Eni SpA

MIL:ENI

Earnings Call Transcript 2019-Q2

[Operator]

Good afternoon, ladies and gentlemen, and welcome to Eni's Second Quarter 2019 Results Conference call hosted by Mr. Claudio Descalzi, Chief Executive Officer. [Operator Instructions]

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

[Claudio Descalzi, executive]

Good afternoon and welcome to Eni's first half result. In the first half of 2019, we continue to consolidate our strategy and enhance our cash generation. Operating and free cash flow growth are the most remarkable achievements. We generated EUR 6.8 billion of operating cash flow, a 23% growth versus 2018 in a lower gas price scenario. With CapEx at EUR 3.8 billion, we generated an organic free cash flow before working capital of EUR 2.9 billion, almost doubling the EUR 1.5 billion of our dividend needs in the period. Thanks to this strong cash performance, we reduced our debt to below EUR 8 billion, the lowest level since 2006. This corresponds to a leverage of 15% at the end of June. Upstream production was 1.83 million barrel per day. We continue to deliver high-value production and with ramp-ups in Egypt, Ghana and Angola and the startup of new fields in Mexico, we almost compensated the impact of the conclusion of the Intisar gas contract that weighted for around 6%.

Exploration continued to create new opportunities for future development. During the first half, we discovered around 350 million barrel of resources at an exploration cost of $1.4 per barrel. In the coming months, we plan further exploration activities in Mexico, Egypt, Norway and Angola. Gas & Power performance is robust, notwithstanding the low gas and LNG price scenarios, thanks to the portfolio optimization activity and the growth in the retail customer base.

In Downstream, we are continuing to improve the resilience of our operating assets, with the ongoing start-up of the biorefinery in Gela and expected restart of EST in Sannazzaro. Results were impacted by weak product demand and high cost of the feedstock. In particular, for medium/heavy crudes and maintenance activities that were anticipated because of the weak scenario.

On renewables, we are consolidating our pipeline of initiatives from Algeria to Pakistan, Kazakhstan, Australia and Tunisia, and we keep developing our Italian projects.

We are continuing to lower our production carbon footprint with a reduction of 2.3% of GHG emissions per barrel versus last year in line with plans.

Production in the first half reached 1.83 million barrel per day. First half 2019 output was impacted by a reduction of 111,000 barrels per day for the end of Intisar gas contract and 19,000 barrel per day for price effects and portfolio. And positively for 66,000 barrels per day by start-ups and ramp-ups, like Zohr better performance of some fields, such as OCTP oil in Ghana and ABB in Nigeria and higher asset availability for 28,000 barrels per day.

Production in the second half of the year will speed up, benefiting from recent startups of Mexico, Area 1, Trestakk in Norway and Berkine oil in Algeria. The future growth will be supported by an untoppled drawer to plateau level, and they announced the contribution of Kashagan after the end of maintenance. Production in Q3 is expected to grow between 2.53% versus Q2.

For the full year, we expect production between 1.87 million and 1.88 million barrels per day, mainly depending on the demand for Jangkrik LNG and assuming a flat contribution of 40,000 barrels per day from Venezuela.

On a comparable basis, upstream EBIT grew by 5%, thanks to the increased quality of our production mix, as demonstrated by the dollar realization prices of our sales, which remained constant despite the weaker scenarios.

On exploration and new development, Block 15/06 in Angola continues to deliver outstanding results. In the last few months, we made 3 main material discoveries in Agogo, Ndungu, Agidigbo fields. And yesterday, we announced the result of the appraisal of Agogo, that confirms the best estimate of 650 million barrels of oil in place with further upside in the northern sector of the field that will be tested with additional appraisals.

The last 5 discoveries made in 1 year add up to 1.8 billion barrels of oil in place, with already existing resources, bringing the amount of discoveries in the block to about 4 billion barrels of oil in place.

