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Eni SpA
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Good afternoon, ladies and gentlemen, and welcome to Eni's 2018 Third Quarter Results Conference Call, hosted by Massimo Mondazzi, Chief Financial Officer. [Operator Instructions] I will now hand you over to your host to begin today's conference. Thank you.
Good afternoon, and welcome to the 9 months result presentation. During 2018, we've continued to grow and strengthen our business model, accelerating cash generation. But let's see more in details.
In Upstream, production was 1,844,000 boe per day, up 3% compared to the same period of 2017 or 4% if we take into account PSA price effects. We expect further growing volumes in the last quarter. Moreover, we will continue to proceed towards the FID that we have planned, in particular for Mexico Area 1, where we already obtained approval of the development plan, while we'll progress also with the next Phase 2 to Congo, Cassiopeia in Italy and Merakes in Indonesia.
In exploration, we continue to expand our portfolio of acreage, in particular with the deals we announced during October in Libya and Mozambique. Another important driver of our growth is Gas & Power, which in this quarter, has maintained a positive result, bringing operating profit from the beginning of the year over EUR 500 million. In this business, we're going to further improve our yearly guidance.
Finally, our refining and chemical results, while over the last year, confirm that the new industrial structure allows greater resilience to fluctuation in oil prices. Cash flow from operation before working capital in the 9 months amounted to EUR 9.4 billion, recording the strong acceleration the last quarter, which we achieved EUR 3.4 billion. In the first 9 months, free cash generation before net disposal of the period amounted to EUR 4.3 billion, well in excess of the full year dividend. Our net debt is declining as well our leverage that is now at 18%, and it is expected to contract further by the end of this year.
Upstream is speeding up in terms of economic results and cash generation. In the first 9 months of 2018, we recorded a 4% production growth compared to 2017. This result was achieved notwithstanding the conclusion of the Intisar gas contract at the end of June. The effect of the expiry was about 40,000 boe per day over the 9 months and was more than offset by the new start-ups and ramp-ups in Angola, Congo, Ghana, Indonesia and Egypt, including the acceleration of Zohr that, since early September, reached the level of 2 billion cubic feet a day in advance versus our original schedule.
Our growth would have been even more sustained if it had not been impacted by lower gas demand in 3 countries: in Venezuela and Libya because of lower domestic consumption and in Ghana because of lower gas nominations from the buyer.
Assuming that these 3 effects will continue also in the fourth quarter, which is our most likely case, yearly growth will be around 3% versus the original guidance of 4% at the price level of $60 per barrel. However, it should be noted that this lost production, as long as we envisage it will persist, has only a marginal effect in term of cash generation.
The new production contributed to increase our operating results up to EUR 8 billion, EUR 4.6 billion more than last year. This growth was boosted by a higher scenario for EUR 3.7 billion and EUR 900 million by endogenous contributors.
Also in term of cash generation, our Upstream confirms its strength with an operating cash flow of EUR 8.9 billion, 60% higher than last year, and a CapEx amount of EUR 4.7 billion, 8% lower. We generated an underlying free cash flow of about EUR 4.2 billion excluding portfolio actions. E&P is covering its CapEx at around $40 per barrel. It is worthwhile to highlight that E&P free cash flow in 9 months is also higher than our full year dividend.
Upstream cash flow per barrel grew to $21 in the first 9 months versus $16.70 on average last year. This was based upon an improved scenario and increased quality of portfolio that benefits from accretive new production in Ghana, Egypt, Angola, Congo as well as Indonesia. This improvement is driving our cash flow per barrel faster than planned towards our total 2021 target of $22 per barrel.
In Gas & Power, we continue to achieve important results by beating for the second time the guidance that we had previously set. With an operating profit of EUR 500 million in the 9 months, of which EUR 110 million related to retail, we can now further upgrade our full year guidance to around EUR 550 million. This strong result comes from the growth of the LNG business, while we envisage 9 million tons of contracted LNG at year-end versus 5.2 million tons last year. These 2018 volumes are 56% equity, almost twice the level of last year. The second contributor is power, and third the greater competitiveness of Midstream, which is combined by a stable contribution of retail business.
