Total SA Investor Day
Sep 25, 2017 AM CEST
FP.PA - Total SA
Total SA Investor Day
Sep 25, 2017 / 08:30AM GMT
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Corporate Participants
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* Arnaud Breuillac
TOTAL S.A. - President of Exploration & Production
* Mike Sangster
TOTAL S.A. - Senior Vice-President of IR
* Momar Nguer
TOTAL S.A. - President of Marketing & Services and President of New Energies
* Namita Shah
TOTAL S.A. - President of People & Social Responsibility
* Patrick de La Chevardière
TOTAL S.A. - CFO
* Patrick Pouyanné
TOTAL S.A. - Chairman, CEO and President
* Philippe Sauquet
TOTAL S.A. - President of Gas, Renewables & Power and President of Strategy-Innovation
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Conference Call Participants
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* Alastair R Syme
Citigroup Inc, Research Division - MD and Global Head of Oil and Gas Research
* Bertrand Hodee
Kepler Cheuvreux, Research Division - Head of Oil and Gas Sector Research
* Blake Michael Fernandez
Scotia Howard Weil, Research Division - Analyst
* Brendan Warn
BMO Capital Markets Equity Research - Senior Oil and Gas Analyst
* Christopher Kuplent
BofA Merrill Lynch, Research Division - Head of European Energy Equity Research
* Christyan Fawzi Malek
JP Morgan Chase & Co, Research Division - MD and Head of the EMEA Oil and Gas Equity Research
* Irene Himona
Societe Generale Cross Asset Research - Equity Analyst
* Jason S. Kenney
Grupo Santander, Research Division - Head of European Oil and Gas Equity Research
* Jonathon Rigby
UBS Investment Bank, Research Division - MD, Head of Oil Research, and Lead Analyst
* Lydia Rose Emma Rainforth
Barclays PLC, Research Division - Director and Equity Analyst
* Martijn Rats
Morgan Stanley, Research Division - MD and Head of Oil Research
* Michele della Vigna
Goldman Sachs Group Inc., Research Division - Co-head of European Equity Research and MD
* Oswald C. Clint
Sanford C. Bernstein & Co., LLC., Research Division - Senior Research Analyst
* Robert West
Redburn (Europe) Limited, Research Division - Partner of Oil and Gas Research
* Theepan Jothilingam
Exane BNP Paribas, Research Division - Head of Oil and Gas Research and Analyst of Oil & Gas
* Thomas Yoichi Adolff
Crédit Suisse AG, Research Division - Head of European Oil & Gas Equity Research -- Director
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Presentation
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Patrick Pouyanné, TOTAL S.A. - Chairman, CEO and President [1]
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Good morning, everybody, and welcome from -- for this investors' presentation, as a tradition, to welcome you in London in this place and to present you in September our strategy and outlook, which means our perspectives on the years ahead and our plan to navigate for the future.
I would say, today, we are inviting -- by the way, for some of you, and I think 40 of you will come with us on the field trip, so we'll have quite a lot of time beyond this presentation to give you more granularity about our future and our perspectives. By the way, and just to clarify a pragmatic point, today, you have a set of slides, which is the one that I will present you together with Patrick de La Chevardière, our CFO. The other slides during the field trip will be delivered on to you only tomorrow so that you can rest tonight, and that it will be put on the Internet immediately at the same time for all our investors.
So don't ask question, you will have plenty of answer tomorrow and the day after. No, you have the right to ask questions.
To come back to this presentation, we have several objectives today. One of them, again, of course, is to give you more insights about the future. And we'll try to go until 2022 to give you perspectives about the next 5 years in terms of the main aggregates of the company. We are -- we'll be also and we are able to do that because we are entering, as we said in last February, I would say, in a new phase of development. The years 2015, 2016, we have been focused a lot on, I would say, make the company stronger, surviving through the low cycle and being very disciplined on the way we spend the money. I insisted a lot about the fact that, in a commodity business, we are not price taker -- we are not price maker but price taker, which means that we need to be excellent on what we control. This is a program we have executed in the last years, and Patrick de La Chevardière will come back on that, on the delivering -- the way we have been able to deliver on targets and how we have created a competitive advantage and, I would say, make our company stronger so that we can now drive the ambition, of course, which is to continue to grow the company not for volume but mainly for -- in value. But volume and value goes hand in hand, we should manage to grow, of course, profitable growth.
And this is, I think, the main message today. That yes, we are and we will continue to maintain the strong discipline in the way we want to operate the company because we believe excellence is your way -- is what -- to be excellent in our operations is what we control and is the right basis, which means permanently and organically lowering of the (inaudible). But at the same time, we have a strong ambition, which is to continue to create value for our shareholders and to develop the company and delivering a profitable growth.
I like this first slide. It was the one which was presented to you last February, and I used it again on August 21 when I introduced the Maersk Oil acquisitions. I will -- I could subtitle this slide walk the talk, in fact. We announced to you what was our program and what was our plan, and I think we are continuing to execute and to deliver on this program. Yes, it's combining, in fact, as I just said, on one side, maintaining our discipline to continue to reduce the breakeven and face volatility of the market; but it's also a matter of being able to act countercyclically, which we believe is the right strategy in a commodity business, to take advantage of the low-cost environment, the low-price environment, by sanctioning new projects, adding attractive resource and so preparing for a profitable future. And we do have and we strongly believe that to create shareholder value and -- which means to add value on our assets, it's better to play to our strengths and when it comes to developments and new resources. So this is our program, and this slide, again, keep it in mind because again, it will -- all the presentation today is based on the principles which are reminded in this slide.
So before to leave the floor to Patrick, I would like to make some -- 3 slides -- 3 remark on the macro environments in which we are today facing.
We don't take much risk with the title of these slides, by just telling you that markets are dominated by oil price volatility. And we don't guess anything. Why? Because, first, as we repeated as well, we are not price maker, and we have to be -- in fact, to be good and to be profitable whatever the price is, I would say. And that's true as well that the oil markets are, I would say, confronted 2 opposing trends. On one side, there is a strong demand growth. And in 5 -- in 3 years, from '15 to '16, 5 million barrel of oil per day of new demand will be added to the market. It's twice more than in the last -- in the previous 3 years, which means that the pace of growth demand -- of demand growth is twice quicker than before: plus 1.8 million barrel of oil per day in 2015; 1.6 million in '16; again, 1.6 million in '17. There are 2 reason. One is that, clearly, in this market, you have a big, strong elasticity of the demand to the price. The lower the price is, the higher demand growth is. And then it's, of course, benefiting from a rebound in the world economy. So a strong demand.
On -- but on the supply side, the supply, which was, of course, I would say, an oversupply by end of '14, is subject again there two opposing trends. On one side, you have the OPEC, non-OPEC countries, and mainly Saudi Arabia and Russia, which are really trying to manage their productions. And they have been quite compliant in the cuts, in particular, the 2 countries I just named, which drive down the supply. But at the same time, other places in the world, in particular, the U.S. shale producers but also 2 other countries, Libya and Nigeria, which are going out of very difficult security situations, have increased their production. So this is -- there, there are opposing trends. And even if with recent news, we can see that maybe the expectation in U.S. shales are a little lower than expected.
As a result, the inventories growing -- are growing slower than anticipated. It was true by end of the first half of the year, end of June '17. In fact, in the -- this last quarter, for various reason, the statistics, I will demonstrate that there is real draw on inventories, 1 million barrel of oil per day as an average for the third quarter. So the inventories should be -- and there 3 billion barrels by end of this quarter. So there are the trends which are opposing, which makes this market volatile and which makes that the lower-for-longer assumptions could be the right one.
I -- but I don't think the lower-forever assumption from a market point of view is the right way to look at the market evolutions because there is another interesting factor in this market, which is that there is a low number of FIDs since 2015. Our teams have been through all the statistics of new -- of the new FIDs for all projects through the WoodMac. The average per year between -- 2010 and 2014, there were 30 -- more than 30 projects were sanctioned as an average per year from 2010 to 2014, representing a big production of 2.5 million barrel of oil per day each year. Since 2015 until the first half of 2017, it's only 10 to 12 new FIDs which have been -- projects which have been sanctioned. It's limited; it represents only 1 million barrel of oil per day of adding new capacity. So you can see that all this, I would say, low pace of launching newer projects in the industry will affect the post-2020 supply outlook.
Having said that, we keep this lower-forever assumption as a way to manage the company. That means that, yes, there are opposing trends. There is a volatility. I would say, this volatility is part of the game when you are in a commodity business like oil and gas. And so we manage the company, I would say, at $50 per barrel, with a permanent eye and a permanent focus on lowering the breakeven of the portfolio of the company. And you will see in that presentation that, quite soon, we'll be able to have a breakeven at $30 per barrel, which may make our company strong to face the volatility of the oil markets.
A word on gas then. Gas, of course, is the other part of the strategy, the other component of the strategy as a company, so it's important to look through the gas markets. And Philippe Sauquet will come back on it tomorrow, but just to give you a -- I would say, an overview of it, in particular, LNG because LNG is for the major companies, it's a key market to focus. It's a market which is really -- which has first experienced a big growth from 25 -- 2005 to 2015, around more than 6% per year. We anticipate a growth which represent 100 million tonne, which was added on the market. We anticipate that the growth could be even stronger in coming years for different reasons. First, because, today, we have lower prices, which driving up the demand and like for oil. And we have seen, for example, in 27 -- '16, '17, in India, the market for LNG is -- the demand for LNG is growing rapidly. Second, because, yes, new markets are opening up. You have more and more countries because of economic developments, which is opening to LNG, to gas supply. And in particular, in Asia, beyond the traditional Japan, Korea and Taiwan, China is growing. But other countries in Asia, like Indonesia, Pakistan, Myanmar, Vietnam, are opening their market to gas. And there is another reason, not only lower price, is that we are working in the industry how to reduce the costs along the gas production, which is obviously very important. It's a matter on all the segments of this chain, and Philippe will come back on it again. But Downstream, the floating storage, regasification unit technology has allow the industry to lower dramatically the access to LNG in a country, for $300 million; and it's like $1 billion for -- or $800 million to $1 billion to $1 billion for onshore terminal; but also a more efficient LNG carrier, which is important; but also modular technologies of the LNG plants; and last but not least, of course, to focus on the sort of costs of the Upstream production.
This market -- as it's shown on the right side of the slide, of course, today, many projects are either put into productions or under construction. And we can see that this market is well supplied until 2022, 2023. But beyond that threshold, beyond that period, there is room for additional projects which have to be sanctioned. Okay, this -- and by the way, to build an LNG plant, it takes 4 more -- 4 or 5 years than 3 years. So this is the right time to think to new projects. But considering the market and the necessity to drive down the costs, it's very important to focus on low-cost projects, in particular, on the Upstream side, but along the full gas value chain if we want to have a profitable growth in that segment.
So last slide about the macro environment that I would like to introduce before to go back to Total is to -- is the climate challenge, and are we -- we need to integrate it into a strategy in an oil and gas major company like Total. We don't tell you what this road map will be -- will happen. By the way, if you take the national commitments of all the countries, they are more -- they have more delivered a 3-degree scenario, about a 2-degree scenario. But it might happen because technologies are moving and because a lot of things happened around the world despite some precedents. And the fact is that, if it happens, it has an influence on our markets.
