Galp Energia, SGPS, S.A (OTCPK:GLPEF) Q2 2022 Earnings Conference Call July 25, 2022 9:00 AM ET
Company Participants
Otelo Ruivo – Head of Investor Relations
Andy Brown – Vice Chairman of the Board and Chief Executive Officer
Filipe Crisóstomo Silva – Chief Financial Officer and Executive Director
Thore Ernst Kristiansen – Chief Operating Officer of Production and Operations, and Executive Director
Georgios Papadimitriou – Chief Operating Officer of Renewables and New Business
Teresa Abecasis – Executive Director, and Chief Operating Officer of Commercial
Conference Call Participants
Biraj Borkhataria – RBC Capital Markets
Oswald Clint – Bernstein
Mehdi Ennebati – Bank of America
Sasikanth Chilukuru – Morgan Stanley
Joshua Stone – Barclays
Henri Patricot – UBS
Giacomo Romeo – Jefferies
Raphael Dubois – Société Générale
Pedro Alves – CaixaBank
Alejandro Demichelis – Nau Securities
Matt Lofting – JPMorgan
Ignacio Domenech – JB Capital
Operator
Good day, ladies and gentlemen. Welcome to the Galp’s Second Quarter 2022 Results Presentation.
I will now pass the floor to Mr. Otelo Ruivo, Head of Investor Relations. Please go ahead.
Otelo Ruivo
Hello everyone. And welcome to the Analyst Q&A session related with Galp’s second quarter and first-half 2022 results. Thank you for joining us today.
Earlier this morning, we released all results materials and included a video presentation from Andy and Filipe highlighted the key achievements during the quarter and covering the financial results. As such, this session should be shorter as we will go straight to Q&A. Together with Andy, we have Filipe, Teresa, Georgios, and Thore, so the full executive team here, available to take your questions.
As usual, I would like to remind you all that we will be making forward-looking statements that refer to our estimates, actual results may differ due to factors included in the cautionary statement presented at the beginning of our presentation we released this morning, which we advise you to read.
Andy, do you want to say a few words before we start the Q&A?
Andy Brown
Thank you, Otelo. I just want to reiterate some of our messages. We were pleased with results we presented earlier today. Cash generation, close to €500 million of free cash flow despite the working capital build, this was supported by strong performance on all business segments. As a result, today, Galp is in an even more robust position with our leverage now down well below one net-debt-to-EBITDA, giving us additional financial strength to execute our strategy. And with our distribution framework, we should be able to offer 2022 dividends a third of our operating cash flow. And operating cash flow is now expected to be close to €3 billion.
As I also alluded to in my video presentation, we made really good progress on the execution of our key projects that underpin our portfolio reshape, so, exciting times for Galp. And we’re all here ready to take your questions. Thank you very much.
Question-and-Answer Session
Operator
Thank you. [Operator Instructions] And now, we’re taking our first question. The first question comes from the line of Biraj Borkhataria from RBC Capital Markets. Please ask your question.
Biraj Borkhataria
Hi, thanks for taking my questions, and thanks for the new format, much appreciate. So, two questions, the first one is on the low carbon portfolio. So, following the Titan deal, if we think about 2023, how much CapEx is being from — sort of deconsolidated to being consolidated? I’m just trying to understand the moving parts versus the prior plan.
And then the second question is on shareholder returns. You guide to the one-third payout, €500 million of buybacks, obviously in 2022. How are you thinking second-half of this year given where the share price is and the visibility you have on volumes and, I guess, commodities prices to some extent, you may want to look to accelerate that. So, how should we think about the balance of the second-half of this year, and into next year? Thank you.
Andy Brown
Thanks, Biraj. Look, firstly, I think we’ve given some guidance on where we see the commodity prices for reminder of this year, around $90, $15.00 a barrel refinery margin that it gives us, so it’s close to €3 billion of OCF. We have no addition guidance this moment on how we will distribute the 2022 dividend, but I think we’re pretty clear that it will be a third of OCF. Now, on the Titan deal, clearly this was an opportunity to take control of this portfolio. The reason we take control isn’t, per say, to consolidate it, but was to create some more flexibility, going forward, to unlock more value. But perhaps I can hand over to Filipe to give some guidance on how this may affect CapEx going forward. Early days for us to actually announce anything particularly, but Filipe, how do we see the numbers?
