gas & Power. Adjusted EBITDA was EUR 241 million as compared to a loss of EUR 211 million in the first quarter of 2013. Positive effect of renegotiation with Statoil was partially compensated by lower margins and reduced sales of gas and electricity, down 11.3% and 9.9%, respectively, due to structural demand headwinds and the persistent condition of oversupply in European market. Notwithstanding the weaker market environment, we confirm our previous guidance of a full year reported EBIT in line with 2013. The Refining & Marketing division reported an adjusted operating loss of EUR 223 million, which was EUR 89 million worse than the corresponding period of 2013. The negative result was due to a sharp reduction in European benchmark refining margins caused by the persisting excess of capacity, weaker demand for oil products and increasing competitive pressure. Refining throughputs declined by 15.5% due to the plant shutdown of Venice, currently under conversion into a Green Refinery, and maintenance activities at other sites. Overall, sales declined 5% year-on-year mainly driven by sharply lower gas -- sorry, sales of gasoil and gasoline in Italy, only partially compensated by increased sales in Europe. And finally, the other businesses. Versalis reported an adjusted operating loss of EUR 89 million, a 41% deterioration from the first quarter of 2013, reflecting the continuing weakness in commodity demand and increased competition from Asian producers. The Engineering & Construction segment reported an adjusted operating profit of EUR 128 million, down by 37% from the first quarter of 2013. Other activities in Corporate posted an aggregate loss of EUR 126 million versus a loss of EUR 137 million last year. Turning now to the debt. Net cash generated by operating activities amounted to EUR 2.2 billion. It has been negatively affected by the increase in this item's[ph] working capital for more than EUR 850 million, expected to be more than recovered before year's end. In addition, this performance does not reflect the benefit from the Statoil renegotiation that will be cashed in during the second quarter. Our disposal program contributed with EUR 2.2 billion following the sale of Artic Russia for which we received consideration at the beginning of this year. A further EUR 700 million related to the sale of 7% of Galp will be accounted for during the second quarter. Capital expenditure amounted to EUR 2.8 billion out of which 83% is in the E&P sector. As a result, net financial debt at the end of March was down EUR 1.2 billion, resulting in a leverage of 22%. Both on CapEx and leverage, we confirm our guidance for the full year. Thank you for your attention. And now I'll let you to answer your questions together with Claudio, Marco and Daniele that are here together with me.

[Operator Instructions] First question comes from Mr. Oswald Clint from Sanford Bernstein. Oswald Clint - Sanford C. Bernstein & Co., LLC., Research Division: I guess I'll start with the obvious question about Kashagan. And if you could provide us with some details or updated details about what's happening with the project. And my second question was actually on Mozambique. There has been some talk from Anadarko through the quarter about selling that gas on a Henry Hub and oil-linked pricing mechanism. I wonder if that's something that you would also consider for your Mozambique LNG asset going forward.

Thank you for your question. First, we talk about Kashagan. As we said during the strategy presentation at the beginning of the year with the first results of the investigation, we started a very intensive repair works in the pipeline. The following day with the result of the investigation of the gas pipeline in the onshore and the transition zone and the oil line that finished in end of March when the operator gave out the result, it was quite clear that the situation was worse than what we consider with the first result of the investigation. So the most likely situation is to replace the 2 pipelines, as MCC [ph], the operator, and the Ministry said in the last week. The operator meanwhile, while investigating, well, also started a beauty contest and a tendering on the pipeline. And also, the spreads to be rated on the cap solution. So looking to have from the operator in June a kind of situation on the cost and timing -- and on the timing on the project. It's clear that, as we said already at the beginning of the year, we did not consider any production or a marginal production in 2014. So 2014, in terms of the guidance, our production will not be affected. And looking forward, for the 2016, we do not see the results. So we already put some contingency to cover a possible lack of production in 2015. Other details. On Kashagan say -- you can say that all the lab tests that we ran in 3 different labs independently in U.K., in France and Italy certify that the material we use, the carbon steel, for the pipeline was the greater [ph] and was in line for the Kashagan field conditions -- fluid conditions. And the problem is related to some stocks allowed [ph] at the point in the pipeline but mainly in the welding. So that is the issue. And so in the future, we are working with new suppliers, with a contractor, with manufacturers to be sure that we don't have this kind of problem in the future again. For Mozambique, I think you asked about for -- oh, the commercial issue. Well, we are really working hard and with good result in the commercial side. A lot of interest. But we prefer we don't disclose any kind of formal or any kind of detail on what we are discussing with our advisor clearly for competition issues. So what I can say, that there are lot of interest. And by the end of the year, we will be ready to sign first contracts for Mozambique. Oswald Clint - Sanford C. Bernstein & Co., LLC., Research Division: Thank you, Claudio. Is it possible to be more specific on that contingency or the assumed numbers you have for volumes for Kashagan in 2015?

