Eni - Earnings Call - Q4 2011
February 15, 2012
Transcript
Speaker 4
Ladies and gentlemen, welcome to Eni's 2011 Fourth Quarter and Full Year Results Conference Call, hosted by Paolo Scaroni, Chief Executive Officer, and Alessandro Bernini, Chief Financial Officer. For the duration of the call, you will be in listen-only mode. However, at the end of the call, you have the opportunity to ask questions. I'm now handing you over to your hosts to begin today's conference call. Thank you.
Speaker 3
Good afternoon, ladies and gentlemen. Welcome to our 2011 Fourth Quarter and Full Year Results Presentation. In 2011, we made exceptional progress on our medium and long-term growth prospects. We had some remarkable successes in exploration, with important discoveries in the Far East, with the discoveries in the Yangtze Creek Northeast, which have almost doubled our resources in the area. In the Barents Sea, where Skruvgard and, in recent weeks, HAVIS have opened up a new hub with 500 million BOE of recoverable reserves. Of course, in Mozambique, where we have today announced the results of our second well, Mamba North, and raised our estimate of gas in place to 30 TCF. We are very excited about the block's further potential and have expanded our exploration and appraisal plan with eight further wells to be drilled in the next two years.
Overall, we have added 1.1 billion BOE of resources in 2011, building on our excellent track record in exploration over the past four years. We have also made good progress on our key projects for medium-term growth, signing the GSAs and taking final investment decisions for Perla in Venezuela and for our fields in the Yamal Peninsula in Russia. We are pleased with the technical and commercial progress on these developments, which, alongside the other FIDs, will contribute 140,000 BOE a day of new production by 2015. Another highlight of Eni's performance in 2011 was the quick operational recovery in Libya. While the turmoil in our largest producing country affected both volumes and results last year, our consolidated local relationships and experience helped to contain the impact of the crisis.
We were the only IOC to maintain some level of production in Libya during the revolution, with local employees continuing to work at Wafa and gas production for domestic power generation exempt from international sanctions. Since the liberation of Tripoli in September, we have restarted all of our fields and reopened the Green Stream, ramping up production faster than even we had anticipated. Today, we are almost back to pre-crisis level and expect 2012 production from Libya of around 230,000 to 240,000 BOE per day, compared to the 110,000 BOE per day reported for the full year 2011 and the 273,000 BOE per day in 2010. Let's now turn to gas and power, R&M, and petrochemicals.
Following all these businesses, the market context in 2011 was difficult, and we saw a deterioration in the fourth quarter of the year, as the sovereign debt crisis started to affect the European and particularly the Italian economy. This crisis spread across all our Italian businesses. In gas and power, demand was down 11% in the quarter, also due to mild weather. In R&M, consumption of refined products declined by 5.5% in the quarter, and for petrochemicals, the second part of the year was the worst in the last 10 years. In this context, we have taken steps to strengthen our competitive position in each sector. In gas and power, we continue our strategy of reviewing our supply costs and have already closed the agreement with Sonatrach.
However, it is worth reminding you that gas and power results do not yet include the expected benefits of the Gazprom renegotiation, which is progressing constructively and will be retroactive for the whole of 2011. Meanwhile, we have strengthened our position in the most resilient retail segment through organic growth in Italy and selective acquisitions in France and Belgium. In refinery and marketing, we are concentrating our efforts on efficiency. In 2011, we exceeded our target with over €150 million of savings. In petrochemicals, alongside cost-cutting, we are refocusing our business on more profitable niches. An example comes from our innovative project to convert a structurally loss-making basic chemical plant to biochemicals, giving us a foothold in this fast-growing market. Thank you for your attention, and I will now hand you over to Sandro for a closer look at our fourth quarter results.
