U.S. Markets closed

Eni S.p.A. (E) Q1 2019 Earnings Call Transcript

Motley Fool Transcription, The Motley Fool
Logo of jester cap with thought bubble with words 'Fool Transcripts' below it

Image source: The Motley Fool.

ENI SpA. (NYSE: E)
Q1 2019 Earnings Call
April 24, 2017, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good afternoon ladies and gentlemen and welcome to ENI's 2019 first quarter results conference call hosted by Massimo Mondazzi, Chief Financial Officer. For the duration of the call, you will be in a listen-only mode. However, at the end of the call you will have the opportunity to ask questions by pressing *1 on your touchtone telephone. I will now hand you over to your host to begin today's conference. Thank you.

Massimo Mondazzi -- Chief Financial Officer

Good afternoon and welcome to ENI's first quarter 2019 presentation. In the first quarter, upstream and gas and power sectors delivered positive results while downstream confirmed its resilience in a tough scenario. In upstream, EBIT performance was robust at 2.3 billion euros plus 25% year on year net on Norway impact thanks to the higher value on new production. Production was 1,832,000 barrel per day, 1.3% lower than last year when Intisar production in Libya was still on stream.

In exploration, we confirmed our positive track record with 174 million of BOE on new discoveries, mainly related to the Agogo oil field in block 15/16 Angola, Merakes East in Indonesia and Nour in Egypt. In addition, we are continuing to reload our exploration opportunities with more than 23,000 km² of net acreage added in the quarter. In mid downstream, we recorded around 320 million euros of EBIT, thanks to a strong performance in gas and power with EBIT of more than 370 million euros due to the performance improvement in both midstream and retail.

More From The Motley Fool

Refining and marketing results were close to breakeven as marketing subsidized the refining segment which was affected by tight differential between AV type crudes that made it convenient for us to concentrate maintenance in our plants this quarter. Chemicals recorded negative EBIT due to the Priolo offset that outed the plan for most of the quarter. Cash flow before working capital applying the new IFRS 16 was 3.4 billion euros or excluding IFRS 16, 3.2 billion euros at the same level of last year covering one point seven times the 1.9 billion euros capex. Capex guidance is confirmed at 8 billion euros this year. Leverage was around 16% before applying IFRS 16, the same level of the end of last year.

And now a closer look to upstream. On production, we reported a lower volume versus last year. The production was affected by the termination of Intisar contract in Libya at the end of the second quarter 2018. Excluding that event, production performance was robust delivering 200,000 barrels per day [inaudible] which counterbalanced almost completely Intisar and the nature of depletion. In terms of result, upstream EBIT, excluding Vår Energi contribution, now equity accounted, was 2.3 billion euros a 25% increase on a like for like basis versus last year, boost by the increasing quality of our production mix for around 220 million, lower cost, and exploration activity for 150 and the marginal impact from IFRS 16 principal of around 50 million.

Talking about our production mix, a few words on the gas component. Notwithstanding the lower prices in European and Asian ops, we have been able to increase our realization price by 25% from 4.5 to 5.6 dollar per million of BTU. 11 that we are expecting to maintain also in the coming quarters.

And now, let's go deeper into the progress of 2019 production. The next quarter production will be around 1% lower than the first quarter, mainly due to the planned maintenance activity in Kazakhstan, Norway, and UK. While in the second half we anticipate a strong production growth as a result of the following additional contributions. More than 40,000 barrel per day from the start-ups of Berkine in Algeria, Area 1 in Mexico, Baltim SW in Egypt, and Trestakk in Norway and around 80,000 barrels per day mainly related to ramp up around 245 and higher contribution from Kazakhstan, Norway, Iraq, Nigeria, and US. Our yearly guidance of around 1.88 million barrels is confirmed.

To conclude the upstream section, let me update you on the discounted net cash flow of proved reserves, a metric that confirms the quality of our upstream portfolio. In unit returns with $9.2 per barrel of discounted net cash flow, we confirm our top ranking. This is due to the low level of unitary production and development cost, top of the rank at $7.6 per BOE thanks to the quality of our conventional asset mainly generated from operations successes. And to the outstanding unit selling price of $44.9 per barrel, at the top end of the range, notwithstanding one of the highest exposures to gas in terms of P1 reserves, with around 70% of our gas sold to domestic markets.