Filipe Crisóstomo Silva
Hi, Biraj. So, in the real world, so the assets are generating and producing as before, so Galp now has increased exposure from 75% to 100%, that’s really what has happened. From an accounting point of view, before, when it was deconsolidated, we would put in our equity into the project; our partner would put in its 25% share. We have project finance in some of the underlining assets. So, the plan is that we keep 100% of the [indiscernible] that we now fully controlled, the underlining assets have project finance. And what you had in our cash flow statements before was whatever money would come to Galp after the assets would service their debt. So, it was a relatively small amount.
So, you will now see the full cash flow coming to us. You will also see more CapEx going out, and also the project finance debt that we have now brought onboard to Galp. So, net-net, and now we have — we’re bringing a lot of visibility of this business into our consolidated statements, and so the market will have a much better view of the true cash flow generation without the project finance associate’s movements. Thank you.
Biraj Borkhataria
Are you able to quantify — Sorry, are you able to quantify the CapEx that is being consolidated for 2023?
Filipe Crisóstomo Silva
So, if you look at our long-term plan assumption, what we have disclosed earlier this year, we’re growing the portfolio 300-400 megawatts per year if you put in, assume a round number, 700-800K per megawatt, it’s giving you 300-400 of gross CapEx before asset rotations, and that would also — you’ll see that as a CapEx number.
Biraj Borkhataria
Understood, thank you —
Andy Brown
I think, Biraj, can I just — I mean, obviously, this was a — this is a great portfolio, it’s exposed to the merchant market, generated €200 million in the last 12 months in Titan. And you may ask, well, why do we do this? And I might ask Georgios to just say a few words about what this flexibility that will bring by taking full control of this asset base.
Georgios Papadimitriou
Thanks, Andy. And I think that was perhaps also billion dollar question. So, Biraj, that was a — the opportunity to a deal — a comprehensive deal to get control of the assets, and be able to have execution of the portfolio in our own, let’s say, hands. We had the opportunity to get this deal in the comprehensive way, exchanging also certain other things that we had to sort out with Cobra. Cobra is not a natural, let’s say, owner of this 25%. Cobra wanted to focus more on the development and on the execution of the portfolio. We had agreed DBC prices at different times, so that was an opportunity also to update DBC prices to more, let’s say, current context.
We also had the opportunity to change the engineering of those projects to change the scope of the EPC agreement so that we have higher yields. And that, all in all, with getting the 25% on our hands gives us the opportunity to be able to market the energy ourselves, to consider other value pools in the future from energy management, but also eventual asset rotation. So, all in all, it’s a deal that gives us more control and more optionality for the future.
Operator
Thank you, Biraj. Now, we’re taking our next question, please standby. The next question comes from the line of Oswald Clint from Bernstein. Please ask your question.
Oswald Clint
Yes, sorry, thank you very much everyone. Could I ask about Bacalhau North, please? Good to see the rig secured. So, that’s still a 2023 drilling, I think, to appraise Bacalhau North, if you could confirm that. But I just wanted to get your broader thoughts around Bacalhau North. Do you — at this point, do you think it could feed into a section of [technical difficulty] or still very much a resource [technical difficulty] for the first FPSO? And, I mean, perhaps more broadly, just what’s the latest on the 2P redevelopment plan, please? That’s the first question.
And then, I mean, the second question just a little bit further on renewables, please, the — I mean the comment around continual licensing and permitting delays, I thought in the context of Russia gas, that Europe was going to — and Portugal speed up some of these approvals. So, if that’s the case, does it make you lean more towards the acquisition side of the renewable portfolio, especially given your financial strength, would you look to do more such acquisitions here? Thank you.
Andy Brown
So, can I ask Thore to talk about Bacalhau North and an update on the POD for 2P?
Thore Ernst Kristiansen
Yes, Andy. Thank you, Oswald. So, when it comes to the latest rig that we’re taking in for Bacalhau, it actually has two purposes. One is, exactly as you were alluding to, that we are going to use that rig to drill the ADR well in the north in order to better understand what is really the potential for Bacalhau North. Of course, the outcome of this well will very much determine what will then be the way forward. Is it going to be a tied-back or is it going to be a standalone? So, that has not been decided at this stage, but the latest rig we took it has also a second purpose, namely, having additional drilling capacity to make sure that Bacalhau Phase 1 have all the available production capacity when it comes on stream so that we get the — a swift ramp-up.
