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Financial news, results and Strategic Plan

Eni announces the results for the first quarter of 2012

27 April 2012 8:00 AM CEST

Financial Highlights

  • Adjusted operating profit: up 27% to €6.45 billion
  • Adjusted net profit: up 13% to €2.48 billion
  • Net profit: up 42% to €3.62 billion
  • Cash flow: €4.19 billion


Operational Highlights

  • Oil and natural gas production: down 0.6% to 1.674 mmboe/d. Excluding the impact of price effects, production was up by 0.2%
  • Natural gas sales: down 5.3% to 30.61 billion cubic meters affected by weak demand
  • New, relevant exploration success in Mozambique with Mamba North East 1 discovery
  • Signed a strategic agreement with Rosneft in the Russian upstream offshore the Barents Sea and the Black Sea
  • Started production at the giant Samburgskoye in Siberia
  • Agreed the revision of the gas supply contracts with Gazprom
  • Reached the agreements to start the divestment of Galp Energia
  • Signed a contract for the exploration of one of the most attractive offshore basins in China
  • Continuing exploration success in the Barents Sea

 

Paolo Scaroni, Chief Executive Officer, commented:
"In the first quarter of 2012, Eni delivered excellent results thanks to the ongoing recovery of production in Libya and higher oil prices, despite the difficult market environment facing Gas & Power, Refining & Marketing and the Chemical sector. During the period, we successfully renegotiated our supply contracts with Gazprom. In exploration, we have continued to deliver strong results with further important discoveries in Mozambique and in the Barents Sea. I'm very pleased with the agreement we have recently signed with Rosneft as it underpins our exploration opportunities for many years to come, further boosting our prospects for longterm growth".

(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).

Financial Highlights
Fourth Quarter 2011SUMMARY GROUP RESULTS(€ mln)First Quarter% Ch.
20112012
3,483

Operating profit

 5,6386,83421.2
4,259

Adjusted operating profit (a)

 5,0996,45226.5
1,289

Net profit (b)

 2,5473,61742.0
0.36

- per share (€) (c)

 0.701.0042.9
0.97

- per ADR ($)(c)(d)

 1.912.6237.2
1,540

Adjusted net profit (a)(b)

 2,1982,48012.8
0.43

- per share (€) (c)

 0.610.6811.5
1.16

- per ADR ($) (c)(d)

 1.671.786.6

(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 22.
(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
In the first quarter of 2012, adjusted operating profit was €6.45 billion, up 26.5% from the first quarter of 2011. This was due to a better operating performance registered by the Exploration & Production Division (up 23.8%) driven by a robust oil price environment and an ongoing production recovery in Libya. The increased results of the Gas & Power Division (up 57%) were due to the stronger results posted by the Marketing activity which was driven by the economic benefits associated with the renegotiations of the gas supply contracts, some of which were renegotiated with retroactive economic benefit to the beginning of 2011. In addition, the Division benefited from an improved supply mix due to the recovery of Libyan supplies. These positives were partly offset by a slowdown in demand across Italy and Europe and rising competitive pressures, which squeezed unit margins. The Refining & Marketing Division and the Chemical segment both reported wider operating losses driven by rising supply costs for oil feedstock which were only partially transferred to product prices pressured by weak demand trends on their respective market outlets.

Adjusted net profit
In the first quarter of 2012, adjusted net profit was €2.48 billion, up 12.8% compared with a year ago, as a result of better operating performance. This positive effect was partly offset by higher finance charges (down €207 million) and higher consolidated tax rate (up approximately 6 percentage points) due to an increasing taxable profit earned by the Exploration & Production subsidiaries which incurred higher-than-average tax rates as well as a changed tax regime for certain Italian subsidiaries. This occurred as a result of the Italian budget law enacted in August 2011 which increased the Italian windfall tax levied on energy companies (the so-called Robin Tax) by 4 percentage points to 10.5% and enlarged its scope to include gas transport and distribution companies.

Capital expenditure
Capital expenditure for the first quarter amounted to €2.87 billion mainly related to continuing development of oil and gas reserves, the upgrading of rigs and offshore vessels in the Engineering & Construction segment and the upgrading of gas infrastructures. The Group also incurred expenditures of €0.25 billion to finance the acquisition of Nuon Belgium and joint venture projects.

Cash flow
Net cash generated by operating activities amounted to €4.19 billion, which was used to fund the financing requirements associated with capital expenditure and investments, and to pay down net borrowings2 which were down by €0.61 billion from December 31, 2011 to €27.43 billion. Cash flow from operating activities benefited from a larger amount of trade receivables due beyond the end of the reporting period transferred to financing institutions (up by €329 million).

