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Eni S.p.A. (E) Q2 2019 Earnings Call Transcript

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Eni S.p.A. (NYSE: E)
Q2 2019 Earnings Call
July 26, 2019, 6:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Welcome to the Eni Second Quarter 2019 Results Conference Call hosted by Mr. Claudio Descalzi, Chief Executive Officer. For the duration of the call, you will be on listen-only mode. However, at the end of the call, you will have an opportunity to ask questions by pressing * and 0 on your telephone. If you need assistance during the conference, please press * and 0.

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

Claudio Descalzi -- Chief Executive Officer

Good afternoon and welcome to Eni first half results.

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 achievement. We generate 6.8 billion euro of operating cash flow at 23% growth versus 2018 in a lower gas price scenario.

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With capex at 3.8 billion euro, we generated an organic free cash flow before working capital of 2.9 billion euro, almost doubling the 1.5 billion euro of our dividend needs in the period. Thanks to this strong cash performance, we reduced our debt to below 8 billion euro, the lowest level since 2006. This corresponds to a leverage of 15% at the end of June.

Upstream production was 1.83 million barrels per day. We continue to deliver high value production with the ramp ups in Egypt, Ghana, and Angola, and the start-up of a new field in Mexico. We almost compensated the impact of the conclusion of the Intesar gas contract that rated for around 6%.

Exploration continues to create new opportunities for future development. During the first half, we discovered around 350 million barrels of resources at an exploration cost of $1.40 per barrel. In the coming months, we plan further exploration activities in Mexico, Egypt, Norway, and Angola.

Gas and power performance is robust, notwithstanding the low gas and energy price scenarios thanks to the portfolio optimization activity and the growth with a retained customer base. In downstream, we are continuing to improve the resilience of our operating asset. With the ongoing start-up of the barrel refinery in Gela and the expected restart of EST in Sannazzaro. Results were impacted by weak product demand and high cost of 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 Nigeria 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 THG emissions per barrel versus last year, in line with plans.

Production, 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 the Intesar gas contract and 19,000 barrels per day for price effect in 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; in Abuja, 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 start-ups of Mexico Area 1, Trestakk in Norway, and Berkine oil in Algeria. The future will be supported by a ramp up at Zohr to plateau level and the announced contribution of Kashagan after the end of maintenance. Production in Q3 is expected to grow between 2.5-3% versus Q2. For the full year, we expect production between 1.87 and 1.88 million barrel 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 scenario.

On exploration and new developments, Block 15/06 in Angola continues to deliver outstanding results. In the last few months, we made three main material discoveries in Agogo, Ndungo, and 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 five discoveries made in one year add up to 1 billion barrels of oil in place to the already existing resources bringing the amount of discoveries in the block to about 4 billion barrels of oil in place. Further developments will be fast track, realigning on existing FPSO in the west and east hub, extending the current plateau production of 150,000 barrels 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 the Agogo field could justify the development of a new stand-alone hub.

In Egypt, we successfully drilled five wells, of which four are near field discoveries. The first discovery was Nour that we drilled in the first quarter. Then we made two oil discoveries in the 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 holds up to 200 million barrels of oil in place.

In Ghana, in the CTP-Block 4, we discovered Akoma with a 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 km from Sankofa, and after appraisal, it will be put in production with a subsea tie-in to the existing FPSO. Finally, in Vietnam, proved the presence of gas and condensate in the Ken Bau prospect in Block 114, a significant potential with an estimated net reservoir thickness in excess of 100 meters that will be a target for future appraisals.

During the first half of 2019, we discovered 350 million barrels of equity. This result allows us to raise our guidance to more than 600 million barrels of discovered reserve resources for the full year.

Eni is the first international company to start production in Mexico. In Area 1, we drilled five 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 one year from the approval of the development plan. We are planning to add an FPSO production start-up by first half 2021 and then reach a production plateau of 100,000 barrels per day. This is only the first step in the country. We have recently increased our exploration portfolio by six blocks in the shallow and deep water with a stake between 40-80%. In the second half of 2019, we plan to drill two exploration wells.

Also in this first half, with a lower price, upstream further improved its cash generation. Upstream cash flow from operation including working capital was 5.6 billion euros, 6% higher than last year, while gas prices were materially lower. On a comparable basis, the growth of cash flow from operation amounts to 13%. With capex at 3.3 billion euros, we generated an organic free cash flow in E&P of 2.3 billion euros.