Speaker 0
Thank you, Paolo. In the fourth quarter of 2011, the market environment was mixed. The Brent price averaged $109 a barrel, up 26% compared to the fourth quarter of 2010. Meanwhile, the average European refining margin Brent euro was $2.5 a barrel, well below historical levels and showing an 8% decline year on year. The euro/dollar exchange rate was broadly in line with the last quarter of 2010 at $1.35 per euro. Moving to our results, Eni's adjusted operating profit for the fourth quarter of 2011 was €4.3 billion, a decrease of 10% from the fourth quarter of 2010. This result reflects the operating losses recorded by the downstream businesses against the backdrop of a recessionary environment and the increased competitive pressure on gas and power marketing results, which only partially include the benefits of supply renegotiations.
These negatives were to some extent offset by the improved operating performance in E&P, where operating profits were up 4.3% year on year, reflecting higher oil prices and the effort made to recover Libyan production after the suspension of much of our activity in the country during the crisis. Adjusted net profit for the fourth quarter of 2011 was €1.54 billion, down 9.5% compared with a year ago. This decrease reflects lower operating results and a higher group consolidated adjusted tax rate. The group tax rate was approximately 3 percentage points higher due to the higher contribution of the E&P to group profits, as well as the upward revision of the so-called Robin tax. In the fourth quarter of 2011, Eni's hydrocarbon production amounted to 1,678,000 BOE per day, a decrease of about 14% compared to Q4 2010. The decrease was mainly driven by the Libyan crisis.
However, the extraordinary efforts made in the last part of the year to restart production and reopen the Green Stream pipeline helped to reduce the impact of force majeure. Fourth quarter production from Libya was over 160,000 BOE per day, compared to the third quarter production of around 50,000 BOE per day. Furthermore, the sharp increase in oil prices compared to the fourth quarter of 2010 negatively affected entitlements under PSA contracts, with an estimated impact of 20,000 BOE per day. The division's adjusted operating profit was supported by higher oil prices and amounted to €4.2 billion, up 4% compared to the fourth quarter of last year.
In terms of reserves, we added 827 million BOE through organic promotions, a result driven by the important FIDs taken in 2011, amongst which the first two developments in the Yamal Peninsula in Russia, Samburskoye and Durangoskoye, and the supergiant Perla field in Venezuela. Overall reserves at the end of 2011 were 7.1 billion BOE, a figure which rises to 7.2 billion BOE excluding price effect, compared to 6.8 billion BOE at the end of 2010. Our organic reserve replacement before price effects was 160%. Even assuming full Libyan production in 2011, it would have been in the region of 120%. In gas and power, overall gas volumes sold, including consolidated and associated companies, totaled 24.7 bcm, a decrease of around 9% compared with last year.
The decline is mainly attributable to weak demand in Europe, growing competitive pressure, and the effect of force majeure in Libya on off-takes by importers to Italy. Adjusted operating profit in the fourth quarter decreased by 50% compared to the same period of 2010, due to the sharply lower results delivered by the marketing business. It is worth reminding you that fourth quarter marketing results reflect the benefits of the finalized renegotiation with Sonatrach, backdated to April 1, 2011, and do not yet reflect the benefits of the pending negotiation with Gazprom, although this will also be retroactive to January 1, 2011. Gas and power adjusted proforma EBITDA for the fourth quarter of 2011 was €671 million, compared to €921 million in the same quarter of last year.
International transportation results showed a 42% decrease, mainly due to the divestment of Eni's interests in the gas pipelines from Northern Europe and Russia. The regulated businesses generated €389 million, in line with the corresponding period of last year. Adjusted proforma EBITDA in the marketing and power business was negatively impacted by a recessionary environment and increasing competitive pressure in Italy and Europe, as well as unusually mild weather conditions. Increased competitive pressure was partially offset by the positive outcome of the renegotiation of long-term supply contracts with Sonatrach and other suppliers, as well as by portfolio optimization strategies. On the other hand, the result does not yet reflect the benefit of the pending renegotiation with Gazprom, whose effects will be retroactive to January 1, 2011.