And the way we'd look at it is, in fact, to -- and it's very important, of course, for a company to look to what is the future of the markets. And in this type of scenario, with disruptive technologies, we can see that the demand for oil will plateau or even decline somewhere between today and 2040. And Ladislas Paszkiewicz will have the opportunity to make you a presentation tomorrow on the various technological trends and the influence on the oil markets. Of course, there are new technologies, but there is also in this market a very strong demand for more transportation around the world, and you will see a balanced picture.
Having said that, again, I -- we prefer to manage the company in a lower-forever environment, which means to focus on oil projects with low breakeven. And the Maersk Oil acquisition is exactly in line with this strategy. So yes, we will -- the world will continue to need oil. But the oil, it's better to focus on the right part of the breakeven merit curve than on the wrong one. The second lesson we drew from this road map strategically is that there is a potential bright future for gas. And gas has, of course, to enhance its position against coal. But this gave opportunities for growth and to expand along the gas value chain is one of the driver for an oil and gas company, and we will come back on this in the -- today.
And the last part of it is that there is a growing share of supplies which will come from what we call low-carbon business, which is as well producing power for renewables, but it's also a matter of energy efficiency. And we want us being -- becoming a responsible energy major, to develop a business in this energy supply, in these low-carbon businesses. We'll come back on it as well.
So this is the 3 elements of the macro environment I wanted to underline before we dig into the presentation on the Total business case. And I will leave the floor to Patrick to introduce to you the first part of the presentation before to come back.
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Patrick de La Chevardière, TOTAL S.A. - CFO [2]
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Yes, good morning, everyone, and thanks for coming. My presentation today is centered on Total recent achievements in term of delivering on the target that we set and how this performance translate into a strategic advantage, our competitive advantage.
As usual, we first talk about safety, which is a core value of the group. The first objective we set was to improve safety performance. You can see on the left side that we have achieved this with the lower [Upstream]
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the importance of the 12 golden rules for safety. Of course, we strive for 0 fatalities, but we had 1 fatality in India last year and another 1 fatality offshore Congo this year. So we have improved, but we are constantly working to get better.
Turning to production growth. Following the collapse of oil price in 2014, we began implementing a strategy to create a more efficient and a resilient company that could be best-in-class with the most difficult environment. We set a number of ambitious targets, and one of the key objective is increasing production by 5% a year on average from 2014 to 2020. The rationale is simple: adding cash-generating barrels; spreading the fixed cost over more units; and expanding the base to leverage efficiency gains. We are well on track and confident that we will achieve our goals, and thanks to the 18 start-ups since 2015 and ongoing ramp-ups and new venture like ADCO.
As you can see on the right, we have deliver more production growth than our peers, and only Shell with BG is close to us.
Since 2014, our primary metric has been cash, and we launched an aggressive cost-cutting program. Each time we have come to you, we have reported better-than-expected results and raised our targets. For 2017, our revised targets is $3.6 billion of cost saving, we had a $3.5 billion previous guidance, with about 60% coming from E&P. We are making structural changes in the organization, consolidating operations, increasing process efficiencies to capture sustainable cost reduction.
You can see that we are on track also to cut our cash OpEx per barrel by more than half -- close to 1/2, sorry, from around $10 per boe in 2014 to less than $5.50 per boe in 2017. This is mainly self-help, but we are also managing the breakeven by adding a low-cost operation like ADCO, Al-Shaheen. And we are selling, in the meantime, higher-cost assets like Gabon or Gina Krog.
One of the bright spots of the company in the last few years has been the superior performance of Downstream. Downstream delivered industry-leading returns and strong countercyclical cash flows that provide us with resilience and yet another competitive advantage. Through a combination of portfolio management to raise the overall quality of the asset base, plus operational discipline to reduce costs and maintain high availability, we have improved margin capture all across the system.
With essentially the same refining margin in Europe in 2012 and 2017, the cash flow from operation increased by more than 50%. Our objective for 2017 is to generate around $7 billion of cash flow from operation from Downstream, and the first half result shows that we are on track with this objective.
Still on the subject of achieving targets and generating cash, we have essentially completed the 3-year program, which was set at $10 billion for the asset sales program. The program was comprised of a variety of noncore assets, ranging from specialty chemicals, pipelines, to marketing networks and major E&P assets. Strategically, the goal is to high-grade the portfolio by monetizing noncore assets, then reinvest the capital into future growth assets.
Here, we show the -- obviously, the remarkable progress we have made overcoming the collapse in oil price just 3 years ago. Looking at the organic free cash flow on the left of the slide, we fell from negative $3.6 billion in 2015, then we came to close to breakeven in 2016. And for the first half of this year, we have recovered enough to generate a positive $3.1 billion. I have to say that this $3.1 billion is not normalized. Usually, we spend $2 billion a year in acquiring resources. So if you assume $0.5 billion of resources acquisition this year, we have about 3.21 -- $2.5 billion, sorry, of free cash flow -- organic free cash flow normalized. Doing the maths, with our cash flow sensitivity of $2.5 billion for every $10 change in the Brent price, this indicate that our pre-dividend breakeven is about $35 per barrel. And this includes a normalizing adjustment of $1 billion acquisition of resources that we didn't spend. A related and equally important point is that, during this period, we reduced our gearing from 31% to 20% in June 2017. We have been and we will continue to be very focused on cash flow.
Finally, I finish with our benchmark, as every year. You may think that we select the few items where we are better than the others. This is not true. There are many, many, many metrics where we are ahead of our competitors. Total is basically continuing to outperform our peers. Earlier in my presentation, I showed you that we have the highest production growth. Here, you can see that we have the highest Upstream net income per barrel, the best Downstream return on average capital employed, the most resilient payout ratio and, all in all, the best return on equity among the major. This is not to say that we are done today. We are far from being done.
And I will turn to Patrick so that he will explain you what we be doing in the next coming years.
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Patrick Pouyanné, TOTAL S.A. - Chairman, CEO and President [3]
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So yes, of course. And I would like to take the opportunity to thank all the teams of the company. We are quite proud of these results, which, in fact, is a very strong foundation to speak now about the future profitable growth of the company. And again, all of these results have been done because we have this strong willingness to strive for excellence and to focus on all what we control. And it's very important for -- to continue to keep that in mind.
But when you see in the Downstream what we were as laggers, and today, we have above 30% of ROCE. Nobody would have believed it's possible 5 years ago. So it's a question also of focus and managing and gathering the right direction to the world teams of the company. And frankly, they are astonishing us day after day, so thank you to them.
And then I come to continuing -- it's easy to continue, after such a slide, to speak about the future because, again, we have -- yes, we want to combine our strong discipline with striving for excellence but also, I would say, a strong profitable growth, which is also our objective, if we want to create more value for our shareholders and adding more value. So this is a program which is described on this slide, in fact. And we believe that now, with -- we have created the foundation with a strong balance sheet, a generation of cash flow, refocusing the teams in order to create long-term value.
The first element, of course, is the integrated business model. We strongly believe that the strategy of the company, and we repeat that again, has to -- is to develop the full value chain for all and to have the same business model for gas. And by the way, you have seen that we make a recent acquisition on renewables, where we also look to develop the same type of strategy because, in commodity business, the margin could move along the cycle. And to be integrated and to have, I would say, profitable assets in all the parts of the chain is a way to weather the storm when the price is going down. So the program, of course, is discipline on costs, to be selective on investments, we were focused on lowering the breakeven and face volatility.
Second part is to take advantage of the low-cycle environment. We strongly believe, again, that the rise versus the [Eastern be] -- to be countercyclical. And we have today the financial strength to be countercyclical, as we demonstrated this year with the Maersk Oil acquisition. And what we will tell you -- what I will tell you in the coming slides is that this ambition for growth is not only, of course, a question of volume but also a question of value. But if you want to enhance cash flows and to grow cash flows, you need, of course, to develop your business. So you will see that we will extend our production growth of 5% per year by 2 more years until 2022. I will come back on it.
You will always -- you will also see that we will leverage our best-in-class Downstream to increase our cash flow in the Downstream of free cash flow by 40%. And you will finally see also that we steadily invest in these low-carbon businesses, in order -- in particular, in integrated gas and renewables, in order to deliver additional cash flows.
So first, and it's something which is important, yes, we have spent less, but we have done more with less, I would say. And in particular, the capacity we -- to strengthen the portfolio through the cycle. And we have added since 2015, in 30 months, more than 4 billion barrels of low breakeven resources by playing on our strengths. That means by adding access in the Middle East to giant fields like ADCO, like Al-Shaheen in Qatar, South Pars in Iran; on our strength in Africa like in Uganda and Algeria; and also by betting also on our strength in giant deepwater fields like in Brazil and our alliance with Petrobras.
The other part of the focus to add resources and additional growth in the future has been the U.S. -- the United States of America because, obviously, we want -- we have and we want to benefit from the unconventional revolutions, which gives -- in fact, delivers cheap feedstock, cheap gas, cheap energy. So it's a place where an integrated oil and gas major like Total has to develop its business as well. So we have done 3 big moves there in the U.S. in the last 15 months: one, on unconventional production in the Barnett; another one, to participate to a new LNG project with -- led by the Tellurian Company; and the last one, in petrochemical, where cheap gas meet cheap feedstock, again, and cheap energy. We have a new cracker in Port Arthur and a JV in the polymer business with Borealis and Nova, which will really enhance our position in that market, making us among the top 3 players in the U.S. markets. So this -- all these access to new projects and new resources, of course, is a strong foundation, which will feed the growth that I will describe to you now.
On the top of this 4 billion barrel of reserves we have added during summer, and we have announced that on August 21, a transaction, another 1 billion barrel of high-quality assets with the transaction with Maersk Oil. I will not -- I've done that during more than 1 hour on August 21, so I will not come back on all the characteristics of this transaction. But I would like just to again repeat that, yes, it's giving us access to 1 billion barrel, mainly on -- in OECD countries, which means North Sea and Gulf of Mexico, which is fitting well and balancing well our portfolio. It's an -- it's a portfolio which is a growing portfolio, with many liquid one, with higher margins, and a free cash flow breakeven under $30 per barrel. It will add more than $1 billion of cash flow from operation before synergies. And the synergies are estimated above $400 million.
But the real rationale behind the transaction is there, again, clearly what was said by Patrick and myself already several times this morning, is, again, how can we lower the breakeven on all these operations in the North Sea to make them more profitable. We've done some self-help programs in U.K., Norway, but we -- but by merging the 2 portfolio will give us source of additional cash flows by 2 ways: one is synergies; but the other way, of course, is to amortize our fixed costs on a larger production base. So yes, it will be possible there to have a breakeven in this North Sea, which would be, again, under $30 per barrel. And this acquisition will help us -- will contribute strongly to this objective. And this is the rationale behind it -- the main rationale behind it.
So now I will describe to you what are the guidance we can give you until 2022 on some main, I mean to say, aggregates of the company.