Product development will be fast track, relying on existing FPSO in the West and East hub, extending the current lateral production of 150,000 barrel per day at a very competitive development cost per barrel. Accordingly, we confirm the start-up of the first well of Agogo by the end of the year. Moreover, further appraisals in Agogo field could justify the development of a new stand-alone hub.

In Egypt, we successfully drilled 5 wells, of which 4 are near-field discoveries. The first discovery was Nour that we drilled in the first quarter. Then we made 2 oil discoveries in Western Desert and one gas discovery in the Nile Delta.

In the Gulf of Suez, we found a new structure on the Sidri South prospect that hold up to 200 million barrel of oil in place.

In Ghana, in the CTP-Block 4, we discovered Akoma with the volume in place up to 650 bcf of gas and 20 million barrels of condensate. This block has further additional upside. The field is only 12 kilometers from Sankofa and after appraisal, it will be put in production with a subsea tie-in to the existing FPSO.

Finally, in Vietnam, we approved the presence of gas and condensate in the Ken Bau prospects in Block 114, a significant potential with an estimated net reservoir thickness in excess of 100 meter. That will be target for future appraisals.

During the first half of 2019, we discovered 350 million barrel of equity. These results allow us to raise our guidance to more than 600 million barrel disclosure reserves -- resources for the full year.

Eni is the first international company to start production in Mexico. In year 1, we drilled 5 wells 100% success rate before submitting the development plan, increasing the oil in place to over 2 billion barrels. We fast-tracked the early production phase, and we achieved the start-up in June 2019, less than 1 year from the approval of the development plan.

We are planning to have an FPSO production start-up by first half 2021 and then reach a production total of 100,000 barrels per day. This is only the first step in the country. We have recently increased our exploration portfolio by 6 blocks in the shallow and deep water, with a stake between 40% and 80%.

In the second half of 2019, we plan to drill 2 exploration wells. Also in this first half, with a lower price, upstream further improved its cash generation. Upstream cash flow from operations, including working capital, was EUR 5.6 billion, 6% higher than last year, while gas prices were materially lower.

On a comparable basis, the gross of cash flow from operations amount to 13%. With CapEx at EUR 3.3 billion, we generated an organic free cash flow in E&P of EUR 2.3 billion.

Moving to mid-downstream. Gas & Power EBIT was robust at EUR 418 million and in particular, G&P reached EUR 253 million, thanks to an effective optimization of our activity, which also benefited from market dynamics. This positive gas and power performances offset the lower contribution of LNG in a low global price scenario.

Retail delivered a result of EUR 165 million, a 28% increase versus last year, thanks to international deployment -- development and a stronger commercial initiative in Italy. This performance confirms our full year Gas & Power guidance of EUR 500 million EBIT.

The refining and marketing result was positive in a scenario impacted by the narrow differential of euros due to OPEC cuts in the Druzhba pipeline contamination.

Marketing was the driver of the result, with a contribution of around EUR 250 million. The start-up of Gela bioplant, along with the start of EST and the completion of the maintenance activities will allow us to capture the full benefits of IMO effect.

Finally, Versalis was impacted by the operating upset in Priolo, which returned to full operation at the end of June.

Net of these effects, Versalis would have been at breakeven despite the weaker scenario.

Before detailing the financial result of this period, I would like to highlight our progress in term of the decarbonization plan. We have a strong commitment to deploying a strategy based on lower emission per barrel in upstream and higher contribution from renewables, biomasses and the circular economy and initiatives.

In Renewables, we have 7 projects in 4 continents in execution, expected to be completed by the end of 2019 for an overall in-store renewable capacity of 190 megawatts at year-end. Thanks to the start-up of Gela, our biorefinery reached a treatment capacity of around 1 million tons per year.

Emission per barrel were lowered by 2.3% in the first half versus last year and by 22% versus 2014, in line with our long-term target.