When it comes to 2P and the second phase and the new POD, it is moving ahead according to plan. We are just now starting to drill the first infill wells for the project, and then we are in active dialogue with ANP with respect to approvals of the new POD that has been handed in. And that is a dialogue that goes back and forth between the partnership and ANP.
Andy Brown
On renewables, on the licensing delays, I think, clearly, the European Union has set out an ambition to accelerate these permitting. And what happens now is the different countries are putting in legislation to kind of underpin that, and to create the environment where they can accelerate those approvals. Portugal has recently put a package through. And so, I think for us, the jury is out a little bit of how effective these are. Does that change our strategy from going from a kind of organic growth to one that’s inorganic? No, I don’t think you can draw that conclusion. But I think we will continue to make the point that there is more money pointed towards renewables growth in Europe than there is the capacity for the governments to give the permits to actually pursue them.
And if RePower Europe is going to become a reality, we are going to have to accelerate permitting, not only just for electricity, but also for value streams, like hydrogen. And so, this is a really important point, that we want to work very closely with government to make sure that all the money we want to spend in renewables can actually find a home.
Otelo Ruivo
Next question, please.
Mehdi Ennebati
Hello, can you hear me?
Otelo Ruivo
Yes.
Operator
Mehdi, your line is open. [Technical difficulty] ask your question.
Mehdi Ennebati
Okay, sorry, thank you. Hi, this is Mehdi Ennebati, Bank of America. Two questions, please, on my side. The first question, on the maintenance schedule in Brazil, so, can you please remind us how many maintenances you have realized on FPSOs in Brazil in the first-half of this year? And how many maintenances area scheduled during the second-half of this year? Because it seems that this year unit cost in the first-half was pretty heavy in terms of maintenance. So, should we expect let’s say a little bit less maintenance in the second-half? And maybe can you also tell us more about the current production level of the FPSOs, which were on maintenance in the first-half? Would you say that production is back to 2019 levels, or would you say that depletion started having an impact? And it almost impossible for you or too challenging for you to come back to 2019 production on those FPSOs which were on maintenance in the first-half of 2022?
And the second question is about your gas business, this quarter again you have highlighted that you have met some gas sourcing issues. From what I understood last year let’s say in February, you were highlighting that you took some measure as you know to significantly limit those gas sourcing issues, but we can still see this quarter quite a significant impact. So, would you say that you have been surprised by — Oh, you were thinking that it will be [messed] [Ph] year for you to find some natural gas to, let’s say, lower the purchase on the spot market, so negative spot price, or would you say that it is in line with what you’ve scheduled? But unfortunately you have been surprised by the price of the natural gas? In fact, the real question behind that is there a very significant risk for you this winter in case there is some difficulties of gas supply in Europe, should we expect that division — that business of yours to be under pressure? Thank you.
Andy Brown
Thanks, Mehdi. And I will hand over second or both actually subject to Thore, but firstly on the maintenance schedule, I think we can roughly see the planned shutdown to be evenly distributed between the first-half and the second-half of the year, but in the first-half they were really concentrated in the second quarter not the first quarter, and I think that’s something we see. Now do we have to fight against declining projection as the pressure comes out of the reservoir? Yes. I think it’s the normal oil business we do, but Thore might be able to add some color on the maintenance planning. I’ll just address the gas topic as well now. We had a schedule of deliveries for our gas business that is being maintained. It is below what we had originally contracted, and we have taken whatever measure we can to reduce our own gas consumption, and part of that was to fire a hydrocracker on naphtha instead of gas. That is a new operation, and it’s one where it creates some additional fouling, and Thore can talk a bit about how we will be looking for forward to see how we can balance the gas versus naphtha in using in the hydrocracker.
What I can tell you it will all rely on whether the deliveries can keep up with the schedule that we were promised now probably nine months ago, and if does, then we will be in a reasonable position to cover the obligations of gas we sold for our own use but also for the use of our customers. So, we hope, Mehdi, that we aren’t going to have to go the market again, but it all rely on receiving the cargo as per schedule what’s given before. So, Thore, perhaps a little bit more color on maintenance? And then anything more on the natural gas used in the refinery?
Thore Ernst Kristiansen
Sure, Andy. Thank you, Mehdi. It is very correct what Andy said, the heaviest part of our maintenance this year as we see it today actually took place in the second quarter of this year. All the FPSOs are planned to go down for maintenance during the course of the year, but it was a heavy bunch in the second quarter. We expect there will be maintenance also in the third quarter, and then, the lightest quarter will be the fourth quarter.