Moving to mid-downstream, gas and power EBIT was robust at 418 million euros, and in particular, GRP reached 253 million euros thanks to an effective optimization of our activity, which also benefited the front-market dynamics. This positive gas and power performance offset the lower contribution of LNG and in a lower global price scenario. Retail delivered a result of 165 million euros, a 28% increase versus the last year thanks to international deployment, development, and the stronger commercial initiative in Italy. This performance confirms our full-year gas and power guidance of 500 million euros EBIT.

The refining and marketing result was positive in a scenario impacted by the narrow differential of euros due to OPEC cuts and the Druzhba pipeline contaminations. Marketing was the driver of the result with a contribution of around 250 million euros. The start-up of Gela bioplant along with the restart 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 a break-even despite the weaker scenario.

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

In renewables, we have seven projects in four continents in execution, expected to be completed by the end of 2019 for in-store renewable capacity of 190 megawatts at year-end. Thanks to the start-up Gela, our barrel refinery reached a treatment capacity of around 1 million tonnes per year. Emissions per barrel were lowered by 2.3% in the first half versus last year's, and by 22% versus 2014, in line with our long-term target.

Coming to the financial results, cash flow from operations before working capital was 6.8 billion euros, 23% higher than last year's results. On a comparable basis, in terms of scenario, IFRS 16, and excluding one-off negative items mainly effecting 2018, cash flow growth remains robust at 9%. As anticipated, working capital showed a strong recovery in Q2 of more than 1 billion euros through the traditional gas seasonality, first half capex at 3.8 billion euro in line with the 2018 first half, and further optimization and efficiencies allow us to improve our capex guidance to below 8 billion euros.

All in all in this semester, we generated an organic free cash flow before working capital of 2.9 billion euro. Cash flow from operations 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 R&M EBIT to around 500 million euro. All the other guidance remains unchanged.

Now we are ready together with the Eni top management to answer your questions. Thank you.

Questions and Answers:

Operator

Thank you. I will now begin the question-and-answer session. The first question comes from Mr. Clint Oswald of Bernstein. Please go ahead.

Clint Oswald -- Bernstein -- Analyst

Thank you. 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%, 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 toward 60 or sub-60%, or is this new level potentially something we have to consider? Thank you.

Claudio Descalzi -- Chief Executive Officer

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

Alessandro Puliti -- Chief Upstream Officer

Okay, so regarding Goliat production, our expected equity for 2019 is 21,000 barrels of oil equivalent that is equivalent to 200% production to 46,000 barrels of oil equivalent. Production [inaudible] it accounts for two main shutdowns, one already occurred in May. We had the seven 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 -- Chief Financial Officer

Okay, so let me comment a little bit about the tax rate. As you know, the second quarter tax rate has always been the highest along the year because mainly the Italian seasonal business. This quarter, this metric has been emphasized by mainly two factors. First of all, the worst scenario, mainly gas is effecting definitely the Italian business, plus the upstream business, including the gas exported from Libya and refining margin.

Together with this, what we had is a non-optimized -- adapting some Italian plants, mainly non-optimized adopting some Italian plants, mainly some that are refineries, and the Priolo chemical plant that has been shut down beginning this year, assuming the second half of this year that the Italian assets there are back to normality. And Priolo's 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, 200 euros per thousand ton per cubic meter, $66.00 per barrel brent, and a refining margin a bit higher than what we experienced in the first half, so we are still forecasting $4.50 as an average of full-year. We confirm a full-year consolidated tax rate of 60%. The increase in the tax rate you notice 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 non-cash items. The full year 2019 cash tax rate, as expected, is in the range of 30%, confirming the guidance that we already gave.

Clint Oswald -- Bernstein -- Analyst

That's very clear, thank you.

Operator

The next question is from Mr. Thomas Adolff of Credit Suisse. Please go ahead, sir.

Thomas Adolff -- Credit Suisse -- Analyst

Good afternoon. Two questions for me, please. Jest firstly on the dual exploration model, you've announced the sale of 20% in Merakes and you don't really don't say how much for. Maybe you can comment on it and whether these proceeds are also incorporated in your capex guidance. Secondly, I just wanted to ask you about 2020. Obviously, upstream production will grow on a year-on-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 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. Thank you.