Turning to the financial result. Cash flow from operations before working capital was EUR 6.8 billion, 23% higher than the last year's result. On a comparable basis, in terms of scenario, IFRS 16 and excluding one-off negative items, mainly affecting 2018, cash flow growth remains robust at 9%.

As anticipated, working capital showed a strong recovery in Q2 of more than EUR 1 billion to the traditional gas seasonality. First half CapEx at EUR 3.8 billion, in line with the 2018 first half and further optimization and efficiencies allow us to improve our CapEx guidance to below EUR 8 billion. Overall, in this semester, we generated an organic free cash flow before working capital of EUR 2.9 billion. Cash flow from operation and free cash flow are growing in line with our yearly expectations. And finally, a brief summary of our full year guidance. We are expecting better results in exploration discoveries and a lower amount of CapEx.

Due to the weak scenario for oil differentials and margins, we are revising our R&M EBIT to around EUR 500 million. All the other guidance remain unchanged. And now we are ready, together with the Eni top management to answer your questions. Thank you.

[Operator]

So we will now begin the question-and-answer session. The first question comes from Mr. Clint Oswald of Bernstein.

[Oswald Clint, analyst]

First question I wanted to ask, please, on Goliat. It's been a while since we asked about it. But looking at some of the monthly data, it feels quite erratic. It feels like it's struggling to get up to plateau capacity. Is that fair? Are there some issues at that particular field?

And then secondly, again, on the upstream, please. The tax rate obviously, quite high in the second quarter, 66%. And -- but you talked about Mexico, Norway, Algeria, ramping up in the second half, so I guess, some of those are also quite high taxed areas. Can you just talk about the tax rate evolution for the rest of the year? Should we see it go back down towards 60% or sub-60%? Or is this new level, potentially, something we have to consider?

[Claudio Descalzi, executive]

Thank you. So for Goliat, Alessandro Puliti, the Head of E&P will deliver the answer and then Massimo will talk about the tax rate.

[Alessandro Puliti, executive]

Okay. So regarding Goliat production, our expected equity for 2019 is 21,000 barrels of oil equivalent, that is equivalent to a 100% production to 46,000 barrels of oil -- of barrel of oil equivalent.

Production this year, it accounts for 2 main shutdown, one already occurred in May. We have 7 days production shutdown and we will have another shutdown in September of 20 days for statutory maintenance activities.

All in all, production has been affected during the year by some downtimes of our gas compressor that will be fixed during the shutdown turnaround in September time.

[Massimo Mondazzi, executive]

Okay. So let me comment a little bit about the tax rate. So as you know, the second quarter tax rate is always been the highest all along the year because mainly the Italian seasonal business. This quarter, this metric has been emphasized by mainly 2 factors. First of all, the worst scenario, mainly gas, this is affecting definitely the Italian business plus the upstream business, including the gas exported from Libya and refining margin. And together with this, what we had is a non-optimized [ attacking ] some Italian plants, mainly some other refineries, as you know, in the Priolo chemical plant that has been shutdown beginning this year.

But assuming in the second half of this year that the Italian assets are back to normality and Priolo is already done, Sannazzaro is ongoing and the scenario similar to the one that we experienced in the first half of this year, so more or less, EUR 200,000 -- sorry, EUR 200 per 1,000 ton to cubic meter, $66 per barrel Brent and refining margin higher, a bit higher than what we experienced in the first half. So we are still forecasting a $4.5 as an average full year.

We confirm a full year consolidated tax rate of 60%. So the increase in the tax rate that you noticed in E&P is mainly due to the gas part of the E&P business related to the European gas price trend.

But let me finally give you a quick note on the cash tax rate, because in the second quarter this year, the cash tax rate has been 33%, a bit lower than the 35% we recorded last year in the same period, confirming that the tax rate increase has been driven mainly by noncash items and the full year 2019 cash tax rate is expected -- is in the range of 30%, confirming the guidance that we already gave.

[Operator]

The next question is from Mr. Thomas Adolff of Crédit Suisse.