First, about investments. We maintain the guidance, and even we clarify it, I would say, for the future. In the previous guidance we gave you last year and repeat in February was $15 billion-$17 billion of CapEx until 2020. And the $15 billion-$17 billion was, in fact, $13 billion-$15 billion of CapEx plus $2 billion of resource acquisitions, which we considered as organic because we need to permanently, year-after-year, feed our portfolio with additional resource. So we confirm today that we -- including the Maersk Oil acquisition, we will maintain this guidance of $13 billion-$15 billion of CapEx, excluding resource acquisition, for the coming 3 years. This is possible. Maersk Oil represent $1 billion. I told you last year that we have some margin in this guidance in order to grow the company beyond 2020. So it's just, again, as a confirmation of it, so we maintain it. And for 2017, we should spend around $14 billion.
On the side of business acquisition, all what I've just described to you is the 5 billion barrels, which have been added in the last 30 months, including Maersk Oil, gave us, in fact, flexibility to manage our portfolio. Yes, we will need to continue to acquire around $2 billion of -- or to spend $2 billion in DRO in order -- at -- or less than $3 per barrel. In fact, what we've done is less than $1.50 per barrel during the last 3 years; and including Maersk Oil, is less than $3. So this guidance is well in place. But we think that all these additional resources gave us the flexibility to also divest some of the high breakeven resources we have. And so we plan to sell year-after-year at least $1 billion of extreme assets. So there is the $10 billion of asset sales has been completed. It's over. It's done. For the coming years, we don't need to have such a large program, which was very useful, of course, to weather the storm, let me be clear. But we think that it's good to have the discipline and to benefit -- let's, again, to take advantage of our success, in having -- to the opportunistic success in having access to large amount of resources, to continue to clean the portfolio and to divest it, like we've done recently with the Gina Krog sale.
So at the end of the day, this means that the net acquisition -- resource acquisition will be $1 billion. And so in fact, the $15 billion-$17 billion guidance, which was CapEx plus resource acquisition, is becoming $14 billion to $16 billion. As you can see there, that is $1 billion of net resource acquisition apart, and we consider it as with -- as organic work, I would say, year-after-year.
But for investments, for CapEx and to be selective on CapEx spend on OpEx, yes, we strongly believe we can continue to move and to work on and to (inaudible) reduce of costs. And so we are expanding our cost-saving program or cost-reduction program until 2020. Patrick just told you that we'll achieve a saving of $3.6 billion. So the target for 2018 is $4 billion. And we extend it to $5 billion by 2020. In fact, we launched beginning of the year what we call the 3C program of consolidating cost curve share program, asking to all our businesses to think again to what will be the next steps for the next 3 years. We consolidated that. On the top of it, of course, we add this transaction with Maersk Oil, which amounts to $400 million of synergies, will offer us more than $200 million of cost synergies. So putting all that together, we can raise this target by 1 -- additional $1 billion. And there again, 60% of the efforts being done on the Upstream side, E&P side, and 40% on the Downstream side.
I also emphasize that our central procurement team, which is in place since January '17, is beginning to really deliver interesting savings. And for example, by bundling tenders in all the supply and the industrial gases around Europe, we have been able to save 20% on all these invoices from industrial gas. By also bundling some tenders between Azerbaijan and Angola in wellheads, we have been able to save 30%. So many example of the efficiency of the central procurement team, which we'll prove will participate and contribute strongly to this -- achieving this $5 billion target.
And so the growth. The growth which is offered -- which is giving you more visibility until 2022. Patrick told you about the previous guidance was 5% from 2014 to 2020. Of course, with this guidance was benefiting from the fact that ADCO came into the picture by 2015. We are very conscious of it. But it was a success. And today, with all these resources I just described to you and the new start-ups and new projects that I will show you, we will -- we are able to give you another guidance of 5% until 2022, which is quite, I think, remarkable in this industry. Without Maersk Oil, we would have been able to tell you 4% from '16 to '22. So we base from '16 to '22. I just would like to make a remark that the production was 2.15 in 2014, which means that we will add more than 50% of production in 6, 7 years, which is quite remarkable results at the time where we were able to control our costs and be selective on -- with investments, which means that it is possible to have, I would say, a growth -- an ambitious growth and while being disciplined on the way we spend the money. So this is the important figure today, too. And of course, it's not a question, of course, of volume. And this is what I will show you now. It's a question for you of value because, at the end of the day, it's what is the impact of this volume growth on the increase of cash flows, and this is what I will do now to explain you -- in front of you.
So first, we have -- we had 18 start-ups in the last 3 years. We still have in front of us, I think, something like more than 15 start-ups in our portfolio. This year, we have been successful and, I would say, with 2 good, very excellent projects, and I must thank the teams of Moho North and Edradour-Glenlivet, which have been delivered right in the schedule; even Edradour-Glenlivet 2 months in advance and under budget, which is good. To be honest with you, all our projects are not also saw such a good shape. And we had -- in particular, it's a lesson for us. It's clear that the industry face difficulties with the supergiant projects like Kashagan. And again, we have some few headaches. It's true as well, and I prefer to be honest, on some of the supergiant projects in our portfolio. I think it's a lesson to keep in mind for the future projects. But clearly, the teams, when they face projects which will last for more than 5 years and $20 billion, face difficulties of execution. So it's true for Kaombo North, where the startups is planned today by summer 2018 rather than beginning 2018. Ichthys is still, I would say, in the -- is still in the second quarter of 2018, April, May, something like that. And the first condensates of Ichthys should be produced by January, February 2018 as well, so not much delay but delayed compared to the initial part, Martin Linge, has been as well. And unfortunately -- very unfortunately, I would say, because we had a dramatic accident on the Samsung yard in Korea, we have been obliged, because of where we're windowed, to take the decision to postpone the start-up an additional year. It's clearly not a good performance, but there is no other way than to face reality.
So this is the projects, and all these projects represent something like more than 700,000 barrel per day of additional production. And what is remarkable, of course, is that this is why it's a source of additional cash flows in the coming years. That $50 per barrel, the average margin of this cash margin of this project is twice higher than our historic production base and so will strongly contribute. I would also add that Maersk Oil cash margin is also in line with these Total start-ups. Yes, we are improving this cash margin, and which means also that we are improving the leverage through oil price by doing -- with these new projects.
On the top of the ones which are under construction, we will add a new wave of projects. In February, we gave you a list of 10 projects we have. There are a little more there. We have added, I think, South Pars, Halfaya 3 and Kashagan CC01 in this list. We have also some -- 2 new projects will have to be sanctioned coming from the Maersk Oil portfolio: the Tyra future with development, which should be sanctioned by beginning of next year; and the second phase of development of Johan Sverdup in Norway.
So Arnaud will give you tomorrow and more insights from all the projects. I will not do it today. But I would like to tell you that, yes, we have this program. We are working on all of them. They represent more than 350,000 barrel per day. And I would say, again, being selective on investments, that we have a sort of threshold internally, but we want all these projects to be -- to have an internal rate of return above 15% at $50 per barrel. When I told you we manage the company at $50, this is the demonstration of what we live with, what we are targeting. And we are even 20% of this 350,000 barrel per day, which have an IRR above 20%.
I know that investors have a new vision, which is short-cycle development opportunities. And where we'd say Total is not (inaudible), we don't have short-cycle opportunities, which is wrong. We have short-cycle opportunities in our portfolio. And we have identified more than 1 billion barrels of net reserves, which could be developed, I would say, with flexibility. What means short cycle? It means that, in fact, we can decide or we can stop these projects in a flexible way, in particular, having some rig contracts which help us to manage the projects like that. And these are mainly, of course, buybacks, infield wells, which are benefiting from existing infrastructures. It's also some unconventionals in our portfolio, like in Argentina, Vaca Muerta; the Barnett shales in the U.S. But this represents 1 billion barrel of net reserve which can be mobilized at less than $7 per barrel of development cost as an average. And all this cost, it's short-cycle development opportunities of IRR above 20%, at $50 per barrel. So this -- we have there in our portfolio some CapEx flexibility, a capacity to mobilize according to the volatility of the price, some CapEx in order to enhance the cash flows which could be delivered.
Exploration. Kevin McLachlan will have the opportunity as well to give you more insights on exploration. We'll continue -- we have been very successful, as you have seen, on what we call the DRO activity, which is access to discover as resource opportunities, the 5 billion barrels. On exploration, that's true that we had some few successes, and I would emphasize, in particular, the Vaca Muerta first, and we will come back on it; but also, the discovery of Owowo in Nigeria; and in Myanmar, some gas resources on Block A6 and North Platte in Cobalt. It's not as much as we would like. We would like more. We continue to, I would say, believe and to invest in exploration around $1.2 billion, $1.3 billion per year. We plan that for the next 5 years. We want to enhance the number of wells to be drilled.
We think that we need to drill at least 35 wells, which means, in fact, to benefit, to take advantage again of the low cost in order to have access to more opportunities, and to do more with less, I would say. It's possible to do it. We have been -- we are focused -- spent some time to, I would say, high-grade -- to capture high-grade acreage in the Gulf of Mexico on both sides, in the U.S. and Mexico sides, around the area of the latest discovery and Aruba, French Guiana and other licenses, which are underway. We have also looked carefully at a new hot area offshore, Mauritania and Senegal by having direct negotiation and managing to capture some very interesting acreage for the future wells to be drilled.
East Mediterranean is also an area of focus and the edge of Cyprus, Greece, et cetera. So this an enjoined exploration, enjoined for future growth in which we continue to invest. And I'm convinced that after the first success, we'll have more success in the future.
So all in all, if we -- there is one slide, the conclusion slide for the E&P part, I would say this one is, how do we grow the cash flow in the coming 5 years? And you can see there that, between 2017 where we'll have, I would say, a negative free cash flow, around minus $1 billion in these E&P activities, we'll enhance this by $5 billion, going up to $4 billion of free cash flow by 2022, including the net resource acquisition of $1 billion, in 2019 around $3 billion, and 2018 will be positive, of course, from next year. So this is important, it's the result of all the activities I just described.
Another important element on this slide, which is noted there, is that we have a leverage to oil price, which is increasing year after year. We told you in February $2.5 billion for $10 per barrel in 2017. Beyond and from 2019, this sensitivity is increasing above $3 billion cash flow. So I would say that Total really, the E&P of Total is working hard. On one side, we lower the breakeven. On the other side, we increase the sensitivity to all.
So the company is really in a very strong position to benefit from any recovery in the oil price and to generate higher cash flows in the coming years.
I told you in the introduction that one of the areas of focus will be the development of our integrated gas business. It has been for some years, and it will continue, of course, which means that, yes, gas production will increase as well by 5% per year. But we are really developing a strong trading portfolio, going up, growing from 10 million tonnes, 12 million tonnes per year to 20 million tonnes per year. 20 million tonnes per year represents 5% of the world market in trading LNG in the coming 2025. We have the willingness to continue to grow in this market because we believe it's really an area where major companies with a strong balance sheet are very well positioned. We will face more competition from some trading house, but believe that we have a unique position to build on. And integrated gas means also, of course, to develop the business, downstream the chain in B2B and B2C, I will come back on it.
You can see that in order to check if the strategy is right, we have looked to what this integrated gas business will deliver as free cash by 2022. It's moving on. We are today in an investment phase in many LNG projects, of course. But in 2022, we'll deliver more than $2 billion, which is more than 50% of the E&P free cash will come from gas. So this is really an area on which we'll continue to invest and with the willingness to keep on the world market a strong market share and even if we can enhance it to do it.