Claudio Descalzi -- Chief Executive Officer

Thank you. For the dual exploration model this year, you remarked what happened just yesterday on Merakes. The dual exploration is clearly a consolidated model for Eni. We are performing in a different way, or by cash or kind or swapping, so it's working very well and it's sustained by a very exploration result. As you remark in the first semester, we made the discovery, big field, 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, and that will be included in the development looking forward. Also, all the fields that we discover where we own a large stake will support this model looking forward.

Now Massimo for the other questions.

Massimo Mondazzi -- Chief Financial Officer

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

Thomas Adolff -- Credit Suisse -- Analyst

Okay, thank you very much.

Operator

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

Biraj Borkhataria -- Royal Bank of Canada -- Analyst

Hi, thanks for taking my question. Just a couple of clarifications. On the Indonesian volumes, could you just give a bit more color about 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? 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? Thank you.

Massimo Mondazzi -- Chief Financial Officer

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

Claudio Descalzi -- Chief Executive Officer

For the internal production, the question related from cargo to production, we consider about 10,000 barrel per day on average, possibly 10,000 per day. For that reason, we gave a range for the final target of this year. In terms of contingency on the second quarter, we have about 50,000 -- second half, 50,000 barrels per day.

Biraj Borkhataria -- Royal Bank of Canada -- Analyst

Great, thank you very much.

Operator

The next question is from Irene Himona of Societe Generale. Please go ahead, madam.

Irene Himona -- Societe Generale -- Analyst

Thank you. Good afternoon. I had two 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? Secondly, on R&M where you lowered the guidance following the weakness in refining, can you say of the 500 million you expect given the performance in the first half, what is the split between marketing and refining? It seems that, obviously, refining has been loss making. What margin do you assume in the second half to reverse that? Thank you.

Claudio Descalzi -- Chief Executive Officer

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

Alessandro Puliti -- Chief Upstream Officer

Okay, for Kashagan, we confirm, 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 two additional wells to gas injector and this allowed an improvement of the production performance. They ramped up 390,000 barrels of oil equivalent per day currently. Our share during the year is 64,000 barrels of oil equivalent.

Giuseppe Ricci -- Refining and Marketing Officer

Ricci, refining and marketing. About the guidance from 0.7-0.5 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. It is already increased in July and we expect to have a good margin and good spread [inaudible] 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 expect those are good contributions on the marketing. This quarter, the third quarter, this is the driving season, the summer season, and overall, we expect in the second half more than 200 million euros of contribution from the marketing and slightly less than 200 million euros from the refining overall, traditional and bio.

Irene Himona -- Societe Generale -- Analyst

Thank you.

Operator

The next question is from Jon Rigby of UBS. Please go ahead, sir.

Jon Rigby -- UBS -- Analyst

A couple questions. You referenced the scenario in the downstream behind the standardized refining margin deteriorated, and obviously we can see that. You just referenced light-heavy spreads, sweet-sour spreads, etcetera. 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. Well, when it will complete and then 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, etcetera, so is it possible you just remind me what disposal receipts you're expecting in addition to the markets one? Thank you.

Giuseppe Ricci -- Refining and Marketing Officer

Okay, about the spread, [inaudible] crudes, we had in the first half a very big spread over $1.40 per barrel of appreciation of high crude versus low crude, so it's a very strange scenario in comparison with the budget. We expect in the second half an alignment with the budget and we have just in the last part of June, early in July, we are seeing this alignment.

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

Massimo Mondazzi -- Chief Financial Officer

Okay. 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 divestitures that will take place in the second part of this year. The overall amount we expect to cash in is in the range of 300 million euros.

Jon Rigby -- UBS -- Analyst

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

Massimo Mondazzi -- Chief Financial Officer

Yeah, Jon. When we announced the deal, we said that we expected a small contribution starting from 2019 because of the dividend to be distributed. The latest from Abu Dhabi is, because of the scenario that is lower even in the 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 zero, while we expect, still, the contribution we announced during the acquisition time starting from 2020.

Jon Rigby -- UBS -- Analyst

Okay, thank you.

Operator

The next question is from Jason Kenney of Santander. Please go ahead, sir.

Jason Kenney -- Santander -- Analyst

Good Afternoon. 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. On the share buyback, I think over 50 million done to date, should I be assuming the 400 million share buyback within the 2019 timeframe or am I thinking into the first and second quarter of 2020? Thanks.