[Thomas Adolff, analyst]

Two questions for me, please. Just firstly, on the dual exploration model. You've announced the sale of 20% in Merakes Eni. You don't really say how much for, maybe you can comment on it? And whether are these proceeds are also incorporated in your CapEx guidance?

And secondly, I just wanted to ask you about 2020. Obviously, upstream production will grow on a year-on-year basis in the second half of this year, but I wondered what exit rate we can expect in 2019 and likely year-on-year production growth in 2020.

And then, of course, how that translates into overall group cash flow growth at constant macro. Will there be any growth in cash flow, considering you benefited in 2019 from a special dividend from your Norwegian subsidiary, which you won't be getting in 2020?

[Claudio Descalzi, executive]

Thank you. For the dual exploration model, yes, you remarked what happened just yesterday on Merakes. The dual exploration is clearly a consolidated model for the Eni. We are performing in different way or by cash or by kind or swapping, so it's working very well and is sustained by a very strong exploration results.

As you remark in the first semester, we made the discovery of these big giants and we have a large stake at that, that is continuing.

For Merakes, we didn't talk about the impact, clearly, the impact will be in the reduction of CapEx that -- sure that is not yet included because it's something that happened just now, so -- and that will be included in the development looking forward.

And also, obviously that we discover where we own a large stake will support this model looking forward. Now Massimo for the other questions.

[Massimo Mondazzi, executive]

It's a bit difficult to give you guidance as far as 2020 because this is still premature. So what I could say that, basically, you noticed that we are benefiting from a special dividend from Norway this year, will not be repeated for the future year, but definitely, will not jeopardize the growth in our cash flow as we projected in the 4-year plan, because this part is already embedded in the projection that we present today, March this year.

[Operator]

The next question is from Biraj Borkhataria of Royal Bank of Canada.

[Biraj Borkhataria, analyst]

Just a couple of clarifications. So on the Indonesian volumes, could you just give a bit more color around the reduction at Jangkrik, presuming it's because buyers will prefer spot LNG, given where we are in the market. But can you quantify the reduction in production there?

And the second question is on the production guidance for 2019. Can you just remind us what contingency you have left in the budget at the half year point?

[Massimo Mondazzi, executive]

[Foreign Language] ELP. So on the Indonesia LNG sales, you're right. So the -- we have long-term contracts signed on that field, which is -- buyers actually having difficulties to uptake all the volumes, given the situation of the market. And so the -- let's say, the joint venture has already made-up some of these reduction in volumes and trying to sell tenders for selling spot LNG. So we expect a slight reduction in the sales for the second half of the year given the market condition.

[Claudio Descalzi, executive]

So for the internal production, the question related from cargo to production. We consider about 10,000 barrel per day on average, possibly 10,000 ton -- 10,000 per day that -- for that reason, we gave a range for the final target of this year.

In terms of contingency on the second quarter, we are going -- we have about 50,000 figure second quarter -- second half, 50,000 barrel per day.

[Operator]

The next question is from Irene Himona of Societe Generale.

[Irene Himona, analyst]

I had 2 questions, please. Firstly, Kashagan. Is it back from maintenance? Is it back into production? And what is the current capacity growth and net to Eni, please?

And secondly, on R&M, where you lowered the guidance following the weakness in refining. Can you say of the EUR 500 million you expect, given the performance in the first half, what is the split between marketing and refining and it seems that, obviously, refining has been loss-making? What margin do you assume in the second half to reverse that?

[Claudio Descalzi, executive]

Puliti will answer for Kashagan and Giuseppe Ricci will answer for R&M and the split between R&M result.

[Alessandro Puliti, executive]

Okay. For Kashagan, we confirm, we are -- we have finished the turnaround and it went very well, because it lasted 10 days less than it was initially forecasted.

During the turnaround there was also the conversion of 2 additional wells to gas injector. And this allowed an improvement to the production performance, they ramped up at 390,000 barrels of oil equivalent per day currently.

