- FINANCE, STRATEGY AND REPORTING
- ● PRICE SENSITIVE
Rome, April 27, 2011 – Eni, the international oil and gas company, today announces its group results for the first quarter of 20111 (unaudited).
Paolo Scaroni, Chief Executive Officer, commented:
"In the first quarter of 2011, marked by the Libyan events, Eni delivered a solid set of financial results on the back of a favourable oil price environment. In spite of ongoing uncertainties regarding resumption of our activities in Libya, the profitability and growth outlook for our Company has remained positive underpinned by a sound financial position, the quality of our asset portfolio, and a strong projects pipeline".
(1) This press release represents the quarterly report prepared in compliance with Italian listing standards as provided by article 154-ter of the Italian code for securities and exchanges (Testo Unico della Finanza).
SUMMARY GROUP RESULTS
Adjusted operating profit (a)
Net profit (b)
- per share (€) (c)
- per ADR ($) (c) (d)
Adjusted net profit (a) (b)
- per share (€) (c)
- per ADR ($) (c) (d)
(a) For a detailed explanation of adjusted operating profit and net profit see paragraph "Reconciliation of reported operating and net profit to results on an adjusted basis" page 21.
(b) Profit attributable to Eni's shareholders.
(c) Fully diluted. Dollar amounts are converted on the basis of the average EUR/USD exchange rate quoted by the ECB for the periods presented.
(d) One ADR (American Depositary Receipt) is equal to two Eni ordinary shares.
Adjusted operating profit
Adjusted operating profit was €5.13 billion, up 18.4% from the first quarter of 2010. This was due to a better operating performance reported by the Exploration & Production Division (up 32.1%) on the back of stronger oil prices. The Engineering & Construction Division reported a strong performance. The Petrochemical Division also improved versus a year ago as operating losses were substantially cut. These positive trends were partially offset by poor performance reported by the Refining & Marketing Division due to high costs for oil feedstock which were only partially transferred to refined product prices and the Gas & Power Division which was affected by weaker margins on gas sales.
Adjusted Net Profit
Adjusted net profit was €2.22 billion, up 21.6% compared with a year ago, as a result of better operating performance and a decreased adjusted tax rate (from 53% to 50.5%).
Capital expenditure for the quarter amounted to €2.87 billion mainly related to continuing development of oil and gas reserves, the construction of rigs and offshore vessels in the Engineering & Construction segment and the upgrading of gas transport infrastructure.
Net cash generated by operating activities amounted to €4.19 billion and were used to fund capital expenditure (€2.87 billion) as well as pay down net borrowings2 which was down by €1.17 billion from December 31, 2010, to €24.95 billion. Cash flow from operating activities was negatively affected by a lower cash inflow of €347 million associated with transferring trade receivables due beyond end of 2010 to factoring institutions amounting to €1,279 million in the fourth quarter 2010, while the current quarter benefitted from transferring €932 million of trade receivables due beyond March 31, 2011 to those institutions.
Return on Average Capital Employed (ROACE)3 calculated on an adjusted basis for the twelve-month period ending on March 31, 2011, was 11.4%. The ratio of net borrowings to shareholders' equity including non-controlling interest – leverage3 – decreased to 0.44 at March 31, 2011, from 0.47 as of December 31, 2010. This change was due to profit for the period and reduced net borrowings, notwithstanding the appreciation of the euro against the US dollar as recorded at March 31, 2011, vs. December 31, 2010 (up 6.4%) which reduced shareholders'equity by €1.9 billion.
(2) Information on net borrowings composition is furnished on page 28.
(3) Non-GAAP financial measures disclosed throughout this press release are accompanied by explanatory notes and tables to help investors to gain a full understanding of said measures in line with guidance provided for by CESR Recommendation no. 2005-178b. See pages 29 and 28 for leverage and ROACE, respectively.
Fourth Quarter 2010
Production of oil and natural gas (a)
- Natural gas
Worldwide gas sales
of which: E&P sales in Europe and the Gulf of Mexico
Retail sales of refined products in Europe
(a) Production of oil and natural gas has been expressed on the basis of the updated natural gas conversion factor of 5,550 cubic feet of gas per barrel of oil equivalent.
Exploration & Production
Eni reported liquids and gas production of 1,684 kboe/d for the first quarter of 2011, down by 8.6% from the first quarter of 2010 (down 158 kboe/d). The magnitude of this reduction was the result of the shutdown of activities at several of Eni's producing sites in Libya and the closure of the GreenStream pipeline transporting gas from Libya to Italy which occurred on February 22, 2011, as a result of ongoing political instability and conflict in the Country. From April 2011, Eni production in Libya has been flowing at a level of 50-55 kboe/d and with the full supply supporting local production of electricity. Performance in the quarter was negatively impacted by lower entitlements in the Company's PSAs due to higher oil prices with an overall effect of 32 kboe/d compared to the year-earlier quarter, in addition to the above mentioned Libyan shutdown that caused a production loss of 129 kboe/d compared to the first quarter of 2010. These negatives were partly offset by continuing production ramp-up in Egypt, Iraq and Italy.