What I can say at the moment we'll be able to be more clear on the size in the second quarter. I think that it's at -- we are going to have a lack of production about -- between 15,000 and 60,000 barrels a day that we'll -- but first, we're considering our contingency plan for 2015. But second, we had some good result in terms of discoveries, discovery that we can fast-track in Nigeria, in Congo, in Egypt. So above these contingency that we considered and now planned, we had some -- we have this new production, new discoveries that will give strong health and contribution to replace this possible lack of production.

Next question comes from Mr. Theepan Jothilingam from Nomura International.

A number of questions, please. Just on the other big flagship project for yourselves, can you just talk about time lines on Goliat, if you're still on track for a start-up later this year? Secondly, just you mentioned the Congo. If you could perhaps give us a little bit more color there in terms of the progress around the exploration and appraisal program on Nene Marine? And then thirdly, just on gas, an 11% decrease in volumes. Could you talk about the shape you see in terms of demand for the rest of this year, please?

Well, thank you. First, we talk about Goliat. So Goliat, we are in progress with the commissioning. The -- our plan is still to be able to finalize the Soraiba [ph] to a commissioning level of about the remaining 500,000 man-hours before sailing it away. And the plan is still we are working still to have the sailing away of the FPSO by June. So we have the conviction to sail away this FPSO. And the first thing is to achieve this target of about 500,000 man-hours. And the second one is to add a float barge, a float hotel, in Norway in the Barents Sea by the end of October. So that is something that we are working on because at the moment, it's not easy to find a barge for this period. But we are still working on it. Contractually, we have 2 options. We have the first window already contracted for the sail-away in June, and we have a second window by the end of the year, in January. So what is the difference? The difference is that if I sail away in June, I arrive in location at -- in mid-October, and I have to finalize the completion. If the barge is not there, I can use the second window in January. But if I sail away in January, I will sail away an FPSO completed, realizing terminal completion. So when they will reach the location that could be in February, March, the ramp-up will be fast. So with 2 situation, the 2 windows have basically a few months of differences in term of start-up. So that means that the lack of production for 2015, considering the second reason, will be March and, as I said before, already covered at Kashagan by the contingency and by the additional production. Second point, Congo. So for Nene, in line with what I said, we want to use we found last year to rapidly get first production. We are working on 2 different paths. The first one is to get an early production, if possible, that is quite new in 2014. We are in the right track. We want to start production, it's an initial production, then grow. We ramp our production in 2015. That's already a first production to test the reservoir. The last well was very good, and we had a production of 5,000 barrels per day without any kind of stimulation and without any, say, natural flow. And that is really the good news. And this well, when it's ready, not only gave us a very strong, positive news in thermal production but also increase the reserves of the field. So we go ahead with this very early production. We go ahead with the full field production that, as we said, we'd like to add in production in 2015. So we're going to ramp up in 2015 and then we start the full production. In parallel, we have to drill out the 2 wells to test the additional potentiality in the field because we have our other 2 structures that we are to -- understand, they are connected. When not connected, it would be mentioned. And within [indiscernible], if possible, additional potential of about 800 million barrels. So that is an additional good news. We are going to drill these 2 wells in 2014 and I think beginning of 2015. The third question that was asked, Marco? Marco Alverà: Thank you, Theepan. On the gas demand, we've seen a fall quarter-on-quarter of 18% in Italy. So the Italian market has been 21 and 5 bcm versus 26.2 in the first quarter of 2013. So our loss of 11% is actually a gain in market share. But I'd just like to take this question to make a comment that we don't use volume that much as a reference because the volume guidance on gas in the moment when we have a liquid PSV hub is no longer that relevant as a guidance. I think what Massimo said earlier is what is relevant. In a declining demand, we're able to confirm the guidance we've given in February of replicating the 2013 result in 2014. On -- in terms of where the decline was, I think it's -- power has deteriorated significantly, and the weather has been a lot warmer on the residential sales.