Our share during the year is 64,000 barrels of oil equivalent.

[Giuseppe Ricci, executive]

Giuseppe Ricci, Refining and Marketing. About the guidance for the -- from EUR 0.7 billion to point EUR 0.5 billion in 2019. This is due to the weaker scenario in the first half. And the fact that we have concentrated in the first half just because the scenario, expected the best scenario, all the maintenance and the turnaround.

We expect to have a big recovery in the second half because the scenario is increased -- is already increased in July and we expect to have a good margin and good spread, [Foreign Language] in the second half because the IMO effect.

In addition to this, we will have in the second half, the contribution of Gela refinery, biorefinery in start-up in these days and the start-up of EST plant in Sannazzaro.

We could -- we expect those a good contribution of the marketing, that in this quarter, the third quarter, this is the driving season, the summer season.

And overall, we expect in the second half more than EUR 200 million of contribution from the marketing and slightly less than EUR 200 million from the refining overall traditional and bio.

[Operator]

The next question is from Jon Rigby of UBS.

[Jon Rigby, analyst]

So two questions, just on the -- you referenced the scenario in the downstream behind the standardized refining margin deteriorated. And obviously, we can see that. And that you just referenced, like heavy spreads, sweet/sour spreads, et cetera. Are you able to give me a little more detail on the assumptions that you make around the crude spreads that get you to a sort of standardized margin?

The second question is, are you able to give some indication on the Abu Dhabi entry, when that will start contributing to your downstream results? I'm assuming that will go through associates in any case. But just when that is likely to start to -- well when it will complete, then it'll start to deliver earnings.

And just one other thing if I could. Can you give some guidance for 2H overall on disposal receipts? I know there's some sort of deferrals or some agreements that are yet to be completed, et cetera. So is it possible, you just remind me what disposal receipts you're expecting in addition to the market's one?

[Giuseppe Ricci, executive]

Okay. About the spread, I [indiscernible] for crudes. We had in the first half, a very big spread over $1.4 per barrel of appreciation of high crude versus low crude, so it's very strange scenario. We expect to have in comparison with the budget, we expect in the second half, in alignment with the budget. And we have just, in the last part of June, in the -- early in July, we are seeing this alignment.

About ADNOC, we expected the completion by the end of this month, the 31st of July, 3 months in advance versus what we have expected. And I leave the floor to Massimo.

[Massimo Mondazzi, executive]

Okay. So as far as the -- for the disposal in the second half, Jon. You noticed this morning that we sold 20% of Merakes and we have some other ongoing small divestiture that will take place this -- in the second part of this year.

The overall amount we expect to be seen is in the range of EUR 300 million.

[Jon Rigby, analyst]

Okay. And just to come back to the -- just to confirm, the ADNOC contribution will be your sort of affiliate pick up through due to the decline there.

[Massimo Mondazzi, executive]

Yes. Jon, we expected -- when we announced the deal, we said that we expected a small contribution starting from 2019 because of the interim dividend to be distributed. The latest from Abu Dhabi is, because of the scenario that is lower even in Middle East and Far East, together with a slower ramp-up in the new revamped FCC part of the overall plant, probably the contribution this year will be 0, while we expect still the contribution we announced during the acquisition time starting from 2020.

[Operator]

The next question is from Jason Kenney of Santander.

[Jason Kenney, analyst]

Well done on the exploration success year-to-date. I just wondered if you could list maybe the key wells to watch in the second half 2019 that are going to support the additional 300 or so resource addition. And on the share buyback, I think, over 50 million done to date. Should I be assuming the 400 million share buyback within the 2019 time frame? Or am I thinking into the first and second quarter as 2020?

[Claudio Descalzi, executive]

Luca, for exploration and Massimo, for the buyback.