The Downstream has been penalized by margins that are 25% lower than last year. Refining was affected by the appreciation of sour crudes due to U.S. sanction on Iran and euro exchange rate that worsened our breakeven by $1.40 per barrel. At budget scenario, the breakeven margin is $3.40 per barrel in the first 9 months and is expected to fall to $3 -- $3.20 on average in 2018 and further down to $3 per barrel with the restart of East project during the first half of 2019. The robust contribution of marketing, however, ensured an R&M result of over EUR 200 million in the 9 months period. In our Chemical business, we delivered a positive contribution notwithstanding the rapid increase in the euro price average in naphtha and the growing supply of ethylene from U.S. plants.
In term of cash generation, we reached a level of EUR 9.8 billion. For 2018, assuming an average Brent price of $72, we estimate an operating cash of EUR 13.5 billion. Our operating cash flow will cover CapEx estimated of EUR 7.7 billion and generate an organic free cash flow of almost EUR 6 billion, twice our dividend. A further benefit will arise from portfolio activity that contributes EUR 300 million. Leverage at 18% and gearing of 15% at the end of September will be further reduced in the full quarter.
And now, together with top management, I'm ready to respond to any question you may have.
[Operator Instructions] The first question comes from Adolff, Thomas with Credit Suisse.
I have 3 questions, if I may. A lot of good things are happening in Egypt at the moment, so I want to focus my questions on Egypt. Firstly, you mentioned you've obtained a 10-year extension of the Great Nooros area, which is great. But perhaps since production there has often surprised positively on the upside, can you perhaps talk about the profile we should expect for Nooros and the remaining prospectivity of the license area? Secondly, on Zohr, the ramp-up is performing better than expected. I wonder whether you can comment on how the reservoir is behaving so far and whether the previous or the current plateau target could be raised? And then finally, on Egypt as well, I wanted to know if you've spudded the Noor prospect? And if you are happy to share with us the predrill P50 estimate for this well?
I'll leave the floor to Antonio and Alessandro to answer your questions about Egypt.
Okay. Concerning the Nooros, I think we are -- as you know that we are producing stable 1.2 billion scf per day within synergy with Abu Madi facilities. We have already launched a pipeline connecting the Abu Madi facilities with El Gamil in the cost because we have spare capacity. This will allow us to continue exploring Nooros for the future, possibly expanding the production. But in addition to pipeline, we're going to connect Baltim West, such left already a lot of exploration to be done. And this is the large prospectivity which imply an extension of 10 years for that part of the development area in Nile Delta.
On Zohr, we are progressing our plan in anticipation with train 5, which is going to be on stream in March. Then, we'll continue 6 and 7 between June and September to reach the POD value with an upside of additional 1 billion scf, which is going to give us the opportunity to produce 3.2 billion scf per day within next year. Concerning the reservoir, I leave the floor to Alessandro to tell you exactly how it's producing the reservoir of Zohr.
Okay. Good morning. Reservoir of Zohr is currently delivering extremely good performance. Pressure depletion is hardly detectable and certainly reservoir performance, they will sustain the increase of plateau just mentioned by Antonio. So we will target to achieve by end of 2019 a target of 3.2 Bcf per day of production.
Okay. Maybe Luca could answer the Noor question.
On Noor, we start drilling the well at the end of September. So we are in a very early stage. What I can share is that Noor is a sizable prospect, and this is our expectation for a while.
The next question comes from Alastair Syme with Citi.
Just a couple of outlook questions. I think you previously talked about the LNG market as you looked to market Mozambique. I think you said earlier in this year that you might look at taking 50% equity, and the LNG markets will probably not support more than a 12% slope. I just wonder if you can sort of update us on the current state of the LNG market as you market that gas? And secondly, could you just talk a little bit about the MOU you signed with Pertamina? What's your intention? And what sort of returns criteria will you use on investment?
I'll leave Massimo Mantovani answering your question about the LNG market outlook.
Well, you know, it was a great year for LNG, and it was an unbelievable -- very great quarter. If we consider that the JKM reference pricing in August was $10.50, and which is even higher than actually what we expect in November. And on the other hand, for the LNG market, we also have to consider that most of the contracts are oil based and -- in terms of what we buy, which is good for our Upstream side. And of course, for us, it's a little bit less good.
But on the other hand, what is clear and important for us is that Eni makes a profit. In terms of Mozambique, the discussion which has been taken with our partners is in respect of actually going ahead and taking marketing out of the critical path for taking the final investment decision, and this is still the status, and we are still all targeting for a finalist decision to be taken in 2019. And we do believe that, that gas would be important to be added to our portfolio of LNG.