So, that is what you can expect in the ramp-up. I will not go into the details for each one of the units, but that is what you can expect. Production impacted by the maintenance also in the third quarter and even less in the fourth quarter. That is what the planning is of today. When it comes to production, the production potential remains very good, 2Q, it’s daunting when it comes to sort of the level of production capacity, but it is a patient business and there is a decline into Q3 which is not very high, but it’s still there. So, we have to really run fast in order to stand still and that’s why the infill drilling program that I just spoke of is so important and we have fantastic economics on these infill wells that is now being contemplated.
And when it comes to gas sourcing, yes, the refiner has shown an astounding level of flexibility to adjust to market we worked really as one team within the company between the refinery and the energy management team to see what is it that creates the most value for the company successful switching into NAFTA during the second quarter and very high operational availability of the facility.
What I perhaps was most impressed with and satisfied with was that we had such a high availability of the refinery during the second quarter, which of course was very nicely timed versus also fantastic refining margins, and that’s one of the key reasons why the refinery contributed in such a good way in the second quarter and continue to do so as we speak. Thank you.
Operator
Now we’re going to take our next question.
Sasikanth Chilukuru
Can you hear me?
Operator
Now we can take our next question, please.
Sasikanth Chilukuru
This is Sasikanth Chilukuru from Morgan Stanley.
Operator
The next question comes from the line of Sasikanth Chilukuru from Morgan Stanley. Please ask your question.
Sasikanth Chilukuru
Hi, can you hear me? This is Sasikanth from Morgan Stanley.
Andy Brown
We can hear you perfectly.
Sasikanth Chilukuru
Yes, great. Thanks for taking my questions. I had two please. Both on the refining side, the first was on throughput last quarter, during last quarter’s earnings call it was highlighted that securing VGO supplies remain the risk to refinery throughput. But today it appears that this risk is largely minimized. I was just wondering, what were the actions taken and also, if you could comment on the impact of securing these new sources of VGO, what the impact was on refining margins? And also, if you could comment on the sustainability on securing these VGO supplies from these new sources, is that sustainable over the period as well.
The second question was also kind of related to this mostly on the refining margins, you have laid out a reference conditions of $15 per BOE, Galp refining margin for the second-half, and but lately we’ve been seeing benchmark refining margins could decrease quite materially, although they’re from record high levels. Just wondering if you could possibly give some details on how you’re currently or how you see the refining market evolve in the second-half, and what level of refining margins you’re currently witnessing?
Andy Brown
Okay, thank you very much, Sasi. So, yes, VGO sourcing, we have managed to secure all the cargoes of VGO that we needed to keep the refinery at full throughput. I have to say that some of those are secured just weeks before you need them. So, it’s an active work of our energy management. We’re sourcing them from Europe. We’re sourcing some from the Middle East. Now, those cargoes have been sold at quite a high margin themselves. So, we always have to check whether there’s actually positive economics in buying them. And over time that looks attractive and sometimes it looks marginal. But all of these have been positive in terms of our overall financial delivery, we will continue to do that and our refinery margins are much lower, I think around $10 per barrel today, deliveries are much higher than the earlier parts of July. But we are seeing some softness.
So, did I kind of today, I think we’re looking at about $17. Now going forward, clearly we haven’t got a crystal ball. I don’t know if you have Thore, you want to say a few words, but at the moment, it’s hard to tell how the market is responding. We’re getting through, we’re in the driving season there, we’ll see how the volumes are affected and how stocks are affected vis-à-vis an economic downturn. But clearly the situation is with weaker refinery margins than we had previously, I don’t know do you want to add anything, Thore?
Thore Ernst Kristiansen
No, I think you basic captured it. It’s just a volatile actually, the cracks this morning was expanding again actually. So, the market is just volatile. What we do is really just make sure that we’re really optimizing the runs on a daily basis and making sure that the refinery runs with the highest possible availability, so that we can maximize what the market has but for sure we don’t have a crystal ball and let’s see where the margins are going to pent up by the end of this year. But right now still quite good margins in at least when you see it in a historic perspective.
Sasikanth Chilukuru
Great, thank you.
Operator
Thank you. Now we’re taking our next question. Please standby. The next question comes from the line of Joshua Stone from Barclays. Please ask your question.