Furthermore, the lower production in Libya reduced volumes to shippers and affected margins owing to the substitution of recently renegotiated Libyan gas with other sources of supply. Turning now to R&M, in the fourth quarter of 2011, the division reported an adjusted operating loss of €271 million versus a loss of €39 million in the same period of last year. This decrease reflects the worsening result of the refining business, with unprofitable refining margins due to rising costs for feedstock and plant utilities, in particular fuel oil. Eni's complex refineries were also impacted by the reduction in the spread between light and heavy crudes. These negatives were partially offset by efficiency enhancement measures, the synergic integration of refineries, and the optimization of supply activities. Meanwhile, operating profit in marketing was impacted by declining fuel consumption for transport and industry in a recessionary environment and by increased competitive pressure.
In the fourth quarter of 2011, the petrochemical business reported an adjusted operating loss of €154 million, compared to a loss of €74 million in the fourth quarter of 2010. The business was negatively impacted by falling margins and a substantial decrease in demand. Saipem delivered an adjusted operating profit of €390 million, up 3% versus Q4 2010. Other activities and corporate showed an aggregate loss of €88 million, compared to a loss of €129 million in the fourth quarter of 2010. This decline is mainly related to a year-end adjustment of insurance costs, thanks to improved injury frequency rates and other one-off items. Cash flow from operations was €14.3 billion in 2011. Proceeds from divestments amounted to almost €2 billion, including the sale of Eni's interest in gas transport pipelines from Northern Europe and Russia, gas distribution activities in Brazil, and non-strategic upstream assets.
Cash outflows related to capital expenditure of €13.4 billion and dividend payments of €4.3 billion, including dividends paid to Saipem and Snam minorities. Net financial debt at year-end amounted to €28 billion, and the ratio of net borrowings to total equity, the leverage ratio, stood at 0.46, compared to 0.47 in 2010. Thank you for your attention, and now I will hand you over to Paolo for his final remarks. Thank you, Sandro. Now, our outlook for 2012. Our upstream production will grow by around 10%, net of PSA effects, driven by the recovery in Libya and startups in Algeria, Angola, and Russia. This guidance factors in reduced growth expectations from Iraq, where bureaucratic difficulties have slowed the ramp-up in our entitlements.
Turning to gas and power, as you are aware, the Italian government has issued a decree which includes the proprietary separation of Eni and Snam, a move which is coherent with our medium-term strategy. The timing and shape of this disposal are yet to be determined, and our guidance refers to group structure as it currently stands. Regulated businesses will continue to perform well, although international transport results will reflect the sale of our European pipelines completed in the fourth quarter of 2011. Our marketing activities will benefit from the recovery in the Libyan supply and continued renegotiation of long-term contracts, which will have a material impact on 2012 results and provide the basis for a more competitive commercial strategy. Following the agreement reached with Sonatrach, we expect to close negotiations with Gazprom in the first part of 2012.
At the same time, our merchant business will face additional market pressure. Expected regulatory changes will impact our Italian retail business. While the economic and climate effects remain volatile, we see a weak 2012 on the back of the deterioration experienced in the fourth quarter. In this context, we will continue to grow sales in our key markets and increase LNG volumes, investing in our market position coherently with our view of a longer-term tightening of the market. In R&M, in the context of continuing weak refining margins, we will further improve the efficiency of our operations. Consolidated CapEx will remain in 2012, broadly in line with 2011, and will be mainly focused on the development of our new major projects. This will continue to fuel Eni growth in the future, a theme which we will discuss in our strategy presentation next month.
We will now be pleased to answer your question. I have here with me, apart from Sandro Bernini and Claudio Descalzi, Umberto Vergine, who, as you probably remember, has replaced Domenico Dispenza as the Chief Operating Officer of our Gas and Power division. He will be ready to answer your question as well.
Speaker 4
Ladies and gentlemen, the Q&A session is now open. I'd like to remind you that if you want to register for your questions, please press star followed by one. To cancel the reservation, press star followed by two. Thank you. First question comes from Mr. Nitin Sharma from JP Morgan. Mr. Sharma, please.