I have to mention that, this year, we will sell and -- about 7.5 million tons as compared to 5 million tons of last year. And what is more importantly and was also mentioned by Massimo before is that we had an increase on the quarter, which is coming from our own equity, which is more than 50% this year as compared to about 30% last year. And that, as we also said in, the full year plan is going to grow. We are targeting a portfolio which is sizable enough to take all the opportunity. And in the contractor, the end of this year, we'll be already 9 million tons. And so we are more than in line than what we envisage in the plan, which was about 12 million tons by 2021. So we're increasing more than that.
Okay. So about the termination. I'm referring to the MOU that is being signed about the Chemicals business. This is an MOU aiming at expanding the ratios between the 2 companies. So the main target for the time being is to explore the wide array of potential new opportunity across the entire value chain by targeting, mainly, as I said, green refinery initiative. You know we are transforming Gela and Venice. We are, at the moment, the first in doing such a transformation. Pertamina is very well interested in exploring alternatives, such as the one that we are doing in Italy, so that is the main scope of what we signed.
And can you just remind us what sort of returns criteria you're using in downstream investment?
So, this is -- really, this is a figure of status in this respect, but if I give a look to the expected return from the green refinery right now what we are doing in Italy, Gela and Venice definitely, the turnaround return we expect today is higher than 10%.
Okay, so higher than 10%.
Yes.
So can I just circle back on the Mozambique. As you market out Mozambique, is it still the intention to put roughly 50% on equity? Is that still the plan?
Yes, it is. I mean, I think, that the key issue, as I told you, is that the Gulf tank will be taken by the partners pro rata through their respective participation in the project, and so that's equity for us.
The next question comes from Thomas Klein with RBC. Excuse me, the question has been withdrawn. The next question is from Jason Gammel, Jefferies.
Do you have any updated thoughts on the potential for the restart of the Damietta facility in Egypt? Any progress that's been made there? And second question on the Chemical business. Can you talk a little bit about how you think about the medium-term competitiveness of the polyethylene business, just given that one of the factors that you cited for the weakness in the quarter was the surging volumes from the U.S. because that looks to only be increasing over the course of the next several quarters?
Okay. Massimo to answer the Damietta question.
Pertaining to Damietta is not being work in terms of taking out LNG since few years. And now the condition of the market is completely different. Now we're told that the production is coming out in Egypt. And not only in Egypt, actually in the future, something can also be aggregated from bordering areas. Does it look pretty good in respect of a restart of Damietta. There are ongoing discussions, which are quite advanced, and I think it's the interest of all parties that Damietta could start as soon as possible. It takes about once an overall agreement is reached, something like 3, 4 months to start. But I wouldn't be surprised if we don't have Damietta on work next year. Nevertheless, this is the objective of the discussion which are taking place.
So Alberto, the Chemicals business CFO, will answer your question about the Chemical business.
Thank you, Jefferies (sic) [ Jason ], for your question. Yes, indeed in the third quarter, Versalis recorded a negative effect on the scenario driven by the polyethylene business, but you have to address this negative effect on as the comprehensive combination of events, the rapid increase in the price of naphtha, a strengthening dollar and relativity lower demand for polyethylene in Europe. It is quite difficult to project this volatile market of the quarter in the coming months. For sure, as a general trend, we can say that, in Europe, there is a growing trend in substituting naphtha with ethane, and there are growing fluxes of ethylene from the U.S.A. But at the same time, Europe is still enjoying very strong demand growth, definitely, it is healthier than the -- in the last 2, 3 years. And so this growth in demand could rebalance the pressure from rising oil-based feedstocks.
The next question comes from with Henry Tarr with Berenberg.
I just had a couple of questions. One was on higher gas realizations, which were a clear driver for the quarter. Were they higher across the board? Or were there sort of specific regions where you benefited particularly? And then secondly, on the Gas & Power business. You've obviously increased the profit target for the year. Is the bulk of that being driven by LNG? Or are power generation, Midstream, retail also adding to that change in guidance?
So as far as the gas realization price, I mean, the gas realization in the E&P business is definitely the growth that we recorded in this quarter, was driven mainly by the new production, new ramp-ups in E&P production, such as definitely Zohr. Zohr, you remember, we never disclosed actually the formula, but we always said that the formula is partially linked to the oil price. So today with the oil price at $70, $80 per barrel, definitely we are benefiting from the higher range of the price formula. The same for the new gas production that is coming from Jangkrik.