Joshua Stone
Hi, good afternoon. Two questions please. First of all, just come back to the Titan acquisition and the decision to fully consolidate, is this a change in the approach of Galp in renewables in particular, how should we think about the ownership structure going forward in renewables and its intention to still reduce your stake over time and if so over what timeframe do you think is likely and then a second question on Brazil, there was an €85 million write-off from exploration assets, maybe if you could just provide a little bit more detail about what those were and what else is left in that portfolio that could be impaired? Thank you.
Andy Brown
Hi, Joshua, I think the first thing says that our strategy hasn’t changed, we have taken 100% control of this asset, it is delivering significant cash flows at the moment, it is a position clearly that we’re enjoying. And there’s some additional debt that appears on our balance sheet, some €220 million. Now going forward, I think as you obviously outlined, we have a lot of flexibility. And that may include asset rotations may in turn, include deconsolidation again, but at this stage, I think we’re not giving any clear guidance on that. And I think when we come back to the market, we’ll create some clarity, what I can say is that we in control of this asset, have a lot more flexibility to actually unlock value for the shareholders. And in due course, we’ll see which levers whether they’re rotation, energy management, hybridization of those we will pull to extract even more value from these assets.
I’m going to hand over to Filipe to talk about the impairment, over to you, Filipe, no, Thore is going to do it, Thore, talk about Uirapuru impairment.
Thore Ernst Kristiansen
Okay. So, we have not made a commercial discovery in Uirapuru. That is the reason why we then decided to make the impairment in this quarter. There are still prospects in that license that we would like to explore, we have not aligned in the partnership when the next step will be, but we do see structures that could potentially be interesting. The current plan is therefore to do that ADR in Bacalhau North first that will enrich our understanding of the Northern part of Bacalhau and the northern, or the next door neighbor to the Northern part of Bacalhau is actually the license. So, that is why we take it in sort of a step by step approach, first figuring out Bacalhau North and then the partnership will decide what would be the next step for Uirapuru and its license. Thank you.
Joshua Stone
Thank you.
Operator
Thank you, Joshua. Now we’re going to take our next question. Please stand by. The next question comes from the line of Henri Patricot from UBS. Please ask your question.
Henri Patricot
Yes, thanks for taking my questions. One on the downstream and then one on CapEx on the downstream product on this question around with falling margins, can you comment on what you are seeing on demand in your own retail network is in much of an impact from higher prices of not so much funding and secondly just on CapEx guidance for the full-year change to €1 billion despite the acquisition. Can you talk about some of the moving parts offsetting the acquisition there? Thank you.
Andy Brown
So I’m going to first ask Thore to talk a bit about what we see in the oil demand side. I think one thing to say is that with year-on-year, I think we’re 22% up but we’re still a bit shy of 2019. Teresa will give a bit of a color on what we see in the demand side of the business?
Teresa Abecasis
Yes, we definitely see, and thanks for the question. We definitely see an increase in overall increase in demand versus last year and that is coming mostly from the B2B segment aviation with very, very high volumes and marine banking also, with very high volumes. On the retail side, we do observe as a slightly different picture. So, volumes are not picking up as much as in the B2B segment. Still, we see improvements coming. And it depends, geography by geography as we’ll be seeing improvements coming.
Andy Brown
So I’m going to ask Filipe to talk a bit about the CapEx. I think we spent €365 million in the first-half, but a €1 billion for the year, we think, Filipe?
Filipe Crisóstomo Silva
No change in guidance, despite bringing the whole of Titan on board. And the reason is, we were not planning on having project finance on our CapEx in Titan this year anyways, so the only difference is, the 25% share goes up. But we have other areas of Galp where we are having timing, phasing of payments will likely move to the right. So, this gives us cushion to absorb the original guidance of €1 billion. Thank you.
Henri Patricot
Okay, thank you.
Operator
Thank you, Henri. Now we’re going to take our next question. Please stand by. Our next question comes from the line of Giacomo Romeo from Jefferies. Your line is open. Please ask your question.
Giacomo Romeo
Yes, thank you and good afternoon. Two questions for me. The first one is there has been some headlines regarding a potential for windfall tax in Brazil, just wanting to get sort of your view on the likelihood of something happening before elections and how do you think this would shape? And second question is about Coral FLNG. You said you expected first carbon Q4, just going to have a view of your latest view on the timeline to get to capacity level of liquefaction there. And when do you expect this to happen? And finally, if I may add a squeeze a third one is just wondering if you can quantify the impact from your discount offering on retail customers and whether until when you expect this to continue. Thank you.