Speaker 5
Hi, good afternoon. Two questions, if I may. First one on GAALP. What is the update on the sale of stake in GAALP? Is there a price threshold that you want to achieve before progressing with this divestment? Second one on R&M and chemicals. Both these segments have been consistently reporting operating losses in the last few years, and I do hear the plans and progress that you're looking to make. Is downsizing the company's exposure in these businesses also an option on the table, especially given your cautious view on the outlook for refining margins? Thanks.
Speaker 0
Thank you. On GAALP, I will give you a general view, then maybe Sandro, who is running the negotiations around the stake of ours, will add some few details. Let me tell you, first of all, this has been a business which has been a very good investment for us. As you may remember, we paid our 33.34% stake, roughly €1 billion. We got back more or less the same amount in dividends and in tax benefits, and our stake is worth something around €3.7-3.8 billion. We are considering the sale of this business. As you may remember, from now to 2014, more exactly March of 2014, every divestment of our stake should receive an approval from our strategic partners, which include Mr. Amorim and the CDP, essentially the Portuguese government. Every divestment should receive its approval.
As far as price is concerned, we would consider a price which takes into account the market, of course, and we will not be ready to sell below the market price. Now, moving to R&M and chemicals, do I forget something, Sandro?
Speaker 2
Oh, perfect. The situation that you have described is exactly where we are today in order to get the approval from our reference, the other two reference shareholders. We are discussing with them, and I have only to add that the discussions are progressing very, very well.
Speaker 0
Now, as for your second question around R&M and chemicals, let's say we look at the future of these two businesses in somewhat a different way. R&M has been a profitable business for us until 2008, so not a long time ago, we were making good profits. Now, today, the main reason why this business is not profitable is that the refining margins in the Mediterranean, which is the market of our competence, have been extremely low. In fact, the drop in demand for petroleum products is certainly not helping. Our view is that the amount of refining capacity in the area has to be reduced in order to balance the reduced demand. We expect some closure of some refineries in the region. We will look closer to our business to see if we can improve our market position, let's say managing better our capacity.
You might be aware that, for example, right now, our refinery in Venice is not working, and the main reason is to match with a decline in demand. On chemicals, the story is somewhat different. This is a business in which there is no reason why we should not be making reasonable returns. We have a plan of improvement of our activity, of moving from commodity markets to specialty products, which we are progressively implementing. The first step has been the transformation of our Porto Torres plant into new green chemical products. We have several ideas about that. We will progress in this business, and we target for 2014 to go back to much more results, which would be much more competitive with our peer group.
Speaker 5
Can I just ask one additional one on Gas & Power? Assuming a successful conclusion of your ongoing negotiations with Gazprom, could you give us an EBITDA guidance for this year, please, as you've done historically? Thanks.
Speaker 0
I would prefer to give it to you after the conclusion of the renegotiations. I'm hopefully, although it does not depend on me, to be in that position at our strategy presentation.
Speaker 2
Thanks. Thanks, Lo.
Speaker 4
Next question is from Mr. Mark Cawthere from Macquarie. Mr. Cawthere, please.
Speaker 1
Oh, good afternoon, everyone. I just had a quick question following up on Mozambique and the results today and the guidance for an eight-well campaign over the next two years. I was wondering if you could offer any color on, at this stage at least anyway, when you hope to sanction a development. I'm guessing sort of early 2014, but any more color there would be great. Thanks.
Speaker 0
Claudio. Result, the well is finished, and the well added 8 TCFs. Now, totally, we have found 5.4 billion barrels, so much more than what we expected. The well has been tested. We got core, we tested, and also the production result has been very, very positive. Now, we have to drill another 8 wells in the next two years. We have more than 4 structures, 3, 4, maybe 5 structures, depending on the result of the next well, all exploration wells. I think that by the end of this year, we'll have all the data necessary to go for an FID. I think that 2014 could be a good year to have the first FID, at least for the first two structures. Next question.
Speaker 4
Next question comes from Mr. Alessandro De Michelis from Merrill Lynch. Mr. De Michelis, please.