And now let's move to mid and downstream. Gas and power EBIT was strong in excess of 370 million euros. This result was driven by gas and LNG marketing and powered business with 226 million euros of contribution thanks to the improved result both in trading activity, but mainly in the gas business where we were able to extract value from the flexibility of our portfolio of gas contracts in a scenario of positive spreads between European ops. This positive performance has more than offset the lower contribution of the power business and LNG which result was extraordinary in the first quarter of 2018.

Gas and power retained delivery results of 146 million euros a 3.5% increase versus last year or 10% excluding the effect of mild weather of this quarter. This quarter resulted in typically the highest quarter over the years, strengthening our full year gas and power guidance of around 500 million euros.

Refining and marketing was at breakeven due to the reason depreciation in AV and high sulfur crudes driven by geopolitical issues and uppercuts. We decided to concentrate maintenance of Sannazzaro and Livorno refineries this quarter. Consequently, refining results were negatively affected by lower utilization rate minus11 percentage points year on year. The restart of the EST plan and the completion of the maintenance activity will now allow us to capture the full benefit of the IMO expected in the second part of this year. This on top of Gela bio plant in the coming months will farther announce the results of our refining activities. The robust performance in marketing almost compensated the refining temporary weakness.

Finally, Versalis was impacted by the fire in Priolo plant that halted production for more than two months and is now restarted. This had an EBIT impact of around 70 million euros in the quarter. Capex are in line with the guidance. In the first quarter, we spent 1.9 billion euros which 85% devoted to the upstream mainly for the development of our project pipeline that are on track and within budget to deliver the plan production growth. R&M and Versalis spent 11% mostly for the completion of the green refinery in Gela and the restart of EST plan in Sannazzaro. As in the past, we remain fully committed to maintain our disciplined approach to investment.

Cash flow from operations before working capital and before the implementation of IFRS 16 was 3.2 billion euros in line with the last your results. The working capital cash absorption of 1.3 billion euros or 1 billion euros net of the settlement of the US arbitration is mainly due to the seasonal drone from gas and power and is expected to be largely reabsorbed by the end of this year. During the quarter we generated a free cash flow before working capital changes of 1.3 billion euros, well in excess of the pro rata quarterly need of our dividend. Cash flow from operations and free cash flow are in line with our yearly expectations.

EBIT adjusted at 2.4 billion euros confirm the same performances of last year, notwithstanding the consolidation of Norway and the negative impact of around 190 million euros of unrealized profit and stock mainly related to oil not yet sold to the front-end market at the end of this quarter. Partially offset by the benefit of the IFRS 16. Net of this impact were recorded at growth over EBIT by 17%. The net income of around 1 billion euros was marginally impacted by the IFRS 16 application, more or less, 30 million euros. Leverage ante IFRS was 16%. Thank you very much, and now together with my colleagues, I'm ready to answer any question you may have.

...

Questions and Answers:

Operator

Ladies and gentlemen, we will now begin the question and answer session. One moment for the first question, please. Our first question is from Clint Oswald with Bernstein; please go ahead.

Clint Oswald -- Bernstein -- Analyst

Massimo, thank you very much, good afternoon. I have a couple of questions. The first on the gas realization, you mentioned that there at $5.6, I think I have to go back to pre-2014 to see your gas prices at that margin. You mentioned it sustainable for the next couple of quarters, but I just wanted to look a little bit longer term into 2020, 2021, especially as you ramp up more gas fields in Algeria and Egypt and Indonesia. Is that level of gas price sustainable over a multiyear period, is my first question? In the second question, more short-term on the gas and power results here this quarter, you said it's not LNG, it's not power, it's more trading. So, I wonder if you could just explain exactly what you mean by extracting value here by kind of trading around the European continent? Could you give us a bit more clarity around what that trading strategy is please and if it's obviously, yeah, sustainable, please? Thank you very much

Massimo Mondazzi -- Chief Financial Officer

Okay, Clint, I'll give you the answer to your first question and then I'll let Christian answer on your second one. So, in terms of gas prices, the answer is yes, we believe that this level of gas prices are sustainable for some reasons. First of all, the harbor in which we are exposed the most is the [inaudible], the Italian harbor and the average gas prices that they mention is being got in an environment that is the first quarter 2019 environment with a price of 222. So, even less than what we projected, that still we project for the entire year that is in the range of 216. So, this is a confirmation that this level can be really achieved. As far as the production that is elsewhere, so not exposed to the [inaudible], for example, the Egyptian or the Indonesian.