Financial Ratios
The ratio of net borrowings to shareholders’ equity including non-controlling interest – leverage3 – decreased to 0.43 at March 31, 2012 from 0.46 as of December 31, 2011. Return on Average Capital Employed (ROACE)3 calculated on an adjusted basis for the twelve-month period ending on March 31, 2012 was 10% (vs. 11.4% as of March 31, 2011).

(2) Information on net borrowings composition is furnished on page 29.
(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 30 for leverage and ROACE, respectively.

Operational highlights and trading environment
Fourth Quarter 2011KEY STATISTICSFirst Quarter% Ch.
20112012
1,678

Production of oil and natural gas

(kboe/d)1,6841,674(0.6)
896

- Liquids

(kbbl/d)899867(3.6)
4,345

- Natural gas

(mmcf/d)4,3454,4803.3
25.47

Worldwide gas sales

(bcm)32.3330.61(5.3)
11.39

Electricity sales

(TWh)9.6812.2927.0
2.80

Retail sales of refined products in Europe

(mmtonnes)2.642.53(4.2)


Exploration & Production
In the first quarter of 2012, Eni reported liquids and gas production of 1,674 kboe/d, representing a small decrease from the first quarter of 2011 (down by 10 kboe/d, or 0.6%) due to lower production entitlements in the Company’s PSAs reflecting higher oil prices (down by approximately 14 kboe/d compared to the same quarter of the previous year). When excluding price effects, the production of the first quarter was marginally higher (up by 0.2%) driven by an ongoing recovery in Libyan production and start-up/ramp-up of new fields in Australia, Egypt and the United States. These positives were partly offset by the sale of interests in certain non strategic assets and limited unplanned production losses.

Gas & Power
In the first quarter of 2012, Eni’s worldwide natural gas sales fell by 5.3% to 30.61 bcm from the first quarter of 2011, due to weak demand and rising competitive pressure. Volumes marketed on the domestic market registered an appreciable increase (up 1.4%) reflecting higher spot sales at certain Italian daily exchanges and growing volumes marketed in the residential segment due to strong seasonal factors. These increases were partly offset by a steep decline in sales to the power generation segment affected by the higher competitiveness of coal and growing use of renewable sources, and to the wholesalers segment.
Eni’s sales volumes on the European market decreased by 5.5% reflecting increased competitive pressure and unfavourable weather conditions particularly in Benelux and the UK/Northern Europe (sales to hub), partly offset by higher sales in Germany/Austria, Turkey and France. Sales to importers to Italy experienced a substantial decrease (down 57.8%) due to the termination of certain supply contracts.

Refining & Marketing
In the first quarter of 2012, average European refining margins remained at unprofitable levels, notwithstanding a noticeable recovery from the same period of the last year (the benchmark margin on Brent crude averaged $2.92 per barrel in the quarter, up 67.8% from the first quarter of 2011 in the Mediterranean area). Ongoing trends in refining margins reflected weak industry fundamentals across Europe as high costs for oil feedstock were only partially transferred to refined products prices due to sluggish fuel demand and excess capacity. In addition, results for Eni's refining activities continued to be adversely impacted by rising costs of energy utilities indexed to oil prices and shrinking price differentials between light and heavy crudes. In the first quarter of 2012, Eni marketed lower volumes on its Italian retail network, down by 6.7%, reflecting weak fuel consumption. The Company implemented a number of commercial initiatives intended to preserve its market share which increased by 0.4 percentage points from last year to 30.4%. In the first quarter of 2012, retail sales in the European market increased by 2.9% mainly in Austria, Germany and Switzerland.

Currency
Results of operations for the first quarter of 2012 were positively impacted by the depreciation of the Euro vs the US dollar (down by 4.1%).

Portfolio developments

Mozambique
In March 2012, following the Mamba South and Mamba North discoveries, a new large exploration success was achieved in Mozambique with the discovery of Mamba North East 1 also located in Area 4. The discovery well encountered a reservoir which is estimated to hold a mineral potential of at least 10 Tcf of gas in place. The discovery further upgraded the potential of Area 4 to an estimated 40 Tcf of gas in place at least. For the year 2012, Eni plans to drill 4 additional wells in the Mamba complex to fully ascertain the mineral potential of the area.