Next question comes from Ms. Irene Himona from Société Générale.

I have a couple of questions. So firstly, in the quarter, you had quite a material working capital cash outflow, EUR 1.7 billion negative working capital. Can you talk a little bit about what caused that? And would you expect it to reverse over the rest of the year? Or any comment you can make on that would be helpful. And then secondly, given the widening losses in Q1 in both R&M and Chemicals, should we assume that we end up for the full year with a bigger loss than in 2013? Is that what your guidance states at present?

Okay, Irene, so first, your question about the working capital. Yes, it's true, we -- that there's a significant deterioration in our working capital that's amounted to EUR 1.7 billion in the first quarter. And it was due significantly by, as I said, the size in the working capital increase, as commented by the company's sales plan due mainly to a lack of a down payment in the first quarter, plus some credit that has been mature in some contract plans [ph] that are expected to cash in, in the remaining part of the year. So we are relying upon the forecast made by the company that would reverse that, more than reverse the -- this cash absorption in the first quarter. Second, I would like to remind you that we accrued the agreement with Statoil that will be cashed after the first quarter. So that's another very relevant element to justify the increase in working capital. And third, we factor the less receivable due to the decrease expected in the net debt at the end of the quarter. So having said that, our forecast is to see a significant decrease in working capital by year end. Marco Alverà: On Refining, Irene, I think it's obviously very much driven by the refining margin assumption. By looking at the forward curves this year, including the first quarter actual, we can expect the -- an outlook to be in line with 2013, where we have on the upsides some of the cost-reduction initiatives that we've initiated, some of the capacity reductions that we've initiated with Venice, and we have on the downside some maintenance in the first quarter that we expect to recover. So I think at the same scenario of last year, we should expect a very similar result.

So Daniele, do you me to comment on the Chemical side as well?

Please. Yes, sure.

I was going to say that the Chemical side is expecting an improvement versus last year. The fact that we made it, quarter 1, worse we've had compared to last year is particularly due to the licensing business and the way that we account the basically profitability on some of the license that we did last year. We are anyway acting on -- are reducing capacity in line with other people. Like the closure of Hythe for the elastomer business is our reaction to the short -- to the shortness of demand in Europe particularly and continue to reposition our assets and process internationally where demand and profitability is in a better shape. We have also made an important agreement with Elevance renewables to finish the reconversion of the Marghera site, which was the last of the 3 critical sites we will need to address here.

Next question comes from Ms. Lydia Rainforth from Barclays.

A couple of questions, if I could. Firstly, on Libya. Can you give us an update as to what you're seeing within the country at the moment? And then secondly, Claudio, can I just invite you to talk through what your priorities will be when you take on your new role sort of in -- at the start of kind of May?

Well, thank you for your question. About Libya. In Libya the situation is still really volatile. In the first quarter, we were able to perform quite well, in line with our guidance because we produced about 250,000 barrels a day average. The situation now until March is that it could be worse because Wafa has been shut in and now it should be for about 4 weeks and their production is declining to 170,000 barrels a day. So the situation in Libya is still volatile. We think to -- can Wafa continue since we can use our contingency to compensate this lack of production in Wafa? It's clear that we cannot compensate for all that. We are working hard with the national oil company and with the authority to find a way to start again Wafa. We do not have any major problem. We do not have at all problem on our work facilities. That is a good point. Just whether they just close -- shut in the valves. That is the first question. For the second question, you cannot presume that we are here to talk about the first quarter and so to start answering to questions about the future. First of all, after -- the cold weather would be in May. And second, you also have to -- and the possibility to talk about my priorities with my board. And after that, we'll be ready to talk about the future. Thank you.

Next question comes from Mr. Michele della Vigna from Goldman Sachs.

Claudio, congratulations on your new role. I was wondering if I could ask you 2 things. The first one is how you're progressing in terms of your West African pre-salt exploration. Can we call it it's been a huge success? I was wondering, where are you looking at next? And then finally, whether you could give us an update of some of the key FIDs that you intend to take over the next 12 months?