Claudio Descalzi -- Chief Executive Officer

Luca for exploration, Massimo for the buyback.

Luca Bertelli -- Chief Exploration Officer

In the second half, we expect to drill two 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. Take into account that the 350 million barrel equity declared so far is not considered, Vietnam, yet. That well is just finished and we are evaluating the discovery, so that in any way is a material discovery.

Jason Kenney -- Santander -- Analyst

Thanks.

Massimo Mondazzi -- Chief Financial Officer

Okay, so as far as the buyback, definitely, we confirm the 400 million to be 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 in March, February-March 2020. What I could say, looking at the financials we are projecting right now, mainly the leverage that we see today before the IFRS 16 is 15%. I would say that such results have been well encouraging toward a continuation of our buyback program, even in 2020.

Jason Kenney -- Santander -- 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 -- Chief Financial Officer

We expect, as we probably detail performing this strategy, definitely we are going to pay now 2.77 billion euros because of the 20% acquisition. Based on this and based on the scenario we expect in the second half of this year, we expect to deleverage before the IFRS in the range of 20% because of, as I said, the significant amount to be paid for [inaudible] and that should be the ceiling, yes.

Jason Kenney -- Santander -- Analyst

Okay, thanks.

Operator

The next question is from Alastair Syme of Citi. Please go ahead, sir.

Alastair Syme -- Citi -- Analyst

Hi. I just had one question, actually. It was on Iraq given that you're a 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 Zubair, so I assume that's some sort of statement that requires better fiscal terms than you're currently getting. Maybe you could just talk about that and what you think the potential of the asset is, please.

Claudio Descalzi -- Chief Executive Officer

Our investment in RACA always focused on Dubai because we are growing out the production. We reached above 100,000 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 investment needed to reach this target. As I remember, 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 recovered all the nine investment until now, plus the remuneration. At the moment, we are working on these projects. We have other opportunities, especially on the gas and oil, that we are just at the level of starting, nothing else.

Alastair Syme -- Citi -- Analyst

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

Claudio Descalzi -- Chief Executive Officer

The potential in term of the sales is there. Clearly, we are [inaudible] the timing, and then we have some of those related to the water injection. We have to find the right balance between the production and the injection. The oil is there and can flow. It needs additional investment. We have already a lot of facilities that we can use to expand the investment, but is linked to contract, is linked to water, and also is linked to the internal rate of return of the investment. It's linked also to the possibility to improve the condition of the contract.

Alastair Syme -- Citi -- Analyst

Okay, thank you very much.

Operator

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

Christopher Kuplent -- Bank of America -- Analyst

Thank you. Good afternoon or morning. Just two 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 break-even. Would that be a fair assumption going into the second half of this year? Second question, even more obscure, can you give us a little bit of color on what's happening in the other and corporate and intragroup 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.

Male Speaker

[Inaudible] from Versalis. Thank you for your question. Yes, the second half was poor in terms of results with an EBIT negative of 28 million euros, 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 break-even in this scenario, so having said that, assuming fairly the same constant scenario for the second half, we are confident to sustain a [audio cuts out] also that we do not expect any major planned maintenance activity for the second half and is also fast improving.

Massimo Mondazzi -- Chief Financial Officer

Now, as far as the other items, 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 toward 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 -- Kepler Cheuvreux -- Analyst

So I got one question concerning Libya gas exports to Europe. Massimo, you mentioned that you had an 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? Can you confirm that you are making money on those gas exports from Libya to Europe, even as there is a very low prevailing natural gas spot price in Europe?

Massimo Mondazzi -- Chief Financial Officer

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. On the upstream side, the gas price is related to oil, to brand, and then the gas is sold 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 price, so that's the difference that generated part of the increase in the tax rate. As I said, if we forecast a gas price in Italy in the range of 200 euros 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 10 euros per 1,000 standard cubic meter, I do not expect any significant reflection on the tax rate.

Bertrand Hodee -- Kepler Cheuvreux -- Analyst

Thank you very much, very helpful.

Operator

The next question is from Massimo Bonisoli of Equita.

Massimo Bonisoli -- Equita -- Analyst

Good afternoon. 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? 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 farm-out maybe?

Massimo Mondazzi -- Chief Financial Officer

As far as the working capital, 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 has a slight absorption of cash in the range of 200 million euro, 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 100, 200 million euros. The capex guidance, Claudio.