Speaker 2
Yes, good afternoon, gentlemen. Three questions, if I may. The first one is Claudio was mentioning having all the data by the end of this year on the structures. Maybe you can comment on how the unitization discussions are ongoing. The second question is regarding your renegotiation with the contract with Gazprom. Why is it that you are more confident this time than last year? The third one is how we should be thinking about the dividend going forward.
Speaker 0
Okay. Claudio.
Speaker 2
Unitization. Unitization is we started talking with the government about unitization and also with Anadarko. We are just in a preliminary stage. Unitization will involve just the first two discoveries because most of the structures are completely only in area four, so we don't need any unitization. The time to market, our time to market will not be linked just to unitization because we have also enough reserves in layers and reservoirs that are just and only in area four.
Speaker 0
The second question, Umberto will answer.
Speaker 1
We are confident that an agreement with Gazprom will be reached soon because, first of all, the negotiation is proceeding constructively. This has been based on our longstanding relation with Gazprom, and the negotiation is along the lines of agreements that you have recently concluded also with other companies.
Speaker 0
Okay. On the dividend, I would prefer to discuss about dividends once a year at our strategy presentation, which this year will take place on March 15. For the time being, we are pleased to confirm a dividend of €1.04 per share.
Speaker 2
Okay, that's fine. Thank you very much.
Speaker 4
Next question comes from Mr. Tipan Jotilingam from Nomura International. Sir, please go ahead.
Speaker 1
Yeah, thanks very much. Good afternoon, gentlemen. Three questions, please. Firstly, just on 2012 CapEx, could you talk about the moving parts in terms of what assumptions you've made in terms of exploration spend for 2012, cost inflation, and then I assume there's a read-through from the reduction in CapEx at Saipem. Secondly, very quickly, Sandro, what sort of assumptions should we make on the tax rate for this year? Lastly, a question I think I asked in the Congo, but I was just wondering, you've clearly got a very big position in Mozambique with a very high interest. I was just thinking about, you know, are there any plans to reduce that stake? Thank you.
Speaker 0
Okay. Listen, I think Claudio will answer on the first question. On the second, Sandro, and maybe on the third one, I will say something and then leave it to Claudio. Claudio.
Speaker 2
CapEx, in for 2012 outlook for exploration, we increased our CapEx with respect to 2011, about €350 million increase, and that is due to the big discovery that we did in Indonesia, Mozambique, Angola, and Norway. We increased the number of wells to reduce the time to market and to appraise the area and to get the FIDs as soon as possible. That is more or less the increase that we are going to have in 2012. For sure, just to give a comfort and to confirm what the reason why we have already stated that we expect to face a CapEx expenditure for 2012 broadly in line with 2011 is because, as you have already stated, we expect a significant decrease in the spending made by Saipem since they have almost completed the announcement of the drilling fleet predominantly.
As far as the 2012 tax rate is concerned, we expect that in 2012, the adjusted tax rate will be slightly higher compared to what we have incurred in 2011, and this is because we expect a higher contribution of the E&P pre-tax results, also due to the restart of the activities in Libya. We expect to have the full contribution of the economical results from Libya.
Speaker 0
Mozambique, as you are aware, we hold 70% of the block. Mamba raised a huge interest from everybody, and we have been approached by, I would say, almost everybody in the industry asking to be part of this huge development in the area. Our view is, first of all, we need to complete the exploration because we don't know exactly what we have, not yet. Probably our first hypothesis is to decrease slightly our stake, probably keeping it in the region of 50% in that region and attracting new partners, particularly in the area of consuming, say, buyers of gas, because this will ensure a contract in order to sell the gas when we will be able to start the exports. Okay? Another question.
Speaker 1
Sorry. Can I just follow up on just after Mamba North? In terms of your expectation on the resource base, I think maybe a few months back, you talked about the gas in place numbers potentially doubling. Where do you see that sort of, let's say, ball case scenario for gas in place?
Speaker 0
At the end of the exploration campaign, our expectation was to double the gas in place. I think that the result of this well is better than what we forecast. Now we have to see because each well is a different well. It's really a wildcat, but we're still thinking that we can double what we have found with Mamba South. We're in the order of 40, 45 TCF of gas in terms of resources.