Andy Brown
Thanks. On the windfall tax, I think clearly it’s something that’s talked a lot and there have been word discussions actually earlier on this year in Brazil, and those in draft legislations we never put through. So, we at this stage, we can never say never but it’s now only a few months elections. We’re not expecting that to pass through Congress. Clearly, we’re going to keep an eye on that going forward. But obviously as we make more money in Brazil, taxes go up, our taxes have doubled, as well as our revenue to the upstream business. It’s probably good for Thore. Obviously we’re not the operator I have to say E&I is doing a fabulous job on Coral. Some of Galp employees are also working hand in hand with E&I but so, Thore do you want to give a little bit about where we are and what we can say about the progress but it has been impressive.
Thore Ernst Kristiansen
Really, remember this, we FID this in 2017, first gas came into the facility on the 18th of June, virtually exactly 60 months after the FID. Now the commissioning, final commissioning is going on for the LNG factory. Actually, as we speak the defrosting has started which isn’t very exciting part of the commissioning, but it looks still good. And that’s why we expect first cargoes in latest by the fourth quarter. We expect to be at plateau during the course of next year. So, if this ramp-up now go according to plan. So, still very, very healthy and very robust product in this market environment, very good.
Andy Brown
Teresa, do you want to say something about discounts and I think I have to stress this is for our loyalty customers, this isn’t a general discount across all our employees, but Teresa?
Teresa Abecasis
Yes, sure. Yes, given the highly pressured current price environment, it is important that we support our clients and alleviate some of the strain that has been put upon them by a very volatile context and as such, we have indeed launched some campaigns within our loyalty programs namely with our key retail partners in Portugal and this offers a top up of discounts of $0.04, so it goes into the $0.14 per liter which is a very good value proposition for our customers, in Spain, we’re also launching summer discount promotions aiming at acquiring new customers and also activate and retain existing clients during the summer, there’s discounts can add up to $0.25 per liter. So, just one final note that the B2B recovery, that more than compensates in terms of the margin that we’re generating in the business.
Operator
Thank you, Giacomo. Now we’re going to take our next question. Please stand by. The next question comes from the line of Raphael Dubois from Société Générale. Please ask your question.
Raphael Dubois
Good afternoon, thank you for taking my questions. The first one is about [indiscernible]. I understand you’re still analyzing the results of the drilling. But is there any chance you could already share with us some of what you already know? I guess if you encountered hydrocarbons, you should at least already know that. So, that will be my first question. And then on the dividends to non-controlling interest, I note that it dropped from €110 million to just €1 million in Q2, can you also maybe give us some idea of what it will look like for the next few quarters, is this a drop in Q2, is this something that was planned, is this due to a special skitter of payment to Sinopec or is this because of the Bacalhau spending?
Andy Brown
Okay, can I ask Thore to talk about that?
Thore Ernst Kristiansen
Yes, thank you, Raphael. So, the rig is still on location in some time. So, we are finishing now, very comprehensive data acquisition program that we’ve had there. And what I can tell you is that yes, we are analyzing the data and I will not conclude anything or communicate anything before we have done a really proper and thorough job there and aligned in the partnership and this is of course, very exciting, it is completely frontier area. So, we need also to be very careful to make sure that we spend enough time, so we really also understand what we have acquired. But I can tell you we have had a big acquisition of data that has been acquired and which we know will use some time to analyze. Thank you.
Andy Brown
Thank you, Thore and perhaps I will ask Filipe to give a bit of a color to the dividends on minorities, particularly Sinopec through the year?
Filipe Crisóstomo Silva
Raphael, I would not read much into the timings. So, we usually pay in Q1 and then late in the year we see how the year is going in Brazil. And we adjust dividends. So, we had budgeted some €200 million for 2022 of payments to Sinopec given the macro, this could go up but it was never meant to be done in Q2. So, it could be Q3, Q4 to be decided. Thank you.
Raphael Dubois
Thank you.
Operator
Thank you, Raphael. Now we’re going to take our next question. Please stand by. The next question comes from the line of Pedro Alves from CaixaBank. Please ask the question.
Pedro Alves
Hi, good afternoon. Thank you for taking my question. The first one on Upstream, we have seen some players closing or at least analyzing disposals in their upstream businesses, so would you consider crystallizing value with these points of the cycle because portfolio management in upstream was something that you have flagged [indiscernible] say one year ago, and the price or the valuation context perhaps more appealing now? And so, your thoughts on this topic would be helpful. Then the second question regards working capital evaluation for the full-year, given your commodity price now, what is your base case for working capital? Thank you.