Integrated gas is also part of the business of gas renewables and power divisions. On this slide, you can see on the left side -- but yes, we are willing to expand the downstream parts, so the gas and power marketing business. And we will do it in a very innovative way. We have the chance to be as a disrupter of that compared to the old monopolies. So we are entering that business with a low-cost digital business model. We will announce soon that we are entering into the French market, and we target to have more than 3 million customers in this gas and power marketing. Of course, it's a business -- and we know very well in marketing for an M&S activities and petroleum products where if you want to amortize your fixed costs, you need to have a large customer base. So it's a -- we will have to invest to get that customer base, but we can do it we think it an efficient way, with low-cost digital business model, and of course, in particular, in France, building on our strong brand, I would say, which gives us a great advantage compared to many new players in this field.
On the gas renewable rewards program, we have also this activity in, I would say, downstream renewables that we want to grow. We want to be, I would say, a power producer for renewables, green power producer. We have announced this strategic move with a company called EREN, which is led by 2 very experienced managers who have succeeded in this business previously. And so we hope that we succeed with Total. We are targeting to have 5-gigawatt power capacity in 5 years. And globally speaking, to generate $500 million free cash flow by 2022 from this new division, which is driving our ambition in these low-carbon businesses.
To come back on what Patrick described as one of the prides of the company, which is our Downstream business. And we -- which is, of course, has been useful and more than useful during the last years. There is also there a strong ambition, which is to grow the free cash flow of the Downstream activities by more than 40% in the next 5 years. Bernard Pinatel in mobile will have the opportunity again tomorrow to dig into and to explain how they plan to do that. I will just give you today some headlines of our programs.
I remind you that when we speak about Downstream, we speak about refining, Chemicals, and Marketing & Services. And -- but the $7 billion of cash flow from operations, which was given to you by Patrick, is split 40%, 30%, 30% between these 3 activities, which some of them are like Marketing & Services, (inaudible) And Chemicals being non-cyclical, which is something to be noted.
So we will increase it by more than 40%, which represents $1.5 billion, growing from $3.5 billion of free cash flow by 2017 to $5 billion by 2050. The assumption behind these figures is a constant environment. On the refining margin, which is true, but we have seen some trends in the market, in particular, a better spread of fuel oil, but also on gasoline, which makes us more comfortable by giving you some guidance of $35 per tonne today. We mentioned on the slide that the $25 per tonne refining -- European refining margin will have an impact of -- negative impact of $500 million. But the guidance today is given on the base of $55 per tonne and a constant petrochemical environment. So $3.5 billion of '17, just to reconcile the figure, is just $7 billion of cash flow from operations, minus $3 billion, $3.5 billion of CapEx and a few net acquisitions. In the figures which is there, we have included $500 million per year of net acquisition in the Downstream because we continue to make some few -- we want to fuel the growth of this Downstream business by a few acquisitions like the one we've done recently in East Africa for retail, also, for Hutchinson in various segments. So $500 million of net acquisitions are included in these figures.
Commenting on the refining and chemical parts, the organic free cash flow, excluding net acquisition, will grow by 30%. And Patrick showed you that it was a remarkable journey in the last 5 years, increasing by more than $1.5 billion with organic free cash flow. There, you can do an additional $1 billion in the next 5 years. So maintaining, of course, a very high profitability, above 25%, which is -- so it's combining growth of cash flows. And they will have 3 levers, I would say, to do that. First, petrochemicals, and then our presentation will be focused on petrochemicals, because petrochemicals, it's a matter of actually having access to low-cost feedstock. And we have some projects there, too. And we believe that if you have access to low-cost feedstock, you will be competitive compared to all the naphtha crackers, which are the dominating the market today. It's also a matter of continuing to upgrade our integrated platforms like what we do -- are doing today in Antwerp, for example, of (inaudible). And it's a matter of reducing costs. So with these 3 levers, Refining & Chemicals, have this ambition to enhance this organic free cash flow by 30%.
On Marketing & Services, it's even -- figures are a little smaller, but the ambition is almost as high, if not higher, is to increase by 50%. I remind you that Marketing & Services is a well-diversified, nonsignificant source of cash flow. There are many activities. The growth in the last 5 years have been around $500 million of organic free cash flow, so $100 million per year. And in fact, what our ambition is, is just to continue at that pace. Just, maybe it's not so easy, but in fact, all the teams, to tell you the truth are more ambitious than that, but we give them some relief. And we want to continue steadily to grow at $100 million per year, mainly focusing -- and the growth will come from retail and from lubricants, mainly. We have a strong position and stronger and strong position in lubricant in Asia where there is a growing market; China, Southeast Asia, and Burma we'll come back on it. And retail, it's mainly, of course, all of Africa business that we want to continue to develop. There again, with the profitability above 20%.
So if I want to summarize, and this is probably the most important slide for all the shareholders and investors. But it's important to show you how we built this business case. And in fact take all the information together, the important news -- there are several things, by -- in 2019, the cash flows -- the free cash flow of the company will cover the full cash dividend from 2019 at $50 per barrel. So we will generate around $7.5 billion. Of course, there is an assumption, and there could be a eurodollar of 1.1. If it's 1.2, we need to cover $400 million more, but let's say, the commitment is clear, we will cover the full cash dividend from 2019 at $50 per barrel. 2018, you can see an improvement compared to 2017, but we are not yet there. I remind you that we just -- we told you when we announced the Maersk Oil acquisition that we will remove the discount on the scrip dividend at the closing of Maersk Oil acquisition. You can understand why, that we are in a better position, and by the way, Maersk Oil is contributing -- the acquisition is contributing to additional cash flow per share. It's relative, so we want our shareholders to benefit from this acquisition. So 2019 is sort of turning -- is, I would say, the turning year where we'll cover the cash dividend. We'll have also in 2019, it's in the subtitle of this slide, a pre-dividend breakeven and a $30 per barrel. I told you about the sensitivities, 3 billion per dollar, $3 billion per $10, so you can easily confirm that announcement. So we'll be at breakeven and $30 by 2020 and cover our full cash dividend. And our profitability ratio, which is today already about 9%, we grow about 10% by 2020. You can also see that there is a nice sensitivity of the cash flow -- free cash flow to the oil price.
And so to conclude the presentation, we have selected 3 words, which I think are sustaining all the work we are doing in the company and our business case, which is excellence, growth and cash in order to generate superior returns. We have, I think, are 3 elements, if you have to be reminded, 3 elements of this presentation. The first one is that we continue to manage with discipline, and we will sustainably reduce the breakeven and the $30 per barrel very soon. The second one is that this is discipline can grow with ambition and growth and a profitable growth. We should have highlighted profitable and not only grow on this slide. 5% per year from 2016 to 2022, and we have the resource in our portfolio. And that we are increasing the free cash flow in all segments, including Downstream, we have a strong ambition, including gas, renewables and power. And we will cover all cash dividend by 2019 at $50 per barrel.
So I hope with all of these elements, we have been able to convince you that we have the right strategy to create value for our shareholders. Thank you.
And now I will invite all the Executive Committee Team to come with us on the stage to answer your questions.
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Questions and Answers
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Mike Sangster, TOTAL S.A. - Senior Vice-President of IR [1]
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First question, Jon, you said you had a question?
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Jonathon Rigby, UBS Investment Bank, Research Division - MD, Head of Oil Research, and Lead Analyst [2]
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Yes. Hi, it's Jon Rigby from UBS. So 2 related questions. One is on the CapEx figure you're now talking, if my quick mental arithmetic is not wrong, is about $12.50 per BOE produced, it's running at about that rate. And if I look at your -- what you've talked about in terms of your CapEx development costs, I think you've said under $8.50. And you've said entry costs of about $4. So effectively, you are looking at a forward guidance on CapEx that is the bottom of the cycle if you think about the development costs that you're currently running at and the acquisition costs you're able to access. So my question is, is that a sustaining level of spend? And what can kind of assurance can you give us that that continues to support a business that's running at 3.2 million barrels a day? And the second question is related to that. Obviously, with the CapEx a little lower, you were able to talk about a $50 cash breakeven figure or cash neutrality figure for 2019. How are you planning to reflect that in terms of shareholder payout strategy from 2019 given that you can support that full payout of $50?
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Patrick Pouyanné, TOTAL S.A. - Chairman, CEO and President [3]
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On the CapEx, yes, it's true that we have an assumption of being able to capture the low-cost environment. This is why we have emphasized, and we have put some pressure on our teams to be able to sanction projects in the coming 2 years. So when you have sanctioned the projects, you have secured the CapEx the same way. But unfortunately, we secured a high CapEx in 2013/14, and we had to work with that during 2 years. So this is the reason why we believe that it's the right time to sanction the projects. We have all the resources in the portfolio to do it. I just want to correct your $4 entry costs. I'm not sure to have understood your point on $4 entry costs. It's more, I told you, less than $3. And I told you that we have $1.5. And with -- even with Maersk Oil combining, Maersk Oil is $2.5, I think something like that. So -- but again, no doubt about it. Then at this level of cost in the industry, if you think that we are in a lower for the longer environment, we will maintain this guidance for years and beyond 2020. If there is, again, some higher CapEx, we will see beyond 2020 what will happen. This is why we gave you the CapEx guidance from 2018 to 2020 because we'll see how the market will react. But as you've seen in the presentation, if it's said to be at $50, we go to $60, then if we have a little increase in CapEx, the company will globally benefit strongly in terms of cash flow generation from a higher price. If we cover the cash dividend that means that we cover the cash dividend. That means that we don't need to dilute our dividend to shareholders. So of course, the first guidance to the shareholders, I think, which is given today, is that from 2019 at $50 per barrel, we are covering the full cash dividend, and that means that we don't need to dilute shareholders from there like we do today with scrip. We are perfectly conscious of that. Beyond that, we'll see. I repeat it, but the way to allocate additional cash flows for me is first to strengthen -- continue to strengthen the balance sheet, and our target is to have a gearing under 20%. I think it's very important to strengthen the tranches because this is a condition for us to be able to take opportunities, like the one we have done with Maersk Oil recently. The second, of course, is to look to return to shareholders. And then if we have additional cash, to feed the future. This is the order of allocation of future cash flows. But again, yes, we are thinking clearly to return to our shareholders.
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Mike Sangster, TOTAL S.A. - Senior Vice-President of IR [4]
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A question in the middle here from Theepan.
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Theepan Jothilingam, Exane BNP Paribas, Research Division - Head of Oil and Gas Research and Analyst of Oil & Gas [5]
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It's Theepan Jothilingam from Exane BNP Paribas. Just a question on project execution. I think you're positioning yourself very much as a growth super major, but Patrick I think you've commented you're not quite yet there in terms of projects. And I asked this question 12 months ago, and I'm coming back to it in terms of you still have a very deep project queue, and then the ambition to sanction many projects in the Upstream. What are you changing within your organization to make sure the projects are there for the next 3 to 5 years? The second question I thought it was very valuable to highlight the short cycle opportunity within the Upstream portfolio. So I just wanted to ask what type of -- what level of capital do you intend to apply within that budget of $13 billion to $15 billion?