Speaker 2
Very clear. Thank you.
Speaker 4
Next question comes from Mr. Oswald Klinte from Central Bostyn. Mr. Klinte, please proceed with your question.
Speaker 1
Yeah, thank you very much. The first one really just back on Libya. I was curious if you could give us some Libyan export numbers on top of the production numbers. How much oil are you actually receiving out of Libya, or was there any underlift in the fourth quarter? Maybe dive into Iraq for a second question. You know, what exactly is happening there? You talked about some of the bureaucratic issues. Do you think these are going to get worse? Some of your other companies are talking about potentially exiting Iraq. Is that, you know, just I'd like to hear your thoughts on that, or do you have any intentions to move potentially up into Kurdistan? Thank you.
Speaker 0
Libya, we are starting exporting oil in November, so November, December. We don't have underlisting in Libya at the moment. The oil production is not yet at the top. We are producing as an equity about 25,000 barrels per day, 30,000 barrels per day. That is the rate. I think that it will take all of 2012 to go back to the oil production. Gas is going quite well. For Iraq, that's all I think for the question on Libya. For Iraq, I think that the situation is improving, improving quite well, at least for us, for our operation, and better than in 2011. Our intention is, first of all, to remain in Iraq. Our intention was to participate in the fourth B draft that will be issued, I think, in the next month.
For sure, Kurdistan is very interesting from a geological point of view, but we don't want to make any move that can jeopardize our position in the South Iraq.
Speaker 2
That's great. Thank you.
Speaker 4
Next question comes from Mr. Andreas Gauri from Mediobanca. Mr. Gauri, please.
Speaker 1
Yes. Good afternoon, everybody. A couple of questions from me. The first one is on Snam and the potential disposal of your stake. I was wondering if you could provide us some more details on the timing. If the deal will be concluded positively with the entire disposal of the stake, are you considering the opportunity to pay an extraordinary dividend? Thank you.
Speaker 0
Now, let me start by saying we are not planning to divest from Snam Rete Gas. We are planning to divest from Snam.
Speaker 1
I'm sorry.
Speaker 0
I'm sorry for the confusion, but probably we made confusion with some similar names for the two companies. We are talking about Snam, which is the listed company, which controls Snam Rete Gas, Stogit, Italgas, and GNL Italy. This is what we are talking about. Now, it's very early days to tell you how and when this divestment will happen. It will not depend on us, of course. It will depend, first, on the Italian Parliament, which has to convert the decree of the government. There should be a specific decree of the government, which will clarify the procedure in which this divestment may happen. Just let me tell you what our objectives are on that. I mean, the objective that we will protect and defend at any cost. First of all, we want to make a transparent disposal, which will be shareholder-friendly in front of any shareholders.
Second, we want to protect Snam shareholders because we should not forget that we have been bringing this company into the market. We have been putting together all our activities in regulated gas just a couple of years ago, and therefore, we feel responsible that the interest of Snam shareholders will be protected. Thirdly, we want that at the end of all this process, Eni will be a stronger company and not a weaker company. Now, giving you these three objectives, in particular, the third one, you will understand that we are not planning an extraordinary dividend.
Speaker 1
Okay, thank you.
Speaker 4
Next question is from Mr. Domenico Ghilotti from Equita. Mr. Ghilotti, please.
Speaker 1
Good afternoon. My first question is on gas and power. Could you give us an indication on the impact of Libya on the profitability of the division in 2011? What could have been a normalized profitability in gas and power in 2011? The second question is on Snam. How will you manage the financing of Snam currently present in case of a disposal? Is there any issue on this?
Speaker 0
On the first, I'll give you an answer because it's a quick one. It's €300 million, the impact of Libya on gas and power. On the second, Sandro Bernini would make a few comments.
Speaker 2
Basically, you know that the entire Snam group is engaged in the type of business which the market considers to be a very low-risk business. As a consequence, even in a so difficult financial environment, we do not see any problem for Snam to refinance entirely their financial exposure when this will happen. I remember you, but just because it has been already anticipated by the CEO of Snam during his conference call, as soon as there will be a change of control of the company of Snam, the financial support provided by Eni will be immediately redeemable. Of course, since we don't want to create any problem for the company, we will accompany Snam in refinancing their financing process in order to preserve as much as possible the value for the company.