So in pre-salt, we are clearly really engaged in the pre-salt exploration. And as you know, we are drilling the -- again, the [indiscernible] oil target in the Block-B4 [ph]. It's a -- it's in the shallow water, but it's verified. It's good. We are finalized drilling the -- in Angola, another important -- and we are just reviewing the results. And I hope and I think that very soon, we are going to share the press release on these results. And we are continuing also other activity on the onshore pre-salt in Congo and also in Angola. So we are -- I think that we can say that we are going to drill our additional 6 wells this year on the pre-salt. The initial [indiscernible], we are on track to reach our target of 800 million barrels discovered. We already discovered 8,200 practically oil, only oil, because they interest in an exploration unit cost of $2 per barrel. So the exploration is so far, so good. For the main FID for 2014 and 2015, we have the OCTP project in Ghana. Then we also in Italy Argo Cluster there. That is a very important gas field in Italy. Then we have Indonesia, Jau. And also in Indonesia, a project that is not operated by us but by Chevron, their IDD project that we ought to be able to sanction this year. And as I told you before, we have the oil production in Nené in Congo that we want really to start as soon as possible. And in 2015, we have to sanction also the full field of Nené. Then we have -- okay, we have also the block in Mozambique. We have Mozambique, the Block 4 in the Coral we have to sanction by the end of the year. And Bahr Essalam, Kunin (sic) [Junin] and the Bonga South West that are the major projects we're going to sanction.

Next question comes from Mr. Adolff Thomas from Crédit Suisse. Thomas Yoichi Adolff - Crédit Suisse AG, Research Division: I've got a few questions. Firstly, on Mozambique and the FLNG, still a few regulatory things that needs to be sorted out like the Petroleum Law. But could you perhaps talk about how you think the FLNG will be treated from a tax perspective in terms of what -- will it be in ring fenced? And also, just following on your earlier comments just now on FIDs, so your basic case is to FID the offshore first before the onshore. Can you perhaps talk about why your base case is to FID on the onshore part of Mozambique? That's on Mozambique. And another question, just briefly, on Iraq and Zubair. What's the point of sticking around? I mean, isn't that really distracting you from more interesting projects in your portfolio? And finally, I didn't quite hear you well and I may be wrong. Could you again say what you have assumed in terms of production or cash flow from Kashagan for 2015?

Thank you, thank you for your questions. To -- for Mozambique. So for Mozambique, we have 2 -- I would say we have 2 projects in parallel. For Coral -- so for Coral, we do not hear have any discussion or any engagements on the disparity [ph] or any -- because Coral, the floating LNG will be inside the E&P contract. So it'll be treated as a closed [ph] gas, in the P&C [ph] contracts. So we are not discussing the specific issue, and that is the good news. Also for the onshore, what we were discussing is mainly the fiscal stability because they -- the existing law in Mozambique practically cover all the different aspects of the project. I'm talking about the LNG onshore. And we are discussing -- we are -- first of all, we want to be -- if the existing law could be confirmed for our big investment; and second, it is more important to have a fiscal stability all along the project life. And that is the main discussion. The engagement with the authorities, the different authorities, started last year with Anadarko at each level. And still, that's for the onshore LNG, one of the main conditions to ask them to have the FID. We think, with the discussion, we have the authority that all the [indiscernible] we'll have the final document approved and validated by the end of the year. Dubai, Iraq. So we saw that -- we can't use back [ph] our resources. And sometimes, I feel the same. But now that our engagement in Iraq was a strategic move. We're moving it. I can adjust for the -- for there, but we thought -- still thinking that Iraq is a really important oil country and gas, but mainly an oil country. The situation must improve in the future. There are a lot of interesting opportunity not only in thermal brownfield but also greenfield. It's clear that we are suffering and we're -- obviously, there's some slowdown in our action. Again now, we got the approval for all the full field development through which we have to produce 850,000 barrels per day. We had approval of the POD. we had the approval of the -- 3 out of the main 5 contracts. We are still discussing the remaining contracts, the gas and, say, all the drilling, the -- and all the water supply. I'm confident the exposure -- there's no exposure. We -- practically, we invested 1 -- equity EUR 1.9 billion. We recovered already EUR 1.7 billion or EUR 1.6 billion. So we don't have any exposure because every 3 months, we are able to recover to the cost of oil through some selling of our investment. At the moment, we are still there. We are still there. We are discussing. And I think that in the last 4 months, the situation improved. I think I saw -- I see that as a long-term investment for the future. And I see that in the next year, we are going to truly understand if it's the right investment or the wrong one, and we are going to take a decision. At the moment, we are still there. We're increasing our production. We're really engaged, and we're getting good results. So Kashagan, the question was, oh, yes, the cash flow for 2015. Okay, that -- this question, what I can tell you, that from a production point of view, I can say that we are -- we're really able to compensate the lack of production in Kashagan through our contingency and through, I repeat, through the new project that we'll put in production. From a cash flow point of view, I think that we are quite sure to compensate the lack of cash flow. So confirming now our guidance for the next couple of years. If you'll remember, we gave a guidance for the 2 years, '14 and '15, and we are quite sure because we are going to -- we already have a chemical plant. We are going to accelerate the divestment. Remember that we -- there's a plan of divestment of EUR 9 billion in the for 4 years. So we are going to accelerate our divestment, especially in the exploration phase, also in other area of the -- all the activities to be able to compensate and confirm our growth in terms of cash flow.