So this is another good example of high-price gas that we are increasingly producing worldwide. But let me completely correct you. You noticed the increasing gas realization price. Let me also add that, at the same time, the cost we incurred to produce this additional quantity of gas is really competitive because, definitely the most important example is Zohr that has been developed in a very low scenario in terms of cost, but even Jangkrik benefiting from a very positive scenario.
So what we are harvesting right now is the best margin that is the result of high prices and very low cost sustained to develop this gas fleet. As far as the composition of the Gas & Power result, maybe I'll leave the floor to Massimo Mantovani.
You know the key strategy for this year was based on 2 pillars, which was the turnaround of the legacy contract and assets, and the integration with absolutely some respect of LNG. And I think that both worked pretty well this year. And all line of business, which is in Gas & Power, work as well, I mean, starting from retail business and also I have to mention specifically LNG. LNG was one of the top performer. As I said before, we increased the amount of volumes quite significantly, mostly Upstream. Jangkrik was a pretty good source for that, also for extra volumes. And considering the price that we had in the market, which were quite exceptional, as I mentioned before referring to JKM but not only also the European gas market, it was a pretty good moment in particular in this quarter.
The next question comes from Rafal Gutaj with Bank of America Merrill Lynch.
Just the first one, turning back to European gas. Can you just remind us on your exposure on just spot versus longer-term structure in Europe? And then secondly, your production guidance on entitlement is 3% at $60. Just given that we're running at about $72 year-to-date, can you just remind us on the sensitivities of that if you were to run that at year-to-date numbers?
Okay. I'll give you right now the answer to your second question. So the sensitivity is more or less 10,000 boe. So dropping from $72, that is the number at which we are running the full quarter to $60 per barrel. That is the level of Brent at which we are giving the guidance, so $12 per barrel means more or less 10,000 boe per day. And maybe I'll leave the floor to Massimo to answer question about Europe.
You know, we have a quite complex aggregated portfolio from the European gas base, of course, on the contracts of long term with different source. And in terms of sales, something like about between 25% and 30% in general terms is actually sold on the spot market. It's also an issue of optimization, which is done constantly. And we also have to consider that, in all this, of course, as a way towards all the logistic that we acquired in the past in respect of the gas business.
The next question comes from Jason Kenney with Santander.
Coming back to theme from an earlier question, if I might, on the oil and liquids realizations. I'm just trying to take down to see where there were perhaps some regional supports in oil and liquids realizations, particularly looking for Kazakhstan and Italy to see if they were above normal. And then maybe also a general trend. I think, in 2016, the discount versus Brent for Eni was 10%; in 2017, it was 8%. On a year-to-date basis, you have 7% discount versus Brent. So I'm just wondering what I should be thinking about that trend going into 2019, please?
Well, the most important reason why we reduced the discount versus Brent is the quality of our production. The -- if you think about the most important contributor of new production, such as Goliat and Kashagan, for example, so high quality of oil, definitely they are contributing significantly to the net price we're going to get from the market. We do not expect significant changes in this discount overall as far as 2019.
The next question comes from Alessandro Pozzi, Mediobanca.
I have a couple of questions. The first one on Venezuela. You mentioned a bit lower production there. I was wondering if you can maybe give us an update on the situation in Venezuela, also in terms of which are the roles? And going back to the Zohr previous questions, you mentioned your target is to increase production to 3.2 Bcf by the end of next year. I was wondering if that is subject to the restart of Damietta or not?
Okay, Alessandro, so as far as Venezuela, the situation remain a critical one, so the reduction in gas taken by PDVSA, as I said before, is expected to remain in place at least by the end of this year. And we will see the reduction, we guess, is caused by the reduction in domestic market consumption together with, I would say, some technical problem that PDVSA is having in these power plants that now are suffering because maybe they are short of spare parts to have their plant back in production after maintenance. In term of financial exposure, the news are not so bad because the level of exposure we are succeeding to take is quite stable. We are talking about something less than $700 million. We are receiving some payment anyway, notwithstanding the situation. So on this respect, we are in line with the projection we made at the end -- at the beginning of this year, when we definitely took into consideration the difficult situation in country. And maybe I can answer also because it's quite easy, the question about Zohr. Now definitely, the target of 3.2 definitely is not related to the restart of Damietta.
The next question comes from Jon Rigby with UBS.