Agreement with Rosneft
On April 25, 2012, Eni and Rosneft signed a strategic cooperation agreement to jointly develop exploration licenses in the Russian offshore of the Barents Sea and the Black Sea. Under the agreement, joint ventures (Eni 33.33%) will explore for and develop the Fedynsky and Tsentralno-Barentsvesky licenses offshore the Barents Sea and the Zapadno-Cernomorsky license offshore the Black Sea. These licenses are estimated to hold recoverable resources of 36 billion boe.

Gazprom
In March 2012, on the back of the existing strategic partnership, Eni and Gazprom signed an agreement renegotiating the terms of certain gas supply contracts. The recognition of the associated economic effects was retroactive to the beginning of 2011. The two partners also agreed a roadmap to start building the South Stream gas pipeline targeting a final investment decision by end of 2012.

Agreement for the divestment of interest in Galp
On March 29, 2012, Eni and the other relevant shareholders of the Portuguese company Galp Energia, Amorim Energia and Caixa Geral de Depositos SA, signed a number of agreements that amended the shareholders agreements currently in place between the three companies allowing Eni to commence the process of divesting its 33.34% interest in the Company.

The agreement provides for:

  1. the sale of Eni's 5% interest in Galp to Amorim Energia within 150 days from the signing of the agreements at a price of €14.25 a share;
  2. the right for Eni to sell up to 18% of Galp shares on the market (which could potentially increase by 2% if convertible bonds are issued);
  3. the sale of 5% of Eni’s interest in Galp (on the market or to Amorim) will trigger the termination of the shareholders' agreements currently in place;
  4. a pre-emption right granted to Amorim on the residual 10.34% shares of Galp owned by Eni through a combination of a call option on a 5% interest and a right of first refusal on the remaining 5.34%, or on the whole 10.34% in case Amorim does not exercise the call option.


Divestment of interest in Interconnector
On February 22, 2012, Snam and Fluxys G signed a preliminary agreement to purchase Eni's 16.41% interest in Interconnector (UK) Limited, its 51% interest in Interconnector Zeebrugge Terminal SCRL and its 10% interest in Huberator SA for a total consideration of €150 million. These companies own and operate the subsea gas pipeline that provides a bi-directional link between the UK (Bacton) and Belgium (Zeebrugge) hubs. IZT and Huberator are Belgian companies: IZT owns the Belgian compressor terminal at the Interconnector in Zeebrugge, and Huberator offers trading-related services in the Zeebrugge Gas Hub. The completion of the transaction is subject to certain conditions precedent and is expected to occur by the second half of 2012.

China
On April 2012, Eni and China National Offshore Oil Corporation (CNOOC) signed a Production Sharing Contract (PSC) for the exploration of Block 30/27, which has a high exploration potential and is located in one of the most attractive areas in the Chinese offshore. Eni will be the Operator of the project, with a 100% interest. In the case of a discovery, CNOOC has a back-in right of up to 51%.

Norway
In January 2012, Eni was awarded the operatorship of the PL657 license (Eni’s interest 80%) located in the Barents Sea near the Goliat operated field (Eni’s interest 65%). Any exploratory success will be supported by the existing facilities significantly reducing time-to-market.

In the first quarter of 2012, exploration activities yielded positive results in the PL532 license located in the Barents sea (Eni’s interest 30%) with the appraisal of the Skrugard oil and gas discovery and with the new Havis oil and gas discovery. The total recoverable reserves of the PL532 license are estimated at approximately 500 mmbbl. Both fields are planned to be put in production by means of a fast-track synergic development.

Main production start ups
At the beginning of April 2012, Eni started production at the Marulk field (Eni 20%, operator) located in the Norwegian offshore with a production that is expected to peak at approximately 20 kboe/d in 2012 (4 kboe/d, net to Eni).

In April 2012, Eni started production at the Samburgskoye field, in Siberia, with an expected peak production of approximately 43 kboe/d (14 kboe/d, net to Eni).

Incident in the North Sea
On March 25, 2012, a gas leak following a well operation occurred at a wellhead platform of the Elgin/Franklin gas field (Eni’s interest 21.87%) which is located in the UK North Sea. The field is operated by an international oil company which is taking all necessary steps to handle the situation. Eni is closely monitoring the situation to assess any possible liability which may arise from the incident.