Next question comes from Mr. Jon Rigby from UBS.

Two questions. First, I'm sorry to labor the point on Kashagan. Claudio, can you just walk me through the logistics of the pipe-laying exercises and also the tendering exercises? Because as I understand it, you can only lay pipe onshore during the winter, and I'm assuming, and you may correct me, that you can only lay pipe in the offshore during the summer. So I guess you now become quite dependent upon hitting various weather windows, and I was just wondering whether you could talk to me or, say, seasonal windows. I wonder whether you could talk to me about that. So I guess that gives us some idea about the actual effective replacement of the infrastructure. And then just on -- to go on to the gas side. Obviously, you've now completed the first round of negotiations and renegotiations successfully. I wonder whether you're able to let me know, one, to what degree your portfolio is now linked to hub pricing; and secondly, so the time line you now expect in terms of the second round of renegotiations to get you to the point that you need to be.

Well, Kashagan. I think that I'm not in the position now to really answering the details of the logistics or the phasing of the project. It's clear that we are going to use [indiscernible] in a different way, I think, 2004, 2005, I mean, that we laid down in the gas fields in the offshore and we laid down in the cold season in -- for the onshore. So we have the feasibility and the flexibility to lay down. It's clear that the main issue is still to favor [ph] the barge to further have that ability for the season. So what we are doing is we're rushing on the -- to be able to find out the barge. We already signed one barge that is available, and we are going to find a second one. And that will be very critical in terms of season, as you said. For the pipe supply, I think this is quite -- this is different. There are some different possibilities. That's why we're using the 28 inches with the longitudinal weld. And then we are also starting the possibility to add a seamless pipeline that is of a different size, 20 inches instead of 28 and is much easier to add and with less problem in terms of H2S. So we are starting and we are moving in parallel. I mean, we started with a different possibility on each pipe's kind of pipe, and we are engaging the supplier. But we already -- we are already with -- we are -- the operator is ready with -- supported by the co-venture with different accounts. Priority: go to and out the barges; and priority in selecting the different options in terms of sizing. So that's what I can tell you now. Marco Alverà: Jon, it's Marco. Thanks for your question. Absolutely, we do look at this in terms of round 1 and round 2. We have completed the round 1. You can assume that Statoil is hub linked -- that big part of the GasTerra is hub linked. That's a big part of, I guess, Statoil, it's hub linked. Again, our Italian equity is hub linked. And the others remain oil linked. The biggest outstanding for this year is Gazprom where we start from an okay agreement. But as you know, the hub, since we last spoke in February, has deteriorated another 15%. So all these oil-linked contracts need a rather deep second round. Nothing has changed from -- in terms of our intention to bring all these contracts in line with market, and we will need, as we've said before, 2014 and part of 2015 to achieve that target. Sonatrach will start in October this year, as we said previously. So these are the 2 big, outstanding efforts ahead. In terms of where we are with Gazprom, I think it's very much business as usual. We talk regularly, and we hope to bring this contract in line with, let's say, new market base in the coming months.