I think both these questions are for Massimo. The first is when we met in March, you had a slide that talked about a leverage target and share buybacks for excess cash distribution. So I guess, given where your performance has been and where the macro has been, that scenario is now starting to come into view. I think it feels to me that the industry is thinking hard about where it should exit a high-cycle conditions in terms of gearing and so sort of balancing gearing versus buyback.
So I wondered whether you could just share with us some initial thoughts about that, obviously, early days, but -- and I guess you'll talk about it in 2019, but some sort of thought process around where you want to be with respect to your leverage target and what you would then leave over for buybacks? The second question is, just on tax rates. We seem to now be leveling out in the Upstream about 55% or so tax rate. Is that a good number for you going forward at these kind of oil price conditions? And then also secondly, your downstream businesses actually seem to take quite a high tax charge. I think about where corporate tax charges are globally. So I just wondered whether maybe you can shine a little bit of light on that?
So in term of leverage and cash distribution and buyback, Jon, as you said, that maybe -- the good timing to talk about any decision is would be March -- February/March 2019, where we are going to present our new strategy. But definitely, what I could say that, up to now, nothing changed in term of aspiration and strategy. So what we said in term of aspiration to maintain progressive dividend together with a buyback while we perceive a leverage below 20% steadily remain in place.
And on this respect, I would say that what is going on, what we are doing in term of performance, in term of implementation of our strategy is running very well. So the cash we are producing is significant. You have seen that the leverage dropped below 20% for the first time in the third quarter. As I said, we expect the leverage will be even lower benefiting from the cash we're going to generate in the fourth quarter. So March will be the right time to tell you when, end of March, but we are really on the right way to implement what we said in this respect.
In term of tax rate, yes, assuming a $70, $75 Brent scenario that you know is impacting significantly our tax rate on the Upstream business. That definitely is the most important tax contributor in our group. Something in the range of less than $60, something in the range of $55, $58 would be the right guidance for this year -- the full year and as well as in 2019. While the cash tax rate is expected to remain in the range of 30% as it is in for the first 9 months. And in term of tax rate on downstream, let me see the detail. I see a 40% tax rate that is a bit higher than the Italian tax rate. I don't have a specific answer in detail. So maybe I'll let you know, Jon. So the tax rate is 40%. Why it's higher than 30%, 27%, I'll let you know.
The next question comes from Rob West with Redburn.
The first one I'd like to ask you is about your long-run guidance for the Gas & Power business. I think back in March, that was targeting EUR 800 million by 2021. And this year, you're effectively coming in at double what you're targeting. You spoke a little bit earlier about having more volumes coming through the gas business, particularly on LNG. And so my question is would it be right to assume that, that long-run target is moving up with as well or should be when you come to revisit it in March? The second question I have is about the -- just the evolution of Upstream OpEx. It's not a number that we see in disclosures. And so I was wondering if you could comment on whether you're managing to keep costs where you want them to be? Or see anything in there that requires a bit of focus to address inflation coming back?
Okay. In term of Gas & Power long run, so as Massimo said, definitely mainly in Mid gas, the result we are achieving in 2019 is being definitely positively affected by the scenario. A scenario that has been really positive on all the sub businesses included in Midstream. So the clean spark spread in power, the gas price, the LNG price in Far East and elsewhere. So we have been surprised. That's the reason why we adjusted twice the guidance because the scenario that we are testifying is definitely higher.
So on this respect, we believe that the adjustment, the scenario we are assuming, we're going to assume we project our full year plans would be lower than this based on normal condition? But at the same time, the result we are achieving justify that the industrial activities, the progress in term of lower cost, higher margin in term of clients talking about retail is progressing even a bit faster than expected. So no reason to change the guide today. And as far as 2019, definitely, we will touch base more precisely in March.
But definitely, what we could say right now that we are going to project something that will be globally in the range of EUR 400 million to EUR 500 million in terms of EBIT -- expected EBIT. In term of Upstream OpEx, now we are -- the actual number is in the range of $7 per barrel. And $7 is something that is -- that we are confident and we believe we can take. Also because we are not testifying any significant inflation increase in the market right now. So no sign that the $7 could be higher, for example, in 2019.
The next question comes from Irene Himona with SG.