Gas & Power
Eni's worldwide natural gas sales recovered from the first quarter of 2010 (up 6% to 32.33 bcm). Sales on the Italian market increased by 10.2% due to client additions in the industrial, power generation and wholesale segments as well as higher volumes supplied. In Europe, Eni sales showed growth in all of the Company's major markets (up by 14.2% on average), excluding Belgium as a result of strong competitive pressures. Turkey, France, the Iberian Peninsula and Germany/Austria were the markets posting the largest increases. Sales to shippers which import gas to Italy decreased by 42.5%. This was due to lower availability of Libyan production and lower volumes purchased.
Refining & Marketing
The marker Brent margin decreased by 27.5% from the first quarter of 2010 (down $0.66 per barrel) as high costs for oil feedstock were only partially transferred to refined products prices due to weak underlying fundamentals (sluggish demand and excess capacity). Eni' s margins performed better than the market benchmark as a result of a good performance registred by Eni's complex cycles on the back of widened sweet-sour crude differentials, also due to lower availability of Libyan oil in the Mediterranean area, as well as higher pricing premiums on gasoline and gasoil compared to fuel oil. Eni's refining margins were also supported by optimization and integration efforts.
The exchange rate of the euro vs. the US dollar for the period was on average nearly unchanged (down by 1.2%) affecting marginally the results of the quarter.
In April 2011, Eni reached an agreement with Cadogan Petroleum plc for the acquisition of an interest in two exploration and development licences located in the Dniepr-Donetz basin, in Ukraine. This agreement is part of the development of cooperation initiatives in hydrocarbon exploration and production in the Country also reaffirmed in a Memorandum of Understanding with the Ukrainian Ministry of Ecology and Natural Resources.
In February 2011, production start-up was achieved at the Nikaitchuq operated field (Eni 100%), located in the North Slope basins offshore Alaska, with resources of 220 million barrels. Production is expected to peak at 28 kbbl/d.
In January 2011, Eni signed a Memorandum of Understanding with CNPC/PetroChina to promote common opportunities to jointly expand operations in conventional and unconventional hydrocarbons in China and outside China. The parties will also cooperate in the field of advanced technology, with a special focus on the exploitation of unconventional oil and gas resources.
In January 2011, Eni was awarded rights to explore and the operatorship of offshore Block 35 in Angola, with a 30% interest. The agreement foresees drilling 2 wells and 3D seismic surveys to be carried out in the first 5 years of exploration. This deal is subject to the approval of the relevant authorities.
In the first quarter of 2011, significant exploratory success was achieved in:
(i) Ghana with the appraisal well Sankofa-2 in the offshore license Cape Three Points (Eni 47.22% , operator);
(ii) the Norwegian sector of the Barents Sea with the Skrugard oil and gas discovery in the PL532 license (Eni 30% );
(iii) Venezuela with the Perla 4 appraisal well of the homonymous discovery in the Cardon IV offshore block (Eni 50%, operator);
(iv) United Kingdom with the appraisal of the Culzean discovery (Eni 16.95%).
Management expects that the global economic recovery will progressively strengthen across the year 2011. Nonetheless, the 2011 outlook is characterized by a certain degree of uncertainty and volatility also in light of ongoing political instability and conflict in Libya. Eni forecasts an upward trend for Brent crude oil prices supported by healthier global oil demand. For short-term economic and financial projections, Eni assumes an average Brent price of 101 $/bbl for the full year 2011. Management expects that the European gas market will remain weak as sluggish demand growth is insufficient to absorb current oversupplies. Refining margins are expected to remain unprofitable due to weak underlying fundamentals and high feedstock costs. Against this backdrop, management expectations about the main trends in the Company's businesses for 2011 and beyond are disclosed below.
