The macroeconomic environment has progressively improved during the first half of 2021 due to an effective vaccination campaign against Covid-19 in USA, UK and in the countries of Northwestern Europe, allowing for the gradual reopening of the economies and the recovery of the production activities.
The strong performance of the Chinese GDP has strengthened the business cycle. In this context, oil demand rebounded significantly from the depressed level recorded during the pandemic peak in the second quarter of 2020.
In the first half of 2021, oil prices increased 60% compared to the same period of 2020, also supported by the production management carried out by OPEC+ and by financial discipline of the international oil companies that maintained their investments at the levels of 2020. These developments have underpinned the significant improvement in the consolidated results of the Eni Group in the first half of 2021. The Group earned a profit of €1,103 million compared to a loss of €7,335 million of the first half of 2020, while the cash flow from operating activities increased by 72.1% to €4,093 million.
However, the economy and consumer behavior have not yet returned to pre-pandemic normalcy as highlighted by the slow recovery in the airline sector, while downside risks are still lingering of the possible spread of new virus variants that can derail the growth trend of economies and the recovery of the global energy demand. Some operating segments of the Group have continued to face a difficult market environment, particularly the refining business which performance was affected by weak demands for jet fuel which led to an excess of supply in middle distillates and a significant deterioration of product spreads with respect to cost of crude oil with refining margins at historic lows, not seen even during the most severe phase of the pandemic. Based on a depressed refining scenario and higher compliance costs for the purchase of emission allowances, management has revised the profitability outlook of the refining assets with the recognition of write-downs of about €900 million.
Management confirms a conservative and selective financial framework in making investment decisions and continues to favor the preservation of the balance sheet in the cash allocation policy against a more constructive macro-backdrop compared to the beginning of the year or the corresponding period a year ago. Overall, the measures implemented in 2020, consisting in containing capital expenditures and reducing costs to counter the effects of the pandemic, allowed the Group to fully benefit from the recovery of the oil scenario with the exception, as highlighted, of the refining activity.
The improvement in the Company's fundamentals, the robustness of the balance sheet, growth in cash flow after funding capital expenditures and the prospects of the oil market and the Group performance for the reminder of the year allow the management to significantly increase the cash returns to the shareholders in a Brent scenario of $65/bbl based on the Eni’s Remuneration Policy. The Company is planning for an annual dividend of €0.86 per share, of which 50% will be paid as interim in September; also a share buy-back program of €400 million will be activated over the next six months.
Source: CONSOLIDATED INTERIM FINANCIAL STATEMENTS 2021 - NOTES ON FINANCIAL STATEMENTS
Notes of Interim Consolidated Report as of June 30, 2021 (page 68)