Massimo, I had 3 questions, please. Firstly, you mentioned how robust marketing was. I wonder if you can split for us for the third quarter and the 9 months the refining versus marketing EBIT, please. Secondly, working capital. You've been releasing cash for the last couple of quarters. I wonder if you can give us any sort of guidance, any indication for the fourth quarter expected working capital. And then finally, back to Gas & Power, which obviously surprised positively with a profit. I think I'm right in saying that you say the results -- the adjusted result includes EUR 40 million from derivatives. I just wonder if that is correct. If you can share with us the rationale for not stripping out the EUR 40 million from adjusted profit?
Okay. So in term of split between refining and marketing. So as far as the fourth quarter, we're talking about a full result of EUR 140 million, so marketing is EUR 143 million while refining is more or less at breakeven considering that we had a slight recovery in the refining margin in the third quarter. Talking about the 9 months, marketing recorded EUR 372 million, while refining was negative EUR 154 million, so for a total result of more or less EUR 220 million. We expect marketing performing well even the fourth quarter.
Even if the fourth quarter is not the strongest in -- all along the year as far as marketing, while looking at the margin, we are experiencing as far as refining, in October, we expect a slight loss in the refinery in the fourth quarter. In term of working capital, so we're doing what we promised. So as far as now the 9 months actual, we have said we fully recovered the EUR 900 million that has been absorbed in the first quarter. And we expect a positive contribution from working capital in the fourth quarter in the range of very few hundreds of million of euros.
In term of derivatives, I can't give you an answer because I -- maybe it requires a bit of time. So Irene, I'll get back to you explaining the rationale of what you are asking for.
The next question comes from Massimo Bonisoli with Equita.
Two quick questions left. Could you give us some color on the starting of exploration and production activities in Libya from the assets recently acquired from BP. And second, do you have any progress in the farm-out process of the Area 1 in Mexico?
So Antonio will give you the answer about the BP exploration activity in Libya.
Okay. As you know, the farm-in including 3 blocks, A, B and C, which A and B are in -- close to Wafa. So that is the main synergy we have seen jointly with BP and NOC. And this is the objective since we have in enough spare capacity in the area of Wafa. And this is currently one of the area which we kick off quite quickly. And the rest will be offshore. Definitely, we should work a little bit more on that.
Okay. Massimo, as far as the farm-out in Area 1 in Mexico, we are proceeding. We are in a negotiation phase. We do not expect to cash in any dollar by year-end. I guess, we'll let you know while we are completing the drill.
The next question comes from Lucas Herrmann with Deutsche Bank.
Couple if I may. First, just a point of clarification, Massimo. Your statement -- or the slide on strong cash generation, which shows you've delivered CFFO of EUR 9.8 billion in the first 9 months. Does that include the sum that you've received for Zohr? I presume it does, but just to make sure. Secondly, I just wanted to ask if you could expand a little bit on the litigation in the U.S. around regas, what the actual cash outflow on that litigation might be to you and what the benefit to P&L and cash flow longer term may be as the regas obligation isn't there any longer. And thirdly, If I could just on Jangkrik and LNG volumes, to what extent are you overproducing, if I can use that phrase at the present time, in Indonesia. And driving more gas through Bontang than perhaps had been planned?
As far as the cash flow, yes. As we wrote in the chart we presented a few minutes ago, Chart #8, the EUR 9.8 billion as well as the EUR 13.5 billion does include the more or less $450 million we cashed in as a later payment relating to the disposal to Rosneft and to BP of shares in Zohr. And as far as the Bontang and Indonesia, I'll let -- Antonio will be answering your question.
Yes. So as has been mentioned in the previous call, the spare capacity of our FPU in Jangkrik allow us to produce more because also the reservoir is performing much, much better. Initially, the plateau expected from the reservoir was 450. But since the start-up the higher performance allow us to utilize the additional capacity of the FPU. And today, we are ranging production between 697 million, 700 million scf a day.
And Antonio, what does that do to the reserve space? It obviously draws it down more rapidly. But are you upping reserves effectively at the same time? Or are we just seeing the more rapid producing now.
No. We have recently made all this build-up on the reservoir. And we have seen we have much more reserves. But the expectation is also that Merakes has been designed also to come in on a decline of Jangkrik, which up to now is not coming up. We are making additional development on Jangkrik and the workover, which will keep the plateau longer than the expectation.
And then on U.S. regas, Massimo?
Okay. And as far as the Pascagoula regas arbitration outcome, what we have to pay is written even in our financial statement. It's -- the amount is EUR 286 million. The amount that we have to pay as a result of the arbitration, we believe is a good -- as a result. Taking in consideration the obligation we signed a few years ago when the prospecting in term of the worldwide LNG market, mainly the U.S., was completely different. And this amount has to be paid, I will say, shortly.