Andy Brown
Thank you, Pedro. So, you will excuse me not to say too much about upstream disposals. Clearly, we have guided that it is something that we will continue to look at. And so, I think that’s all we want to say at this stage about that. When it comes to working capital, I think as you have seen in our numbers, there was a working capital build of €1.1 billion just really from our stock and inventory position this year. Clearly, you take that away from net debt and then you are getting even better numbers. But, really what we assume in terms of the end of the year of any working capital release, this in addition to the €630 million we have on margin account. So, we can expect quite lot of working capital to come back certainly versus the end of Q2.
Thore Ernst Kristiansen
We do, Pedro. So, we have two components. You have the margin accounts related to the hedges €630 million, June 30. This would turn to zero by yearend. And then, you have the fundamental working capital that is client receivables and inventories. And this is highly dependent on the Brent prices. So, if Brent prices correct downwards, we should see a meaningful adjustment downwards of our working capital balances on top of the margin account releases. Thank you.
Pedro Alves
Thank you.
Operator
Thank you, Pedro. Now we are going to take for next question. Please standby. And the next question comes from the line of Alejandro Demichelis from Nau Securities. Your line is open. Please ask your question.
Alejandro Demichelis
Yes, good afternoon. Just one very quick question, could you please update us on how you are seeing the development of the Bacalhau FPSO in terms of timing and also in terms of the cost?
Andy Brown
Thank you, Alejandro. Thore, this is on P1.
Thore Ernst Kristiansen
Thank you, Andy, and thank you, Alejandro. So, the product is going quite well. The major construction is taking place in China. We have had some issues — the product is going quite well. The major construction is taking place in China. We’ve had some issues in China with respect to COVID and very strict closedowns that has been put in place from time to time. So, there is this slight delay. Still the latest forecast is that we will still see first oil in 2024, so, overall, quite good. And the cost side, there is good control. The major cost positions has been lump sum contract. So, at least from the time being there is a good control on the cost side in the product. Thank you.
Alejandro Demichelis
Thank you. And just as a quick follow-up. From what you are saying, then we should expect kind of late 2024, is that what you are saying?
Thore Ernst Kristiansen
So, what we have said is the second-half of 2024 and that’s what you should continue to expect. Thank you.
Alejandro Demichelis
Thank you.
Operator
Thanks, Alejandro. Now we are going to take our next question. Please standby. The next question comes from the line of Matt Lofting from JPMorgan. Your line is open. Please ask your question.
Matt Lofting
Thanks for taking the questions. Two quick ones if I could plus a piece first on hedging business is effectively getting up some of its strong leverage to higher oil and refining at the moment through the hedging positions they are on particularly given the clear potential to deleverage the business under prevailing macro conditions. Could you just talk a bit about the philosophy around hedging here, and triggers, and whether investors should expect further opportunistic hedging mechanisms to be entered into 2023, and beyond? And then second, if I could just sort of come back on the distribution policy and just clarify there, you — I think you were in the context of talking about the working cap and margin releases earlier, the potential for in the region of sort of €500 million of buybacks for calendar year ’23, I think Filipe mentioned earlier it — that sort of derived primarily from the underlying OCF generation, rather than headline CFFO inclusive of those effects, if I understand correctly? Thank you.
Andy Brown
Thank you, Matt. And I’ll — look, I’ll again ask Filipe to say a little bit about — of our hedging strategy and what to expect for 2023. On the distributions in working capital, I just — also, he might talk about that, but just want to stress we didn’t move from a working a third of — a third of CFFO to a third of OCF, basically because we wanted to take the big swings in working capital out of that distribution framework.
But Filipe, a bit on hedging and what to expect going forwards?
Filipe Crisóstomo Silva
So, given the extraordinary volatility that we’ve seen in 2022, really unprecedented, yes, we did have a lot of hedging noise in our numbers. So, the one thing that we will do differently, going forward, is that we will be using options and not swaps, so that we would be, if we take a decision, and you ask about the philosophy behind this. So, if we take a decision, sometime in the future, to protect some of the downsides on Brent, which is really what moves the needle at Galp, then it would be done through options. So, we would invest in premiums, and we protect the downside without giving up any of the upside. Thank you.