- Production of liquids and natural gas is forecast to decline from 2010 (1.815 million boe/d was the actual level in 2010 at 80 $/bbl) at the Company's pricing scenario of 101 dollar a Brent barrel for the full year. The decline is expected as a result of volumes losses in Libya following the shutdown of almost all of the Company's production facilities. Better production performance at the Company's assets elsewhere in the world will help offset the impact associated with rising crude oil prices on PSAs entitlements. The magnitude of the Libyan production loss will depend on how long the situation lasts, which management cannot predict for the time being. From April 2011, Eni's production in Libya has been flowing at the rate of 50-55 kboe/d, down from the expected level of 280 kboe/d for the year. Management estimates that each day in which production remains at current levels will cause a reduction of approximately 600 boe/d in the full-year average daily production. Management has been implementing its plans to target production growth in the Company' assets by ramping up fields that were started in 2010, growing the production plateau at the giant Zubair oilfield in Iraq, starting up new fields in Australia, Algeria and the US, as well as executing production optimizations in particular in Nigeria, Egypt, Angola and the United Kingdom;
- Worldwide gas sales are expected to grow from 2010 (in 2010 actual sales amounted to 97.06 bcm), in spite of sales losses to certain Italian importers due to lower availability of gas from Libya. Management plans to drive volume growth in Italy leveraging clients additions in the power generation, industrial and wholesale segments, as well as organic growth in key European markets. Considering mounting competitive pressure in the gas market, the achievement of the planned volumes target will be underpinned by strengthening the Company's leadership on the European market; marketing actions intended to strengthen the customer base in the domestic market and renegotiating the Company's long-term gas purchase contracts. The cash flow impact associated with lower sales to Italian shippers will be offset by expected lower cash outflows associated with the Company's take-or-pay gas purchase contracts as the Company is planning to meet lower availability of Libyan gas with gas from other sources in its portfolio;
- Regulated businesses in Italy will benefit from the pre-set regulatory return on new capital expenditures and continuing efficiency actions;
- Refining throughputs on Eni's account are expected to slightly decline compared to 2010 (actual throughputs in 2010 were 34.8 mmtonnes). The decline is mainly expected at the Venice refinery due to difficulties in supplying Libyan crude oil. Higher volumes are expected to be processed on more competitive refineries and the optimization of refinery cycles, as well as efficiency actions, are expected to be implemented in response to a volatile trading environment;
- Retail sales of refined products in Italy and the rest of Europe are expected to be substantially in line with 2010 (11.73 mmtonnes in 2010) against the backdrop of weaker demand. Management plans to improve sales leveraging selective pricing and marketing initiatives, starting new service stations, developing the "non-oil" business and service upgrade;
- The Engineering & Construction business confirms solid results due to increasing turnover and a robust order backlog.
In 2011, management plans to make capital expenditures broadly in line with 2010 (€13.87 billion was invested in 2010) and will mainly be directed to developing giant fields and starting production at new important fields in the Exploration & Production Division, refinery upgrading related in particular to the realization of the EST project, completing the program of enhancing Saipem's fleet of vessels and rigs, and upgrading the natural gas transport infrastructure. Assuming a Brent price of $101/barrel and the planned divestment of certain assets, management forecasts that the ratio of net borrowings to total equity (leverage) at year-end will be lower than in 2010.
This press release for the first quarter of 2011 (unaudited) provides data and information on business and financial performance in compliance with article 154-ter of the Italian code for securities and exchanges ("Testo Unico della Finanza" – TUF). Results are presented for the first quarter of 2011 and the first quarter and the fourth quarter of 2010. Information on liquidity and capital resources relates to end of the period as of March 31, 2011, and December 31, 2010. Tables contained in this press release are comparable with those presented in the management's disclosure section of the Company's annual report and interim report. Quarterly accounts set forth herein have been prepared in accordance with the evaluation and recognition criteria set by the International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB) and adopted by the European Commission according to the procedure set forth in Article 6 of the European Regulation (CE) no. 1606/2002 of the European Parliament and European Council of July 19, 2002. The evaluation and recognition criteria applied during the preparation of this report for the first quarter of 2011 results are unchanged from those adopted for the preparation of the 2010 Annual Report.
Investors are urged to see section "Summary of significant accounting policies" in the notes to 2010 Consolidated Financial Statements.
Non-GAAP financial measures and other performance indicators disclosed throughout this press release are accompanied by explanatory notes and tables to help investors gain full understanding of said measures in line with guidance provided by recommendation CESR/05-178b.
Eni's Chief Financial Officer, Alessandro Bernini, in his position as manager responsible for the preparation of the Company's financial reports, certifies pursuant to rule 154-bis paragraph 2 of Legislative Decree no. 58/1998, that data and information disclosed in this press release correspond to the Company's evidence and accounting books and records.
This press release, in particular the statements under the section "Outlook", contains certain forward-looking statements particularly those regarding capital expenditures, development and management of oil and gas resources, dividends, allocation of future cash flow from operations, future operating performance, gearing, targets of production and sales growth, new markets, and the progress and timing of projects. By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that will or may occur in the future. Actual results may differ from those expressed in such statements, depending on a variety of factors, including the timing of bringing new fields on stream; management's ability in carrying out industrial plans and in succeeding in commercial transactions; future levels of industry product supply; demand and pricing; operational problems; general economic conditions; political stability and economic growth in relevant areas of the world; changes in laws and governmental regulations; development and use of new technology; changes in public expectations and other changes in business conditions; the actions of competitors and other factors discussed elsewhere in this document. Due to the seasonality in demand for natural gas and certain refined products and the changes in a number of external factors affecting Eni's operations, such as prices and margins of hydrocarbons and refined products, Eni's results from operations and changes in net borrowings for the first quarter of the year cannot be extrapolated on an annual basis.