[Luca Bertelli, executive]

In the second half, we expect to drill 2 deepwater wells in Mexico. And we have another important well offshore Egypt and we will continue drilling in Angola. So these are the key wells, taking into account that in the 350 million barrel of equity declared so far is not considered Vietnam, yet, that well is just finished and we are evaluating the discovery. So that is, in any way, is a material discovery.

[Massimo Mondazzi, executive]

Okay. So as far as the buyback, definitely we confirm the 400 million to be both throughout the -- from now to the remaining part of this year. While, as you know, as far as the buyback in 2020, it will be decided based on the update in our strategy that will be performed on March -- February, March, 2020.

What I could say that, looking at the financial, we are projecting right now, mainly the leverage that we see that today before the IFRS 16 is 15%. I would say that such results have been well encouraging towards a continuation of our buyback program even in 2020.

[Jason Kenney, analyst]

Okay. If I might just follow up on that point, do you expect leverage at the year-end be in a similar level?

[Massimo Mondazzi, executive]

We expect, as we probably detail performing this strategy, definitely, we are going to pay now to EUR 1 billion to EUR 2.77 billion because of the ROI 20% acquisition. And so based on this and based on the scenario we expect in the second half of this year, we expect the leverage before the IFRS in the range of 20% because of, as I said, the significant amount to be paid for ROIs and that should be the ceiling, yes.

[Operator]

The next question is from Alastair Syme of Citi.

[Alastair Syme, analyst]

I just had one question, actually. It was on the ROC, given that you're relatively important player in that country. Could you just talk a little bit about the investment climate that you're seeing there? I think back in May that you might have mentioned, you're going to invest an additional $7 billion in CapEx in Zambia, so I assume that some sort of statement that requires better fiscal terms than you're currently getting. So maybe if you just talk about that and what you think the potential of the asset is, please?

[Claudio Descalzi, executive]

In record -- our investment in record, always focus on today because we are growing out the production. We reached about 700,000 barrels per day. Contractually, we have to reach more than -- about 800,000, so we have investment. Our stake is about 40% -- 39%. And that our investment needed to reach this target.

As I remember that we recover -- every quarter, we recover our investment, so there is a very fast recovery of our investment. Up to now, we don't have outstanding. So we are recovering. We recovered all the [ 9 ] investment until now plus the remuneration.

So at the moment, we are working on these projects. We have other opportunities, especially on the gas and oil that we have started -- just at the level of starting, nothing else.

[Alastair Syme, analyst]

Can you just clarify, is there any potential in Zambia to raise the production beyond those to the 850,000 target. I know, originally, have been talked about 1.2 million barrels?

[Claudio Descalzi, executive]

So the potential in term of the sales is there. Clearly, we are sailing with the contrast, the timing. And then we have to -- we have some of those related to the water injection. We are to find the right balance between the production and the injection. So the oil is there and can flow, needs additional investment.

We have already a lot of facilities that we can use to expand the investment that is linked to contracts, is linked to water and also is linked to the internal rate of return of the investment. So it's being closer to the possibility to improve the condition of the contract.

[Operator]

The next question is from Christopher Kuplent of Bank of America.

[Christopher Kuplent, analyst]

Just 2 more questions remaining and they're quite lazy because I'm asking you to give a little bit more color on guidance that I think you haven't given us so far. But you referenced without the Priolo issues that the Versalis was already running at breakeven? And would that be a fair assumption going into the second half of this year?

And second question, even more obscure. Can you give us a little bit of color on what's happening in the other and corporate and intra-group line items that seem to be quite volatile? And any hint on whether this is going to correct and more or less stay at historical levels on a full year basis into the second half would be very welcome? Sorry about the nitty-gritty.

[Unknown Executive]

[indiscernible] from Versalis. Thank you for your question. Yes, the second half was poor in terms of results with an EBIT negative of EUR 28 million. But in this number, you have to consider that we also have some one-off effects resulting from some temporary standstill on our Gela plant.