Claudio Descalzi -- Chief Executive Officer

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 terms of timing, you spend less, and that's what happened. That happened in Zohr because we anticipate 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 oil production, so that is one point.

Massimo Mondazzi -- Chief Financial Officer

Nothing to do with the dispositions because dispositions were already included in our budget.

Bertrand Hodee -- Kepler Cheuvreux -- Analyst

Very clear, thank you.

Operator

The next question is from Alessandro Pozzi of Mediobanca. Please go ahead, sir.

Alessandro Pozzi -- Mediobanca -- Analyst

Yeah, good morning. Hello. I have two questions. The first one is on Qatar volume. You farm out a few licenses in Kenya and that adds to the established partnership you already have in Mexico and Mozambique, just to name a few. I was just wondering, [inaudible] that we're going to see meaningful production in Qatar at some point in the future? 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 -- Chief Executive Officer

I have the two answers. 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 very willing to step in and work in Qatar. We work very well. It is three years that we work together outside Qatar. We buy gas from Qatar, so we know each other very well. Now, there is the standard 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, I want just to make a correction because when we talk about the 1.8 billion, it's 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 one has been drilled three kilometers from the first exploration well, and confirm the discovery and find additional explorations.

Going to the hub, we had two hubs, and we made the two hubs before discovering, having about 1.8-1.7 billion barrel of resources, and through this also because of this location and distance of the reservoir, we developed two hubs. Clearly here, with the first well that we're going to tie-in in a record time, it's really to test the reservoir and gives more energy to the existing hub, but the existing hub has a ceiling that can be 150-16o. With all the discovery that we discovered for sure, we want just to give an extension to the existing facility. We want also to develop, so development must be started in terms of wells, number of wells. That is really likely that for the discovery, that is a super-giant discovery. Therefore, the 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.

Claudio Descalzi -- Chief Executive Officer

Thank you very much.

Operator

The final question is from Lydia Rainforth of Barclays. Please go ahead, madam.

Lydia Rainforth -- Barclays -- Analyst

Thank you for taking the question. Two very quick ones, actually, on the low carbon part of the business. In terms of the CO2 emissions that you've showed coming through, can you just walk through what it is that you're doing differently now versus previously? Then, secondly, with Gela and EST coming back the second half this year, how do you expect the margins for those plants to be compared to the wider downstream? Thanks.

Claudio Descalzi -- Chief Executive Officer

Sorry. I'll answer the first question. You're asking if we are reducing, if we are doing different before the past. It's already years and years, at least. We started a long time ago. You see the graph sign to it. You saw our CO2 emissions. Just to give you figures -- I'm sorry. If you see the figures just six years ago, our Scope 1 CO2 production was about 60-65 million tonnes per year. Now we are 40 million. That split equally between upstream and downstream. Clearly, we work on loss on the upstream because we had more in the space, because we work on the flaring down that's been drastically reduced more than 80%, and then we work on the methane emission. Clearly, the target is, by 2025, to stop all the flaring and reduce an additional 80% of the methane emissions.

Clearly, that is not now. We are working a lot on circular economy. We are working on renewal 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 [inaudible]. For the downstream, clearly the downstream is more resilient to reduce CO2, is terminal process, terminal 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 a commitment, 2030, to offset the Scope 1 in the upstream. We are working, working in progress. We hope that next year, so 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 -- Chief Executive Officer

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.

Duration: 54 minutes

Call participants:

Claudio Descalzi -- Chief Executive Officer

Alessandro Puliti -- Chief Upstream Officer

Massimo Mondazzi -- Chief Financial Officer

Giuseppe Ricci -- Refining and Marketing Officer

Luca Bertelli -- Chief Exploration Officer

Clint Oswald -- Bernstein -- Analyst

Thomas Adolff -- Credit Suisse -- Analyst

Biraj Borkhataria -- Royal Bank of Canada -- Analyst

Irene Himona -- Societe Generale -- Analyst

Jon Rigby -- UBS -- Analyst

Jason Kenney -- Santander -- Analyst

Alastair Syme -- Citi -- Analyst

Christopher Kuplent -- Bank of America -- Analyst

Bertrand Hodee -- Kepler Cheuvreux -- Analyst

Alessandro Pozzi -- Mediobanca -- Analyst

Lydia Rainforth -- Barclays -- Analyst

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