The Egyptian, yes. So, maybe you may recall that we do not disclose entirely the gas formula as far as [inaudible], but you know it has been said that the formulas not completely linked to the oil. So, first of all, it is a formula that is in some way linked to oil and second means that today with such an oil environment may be the price could be even a bit higher, but you know the price is not an entire flexibility to the oil price. So, the prices been in first quarter exactly the same it has been in the quarter fourth quarter 2018, so more or less stable.

Indonesia is more or less related to the far east LNG ops so it would depend on the price today are little bit depressed but are part of the overall number that I gave you, and we expect it could be -- could recover in the near future. So, the answer is yes, we believe that it can be sustained and if we see correctly it will likely increase in the [inaudible] price all along the nine months before year-end, and you could see even it's likely to increase on that number. And then I'll leave the floor to Christian for the second answer.

Cristian Signoretto -- Chief Gas & LNG Marketing and Power Officer

Yes, good afternoon. So, on the first quarter result of gas and power 2019, we have technology that the market environment was fairly different from last year first quarter because last year first quarter there was a bullish tightening market especially on the LNG which allowed us to monetize our flexibility of the LNG portfolio whereby this year, the LNG has been pretty weak on the first quarter. But to the other extent the volatility of the scenario, especially a price scenario has been fairly strong and so we were able to take advantage of the optionality which are embedded in our European gas portfolio in order to take advantage of the volatility in order to capture all the optionality which were part of the asset base.

Going forward, clearly, difficult project volatility evolution. Surely, we see a price environment which is fairly weak. So, we think that most of the value has been accrued already in this first quarter and so we don't see now reasons to change our guidance.

Clint Oswald -- Bernstein -- Analyst

Okay, perfect, thank you.

Operator

The next question is from Irene Himona from Société Générale; please go ahead.

Irene Himona -- Société Générale -- Analyst

Thank you, good afternoon, Massimo. I have two questions refining and marketing. So, firstly, in the recent strategy presentation, you guided to 2019 EBIT of 700 million euros including Abu Dhabi. Is it possible to give us some guidance, excluding ADNOC now that Q1 results are in? And secondly, again, excluding ADNOC, what is the targeted 2019 refining break even the margin, please? And finally, in Q1, what was the marketing EBIT? Thank you.

Massimo Mondazzi -- Chief Financial Officer

So, Irene, good afternoon. So, your first question the R&M expected EBIT of 700 million euros as including ADNOC as far as 2019, the contribution of ADNOC is really minor. So, I would say just very few tens of millions. It could be in the range of 650, the expectation. And then maybe I leave the floor to Giuseppe Ricci to give you the answer to the other questions.

Giuseppe Ricci -- Chief Refining and Marketing Officer

No, the EBIT of refining and marketing excluding ADNOC is more or less two thirds above the marketing and one third above the refining. Our forecast is for 430 for the marketing and 120 for the refining. With a breakeven margin that should be around $3.5 per barrel at the end of the period with all of the plants in operation.

Massimo Mondazzi -- Chief Financial Officer

Yeah, Helene, so, the breakeven was $3 you remember the end of 2019, now we were is saying $3.5 taking into consideration also that the bio-oil refinery that we partially own will be not in production all along 2019. So, that's the partial reason to increase our breakeven from 3 to 3.5. As far as the medium term our expectation remains the one that we mentioned. So, a bit lower than $3 including ADNOC when ADNOC will be fully, let's say, consolidated in our numbers and the number that will be in the range of 1.5 to 1.7 around 2022, 2023 when the upgrade and the existing asset in ADNOC will be completed.

Irene Himona -- Société Générale -- Analyst

Thank you.

Operator

The next question is from Alessandro Pozzi with Mediobanca; please go ahead.