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Patrick Pouyanné, TOTAL S.A. - Chairman, CEO and President [6]
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Okay, just -- I think that the company has a strong reputation on the capacity to execute projects. Again, I've been honest to tell you that on some super giant projects, we faced difficulties. I think most of our peers are facing difficulties, and the lesson for me is more, and you've seen on the list that we suggest to you to really think, yes, we want to sanction projects, but which are, I would say, the right size to be executed properly. But I would like Arnaud to comment on the way to approach this capacity of excellence to deliver projects.
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Arnaud Breuillac, TOTAL S.A. - President of Exploration & Production [7]
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Yes. One of the decisions we've made since, in fact, at the beginning of the year is that we reorganized our development and support operation division. And organizing it by what we call product line, which is different categories of projects, so that we have both more focused support on the type of operation. You don't manage a large onshore project like you would manage infield short campaign. So we've got -- I think we mentioned that already to you, 5 different product lines, one which is deep offshore, one is conventional offshore, one is onshore, another one is unconventional, and last LNG for the large LNG projects. And in fact, all of those product lines, these organizations within the technical support, are focusing on preparing for the new wave of projects, focusing reducing our technical costs, but also providing support operation and to project which put much more focus on the specificities of each project.
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Patrick Pouyanné, TOTAL S.A. - Chairman, CEO and President [8]
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Yes. On the second question, on short cycle, among the guidance we gave you, we have $6 billion to $7 billion of, what I will say, growth CapEx of $3 billion for -- in Upstream, $3 billion for maintenance, and $6 billion to $7 billion. So the allocation of short cycle, I would say, represents $1 billion and the $7 per CapEx which comes to an amount of potential investment of $7 billion, and is around $1 billion per year. But again, the flexibility could be accelerated, it could be lower and higher. So we have that in our portfolio. I think it's $1 billion to $1.5 billion, but I take your question, and we have 3 days to answer you more precisely to, in case I have a mistake in my answer. But I guess it's around this type of figures.
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Mike Sangster, TOTAL S.A. - Senior Vice-President of IR [9]
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So next question from the same table.
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Blake Michael Fernandez, Scotia Howard Weil, Research Division - Analyst [10]
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It's Blake Fernandez from Scotia Howard Weil. One very simple question. Can you define what the underlying decline rate assumption is on your 5% growth? What is contemplated in that through 2022? And then I know you've already touched on the uses of the free cash flow going forward. But on the return of capital to shareholders, is there still the ambition to essentially absorb the dilution that's occurred from the scrip before increasing the dividend?
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Patrick Pouyanné, TOTAL S.A. - Chairman, CEO and President [11]
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The decline rate, I think it's around 3%.
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Unidentified Company Representative [12]
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3.5%.
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Patrick Pouyanné, TOTAL S.A. - Chairman, CEO and President [13]
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3%, 3.5% it depends. There are various ways to calculate it, but it's 3%. It's going down because, again, we are benefiting to put in stream some very long plateau. All these LNG projects we put on stream in our portfolio are giving us a base which is not declining, in fact. So it's an evolution, it's part of the reason why we -- when you introduced in your portfolio feeds like ATCO or South Pars, et cetera, these feeds are not declining. So it's a way, of course, to grow to -- and by the way, these fields are offering low breakeven, and also less decline, which is in anything of the portfolio. The other question, I don't think we ever said that there is a priority to eliminate the dilution and increasing the dividend. By the way, I think what we've done recently last year is to increase the dividend by 1.5%. So it's a question of balance. So again, the Board of Directors is conscious about this flexibility that the fact that the shareholders are being asked to participate to the resilience of the company. And by the way, I will say that positively because in the last -- the scrip dividend take-out has been more than 60%, which proved that there is a trust, our shareholders are trusting us with the future of the company cash flows. So at this stage, we did not define how we will return the, I would say, the additional cash flows to shareholders, but increase the dividend and buyback. It's a question of efficiency, and -- but again, first, let's go to -- but let's perform the target of 2019 covering a $50 -- the full cash dividend, let's get rid out of the dilution by the scrip, and then we can think further to the way to return cash to the shareholders.
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Mike Sangster, TOTAL S.A. - Senior Vice-President of IR [14]
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Okay. Thanks. Rob, you want to ask a question?
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Robert West, Redburn (Europe) Limited, Research Division - Partner of Oil and Gas Research [15]
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It's Rob West from Redburn. Patrick, you made the point that the pace of sanctioning offshore and deepwater and big megaprojects has slowed down a lot. (inaudible) at the front hello.
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Patrick Pouyanné, TOTAL S.A. - Chairman, CEO and President [16]
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We've seen nothing yet so...
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Robert West, Redburn (Europe) Limited, Research Division - Partner of Oil and Gas Research [17]
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So on your point about the slowdown in sanctioning projects, it seems to me like a lot of that is because -- just going through the tax rates of some of these projects and the fiscal regimes, that the projects need some improvements from governments in a lower oil price environment to really get investment going ahead. And I think that's a point that you've made before. On your slide today, you shown more projects coming through your queue. And I was wondering if you could comment, has there been any improvement in fiscal regimes to try and help you move forward with some of those? Are there any governments that seem more enlightened in trying to attract investment back to their countries at the moment? And the final part of the question, are there any areas where you don't have a project there yet, but you'd like to if the fiscal regimes could improve a little bit in this environment?
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Patrick Pouyanné, TOTAL S.A. - Chairman, CEO and President [18]
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Yes. I'm not sure to have fully understand why you think we have slowed down the sanctions of projects. We are not slowing down. We are continuing to -- globally speaking, maybe the industry has done it. That's true. But there are some discussions. It's not easy discussion because, to be clear, the producing countries today may need all their cash, so it's not so easy to convince them. We've done that in Angola, and we have improved the regime clearly, for example, in Kaombo, it has been sanctioned by the Angolanese projects -- government because they realized that on such a large project, if they wanted to maintain the pace of development, they have to enhance the terms. We are discussing today, and I think we'll manage that in Senegal too as well where we have the scheme on par. But you know that in Angola there were some elections recently, so we are waiting for the elections. But we have the agreement in principle. There is another country, of course, where discussions are taking place. It's Uganda. The Uganda government and Tanzania government has given some incentives to build the pipelines within this intergovernmental agreement, which has been signed earlier with various -- some incentive to develop the projects. So this is a question, of course, of discussing, I would say as well, but the agreement that we signed in Algeria beginning of the year is also the result of a combination of fiscal arbitration against more investment. So this type of dialogue is a permanent dialogue. It's not so easy because, at the same time, these governments, they want the cash, but we have -- it's taking some time, but it's something that we try to do as best as we can. But of course, it's also important, and this is the message to all the teams, to all of our teams, that if you want to go in front of a government, you have also to demonstrate that your scheme of development is the lowest possible cost, because if they have the impression, which is what industry gave us that we are -- we were spoiled children, and that we were spending cash and spending costs. So they also listened to what we said, and so they want also to be sure before they engage in such fiscal negotiation. But here, as a project, it has been, I would say, streamlined in terms of design and CapEx and this the way we work. After that you can enter into a discussion. But again, with the program that we have in front of us of the same project sanctions, we have a few things to settle, but we are optimistic that we can do that in the coming 18 months.
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Mike Sangster, TOTAL S.A. - Senior Vice-President of IR [19]
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Okay. There's a question from Michele at the front.
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Michele della Vigna, Goldman Sachs Group Inc., Research Division - Co-head of European Equity Research and MD [20]
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Thank you. Patrick, when we look at the cost structure of a lot of your projects, clearly, they've decreased tremendously in the last 4 years from over $80 breakeven to what looks like a below $50 breakeven today. It feels like incremental improvements on costs are going to be more difficult from here, but technology compelled the use of big data. How much further do you think costs can come down from here? And where do you think you've got the biggest opportunities?
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Patrick Pouyanné, TOTAL S.A. - Chairman, CEO and President [21]
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Philippe, you can maybe describe our improvement of the LNG by (inaudible) , which is I think a fairly good example of what can be achieved in front of (inaudible).
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Philippe Sauquet, TOTAL S.A. - President of Gas, Renewables & Power and President of Strategy-Innovation [22]
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Well, clearly, we are putting a lot of emphasis on cost reduction, and this can be achieved for a great part through new technology. And one example of what we are trying to do is clearly the LNG chain where we try to focus on every part of the chain to reduce the cost of each part. And it's true for the Upstream, and we are focusing today clearly on the spots where the production costs can be the lowest. You have an example of what has been done in the U.S. But this is only one example of what has been achieved through technology. On the liquefaction, as well, we are now trying to innovate in terms of design, going to modular trains that can bring also some significant costs. On shipping, we have changed completely the way we were designing the engines of the ship and we have been reducing considerably the consumption. We have been also reducing the boilers, which is one of the keys for the regasification terminal. Now we are going more and more from the typical older onshore terminal to floating technology, which are reducing by at least 60% the cost. So these are examples on where we are focusing on technology. And not forgetting the last part of the chain where digital, of course, is something that we use on every part of the vehicles, including for the last mile we access to the customers where digital and the Internet can considerably reduce the cost for the unused customers of the gas chain.
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Patrick Pouyanné, TOTAL S.A. - Chairman, CEO and President [23]
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Maybe a word from Namita on the procurement part of how to lower the costs of the projects?
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Namita Shah, TOTAL S.A. - President of People & Social Responsibility [24]
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Right. So I mean I think you know that we put together all our procurement services at the beginning of this year. And we have a global external spend of $27 billion on procurement. And today, there's only 14% of that spend, which is what I would say bundles some of the examples that Patrick gave you earlier. And by the end of the year, we expect 40% of that spend to be bundled. We've put in -- I know your question on big data was more on technology, but don't forget that big data, of all the internal processes that we have, including, for example, what we do on machinery, on turning machinery, on what we do on different kinds of storage facilities that we have, that when we start putting that together, across the board, we find a lot of synergies, not just in terms of how we can contract out, but in terms of what our needs and our cycles are like. So that's going to be a big push from where we can start looking at reduced costs.
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Patrick Pouyanné, TOTAL S.A. - Chairman, CEO and President [25]
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Big data, I think, as you -- it was also your question about use of big data, it's so far it's something like we want to use it as new opportunities of cash flows, like for example, the digital B2C business is clearly what we do there is using more of this disruptive technology for the benefit to create a new business, in fact. On the project itself, I think it can be -- and we are reviewing that. There is a plan that we have decided to try to review extensively in the company where artificial intelligence could be used in order to accelerate some replicable patterns, and to be as -- more systematic in particular, on the field of geoscience. It's a -- in our companies, we are spending huge amounts of money to acquire data, seismic data. But in fact, to process them, we have a quite a slow process, in fact, to (inaudible). So there is (inaudible) a sort of a prize for our company would be able to accelerate all of this data which are acquired are really put back into the model, there is model, we have exploration models, in an urge to go quicker to the market, to go quicker to the impact on our projects. Maybe, Arnaud, you have a last word on big data and the projects, you want to say something?
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Arnaud Breuillac, TOTAL S.A. - President of Exploration & Production [26]
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Yes. On project, to say that one order in which we're working a lot is reducing costs on deep offshore and then trying to work on standardization of equipment, on electrical subsea Christmas trees, on also making the units more compact for the FPSOs. So there are a range of technical studies that we're carrying out to try to reduce technical cost on the offshore projects.