Overall, we can sustain a breakeven in this scenario. So having said that, assuming fairly the same constant scenario for the second half, we are confident to sustain a [indiscernible], also that we do not expect any major planned maintenance activity for the second half and it also with a fast improving.

[Massimo Mondazzi, executive]

Now as far as the other items, so really, we do not expect any kind of volatility looking forward to the end of the year. So the volatility we recorded in first and second you remember, it was related to the internal gain, so internal transaction between business inside Eni not reflected yet towards the external market.

We had some of them pending in the first quarter that has been recovered in the second quarter as expected, as announced and we do not expect anything like this in the months to come.

As far as the other cost, corporate cost, we expect a slight decrease in such a cost, but nothing very much volatile.

[Operator]

The next question is from Bertrand Hodee of Kepler Cheuvreux.

[Bertrand Hodee, analyst]

So I got one question concerning Libya gas exports to Europe. Massimo, you mentioned that you had adverse tax rate effect in Q2. Can you clarify if European gas price will stay low in the next quarters, will it still be the case with adverse tax rate impact? And can you confirm that you are making money on those gas exports from Libya to Europe, even as it is very low prevailing natural gas spot price in Europe?

[Massimo Mondazzi, executive]

So the answer to your final question, yes. And the fact that we are recording such an effect on the tax rate because you may remember that the Libyan gas contract is the remaining one that is fully related to oil.

So on the upstream side we -- the gas price is related to oil, turpentine. And then the gas is sold to the -- mainly to the -- so mainly. More or less today, we are talking about 40% of our overall gas production that is exported and sold to the European gas market, mainly at the up price, so that's the difference that's generated part of the increase in the tax rate.

As I said, if we forecast a gas price in Italy, [indiscernible] in the range of EUR 200 per thousand standard cubic meter. Second half we do not expect any kind of discontinuity in the tax rate that has been confirmed in the range of 60%.

Even if the gas price should be a bit lower, to give you an example, maybe EUR 10 per 1,000 standard cubic meter, I do not expect any significant reflection on the tax rate.

[Operator]

The next question is from Massimo Bonisoli of Equita.

[Massimo Bonisoli, analyst]

Two clarifications left. Considering the volatile development of the net working capital over the first half, how do you see its development over the rest of the year?

And the second, maybe I did not catch it over the call, if you can clarify the drivers behind the new CapEx guidance? Is it the result of the farmout maybe?

[Massimo Mondazzi, executive]

So as far as the working capital and so the volatile trend is mainly related to the seasonality. So nothing special, nothing new and in line with the expectation.

Now as far as June, the stock is a slight absorption of cash in the range of EUR 200 million. And what we expect, the same shape all along the second half up to the year-end. As announced, you remember, presenting the strategy, this year, we expect a slight absorption of cash from working capital in such a range, so EUR 100 million, EUR 200 million. And the CapEx guidance, the CapEx, Claudio.

[Claudio Descalzi, executive]

No, no. I just want to relay something on the CapEx guidance because as we said during the presentation, we have been able to reduce also -- given a new guidance to reduce CapEx. That is really a matter of efficiency, it's not cutting, it's really efficiency and efficiency that is mainly driven by the time to market.

When you are able to respect, not just respect, but anticipate your projects in term of timing you spend less and that's what happened, that happened Zohr because we anticipated one here. That means you can be mobilized. That is happening in Mexico, because in less than 1 year, we put in production the field -- and that happened also in the Western Desert and that is really efficiency. That is not just a mere reduction of CapEx, but an anticipation of your production, so that is one point.

[Massimo Mondazzi, executive]

And nothing to do with the dispositions because disposition were already included in our budget, so...

[Operator]

The next question is from Alessandro Pozzi of Mediobanca.