Alessandro Pozzi -- Mediobanca -- Analyst

Good afternoon. I have two questions. The first one is on the US settlement, and I was wondering if potentially we should see a positive impact filtering through the income statements going forward? And also, on the cash flow, I believe there is a quite large dividend received from equity investment, I was wondering if you could perhaps give us a bit more color in how we should expect a dividend from equity investments going forward throughout the year? And finally, perhaps you can give us an update on what you see net debt at year-end, let's say pre-IFRS 16? Thank you.

Massimo Mondazzi -- Chief Financial Officer

So, as far as the US settlement, you know we mentioned sometimes before that the US settlement is related to some liquefaction capacity a long-term contract that we had in the Gulf of Mexico that has been for a long time under negotiation. We ended up with an arbitration. The arbitration is causing now the payment of more or less 300 million. We accrued more than that in our balance sheet, and the number is been released in our net income at the end of last year. So, no more effect and the settlement now is definitive.

In term of cash flow, the equity investment in terms of dividend; obviously, this year the most important contributor is Var energy while in the future ADNOC will take a significant part to this. And the third question was about net debt. So, you mentioned standard net debt before the IFRS 16?

Alessandro Pozzi -- Mediobanca -- Analyst

Yeah. Year-end just for --

Massimo Mondazzi -- Chief Financial Officer

Okay, more or less in line with what we projected presenting our strategy presentation. So, more or less at 0.2, 0.21 including definitely the payment of more than 3 billion to acquire 30% stake in ADNOC refinery.

Alessandro Pozzi -- Mediobanca -- Analyst

Okay, and going back to the dividend received, is that going to be lumpy over the next few quarters or [inaudible]?

Massimo Mondazzi -- Chief Financial Officer

The dividend from Var energy this year will be divided in two quarters. First quarter and the second quarter. As far as ADNOC there will be an interim based on these semester results and then the second branch as the financial statement will be approved, so around March or April. Every year, obviously.

Alessandro Pozzi -- Mediobanca -- Analyst

Thank you very much.

Operator

The next question is from Peter Low with Redburn; please go ahead.,

Peter Low -- Redburn -- Analyst

Hi, thanks for taking my questions. The first one was you reiterated 2019 production guidance at $62 a barrel, can you give us any indication of the potential PSA impact on that should prices remain around current levels? And the second is a follow-up on R&M and sorry if I missed this answer earlier, it's on that target for 0.7 billion euros of EBIT this year. Given the first quarter results and the current margin environment, do you still think you can reach that level, or should we now assume that that comes in below that level? Thanks.

Massimo Mondazzi -- Chief Financial Officer

Okay, so as far as the sensitivity to the oil price, the amount is very small. So, 500 of barrel each dollar, so quite limited. So, 500 each dollar and as far as the expected result from refining and marketing I would say yes, based on our forecast we confirmed the 0.7 billion euros as an EBIT for 2019. Assuming our scenario margin of five. So, we still expect the recovery of this margin in the remaining nine months. As in the first quarter, the margin has been at 3.4.

Peter Low -- Redburn -- Analyst

That's great. Thank you very much.

Massimo Mondazzi -- Chief Financial Officer

Any other questions? Hello? Hello?

Operator

Sorry, this is the operator, then take the next question?

Massimo Mondazzi -- Chief Financial Officer

Yes, we are ready, so please go ahead.

Operator

Okay, thank you. Okay, the next question is from Henry Tarr with Berenberg, please go ahead.

Henry Tarr -- Berenberg -- Analyst

Hi there, thanks for taking my questions. Just a couple, one on the production outlook just near term for Q2, obviously, we've got the Kazakhstan outage, and I think it was maintenance at Gela as well. And then if you could also just give a quick update on current activity in Libya and Venezuela, that would be great. Thank you.

Massimo Mondazzi -- Chief Financial Officer

Okay, so I'll leave the floor to Alessandro to answer your question about the maintenance and second-quarter and then Antonio to elaborate a little bit on Venezuela and Libya.

Alessandro Puliti -- Chief Development, Operations & Technology Officer

Okay, and second-quarter we have some major turnaround that are involving Kazakhstan with the Kashagan field, Goliat in Norway, and also Ekofisk in Norway, J-Block and Liverpool Bay in the UK and Baldor in the UK. So, those are the major turnaround of second-quarter. And we expect a production reduction more or less of 60,000 barrels per day.