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Patrick Pouyanné, TOTAL S.A. - Chairman, CEO and President [27]
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But honestly, big data for me is more a question of new markets and OpEx than CapEx. And the CapEx side is less obvious to us.
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Patrick Pouyanné, TOTAL S.A. - Chairman, CEO and President [28]
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Okay, maybe another question?
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Mike Sangster, TOTAL S.A. - Senior Vice-President of IR [29]
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Thomas?
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Thomas Yoichi Adolff, Crédit Suisse AG, Research Division - Head of European Oil & Gas Equity Research -- Director [30]
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Thomas Adolff from Credit Suisse. I'm sorry I have 3 questions. And the first one, I'm sorry Patrick de La Chevardière, it's about the dividend currency again. Last time I asked you this question you said you're going to have some conversation, early conversation with the government. I wonder whether you can update on us -- update on it for us whether you were able to convert the dividend into the (inaudible)? The second question I had was on the (inaudible). This time last year, you talked about a clear supply-demand deficit by 2020. And I wonder whether that's still your base case, whether anything has changed. And if it has changed, I wondered why? And as I look at your production growth target for 2022, clearly, you're outgrowing the market both in oil and gas. So you're saying everything is going really well at Total, and the other companies are not doing very well. But clearly, as you deconstruct your portfolio, some parts of the portfolio can't be working perfectly well, so I wondered which areas are you most concerned about? And the last question I had was just on your production growth targets again to 2022, I wondered what assumption you're making on the (inaudible) extension at Yemen LNG, Libya?
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Patrick Pouyanné, TOTAL S.A. - Chairman, CEO and President [31]
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So Patrick, the eurodollar story on dividend.
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Patrick de La Chevardière, TOTAL S.A. - CFO [32]
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Yes. We worked a little bit on that matter. Technically, under French law, it is extremely difficult to provide a dollar-denominated dividend. Basically, we need to change some law, and we are not yet there. So...
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Patrick Pouyanné, TOTAL S.A. - Chairman, CEO and President [33]
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So we have a new French, young French president, I would explain it, but as he can't speak English he can't understand dollars. But no, today, to be honest, it's feasible, but it will imply an exchange risk for some of the shareholders. So it's difficult to do it because we cannot cover the full period. There is a problematic timing issue there which is making it very complex for a small advantage. So without a law which will allow us to denominate it in dollars, it's complicated. It's too complicated to do it, unfortunately. But Patrick worked out, not only a little, I can tell you on that, it's continuing. Supply-demand, I don't know. I mean, if we gave you the impression that we are less optimistic. We just observed what happened in the market. We observe this year that, clearly, you have a U.S. ecosystem which at $55 per barrel seems to revive again. There are different figures about what will be the capacity of (inaudible) production increase next year which some people think the average in the U.S. could be around 700,000 barrel per day, others speak about 1 million, so there are some short-term uncertainties. But again, we always told you -- but at the same time, I reminded you that, yes, this industry continues to sanction a very limited number of projects compared to what was done previously, and so there will be somewhere -- sometime an impact on the supply outlook. When? It's difficult to say exactly when. And -- but again, we also told you permanently that we are not -- we are a price taker. We are not managing the company with a high assumption. We worked hard, on the contrary, to be able to lower the breakeven of the portfolio to face the volatility down to $13 per barrel. So that's the reality of what we've done. The last question, what does not work well? I mean, Of course, in a big company, everything is not perfectly well. But we are not there to tell you we are poor guys, and we don't know, and by the way our results again compared to the rest of the industry are quite good. So I don't know why -- I don't see we should not emphasize on it. Having said that, I will be frank with you, we have -- we don't have the exploration results we'd like to have. But I trust Kevin McLachlan, you know he's new in the business, he is managing -- he has reorganized the portfolio. He has decided to take some new acreage. We work to -- we worked with him in order to have access to the new acreage. It's a matter of patience. So this is a point where if you want something not working as well. I state also that in some fewer big projects, the supergiant projects, we need to be careful to maintain our excellence in the delivery of these projects because, of course, it's very important. Industry is an art of execution. But globally speaking, I think 30 months ago, we were more in a survival mode. Today, we are more in a growing and ambitious mode. This is the message we want to develop to you -- to deliver to you.
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Mike Sangster, TOTAL S.A. - Senior Vice-President of IR [34]
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Okay. I think it's question from Christyan Malek.
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Christyan Fawzi Malek, JP Morgan Chase & Co, Research Division - MD and Head of the EMEA Oil and Gas Equity Research [35]
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Christyan Malek from JPMorgan. 2 questions, please. First, in your supply-demand outlook, do you have a clear or firm view in terms of what you think OPEC is going to do over the next 3 to 5 years? Clearly, if they are to go back to market share increase production, that might change the balance. So do you have a view? Would you like to share it with us? The second question is regarding your final slide where you neatly summarized your priorities, which is excellence, growth and cash. What about cash return? Why is that not a priority in the context of your other priorities, be it growth, spend? What am I missing? Why are you not clearer around switching of the scrip and buying back shares? What's holding you back?
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Patrick Pouyanné, TOTAL S.A. - Chairman, CEO and President [36]
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I'm not sure to have understood the first question. But OPEC or OpEx?
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Unidentified Company Representative [37]
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OPEC.
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Patrick Pouyanné, TOTAL S.A. - Chairman, CEO and President [38]
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I think OPEC, my view is that OPEC will stick to its policy after -- I think Saudi Arabia and Russia together have taken the lead. There is a strong alignment. And by the way, we are even more compliant for Saudi Arabia with their commitments today. And I think that these 2 large countries, which represent more than 20 -- around 25 million barrels of oil per day, so 25% of the market, a price of $56 is clearly better than a price of $46, I would say. So this is my view, and we'll see and I will not be surprised to see OPEC maintaining its guidance, even maybe deepening it. Cash return, no, it is a priority. I don't know why we tell that. Again, it's not growth. I told you it's a matter of value. If we want to return more cash to shareholders, we need to generate the cash. That's an important condition. So we need to generate free cash, I think. So what about removing the scrip? I will tell you, clearly, the scrip -- there are 2 ways. First, we told you on the scrip that we will eliminate the discount when we close the (inaudible) business. Then there is too the question of -- and from 2019, we cover the full cash dividend. That means that even if there is a scrip in 2019, we will be in a position to buy back the shares which will be issued by the scrip. You see why we tell you today. And then the question is, what is blocking me? It's the volatility of the market, let's be clear. I'm not -- it's not because today, we met together and it is 55, but suddenly I change my mind. I think this market is volatile. I would not be surprised, in July, August I think we've seen the price going down to $44 or something like that. So it's just that. But let's be clear. So the tool, there is a tool, which is the scrip, which could face volatility. Then if we have the cash, we don't need to dilute our shareholders. So there are 2 different ways, which is to keep the tool in the case of volatility but to stop diluting the shareholders because of the use of the scrip as soon as we have the cash flow. So the plan, it's clear, is that we want to diminish by dilution. We are conscious of that. But maintaining the tool even if it's not exercised, even if it's not, I would say, that we buy back the shares which can to the scrip, is a plan at $50 from 2019. This is what we tell you today. So there is no priority. To be clear, my priority today is clearly on the cash generation and in the first, to give it -- to as I said, consolidate the balance sheet, return to shareholders and future growth.
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Mike Sangster, TOTAL S.A. - Senior Vice-President of IR [39]
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(inaudible) lady in the front.
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Irene Himona, Societe Generale Cross Asset Research - Equity Analyst [40]
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Irene Himona, Societe Generale. I have 2 questions. Firstly, on the macro side and energy transition, what are your thoughts Patrick, the whole issue, the threat to oil demand from either rising energy efficiency in existing combustion engines or alternative vehicles? And then secondly, regarding Slide 19, you are extending your OpEx cap to $5 billion by 2020. I wonder if you could let us know what is the 2017 total cost base of Total, in dollars billion from which will you will be reducing the $5 billion? And I'm asking that because obviously, Maersk is coming in mid-year, so clearly your costs are going up. And then secondly, if you can give us a sense of how much (inaudible) is the centralization of your procurement? I think, last year, you mentioned $500 million as an initial estimate.
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Patrick Pouyanné, TOTAL S.A. - Chairman, CEO and President [41]
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Yes, it's -- the $500 million is there, yes. And it's part of the journey from $3.6 billion to $5 billion, this $500 million, it was mentioned in the slide even if there was no figure there. There will be a presentation by Ladislas Paszkiewicz on exactly your question about transportation impact and improving efficiency of transportation vehicles and alternative vehicles. You will see that, in fact, in his debate there is an element which has to be taken into account. In fact is there is -- the average growth demand, growth for more transportation is around 3.5% per year. And it's mainly driven by emerging countries. So in fact, people forget in that debate that you have a strong push for more kilometers being driven, either it's vehicle kilometers or freight vehicle kilometers, which is the first element, and 3.5% can represent something like 30 million barrels of oil per day in 15 years. Then you have 2 counter-effects. One is the efficiency gains that you mentioned. But to make -- and we took an aggressive assumption of something like 3% per year on 15 years, which is not so obvious because that means that, for example, a passenger vehicle would go down to 3-liter per kilometer around the world, which is around the world, I'm not sure, but in our country it will be the case. And then we have electric vehicles, which represent maybe something like -- we made -- it will be explained to you 50% -- if 50% of all passenger vehicles were electrified worldwide, by 2040, it will represent 8 million barrels of oil per day only. So in fact, you have a balance in the system between this. And people forget in their comments, this demand growth for more transportation, either freight or passenger vehicle, and this represents a big part. And when you have efficiency gains and alternative ways. So for us, more or less, this is a balancing of figures, but Ladislas will answer with more details to try to show you that. Today, everybody is very excited by electric vehicles, that's true that it exists, but this represents a potential elimination by 2040 of something like 8 million barrels of oil per day in very aggressive assumptions, because I'm not sure that 50% of all vehicles, because we have a difficulty on that subject is that we look to that with our eyes of western, westerners, I would say. But if you go, this time I am going to India, Southeast Asia, they're a little far from all these alternative things. Even if in the political speech, they are very strong to speak about it. And then what else? The OpEx base you have any answer, Patrick? I know that it's 2013, 2014 base, $5 billion, but -- by the way, you know my answer to you is that you can see these savings in our accounts that's true, but there will be a few days with Maersk Oil. But we have taken in the $1 billion extra base, $200 million of synergies with Maersk Oil. We'll come back to you in the -- I think the -- but I don't want to give you a mistake. We'll come back to you in the next 2 days to give you the base. I think in 2014, it was something like $28 billion somewhere, but we'll come back to you on that more precisely. I don't want to give you a wrong figure.
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Mike Sangster, TOTAL S.A. - Senior Vice-President of IR [42]
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Lydia (inaudible)
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Lydia Rose Emma Rainforth, Barclays PLC, Research Division - Director and Equity Analyst [43]
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Patrick, it's Lydia from Barclays. All right. Two questions if I could. The first -- sorry to come back to it, but on the scrip dividend, if I think back a year ago, you did say that at $60 a barrel we'd look at believing that scrip option entirely. Given that the CapEx number is down, the OpEx saving limits are up and the Downstream limits are high, how far oil prices come down or should we just be thinking that we should turn this off or should we just be thinking let's not talk about moving that scrip at all until 2019 or (inaudible) the oil price? And then the second one on the Downstream side. Can you just talk through what gives you the confidence around those refining margin assumptions out to 2020 and particularly on the IMO effects, whether there's any work that Total needs to do (inaudible)?