Right. Is it -- is the issue with, I guess, Russia, particularly but -- and the others that insist on continuing oil link that you have to come up with a way of -- to almost artificially creating a price mechanism that gets you to mimic the hub price but has an oil-linked calculation? Is that the complication? Marco Alverà: I wouldn't say so. I think we're happy to take oil exposure so long as the absolute level is in line with the hub. Now the hub having collapsed recently doesn't help in the sense that we need to go back and re-adjust that pricing mechanism. The pricing mechanism is quite simple, and we have, as with other suppliers in Gazprom's case, the ability to trigger an arbitration which is very straightforward in case we don't get to the right price. It's actually a simple discussion because it's just about a number, which is the discount on the current formula. So the effort right now is just to fix the contract number and bring it in line with the market.

Next question comes from Mr. Giuseppe Rebuzzini from Fidentiis Equitis.

I've got 3 questions to, again, on Kashagan. The first is if you can give us a broad range of the incremental costs for fixing the problem with the pipelines, as long as you have some estimates to date. And the second is, if you have any possibility to recover part of the cost from insurance or part of it from the contractor doing the welding in this case, and if you can confirm which was in particular or which were the contractors involved in this activity. And the third question is if you can remind us about your guidance for the tax rate for 2014.

On Kashagan, the first question, as I said before, we don't have an estimate from the operator a cost guidance or a cost estimation and timing. We have some idea, but because the operator, MCC [ph], and -- they have to disclose and present officially to the first party, to the ministry these triggers, I think that we have to wait until June to know exactly about cost. In terms of cost recoverability, in the [indiscernible], some of you may know that all costs incurred after the 1st of October without reaching the KCP are not recoverable. From an insurance point of view or from any other kind of view, we cannot disclose and talk about that because there are -- we don't want to create any prejudice to the party involved. That is an issue why I can't say anything at the moment.

Okay. And as far as the tax rate for 2014, I can confirm that our expectation is to have a tax rate of around 66%, well in line with what we experienced in 2013.

No more question at the moment. [Operator Instructions] Next question comes from Mr. Alastair Syme from Citi.

I have a couple of questions. Marco -- or at least a question to Massimo. On the Gas business, given the losses in that business, are you building up some sort of tax credits that as that business turns into profitability, that you can help offset? Secondly, Claudio, can I ask you about the E&P cash flows? If you look at unit cash flows over the last couple of years, it looked to be deteriorating, down around 8% from where they were in 2012. Is that just the loss of high-margin production? Or is there something else going on there? And finally, can you just quantify exactly what the level of contingency is that you have you built into your forecast?

So can you repeat the last question because we can't talk a bit -- aloud because we are not able to hear you? Can you repeat your last question, please?

Sorry, the last question was how much contingency is built into your forecast? I think you may have previously given some numbers for 2014.

So you first?

Well, about the losses generated by -- the fiscal losses generated by the gas losses, initially I would say that you know that we used to offset the overall losses in Italy, and it's come for refinery plus with Gas, compensated by the income generated by the E&P. So there's an overall assessment that they made year-by-year based on the forecast, and we accrue only the taxes that we estimate we can recover in the next year. So that's the stats we performed year-by-year on this respect.

So you're accruing up a big stockpile of accruals then?

No, I would say no.

So second question about the cash flow, I think that you are talking about the cash flow. Considering [indiscernible] full price, that our cash flow per barrel always involves, first, dollar per barrel. That is how I see it at the moment. So I don't see any reduction. And as we said, what we see in the future, considering our guidance, is this cost -- this -- I mean, I just talked about as to the increase. So there's no doubt in the cash flow. The cash flow could bounce. Contingency. Contingency, well, we talked about contingency at the end of the strategy presentation, and we had some -- a high contingency for the first couple of years. So about 100,000 barrel per day average in the first -- 2014 and something not far from that figure also for 2015. Then we are going to -- we decreased because we are much further projects coming in, in 2016 and '17. So those are the figures.

That's 90,000 a [indiscernible]?

In that range, yes.

[Indiscernible].

Okay, yes, that's $90 per barrel, yes.

There are no more questions at the moment. The control room confirm there are no questions.

Thank you. [indiscernible]. Bye-bye, everybody [ph].

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