Antonio Vella -- Chief Upstream Officer

Okay, concerning the actual situation in Libya, and tell now our operation are stable we are making all the normal activity to keep our rates and we are keeping 280,000-barrel equity until the mid of this year and then we have some maintenance on the second half and we are keeping and year rate 275,000 barrel per day. The situation is under control as of today. So, the activities remaining in crude change are in normal operation. Concerning Venezuela, it's a situation in countries is unstable. Our production in Paria, it's moving between 300 to 500 million scuffs a day SCF per day, it is not stable upon the request of the local market. Nothing to mention on the efficiency of the plant, everything is moving quite well. Thank you.

Henry Tarr -- Berenberg -- Analyst

Okay, that's great. Just to confirm, the expected impact of maintenance in 2Q, as you said today, is about 60,000 barrels per day?

Alessandro Puliti -- Chief Development, Operations & Technology Officer

Yes, correct.

Henry Tarr -- Berenberg -- Analyst

Okay, thank you very much.

Operator

The next question is from Biraj Borkhataria with Royal Bank of Canada; please go ahead.

Biraj Borkhataria -- Royal Bank of Canada -- Analyst

Hi, thanks for taking my questions. Just one on the upstream. It looks like your production guidance is quite heavily weighted toward the second half of the year. Could you just talk about how much contingency you have in that 2.5% growth guidance and also just to follow up on Henry's question, what is the best-case assumption for Libya and Venezuela embedded into your guidance for this year? And in the second question in the downstream, you mentioned that you brought forward some maintenance in the first quarter, could you talk about whether there's any significant maintenance in R&M or chemicals for the rest of 2019? Thank you.

Massimo Mondazzi -- Chief Financial Officer

Okay, Alessandro, to answer your first question and then Pino and Daniele about chemicals, the second one.

Alessandro Puliti -- Chief Development, Operations & Technology Officer

Okay, in terms of contingency for 2019 we are having around 57,000 barrels per day of contingency in equity. And the other question was for Pino I believe, about maintenance and refinery and chemical.

Giuseppe Ricci -- Chief Refining and Marketing Officer

Because of the low margin in the first quarter, we decided to anticipate Sannazzaro and Livorno maintenance in the first quarter, and so for the rest of the year, we only have a maintenance in Sicily in our Milan floor refinery.

Daniele Ferrari -- Chief Executive Officer of Versalis SpA

Sorry, on the chemical side we have the maintenance shut down planned for the site of Priolo in the second part of the year which we are repositioning at the moment and trying to reface as much as we can to recover some of the issues, we had at the beginning of the first quarter.

Biraj Borkhataria -- Royal Bank of Canada -- Analyst

That's great, just follow up on the upstream question, can you tell me what your embedded assumption is for Libya and Venezuela in the 2019 guidance?

Alessandro Puliti -- Chief Development, Operations & Technology Officer

Well, in our 1,000,088, more or less the expected production for Venezuela is in the range of 50,000 barrels per day, so a bit less than plateau of 5000 and less than plateau and more or less in line with the production we got in 2018 while from Libya the expected production on average is 270, more or less, 270,000 barrels per day. So, a bit less than the production we got in the first quarter.

Biraj Borkhataria -- Royal Bank of Canada -- Analyst

That's very helpful. Thank you very much.

Operator

The next question is from Michele Della Vigna with Goldman Sachs; please go ahead.

Michele Della Vigna -- Goldman Sachs -- Analyst

Massimo, thank you for the presentation. I have two quick questions if I may. The first one is if whether you target to close the farm out in Mexico Area 1 this year and how much are you expecting total from disposals for 2019? And then secondly, whether you could give us guidance on DD&A for this year including IFRS 16? Thank you.

Massimo Mondazzi -- Chief Financial Officer

Okay, so in terms of disposal, yes, we believe we can cash in the dilution in Mexico, and we expect something in the range of 300 million euros all in all including some other minor disposals. And the second question was -- the DD&A, on the DD&A we expect the level in the range of $11 per barrel in 2019. That more or less is in line with the previous year, and we do not expect a significant effect caused by the implementation of the new accounting principle.

Michele Della Vigna -- Goldman Sachs -- Analyst

Thank you.

Operator

The next question is from Bertrand Hodee with Kepler Cheuvreux; please go ahead.

Bertrand Hodee -- Kepler Cheuvreux -- Analyst

Yes, hello everyone, thank you for taking my question, two if I may. The first one coming back on the dividends from Var energy, you cashed in some $600 million in Q1, and Massimo you hinted that you will receive another payment in Q2; can you quantify it? Will it be around the same amount? And then the second question, it's related to UPN gas price and LNG, you made a scenario in 2019 with $8+ NBP UK gas prices. We are way below that. Can you give us a sensitivity to your cash flow for one dollar per MCF change in UPN gas price?

Or if I can reformulate, the other way around, when you are giving sensitivity to your cash flow for Brent move you assume that Brent and natural gas price are moving in the same direction which is clearly not the case since the beginning of the year in which could be sustained especially the LNG market continued to be an oversupply as it is today? So, thank you for your answers, Massimo.

Massimo Mondazzi -- Chief Financial Officer

Okay. So, in terms of dividend that we are going to receive from Vår Energi in the second quarter, yes, the amount will be in line with what we got in the first quarter. In talking about the gas price, you know that's our exposure to the NBP is very limited, so our gas production in you the UK is very limited, and we don't have other production related to the NBP. So, as I said before, the most important hub of reference for us is [inaudible] that some way is linked to the ETTF and I will say it was what I just said.

So, the level of gas prices we got in the first quarter are the ones that are related to 220 euros per standard cubic meter in terms [inaudible] and that more or less 20 euros, 23 euros less in terms of TTF. More or less we have something in the range of 15, 17 billion standard cubic meters of gas, equity gas exposed to the European APSA. So, more or less, any 10 euros per thousand standard cubic meter will represent something in the range of 150 million euros of revenues before taxes and whatever. Something that definitely cannot jeopardize our production -- sorry our cash flow looking forward.

Bertrand Hodee -- Kepler Cheuvreux -- Analyst

Okay, thank you.

Operator

The next question is from Christopher Copeland with Bank of America; please go ahead

Christopher Copeland -- Bank of America -- Analyst

Thank you very much for taking my questions, I've got one left I think, and it's going back to the same old topic of Vår Energi. You mentioned the dividend payment, very helpful to know Q1 and Q2 dividends coming through, what can you say about dividend payments beyond 2019? It looks to me that the total 1.7 billion payment from Vår Energi is a bit of a special, but anything you can say in terms of how the progress is been since demerging the company and how its financial performance is making you feel about the dividend potential coming back to ENI in the next few years? Thank you.

Massimo Mondazzi -- Chief Financial Officer

So, you're right, the dividend we are going to receive all in all in 2019 is something special. I don't have numbers to share with you as far as the future dividends. It will depend on the scenario, whatever. The logic, the rationale we agreed together with our partners, is to distribute all the spare cash after the development cost. That's in the next 2 to 3 years will be anyway remarkable as the bold approach at the annual CSPR project will enter into the development phase. The idea anyway, is to distribute all the spare cash after the coverage of capex and definitely the dividend, sorry the capex. Hello?

Christopher Copeland -- Bank of America -- Analyst

I think I got the answer. Thank you very much.

Massimo Mondazzi -- Chief Financial Officer

Okay.

Operator

The next question is from Thomas Adolff with Credit Suisse; please go ahead

Thomas Adolff -- Credit Suisse -- Analyst

Good afternoon, a few questions from me. Just going back to the contingency buffer in upstream, you've mentioned 37 KBD, and I wondered as far as 1Q is concerned, are we in the plus or are we in the minus? Are we running better than expected or actually running slightly worse than expected and the reasons around that? Secondly, the refinery margin in the first quarter was $3.4 per barrel; perhaps you can share with us what the March and April level was for the sum? And then finally, just on Norway, going back to Norway, when I look at net income from investments in the fourth quarter and compare that to the first quarter 2019 when Var was included, I wondered how much Var contributed below the line for 1Q? Thank you.

Massimo Mondazzi -- Chief Financial Officer

Okay, so in terms of production contingency, Alessandro?