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Patrick Pouyanné, TOTAL S.A. - Chairman, CEO and President [44]
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So the first one, let's be clear, yes, we gave you that guidance. Unfortunately, we didn't see $60 per barrel in 2017. I mean, maybe you saw it, not me. So -- but we -- I think, we superseded that guidance by the fact that we told you that as soon as we -- when we will close the Maersk Oil deal, we will remove the discount. So it's no more linked to a price. I would say, obviously, if I had to link it to the price, we've seen -- you've seen the progress we've done. In 2018, it would be $55 per barrel oil. In 2019, it will be $50, but we superseded by guidance by telling you that the discount will put down to 0 as soon as we close. So it means first quarter of 20 -- I hope, I think so, and we are moving forward. We had many exchanges, revised countries around the world, which are positive, we don't see any difficulties in summation of -- question of paperwork. So this is I think a stronger guidance to you to -- and I repeat it in front of you even in the press release, it was written, we will consider -- let me answer -- we will consider -- in French, it means commitment, knowing French. We don't have the same meaning of the word. Okay. The second question is for Momar and [Donald] so we'll have the pleasure to hear their voices because they are the experts of global caps, so please, if you can answer.
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Unidentified Participant [45]
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Just a few hours on in the IMO except continue, of course, that we have anticipated. As Patrick said, we have, over the last few years, spent a lot of CapEx already to date and upgraded our refinery system to be able to treat high sulfur grades. So I would say, as an example, we've put more than $1 billion in (inaudible) to be able to reduce the heavy part of barrel and be able to produce more oil fuels and these are just as an example. So what is coming in front of us, I would say is not a surprise and to be completely transparent, we're not anticipating in the years to come any additional CapEx in Europe for Refining & Chemical growth. So we feel we are all set to cope with this new regulation. Regarding margin, the good thing, as you -- as Patrick mentioned, is that in the short term, we see a balance, which is very much in favor of heavy fuel oils because there is less today -- less heavy oils -- heavy grades and residues available and a very strong demand on the bunker fuel side. So it -- so the crack are pretty high, pretty good, and we think it's going to stay this way for the next 2 to 3 years, which I think is something, of course, pretty interesting. And just to be completely clear, on the post-2020 stage, we anticipate a stronger demand on the metal distillate, the marine diesel and the low sulfur grade today. There is a question mark on the availability of the low sulfur grades, which again, makes -- tighten the supply and demand side. So I would say from the supply side, it's pretty in favor of the refining margin. And we -- that's why we are pretty confident, as we saw this morning, that $35 per ton of ERMI or European refining margin, which we're confident that we can stand these assumptions. That's on refining but there's more to come, of course, on the bunker side with Momar.
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Momar Nguer, TOTAL S.A. - President of Marketing & Services and President of New Energies [46]
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Yes. On the bunker side, as you've heard of late, there are -- there're options that have been on the table for companies, Maritime Companies. What we've done in the company that we've put ours in order is one, one-stop shop. Our fuel marine operations will be dealing with the customers. All of our customers have to be able to offer them whatever fuel they need. I mean, be it low sulfur fuel oil, LNG or diesel, we are prepared -- and we've discussed with these customers, we'll always give them the options, either if they go for scrubber, we'll be able to, of course, continue to supply heavy fuel oil. If you go LNG, we'll be able to -- and we'll do the necessary investment to support them. Not sure that in the coming 2, 3 years, there'll be a clear path on where they'll head to. You've heard that some companies may, on their cruise business, go for LNG for obvious reasons. And on the other side, for the transport business, they'll go for scrubber. So we must be ready to supply customers whatever their request may be.
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Martijn Rats, Morgan Stanley, Research Division - MD and Head of Oil Research [47]
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It's Martijn Rats from Morgan Stanley. I decided I only have one question really. I wanted to ask if there is perhaps a slight change of tone when it comes to U.S. and the conventionals. I remember that in the past, you were not so enthusiastic about it, and I think this time last year you had -- about Barnett, there was a bit of an opportunistic thing. But you started off today saying that this is now a place where a major like Total needs to develop its business, so I was wondering if you perhaps see more opportunities?
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Patrick Pouyanné, TOTAL S.A. - Chairman, CEO and President [48]
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No, no. No change. No change. We have to go. No. What I told you is that the U.S. is really of interest for me in investing in LNG. To use all these cheap guns, which is, therefore, maybe forever, but for a very long period, as it suits of developing LNG, for example, or petrochemicals like it is now. And I think because it's a -- of course, it's a -- I would say, a stable physical environment, I have plenty of advantage there, so -- but we're now in refining -- and petrochemicals has made the first project but is thinking about another project and if we can find other opportunities to develop there, we'll develop it for chemical. On the efferent part, again, I continue -- I still continue to believe that so much matter of allocation of capital and more than that, like -- the reason beyond this, if we don't (inaudible), it's also -- and mainly, I told you because lower breakeven, but because we have a strong conviction, but our teams, the teams of Arnaud, we'll be able to deliver resided value to merge the synergies. This conventional offshore of North Sea is part of the DNA of the company, which is not the case on U.S. and conventional. I don't have the teams, and so we are not -- what would be the added value of Total to put more lever compared to my -- some of my peers, which have a stronger -- strong legacy there. We are doing that in Argentina, because in Argentina, I would say, maybe we don't have all the same capacity, but companies are starting from sort of a level playing field. We need to build all the unconventional service industry there in Argentina, and we've banded together, and we don't do bad at all. We do that with (inaudible), we do have some competencies. So no, the U.S., yes, for me, it's really, again, a scenario of investment, in particular for LNG and Downstream business and the refining -- and petrochemical business. For the rest, it's a question to be opportunistic. But of course, if something is staring in front of us, like Barnett, which is a -- at a bargain price, maybe it can move. You never say never. But a bargain price, for the time being, I didn't see a lot of things in oil shares at a bargain price.
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Mike Sangster, TOTAL S.A. - Senior Vice-President of IR [49]
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I think Oswald has a question?
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Oswald C. Clint, Sanford C. Bernstein & Co., LLC., Research Division - Senior Research Analyst [50]
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Thank you very much. Oswald Clint from Stanford Bernstein. Here, let me start. I want to ask a question about the LNG business, the 5% market share you've won. You mentioned Total's competitive position within the market, but you also talked about new and emerging competitors, which you almost brush -- brushed off but...
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Patrick Pouyanné, TOTAL S.A. - Chairman, CEO and President [51]
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No, no? I recognize they are there, so it's good.
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Oswald C. Clint, Sanford C. Bernstein & Co., LLC., Research Division - Senior Research Analyst [52]
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I was just curious because I see these commodity traders taking contracts in Asia, in Africa, Glencorse, (inaudible), so are we underestimating Total's strength here in order to secure that LNG volume from here?
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Patrick Pouyanné, TOTAL S.A. - Chairman, CEO and President [53]
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There would be a -- there will be a detailed presentation by Philippe tomorrow on LNG because I think it's a strong arm, but Phillippe, you can maybe comment on Oswald's question.
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Philippe Sauquet, TOTAL S.A. - President of Gas, Renewables & Power and President of Strategy-Innovation [54]
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Yes. First, the 5% target I would say for 2020, '22, is not something very difficult. It's already nearly -- additional for -- to consolidate to have been signing. So we can feel confident on that. On the competition, it's true that the market, the LNG market (inaudible) 2, 3, 4 or 5 years and it has become a market that's much more flexible, with new customers, new suppliers that have entered the market and were newcomers. All those for instance, having exactly the same reliability as the traditional Japanese utilities and there is a clear room that has been taken by some traders that are maybe a bit less cautious than the historical players accepting to take some clean sweeps that we don't feel comfortable with -- so yes, we will take a share of the market, but it won't affect our 5%.
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Patrick Pouyanné, TOTAL S.A. - Chairman, CEO and President [55]
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I think that yes, you can observe that this gas business is more and more -- because of LNG development, because of U.S. LNG becoming, I would say, interconnected markets, we are a free regional market, so it offers more and more room for having
let's say, real trading activity because what we call trading in the past was more -- you had some resource that you can redirect -- redirections of tank -- LNG tankers, forget the military markets. I think the more you will have commoditized markets, I would say in the gas LNG business, the more you will see players. But what is clear is that we are one of the few fuel indicators. Of course, there is a big one, our colleagues of Shell, no doubt about it, but we have built it in the past and we intend to continue to build on that, which -- and to be -- we have already gotten to a particular size, I feel, which is an advantage compared to the weightage on which we'd want to continue to demonstrate. I would say also that we have a strong oil trading arm but as them, we know we are following the same routes. They have -- these companies have experience, I would say, they're oil -- strong oil trading arms and they are taking some -- we want to build on this experience in the oil business to develop the gas trading arms. And I -- we are thinking exactly the same way in Total because we have a strong oil trading arm and we want also to do the same in building on this gas business. So yes, for us, it's a strong area of focus. I remind you as well, there are other reasons but if you want to control the offering part it is quite capital-intensive. It's always good to be able to control some logistic stands when you want to develop a trading business.
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Mike Sangster, TOTAL S.A. - Senior Vice-President of IR [56]
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Okay. We still have lots of questions. We will get to everyone. Don't worry. Chris, you have (inaudible) at the back.
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Christopher Kuplent, BofA Merrill Lynch, Research Division - Head of European Energy Equity Research [57]
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Thank you. It's Chris Kuplent from Bank of America Merrill Lynch. Two quick questions. The first one regarding timelines. You have now given us your $50 free cash flow breakeven for 2019. Can you maybe make us dream if you think about the things that happened in 2020, which are not that hard to imagine, whether it's the start-ups you've acquired from Maersk Oil, which will not help you much in 2019, but really fully in 2020. And then perhaps according to what Bernard said, more demand for some of the higher-value products around IMO in 2020. So would it be that wrong to suggest another year, just 1 year would actually bring that $50 down to perhaps $45? And any views you have around that would be welcome. And second, tiny question. You've given us $500 million I think annual acquisition budget in Downstream. Can you be a bit more precise on what you're going to spend that $500 million on? Are you going to follow some of your peers who think that buying petrol stations is a good idea?
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Patrick Pouyanné, TOTAL S.A. - Chairman, CEO and President [58]
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It's $500 million net, which means that you can buy more and sell, which is in our portfolio of permanence because in Downstream we have many assets. Yes, we have -- I mean it could be commented on by both colleagues, but I think in -- when you want to grow -- one of the lessons we are providing from the last 5 years is, if you want to grow your retail business, inorganic -- I mean acquisition could be as efficient by building yourself, investing with your CapEx to build additional stations, et cetera, et cetera, which is a long process. So you can have in this business, where you have many small players, you could have opportunities to grow by taking -- having these type of assets. We are looking as well in petrochemicals, if there are any opportunities there but again, $500 million is not a -- it's not a big budget but it's a capacity to fit the growth of these 2 segments, like that. The first question, I don't know what was it? What the question was?
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Unidentified Company Representative [59]
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Can you have (inaudible)...
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Patrick Pouyanné, TOTAL S.A. - Chairman, CEO and President [60]
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The more I give you, the more you want. Sorry for -- to tell you the truth. So you will take -- with what you have, you -- look, you have plenty of figures, where I think we have detailed to you even the free cash flow by 2022, we didn't give you the CapEx by 2022 because of the remark of Jean because let's say there is an inflation. But throughout you can say, yes, that's true but I can make you dream and, by the way, if I didn't put the figures these facts would be so impressive, but you will ask me what do you do with all the cash. So I told you, first the cash will be used to consolidate the branches and at 20% giving then to return to shareholders and to plan to (inaudible) . And the proof we are able to do it, because there is something, which is for me important, is that with the assumption that we are able to grow and to have an entry cost of less than $3 per barrel we manage to do that, manage to do that better. And we continue to work for opportunities like that. Why? Because in this market today, you don't have so many players, which are -- big ones. Yes, we have some few competitors, the major ones, are trying to get access to these type of resources, but you have all the bunch of competitors, which have a midsize independence, which were in the market between [25] and 2014, which today are not there, and so we have -- we can be more selective, including you have national companies today which face some tough times, which are more open to give access to opportunities to major companies. So we are in a situation where we can really leverage our financial strength to build this portfolio in order to feed the future growth. So you make your math and you take your -- and you will find what it is in 2020, 2021, 2022, but it will be better by 2019. Nobody is surprised.
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Mike Sangster, TOTAL S.A. - Senior Vice-President of IR [61]
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Okay, I think we have Brendan at the back and Alastair at the front afterwards.
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Brendan Warn, BMO Capital Markets Equity Research - Senior Oil and Gas Analyst [62]
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It's Brendan Warn from BMO Capital Markets. Just 2 questions. The first one is a question or a point of clarification on Slide 20. Just what sort of (inaudible) or high break-even barrels that you know is slated for sale within that 5% CAGR growth? Or is that 5% out now to 2020, does that exclude projects such as Fort Hills? And then the second question I guess relates to the balance sheet. You talk about you want to be below 20% net debt-to-equity ratio. You're sort of there now. Can you expand on how strong you want to get that balance sheet? What sort of level recognizing you went into this last cycle for quite a stretched balance sheet?
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Patrick de La Chevardière, TOTAL S.A. - CFO [63]
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The guidance does not take into account the start of LNG, which represents more than 80,000 barrel per day. It's a way to answer your question which means that the guidance as well as the kind of, the equivalent of $1 billion. It's not the value of Fort Hills. You can say that to some of the Canadian companies. It's worth more than that, of course, it is. So no Fort Hills there is included as we are a partner of this development, and we'll see what we'll do with this project in the coming years. But there is no -- let's be clear, my priority is value over volumes and among the breakeven, about what else we have in the portfolio also is a part of that. That -- I'm not in a hurry. I don't want to lose value as well. So my view is that we need to wait to have higher prices before we divest these type of (inaudible). So we are not in a hurry, and it's included there. But again, we have some flexibility about -- around this production growth guidance we gave you.
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Patrick Pouyanné, TOTAL S.A. - Chairman, CEO and President [64]
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Your question about the balance sheet and the gearing, we reached 20% by June. This is true. Maersk will slightly deteriorate gearing at the beginning of next year when we close the transaction. But the 20% gearing remains a target for us, and we will maintain it all over the period.
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Mike Sangster, TOTAL S.A. - Senior Vice-President of IR [65]
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Okay. Alastair?
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Alastair R Syme, Citigroup Inc, Research Division - MD and Global Head of Oil and Gas Research [66]
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Patrick, it's Alastair Syme from Citi. Can I ask if you look at the long-term history of Total and this industry, the return on equity has been well above 10%? So let's say, how should we think about the 2020 target? Is that a view that ultimately that is still the bottom of the cycle and the oil crisis will bale the industry out? Or do you think that there is still a lot more (inaudible)?
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Patrick Pouyanné, TOTAL S.A. - Chairman, CEO and President [67]
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The 10% is at $50 per barrel, all right? And the $50 per barrel, obviously, you know have a big amount of equity in the Upstream which is not delivering ROE, so it's a mix of, I would say, very profitable businesses and the Upstream. So you know there is no secret that we built and we have invested in projects during several years in a $100 per barrel environment. So the costs are there in our portfolio and there is no magic tool to eliminate that. So some of the projects and -- which have been developed in a $100 per barrel environment, will have quite high amortization costs. And so will impact at $50, the accounting result. We will generate cash flows. We'll have sort of a double image there. On one side, this project will deliver strong cash flows, in particular, in all the PSCs because we are recovering the costs. But on the other side, the amortization part is quite heavy. At $50, it does not give at the end a very high accounting result. So of course, there is a sensitivity to the oil price, if this is your question, I don't have it in mind. I think it's something I won't -- I don't want to give you a mistake. We'll come back to you more precisely to give you the sensitivity on the ROE of $10 per barrel, we can find that and we'll give it to you.
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Mike Sangster, TOTAL S.A. - Senior Vice-President of IR [68]
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Everything (inaudible) just beside.
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Bertrand Hodee, Kepler Cheuvreux, Research Division - Head of Oil and Gas Sector Research [69]
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Bertrand Hodee, Kepler Cheuvreux. Two questions, if I may. The first one is on Yamal. We will have the chance to visit the site over the next 2 days. When I look back on Page 21 at the list of projects, you are -- that are coming on stream in the next 3 to 4 years, Yamal LNG, probably 3 to 4 years ago, was probably the most challenging of those. Can you share with us how the execution is going? We learned that the execution is going very well. And how can you replicate that on another project as well? And the second question is also, when we look at Page 21, the next wave of projects that are coming onstream is equity to the portfolio. And the question is, what about the next wave? The next wave of projects will be launched with around $8 per barrel development cost. Is it fair to assume that those projects will deliver a lower unit cash margin because of lower development costs?
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Patrick de La Chevardière, TOTAL S.A. - CFO [70]
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To have a lower development cost, they should deliver a higher cash unit margin, not a lower one. So it's a fair assumption to be -- to have that -- to take that one, not a lower one but a higher one. On the first one, Bertrand, you will have the chance to visit it. So you will ask all the questions, you will see the execution. I will not anticipate what you will see in 2 days, but there is a -- I mean, again, the first train of Yamal should start before year-end. We're targeting November but we'll explain to you where they are on the ground. I think it's better to listen to the people of the project than to myself. And maybe, and I hope they will convince you, and then we have the 2 other tranches which should be delivered in 1 year after each of them. So -- and again, if we -- yes, that's true, it's absolutely supergiant projects on which execution is key. We had a good performance on the Chinese yards, which have been able to deliver the modules on time, I would say. And so -- but again, I think if we have decided to propose to you to make that field trip in Yamal, it's first because it's one of the most impressive projects I've ever seen in my life in terms of a manufacturing industrial project. And second, to give you more confidence in the capacity to execute. So you have to be patient to -- let's wait for 2 more days.
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Mike Sangster, TOTAL S.A. - Senior Vice-President of IR [71]
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Okay. Any more questions? At the back, Jason?
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Jason S. Kenney, Grupo Santander, Research Division - Head of European Oil and Gas Equity Research [72]
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It's Jason Kenney, Santander. Just going back to some of the projects, again, carrying on from Bertrand's question. Do you think Total will be a part of the Arctic LNG too? Could Novatek, could that be a follow-up to the Yamal commitment that you had? Where does Absheron fit in Azerbaijan? And can -- finally, tell us a bit more about the Chevron joint venture that you've got going in the U.S., Gulf of Mexico just to expand on the press release from last week, please?
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Patrick Pouyanné, TOTAL S.A. - Chairman, CEO and President [73]
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Patrick, by the way. We'll be a party because we are -- I think we have 19% of shares on the Novatek's. So one way or the other, we are part of Arctic LNG. We have a direct share, it's being considered. It's a matter for us also of the real world but again, it will be explained to you by -- during 2 days. It is, can we have a better development scheme -- a more efficient development scheme with Arctic LNG? Can we drive the cost down on Arctic LNG compared to Yamal LNG? And this is exactly the route we are -- on which Novatek is working on, which is -- will be explained to you, I think, on the state of building on the permafrost, to build on some barges, which will be able to drive down the CapEx by something like, I think, 30% or something like that. This is the target. So if it is, again, a profitable project of 50%, yes, the answer is, Total is willing to participate to -- with the direct share in Arctic LNG. If it is not, the answer is no. So we are working on that together with Novatek. Absheron, you have something to...
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Unidentified Company Representative [74]
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Yes. Quick update on Absheron. So we are normalizing the rate to drill the well. As you know, this development with the Phase 1 is to continue the appraisal of the field, but also to tie back onto existing facilities operated by Suncor. So the project is ongoing as expected. We, as was mentioned early on, in terms of procurement, which is way we do some synergies on the subsea equipment. So we are, I would say, on track to deliver this project.
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Patrick Pouyanné, TOTAL S.A. - Chairman, CEO and President [75]
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And Chevron?
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Unidentified Company Representative [76]
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So Chevron is really a continuation of striving to explore in the U.S. government, which we see still an attractive province probably more now -- I would say, a playing field for large companies as we can see, and we are already partners with Chevron on the Tahiti field. They are our operator for the first the next acquisition. We will also get 25% into the Jack field operated by Chevron. And looking at their exploration portfolio, we see some good interesting prospects. I think we notified up to 7 for now, so we thought this was a reasonable and good alliance to forge with them.
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Patrick Pouyanné, TOTAL S.A. - Chairman, CEO and President [77]
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Now we had a partner called Cobalt, which are -- which is facing financial difficulties, so we cannot continue to move with Cobalt at the same pace in terms of exploring have gone, so we decided to stop this alliance. And Chevron is one of the companies, which is very well positioned in the Gulf of Mexico, and we have a historic a relationship with them in Angola and like it was said, and very good, I would say, friendly relationship with the top of the management of both companies, and with Tahiti, Jack and so it's just, again, we continue to believe that the Gulf of Mexico is one of the hot areas for exploration, and we've done, we've taken some licenses in Mexico on the other side, but again, Kevin will describe that to you, and so we -- but continuing on this exploration strategy in the prolific Gulf of Mexico.
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Mike Sangster, TOTAL S.A. - Senior Vice-President of IR [78]
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Okay. I think we have time for one last question if there is one.
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Patrick Pouyanné, TOTAL S.A. - Chairman, CEO and President [79]
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When you say (inaudible) you stop the question. So this is okay. So it has been very efficient, very polite in your English way to do it. Thank you. British, British, British way. Sorry for the mistake. Huge mistake. Huge mistake. That's true. Thank you for your attendance. Thank you for all your patience. I hope we have answered to that, but we'll have opportunities to -- and you will have opportunities during the next days to have access. For all those come, you'll have access to all these presentations, which will be delivered to you by Arnaud, by Philippe, by Momar, by Danna, by Ladislas and Kevin as well to give you granularity and of course, by our ocean teams on Yamal and expansion, and also to ask more questions. So thank you for your attendance and see you soon. Thank you.
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