Outlook

Eni expects the 2012 outlook to be challenging due to signs of a continuing economic slowdown, particularly in the euro-zone, and volatile market conditions. International oil prices will be supported by robust demand growth from China and other emerging economies, as well as ongoing geopolitical risks and uncertainties, partly offset by a recovery in the Libyan output. For short-term financial projections, Eni assumes a full-year average price of $113 a barrel for the Brent crude benchmark. Recovery perspectives look poor in the gas sector with gas demand expected to be soft due to slow economic activity and increasing competition from renewables; while the marketplace is well supplied. Against this backdrop, management expects ongoing margin pressures to continue in 2012 and reduced sales opportunities due to rising competition. Management foresees the persistence of a depressed trading environment in the European refining business. Refining margins are anticipated to remain at unprofitable levels due to high costs of oil supplies, sluggish demand and excess capacity. In this context, key volume trends for the year are expected to be the following:

- Production of liquids and natural gas: production is expected to grow compared to 2011 (in 2011 hydrocarbons production was reported at 1.58 million boe/d) driven by a progressive recovery in the Company’s Libyan output to achieve the pre-crisis level, coming fully online by the second half of 2012. Excluding this important development, management still sees a moderate growth trajectory in production, boosted by new field start-ups at certain large projects in Algeria and offshore Angola and the joint gas development in Siberia. These increases will be partially offset by mature field declines and the impact of the shutdown of the Elgin-Franklin platform in the British section of the North Sea;

- Worldwide gas sales: management expects natural gas sales to be roughly in line with 2011 (in 2011, worldwide gas sales were reported at 96.76 bcm and included sales of both consolidated subsidiaries and equity-accounted entities, as well as upstream direct sales in the US and the North Sea). Against the backdrop of widespread weakness in demand, management is targeting to boost sales volumes and market share in Italy and to retain and develop its retail customer base; outside Italy the main engines of growth will be sales expansion in the key markets of France, Germany/Austria and Turkey and opportunities in the Far East. Management intends to leverage on an improved cost position due to the benefits of contract renegotiations, integration of recently-acquired assets in core European markets, development of the commercial offer through a multi-Country platform, and service excellence. Management is also planning to enhance trading activities to draw value from existing assets;

- Refining throughputs on Eni’s account: management foresees refinery processed volumes to be in line with 2011 (in 2011 refining throughputs on our own account were reported at 31.96 million tonnes) in response to a negative trading environment. Management is planning to pursue process optimization measures by improving yields, cycle integration and flexibility, as well as efficiency gains by cutting fixed and logistics costs and energy savings in order to reduce the business exposure to the market volatility and achieve immediate benefits on the profit and loss. Enhancement of oil trading activities will help expand industrial margins;

- Retail sales of refined products in Italy and the rest of Europe: management foresees retail sales volumes declining from 2011 levels (in 2011, retail sales volumes in Italy and rest of Europe were reported at 11.37 million tonnes) dragged down by an expected sharp contraction in the domestic consumption of fuels. In Italy where a new wave of liberalization promises to spur competition, management intends to preserve the Company’s market share by leveraging marketing initiatives tailored to customers’ needs, the strength of the Eni brand targeting to complete the rebranding of the network, the development of non-oil activities and an excellent service. Outside Italy, the Company will grow selectively targeting stable volumes on the whole;

- Engineering & Construction: the profitability outlook for this business remains bright due to an established competitive position and a robust order backlog.

For the full year 2012, management expects a capital budget almost in line with 2011 (in 2011 capital expenditure amounted to €13.44 billion, while expenditures incurred in joint venture initiatives and other investments amounted to €0.36 billion). Management plans to continue spending on exploration to appraise the mineral potential of recent discoveries (Mozambique, Norway, Ghana and Indonesia) and investing large amounts in developing growing areas and maintaining field plateaus in mature basins. Other investment initiatives will target the upgrading of the gas transport and distribution networks, the completion of the EST project in the refining business, and strengthening selected petrochemicals plants. The ratio of net borrowings to total equity – leverage – is projected to improve from the level achieved at the end of 2011 assuming a Brent price of $113/barrel.

This press release for the first quarter of 2012 (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 and cash flow are presented for the first quarter of 2012 and for the first quarter and the fourth quarter of 2011. Information on liquidity and capital resources relates to end of the period as of March 31, 2012, and December 31, 2011. 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.

Non-GAAP financial measures and other performance indicators 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 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 entries.

Cautionary statement
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.

* * *

Eni
Societa per Azioni Rome, Piazzale Enrico Mattei, 1
Share capital: euro 4,005,358,876 fully paid
Tax identification number 00484960588
Tel.: +39 0659821 - Fax: +39 0659822141

* * *

This press release for the first quarter of 2012 (unaudited) is also available on the Eni web site eni.com.

The full version of the Press Release is available in PDF format.

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