All in all, we do not expect, we don't foresee any problem in refinancing the financial exposure of the company.
Speaker 1
Thank you.
Speaker 4
No more questions at the moment. Ladies and gentlemen, I'd like to remind you that if you want to register for your questions, please press star followed by one. To cancel the reservation, press star followed by two. Thank you. Next question comes from Mr. Mark Bloomfield from Deutsche Bank. Mr. Bloomfield, please.
Speaker 1
Good afternoon. Thanks for taking the question. You've been very clear that a key part of improving profitability in gas marketing relates to renegotiating your purchase contracts. In looking beyond that, can you perhaps talk about what other strategies you're pursuing in that business to attempt to recover both volumes and margin? The second question, based on your reference oil price and your assumptions on the outlook for the Italian gas market this year, what kind of take or pay liabilities, if any, do you expect the gas and power business to incur in 2012? Thanks.
Speaker 0
I didn't answer the second question while Umberto prepares your first one, which is a very wide question. First of all, we will not pay the take or pay on the basis of the Italian market, but of our European markets because, I mean, we buy gas for all our sales in Europe. I would like to remind you that we sell more gas outside of Italy than in Italy. For us, it's the European market which counts on that. In terms of take or pay, I have to tell you that among the items that we are under discussion with Gazprom, there is also the take or pay levels, so at which levels we can give up on some purchases of gas and still not be liable for paying the gas or prepaying, rather, the gas.
Therefore, it's not easy to give you a number because the number will be the result of the negotiation. Let me just say that the number in total will be fairly reduced. We are speaking about a number of around €200 million, €300 million in total for 2011. On the more strategic issue, let me just give you the ballpark in which we move. The crucial issue when we look at the gas market is that this market has never been so complex, so difficult as it is today. It is enough to tell you, which certainly you do know, that a million BOE of gas is sold today at $2.5 in the U.S., at $11 in Europe, and at $18 in the Far East. This gives you an idea of how difficult it is to draw a strategy in such a complex environment.
We have done so, and Umberto might try to give you some elements, although this will be an item that we will develop more in our strategy presentation in March.
Speaker 1
As you said, our gas merchant business has experienced tremendous volatility in terms of economic scenario, demand, and also weather conditions. The point of renegotiation that means to remain market-reflective in terms of the price at which we buy gas is the fundamental first solution of this problem. This is where we are putting all our efforts. On top of that, we also plan to continue our strategy for growth, particularly in the European market, both in terms of capitalizing on the experience that we have in the Italian market in all segments, first in the retail, and by expanding our presence also through acquisition if commercially these opportunities result in being viable.
Speaker 0
Thank you.
Speaker 1
Thank you.
Speaker 4
Next question is from Mr. Neil Morton from Berenberg. Mr. Morton, please.
Speaker 1
Thank you. Good afternoon. Just a couple of questions left. The first on gas renegotiations again. You've talked about Libya, Algeria, and Russia. Could you perhaps comment on Norway? Secondly, with regards to the Snam disposal, you talked about it being a transparent process. Could you perhaps reassure Eni investors, other than the government, that whomever you sell to, you won't sell for less than, for example, the RAB of Snam? Thank you. On Norway, we haven't planned to do any renegotiations so far because the terms of the contract will give us the first opportunity at the end of 2012, and we are preparing for that.
Speaker 0
Okay. On Snam disposal, I mean, I don't want to give you any specific number or any parameter to which you could refer. I just can assure you that I will fight to hell to protect any shareholders.
Speaker 1
Great. Thank you very much.
Speaker 0
Thank you.
Speaker 4
There are no more questions at the moment. If there are no more questions, perhaps we can call the conference to an end. If you do have any additional questions at a later date, please call us on the investor relations number. Ladies and gentlemen, the conference closes.