Alessandro Puliti -- Chief Development, Operations & Technology Officer

In terms of first-quarter results, in terms of contingency, we are a bit less than what we were expecting but say around 8000 barrels per day.

Massimo Mondazzi -- Chief Financial Officer

So, in terms of refining margin, the current level is close to four and the interim Var contribution below the line in the first quarter has been in the range of 35 million euros.

Thomas Adolff -- Credit Suisse -- Analyst

Right, thank you very much.

Operator

The next question is from Massimo Bonisoli with Equita; please go ahead.

Massimo Bonisoli -- Equita -- Analyst

Good afternoon, three questions left. Very quick. The first of production, if you have any reference on production exit rate for 2019 just for moderning purposes? The second, on Versalis, will you have additional cost from the fire in Priolo over the rest of the year? And the third, any changes on the tax rate guidance following first-quarter, very low tax rate in extreme and the consolidation of Vår Energi?

Massimo Mondazzi -- Chief Financial Officer

Okay, so in terms of tax rate, definitely the 54 point something tax rate we got in the first quarter has been positively affected by the Norway consolidation. You know Norway is 78% tax rate. We believe that's assuming the level of Brent that we are assuming for the full year 2019. So, 62, the tax rate we expect this year will be in the range of 57 to 58%, so more or less in line with the guidance that we gave a $60 Brent, more or less 60% in terms of tax rate. In terms of production, Alessandro?

Alessandro Puliti -- Chief Development, Operations & Technology Officer

Okay, in terms of exit rate we do expect a full quarter and an average of 1185 thousand barrels per day.

Massimo Mondazzi -- Chief Financial Officer

And in terms of cost as far as the Priolo fire, I said that the cost in the first quarter has been 70 million euros, on the full year as we have the business interruption insurance coverage for that plan, we expect something less as a net cost, something less than 70. So, it could be in the range of 50 million euros.

Massimo Bonisoli -- Equita -- Analyst

Thank you.

Operator

The next question is from Jon Rigby with UBS; please go ahead.

Jonathon Rigby -- UBS -- Analyst

Thank you, hi Massimo. Can we just -- a few things. One, I just want to return to the answer you gave on tax. So, just understand what drives the increase from 1Q across the rest of the year in terms of the tax rate your recording particularly I guess in the upstream? The second question is on the downstream. Can you just -- are you able to give some kind of indication of the contribution of the EST unit provides to the downstream when it's running, let's say your assumed sum, to get some idea about what the downturn is once that starts up again?

And then the last question is on LNG. Can you, in terms of the contribution of the gas and power business, can you sort of characterize what's driving that and how you're splitting the contribution between the upstream and the midstream? The reason I ask is very clearly spot LNG prices were very low in the first quarter. They may continue to be low for the rest of this year, but contract LNG prices are likely to rise again, so just with the lack to the old price, I'm just interested to understand the dynamic and how the interaction works between the upstream and the midstream. Thank you.

Massimo Mondazzi -- Chief Financial Officer

So, as far as the tax rate, Jon, the difference between this 54.4 and 57 that we expect, all along this year is rounding, so there is no -- there is a different may be contribution, a different may be upstream countries that could modify a little bit the average, but we are talking about a number that will be in that range. You know, the contribution is coming from so many money countries and the composition of portfolio in term production could change a little bit so that's the reason why we could have very few percentage points of difference between the quarter and the full year. And I leave the floor to Giuseppe Ricci to talk about EST and then LNG Christian.

Giuseppe Ricci -- Chief Refining and Marketing Officer

The contribution at the [inaudible] of EST is in the range of 120 million euros at Paria in terms of EBITDA after the situational condition of budget, and there could be increased or decreased depending on the spread of these for a lawyer --

Operator

The next question is from Martin Rass with Morgan Stanley; please go ahead.

Massimo Mondazzi -- Chief Financial Officer

No, sorry. We are still answering the previous questions.

Operator

Okay.

Massimo Mondazzi -- Chief Financial Officer

Okay, so please, Christian, go ahead.

Cristian Signoretto -- Chief Gas and LNG Marketing and Power Officer

So, if I understood well you want to understand better the revenue profiled between upstream and midstream as far as LNG is concerned. So, on the upstream side basically, the revenue profile is index to oil. Okay, so the upstream part is in index to oil. Whereby the midstream bit is taking a responsibility to manage the swing between oil and the market. But on that part, you have to understand that a big part, a big chunk of our sales strategy is actually edged with really the buying, let's say, exposure, so there is just a limited amount of LNG portfolio which is exposed to the spot prices. I hope this answers your question.

Massimo Mondazzi -- Chief Financial Officer

Hello?

Jonathon Rigby -- UBS -- Analyst

Hi, I lost that answer, maybe it's better I follow-up later.

Massimo Mondazzi -- Chief Financial Officer

Okay, OK thank you. Any additional questions?

Operator

The next question is from Martin Rass with Morgan Stanley; please go ahead

Martin Rass -- Morgan Stanley -- Analyst

Hi, hello. I had to. First of all, I wanted to ask about balance sheet gearing giving the new sort of order of magnitude that this is in as opposed to IFRS. Once the ADNOC acquisition is complete, where you sort of see this never going, and from there is there a specific sort of de-gearing target, if there was sort of an objective, we ultimately, you'd like balance sharing -- balance sheet gearing to be both the IFRS adjustment? And secondly, I wanted to ask about LNG. I was wondering if ENI is interested in participating in some of the Qatari LNG expansion projects. And if so, how you would trade those off against opportunities that you also have in Mozambique?

Massimo Mondazzi -- Chief Financial Officer

So, Martin, in terms of getting -- you know we don't have a precise gearing guidance, we have a leverage guidance and so no target in this respect. In terms of number including the ADNOC acquisition, that could be I would say what we expect considering everything in our scenario and so on and the new IFRS; we expect a gearing that will be in the range of 24%.

Martin Rass -- Morgan Stanley -- Analyst

Okay, thank you.

Massimo Mondazzi -- Chief Financial Officer

Okay, and --

Martin Rass -- Morgan Stanley -- Analyst

And on Qatar?

Massimo Mondazzi -- Chief Financial Officer

In terms of Qatar, I'll leave the floor to Antonio.

Antonio Vella -- Chief Upstream Officer

So, we are confirming our interest in the tender for Qatar LNG expansion project, but we are waiting that Qatar is coming out with a formal bidding round. No other information at the moment.

Martin Rass -- Morgan Stanley -- Analyst

Okay, thank you.

Operator

The last question is from Lucas Hermann with Deutsche Bank; please go ahead.

Lucas Hermann -- Deutsche Bank -- Analyst

Gentlemen, good afternoon. You're very fortunate my questions have all been answered, thank you very much.

Massimo Mondazzi -- Chief Financial Officer

Any additional questions?

Operator

Mr. Mondazzi, that was the final question, I will turn the question back to you, sir, for any additional comments.

Massimo Mondazzi -- Chief Financial Officer

Okay, just to say thank you very much for attending this call, I'll see you soon. Bye-bye.

...

Operator

Ladies and gentlemen, the conference is now over, and you may disconnect your telephones. Thank you.

Duration: 50 minutes

Call participants:

Massimo Mondazzi -- Chief Financial Officer

Christian Signoretto -- Chief Gas and LNG Marketing and Power Officer

Giuseppe Ricci -- Chief Refining and Marketing Officer

Alessandro Puliti -- Chief Development, Operations & Technology Officer

Antonio Vella -- Chief Upstream Officer

Daniele Ferrari -- Chief Executive Officer of Versalis SpA

Clint Oswald -- Bernstein -- Analyst

Irene Himona -- Société Générale -- Analyst

Alessandro Pozzi -- Mediobanca -- Analyst

Peter Low -- Redburn -- Analyst

Henry Tarr -- Berenberg -- Analyst

Biraj Borkhataria -- Royal Bank of Canada -- Analyst

Michele Della Vigna -- Goldman Sachs -- Analyst

Bertrand Hodee -- Kepler Cheuvreux -- Analyst

Christopher Copeland -- Bank of America -- Analyst

Thomas Adolff -- Credit Suisse -- Analyst

Jonathon Rigby -- UBS -- Analyst

Martin Rass -- Morgan Stanley -- Analyst

Lucas Hermann -- Deutsche Bank -- Analyst

More E analysis

This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company's SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability.

More From The Motley Fool

Motley Fool Transcription has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.