And what's the future saving and benefit to Gas & Power that we should expect to see?
Well, the -- let's say, for the group, more than Gas & Power, I will say, significant savings.
Sorry. What does significant mean?
Significant -- I cannot release exactly the number that is based on our internal valuation. But significant means definitely not some tens of million but hundreds of millions.
Right. But that's not then -- sorry to go on. And that benefit will be seen in which division?
So the installment up to the arbitration outcome in term of cost where the installment was written in the E&P profit or loss.
The next question comes from Thomas Klein with RBC.
Apologies for earlier. Just following up on the one about your MOU at Pertamina at Gela. Can you talk about -- more about the pilot waste -- the fuel plant that's being built by Syndial, I believe? Any more detail on what you're trying to do there would be helpful. For instance, how big a scale it could potentially become.
Yes. On the waste of fuel and technology, we have to say that Eni has protected this technology with 6 registered patents. And [ B oil ] obtained with this technology can be used to produce an ultra-low sulfur bunker oil, which is compliant with the new IMO regulation. By the end of 2019, the new Gela pilot would be started up, and we are engineering so far a semi-industrial scale plant in Ravenna. We are also studying other plants on a larger scale, which we expect to have a significant return.
And those larger plants, they would presumably be at existing Eni refinery sites? Or would you be considering new ones elsewhere?
It's something that we have to decide. So we can't give you an answer right now about this.
The next question comes from Lydia Rainforth with Barclays.
I have 2, please. The first one was on median price of gas. I'm just going to take it in the context of being a [indiscernible] plant restart. Are you happy with the current Union Gas -- Fenosa Gas shareholding? Or would you look at taking that to the full 100%? And then secondly, on the cash flow per barrel in the Upstream, is that better, this oil price, than you thought it would be?
So in term of relationship with Naturgy, maybe I'll leave the floor to Massimo, and I give you the answer about the cash.
And yes, we are happy. We are happy with the current situation. And we are not looking to change it at the moment. And of course, every project is always alive. But for the time being, we are with them. We are working well. We are trying to have the plants restarted. We are talking with the gypsum side. We're actually also somehow in the Damietta because 20% is owned by EGAS. And we just have to conclude these discussions with all the parties involved toward the plant's restart as soon as possible. This what is going on.
And about the unit cash flow and E&P. Yes, Lydia, what we are getting something slightly better than expected on top of the advantage we are taking from the oil price, so the scenario. So that's the reason why I said that we are progressing ahead of schedule in getting the $22 per barrel result that we projected in 2021. And to give you more color on this, what I can do is to give you maybe the breakdown of what we are getting after this first 9 months in term of cash flow from operation in E&P. So you have seen that the cash flow from operation grew by EUR 3.4 billion in the first 9 months versus 2017. And the overall growth is related as far as 70% to the scenario, it has definitely been positive as far as the price is slightly negative in term of exchange rate. And as far as 30%, it means EUR 1 billion is due to endogenous factors. So an increasing value of our production, increasing volumes, reduced cost. So that performance is slightly better than what we expected when we performed the budget.
The next question comes from Alwyn Thomas with Exane.
Just a couple of quick ones from me. First, can I get an update on the list of FIDs you were looking to achieve by year-end? And the second one is just on Libya. Can you just give us an update on the current operations and liftings you were able to achieve there and maybe what your outlook is until year-end.
Maybe I'll leave the floor to Alessandro as far as the FIDs are concerned. And Libya, I'll leave the floor to Antonio.
Okay. The planned FID from now to the end of the year are Cassiopeia in Italy; Mexico, Area 1; and Nené Phase 2B in Congo. And then we are working to bring also FID of Merakes in Indonesia across the end of the year.
Okay. Concerning the operation, all plants are running quite well. Unfortunately, we've been suffering some reduction on local market requirements due to power plant failure in country. There is a little improvement in those days. But definitely, the production of gas is available from our side. Anyway, we're monitoring the situation of the power plant. And hopefully, we're going to get it up again as previously. Thank you.
Can I ask what volume you're at currently?
The volume for local market is moving between 19 million to 21 million cubic meters per day. This is the range. Normally, they are receiving from the gas produced between Wafa and Mellitah with Sabratha platform.