Operator
Thank you, Matt. Now, we’re going to take our next question, please standby. And the question comes from the line of Ignacio Domenech from JB Capital. Please ask your question.
Ignacio Domenech
Yes, good afternoon, and thank you for taking my questions. My first question is on the refining gas cost in the second quarter, we saw refining gas costs going down on the insurance receivable. But at the same time, for FY’22, you are guiding towards $2.00 per barrel which would imply a significant increase during the second-half. So, if you could provide us some light here?
And then on — my second question is on Namibia, it’s exciting to Galp going forward with the exploration campaign there. So, it would be interesting if you could let us or give us an idea of what should we expect, we should expect Galp to lead the exploration from an operator’s perspective or is Galp looking to hand down your stake in the two license or in two blocks in Namibia? Thank you.
Andy Brown
Thank you, Ignacio. So, I’m going to ask Filipe, actually, to tell us a little bit about the refinery cash costs, and what this insurance receivable was. And then I’ll ask Thore to talk a bit about Namibia and the exploration prospect there.
Filipe Crisóstomo Silva
Ignacio, you’ll recall we did have an incident in the refinery late last year, so the OpEx this quarter looks artificially low because there is €10 million-€15 million of insurance collection. We continue to guide to $2.00 per barrel as recurring fundamental OpEx. Thank you.
Thore Ernst Kristiansen
And, Ignacio, what I can tell you regarding Namibia is that we really like our ZIP Code in Namibia, I think we have a good address and a good location. Actually, the Galp team has been quite persistent in Namibia. We have been there since 2014, and we have built three drywells in Namibia. But I think we, through those three drywells, learned something about where there could be an additional potential; so, quite excited. Next step for us now is to de-risk this further, and that would be by drilling a well. So, our target is to drill an exploration well there during 2023 or 2024, that’s really where we’re going to focus right now.
Operator
Thank you, Ignacio. Now, we’re going to take our next question, please standby. Our next question comes from the line of Jason Kenney from Santander. Please ask your question, your line is open.
Otelo Ruivo
Jason, please go ahead.
Operator
Jason, your line is open.
Otelo Ruivo
Operator, I think we need to move to the next one, if you don’t mind.
Operator
Yes, of course, thank you very much. We’re going to take the next question, please standby. The next question comes from the line of Mehdi Ennebati from Bank of America. Please ask your question.
Mehdi Ennebati
Yes, hi, again. Thanks for taking my additional question. Just yesterday I was reading that there were some issues regarding the pipeline connecting Algeria to Spain. And I wanted to know if you would share some gas sourcing issue today because of that? And what are the measures that you could take if this lasts for quite some time? Thank you.
Andy Brown
At the moment we — there’s nothing to report there, Mehdi, from our side in terms of gas sourcing through — from Algeria. Of course, the line from Morocco into Spain is actually — has not been flowing at all since earlier this year. But we haven’t got any notification of an issue with gas supplies from Algeria.
Mehdi Ennebati
All right, okay. I think it was an operational issue at some compressor units in Spain that are all right. No worries, maybe it’s not that important. Thank you very much.
Operator
Thank you. And now we are taking our last question, please standby. And the last question comes from the line of Raphael Dubois from Société Générale. Your line is open, please ask your question.
Raphael Dubois
Thank you very much. Two quick follow-ups, I noticed that you’ve received €9 million of dividends from associates in Q2. Could you please confirm that it’s coming from the solar JV may be? And also, on the buyback, what sort of visibility do you have on who participates? When could we know whether Amorim Energia is participating? Thank you.
Andy Brown
Raphael, I’m going to ask Filipe to answer both these questions.
Filipe Crisóstomo Silva
Yes, Raphael, so we have the Titan dividend payments. We also have a bit of our Brazilian JV related to biofuels that is also paying dividends. On the buyback, we have no visibility, nor do we seek to have any visibility. So, we have contracted a bank to do this for us, they don’t — so they intervene in the market without actively seeking specific sources of shares or price influence. So, we have no visibility from any shareholder on who is selling and what their intentions are. Thank you.
Otelo Ruivo
So, I think this was the last question. So, thank you all for participating on the Q&A session. We hope it was a useful one for all of you. Do reach out to our IR team if there some additional clarification needed from our side.
So, to conclude, I would just like to wish you all the best for the rest of the earnings season, and hope it is followed by a great summer holiday. Hope to see you all in person after the break.
Operator
That does conclude the conference for today. Thank you for participating. You may all disconnect.
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