[Alessandro Pozzi, analyst]

I have 2 questions. The first one is on [ Qatar ] volume. New farmout and3 few licenses in Kenya and that adds to your -- to the established partnership you already have in Mexico and Mozambique, just to name a few. I was just wondering, what is the likelihood that we're going to see meaningful production in Qatar at some point in the future? And also, on Agogo. I believe you mentioned 1.8 billion of barrels in place in the block. Just wondering, what is the level of resources required, maybe to have a new hub in that block?

[Claudio Descalzi, executive]

So I give you 2 answers. So QP when? When it depends mainly on the host, not on the guest, to open the door and let us step in. Clearly, we are already willing to step in and work in Qatar. We work very well. And now, is it 3 years that we work together outside Qatar. We buy gas from Qatar, so we know each other very well.

Now there is these standards for this function of the plant and we are working -- we are working very hard and we hope really to be able to work in Qatar for the first time and add production over there and not just production but also LNG to export.

When you say about Agogo, one, just to make a correction, because when we talk about the 1.8 billion is related to the discoveries that we made in Agogo itself, the second appraisal confirmed the 650 million that we discovered, but with the first well. Then we have the second well is being driven 3 kilometers from the first exploration well and confirm the discovery and find additional explorations.

Going to the hub, we had 2 hubs and we made the 2 hub before discovering having about 1.8 billion, 1.7 billion barrel of resources and through this also because of this location and distance, so the reservoir we developed 2 hubs.

Clearly, here, with the first well that we're going to tie-in, in a record time, is really to tie the reservoir and gives more energy to the existing hub, but the existing hub has a ceiling and the ceiling can be 150,000, 160,000. And with all the discovery that we discovered, for sure, we want one just to give an extension to the existing facility was or we want also to develop.

So development as we start in terms of wells, number of wells, that is really likely that for the discovery that is a supergiant discovery. Therefore, this discovery, we will develop a new hub, but we need an additional project to understand the reservoir and the number of wells and the final possible cost.

[Operator]

The final question is from Lydia Rainforth of Barclays.

[Lydia Rainforth, analyst]

Two very quick ones. It's actually on the low carbon part of the business. In terms of the CO2 emissions the [term] that you showed coming through. Can you just talk through what it is that you're doing differently now versus previously?

And then secondly, with Gela and EST start coming back in second half this year, how do you add that those -- the margins for those plants to be compared to the wider downstream?

[Claudio Descalzi, executive]

So the first question. Answer to the first question, you're asking if we are reducing [ as we are served ] doing different before the past. It's already years and years that we restarted EST a long time ago. You see the drop sign to reduce our CO2 emissions. Just to give you figures -- sorry. I'm sorry. So if you see the figures, just 6 years ago, we -- our scope on CO2 production was about 60 million, 65 million tonnes per year, now we are 40 million that splitted equally between upstream and downstream.

Clearly, we work and lost on the upstream because we had more space because we work on the flaring down that's been drastically reduced more than 80%. And then we work on the methane emission and that is, clearly, the target is to let out by 2025, to stop all the flaring and reduce additional 80% of the methane emissions.

Clearly, that is not now. We are working a lot on circular economy. We work -- we are working on renewable also for that reason, because we are replacing our internal gas consumption through renewables. And that is impacting the Scope 1 and reducing the Scope 1 standard for emissions. And for the downstream period, this downstream is more resilient to reduce CO2 is a downward process, its down on CCUS and CCU, that is what we are projecting. And we are developing to reduce and capture the carbon production in the downstream.

We have a target, a clear target with the commitment 2030 to reset -- to offset the Scope 1 in the upstream. We are working, working in progress. We hope that next year, soon, when we are ready, we can also disclose when we'll be carbon-free also in the downstream. Thank you.

[Operator]

Gentlemen, would you like to make any closing remarks. There are no questions registered at this time.

[Claudio Descalzi, executive]

No. Thank you. We don't. I think that we touched all the points and we don't have any closing remarks. Thank you very much for your attention.

[Operator]

Ladies and gentlemen, thank you for joining. The conference is now over and you may disconnect your telephone.