In this respect, it's worth to mention that, definitely, we believe that the domestic consumption is going to recover because we're talking about a few thousand boe equivalent per day in term of lack of demand. But it's worth to take into consideration that we always have the possibility to export gas to apply for the export of gas in case the situation would be worse or last longer than expected today. So that's the reason why we're not particularly worry about potential economic impact in the longer term.
The next question comes from Christyan Malek with JPMorgan -- sorry, with Martijn Rats with Morgan Stanley.
I had 2 that I wanted to ask you. On the last conference call, you made some comments about buybacks depending on the trajectory of the balance sheet. I think this sort of builds a little bit on the question that Jon asked earlier as well. Given that the balance sheet is easier to [ share ] during the quarter, can you update us on your thoughts on buybacks? And secondly, I wanted to briefly ask you about the credit rating downgrade. My suspicion is this does not have a big impact. I mean, it'll largely effect sovereign. But I was wondering if you can make some comments about it in terms of if there's anything you can do to address this, how important this is, et cetera.
Well, in terms of buyback and leverage, I already said that the trajectory, as you said, is positive. So 80% expected to drop further by year-end. Projecting a price that will be in the range of $70, $75 in 2019 means to have a longer good trajectory in this respect. So the execution of our strategy is go ahead very well. But as I said, final decision and announcement about even quantities in case of buyback is postponed to March 2019, Martijn.
And in terms of downgrade, I really believe that we did not deserve this downgrade. But you know, it's due to the strict rule applied by Moody's of the 2 notches of maximum difference between government-related entities and the sovereign rating. Even Moody's recognized in its report that we are performing even better than expected, so really, this decision is going to penalize, at least in term of info that is being circulated, more than we deserve.
Anyway, I do not believe that this decision will negatively impact on our financial capability. Our balance sheet is stronger and stronger. So definitely, I'm not worry about this. But anyway, I believe that definitely it's been a wrong decision, and we didn't deserve it. And we're going to talk with them, explaining maybe better and better, our financial situation, how strong is our portfolio, how good our perspectives. And see if there is a possibility to apply the exception that I believe could be applied in term of these 2 not just strange rule.
The last question comes from Christyan Malek with JPMorgan.
And just as a follow-on from, I guess, my colleague from the house of Morgan. The question around buyback. I think just so I could break it up into a follow-up. To what extent are you getting -- this is a more involved discussion from the Italian government in terms of how you think about your capital frame. Are you seeing sort of a change in how they interact and to actual micromanage? Or is that just my imagination?
And in terms of the philosophy around buyback, just to be clear around your priorities. Can I just -- is it safe to assume that this -- the trigger is the trigger. But in terms of M&A or areas of sort of opportunities you'd like to sort of take advantage of, would that take priority over any potential buyback as you start to degear or continue to gear into Q1 next year? And then as a third question, on -- in Egypt, with this sort of new -- with the new gas law and easing up in terms of their fiscal regime as they talk about looking to allow you to basically secure full production or full share production.
And now, you -- basically companies are bearing the high cost of exploration production. And with that being able to sell -- in terms of not being able to sell it at a preset price since the Minister of Electricity. Does that new laws of a regime shift apply to all new contracts? And how does that influence how you think about allocating CapEx to Egypt going forward? I presume it's not retroactive. It's going to be forward looking on new projects. So I'd like to see how that sort of evolves and how you would think about that in terms of allocating more or perhaps less CapEx into Egypt?
No, Christyan. No effect of this law about our prices and our contracts. As far as buybacks so buyback is a priority. So we said that our remuneration policy is based on the 2 legs: the progressive dividend and the buyback. Buyback is linked to the condition linked to leverage. As far as this condition will be respect, we'll go ahead in performing in the strategy in the remuneration policy that we announced. We also said sometimes, Claudio also mentioned that any M&A activity that could happen, talking about asset and so on, will not jeopardize the performance on this respect so in case both of them would be accommodated. And definitely, no relationship with what is going on in Italy together with the buyback. Buyback is a decision we are taking. We will take looking at our numbers, our business prospective scenario and so on.
Okay. And on Egypt?
Egypt, I said that, we don't have any impact on this new rule. So the gas price is fixed. And so I do not see any direct effect on our decision, on our current asset or any future decision about the capital allocation. The situation remain as it is, and the parameters we take into consideration to evaluate the project will remain the same. So no impact from this new legislation, Christyan.
Okay. So thank you very much, all. See you next time. Bye-bye.
Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones.