Eni results for the second quarter and half year 2017

Yesterday, Eni’s Board of Directors approved the Group results for the second quarter and the first half 2017 (unaudited). Commenting on the results, Claudio Descalzi, CEO of Eni, remarked:

“In the first half of 2017, Eni produced strong results, confirming the soundness of our strategy. We began production of three major offshore projects in Ghana, Angola and Indonesia achieving a record time-to-market and underscoring the robustness of our development model. We also continued our success in exploration, where we discovered 500 million barrels of new resources in the first half. Total production also grew by around 200 kboe/d or over 6% year-on-year, continuing the upward trend seen in recent months. In addition, at the end of the year production will begin at Zohr.
These results have been achieved while maintaining an extremely efficient spending structure, which will reduce capex by about 18% compared to 2016, according to our plan. The Gas, R&M and Chemicals businesses continue to deliver results above expectations: in particular, Chemicals achieved a record result of over €300 million in EBIT, a sign that our efforts to boost and reposition the portfolios products as well as our research efficiency are bearing fruit.
These achievements have enabled us to generate around €5 billion of organic cash, with a free cash flow of  €700 million, despite the volatile environment. Therefore, we are able to confirm our goal of funding capital investments and the dividend from organic sources. On this basis, I will propose an interim dividend of €0.40 per share to the Board of Directors, on September 14.”

Highlights

Exploration & Production

• Hydrocarbon Production: up by 3.3% to 1.77 million boe/d in the quarter; up by 5.2% excluding negative price effects of PSAs and OPEC cuts (up by 6.1% in the first half 2017).

• Started operations from the OCTP gas project offshore Ghana and the Jangkrik offshore complex in Indonesia, in a record time-to-market, confirming the value of Eni’s development model, which strives for continuous improvement.

• Additional production from start-ups and ramp-ups: 192 kboe/d added in the first half of 2017.

• In Area 4 offshore Mozambique the Coral South LNG project entered the execution phase with the signing of the construction contract for the Floating LNG unit and finalization of project financing agreements.

• Restarted operations at the Val d’Agri Oil Center following the finalization of all necessary HSE remediation measures as required by the relevant authorities. Production is already at plateau.

• Successfully drilled two wells in the Amoca discovery offshore Mexico, boosting the resource estimate of Area 1 to 1.3 billion barrels of oil equivalent in place. The definition of the development plan is expected this year.

• Additional exploration successes achieved in Libya, Indonesia and Norway; 0.5 billion boe of additions to the Company’s reserve backlog in the first half of 2017.

• Acquired new leases in Cyprus, Ivory Coast and Norway, for a total acreage of approximately 11,000 square kilometers.

• Ongoing progress at the Zohr project: 80% finalized, start-up confirmed by the end of 2017.

• E&P adjusted operating profit more than doubled to €0.85 billion in the second quarter; a fivefold increase to €2.26 billion for the first half of 2017.

Gas & Power

• Finalized the disposal of the Belgian retail business in July 2017.
   
• G&P adjusted operating result: reported a 36% improvement vs the second quarter of 2016 in a typically weak quarter due to seasonality; in the first half of 2017, adjusted operating profit more than tripled y-o-y to €192 million (up €136 million).

Refining & Marketing and Chemicals

• Confirmed refining breakeven margin below 4 $/barrel on average for the FY.

• R&M adjusted operating profit: €165 million in the second quarter, almost four times greater than the same period in 2016, notwithstanding the partial shutdown of the Sannazzaro refinery (€231 million for the first half, up 110%).

• Record adjusted operating profit achieved by the Chemical business: €187 million in the second quarter 2017, up by 67% y-o-y, the highest level ever; €310 million in the first half (up by 39%).

Group results

• Adjusted operating profit: a fivefold increase in the second quarter of 2017 to €1.02 billion (up €0.83 billion y-o-y); an almost fourfold increase in the first half of 2017 to €2.85 billion (up €2.08 billion y-o- y).

• Adjusted net profit: €0.46 billion in the quarter, €1.21 billion for the first half of 2017 compared to net losses reported in the 2016 comparative periods.

• Net profit: almost at breakeven in the quarter (€0.98 billion in the first half of 2017).

• Strong cash generation: €2.71 billion in the second quarter, up by 56% y-o-y; €4.64 billion in the first half of 2017 (up by 50%).

• Doubled the adjusted cash flow from operations before changes in working capital at replacement cost (€2.28 billion and €4.88 billion in the second quarter and the first half of 2017, respectively).

• Capex: €4.97 billion in the first half of 2017 (€4.27 billion on a pro-forma¹ basis), peak expenditure for the year due to the completion of large projects which started production in the first half of 2017, as scheduled. Self-financing ratio of pro-forma capex at approximately 110%.

• Free cash flow: €700 million to fund the cash dividend.

• Disposals agreed in the first half of 2017 of €2.9 billion, approximately 60% of the minimum target planned for the 2017-2020 four-year period.

• Net debt: €15.5 billion; expected to decrease y-o-y following the closing of the disposals underway.

• Leverage at June 30, 2017: 0.32 compared to 0.28 at December 31, 2016, well below the 0.30 threshold at year end based on Eni’s scenario assumptions, driven by cash flow from operations and disposals.

• 2017 interim dividend proposal: €0.40 per share.

Outlook

Exploration & Production

Confirmed the 2017 target of 0.8 bln boe of new resources, at a unitary discovery cost of approximately 1 $/bbl.

Confirmed FY production target of 1.84 mln boe/d (up by 5% from 2016) leveraging on new project start-ups (Indonesia, Angola and Ghana) and ramp-ups of fields entered into operations in 2016, mainly in Kazakhstan, Egypt and Norway. The unexpected shutdown of Val d’Agri, which lasted almost a full quarter and the impact of OPEC cuts, will be absorbed by the implementation of other initiatives to optimize production, as well as by the earlier than planned start-up of the large projects in Angola, Indonesia and Ghana.

Gas & Power

Confirmed structural positive results from 2017.

Confirmed cost position improvements by leveraging on long-term supply contracts revision already finalized in large part in the first half of the year.

Eni plans to retain market share in the large customers and retail segments, increasing the value of the existing customer base by developing innovative commercial initiatives, integrating services and optimizing operations.

Refining & Marketing and Chemicals

Confirmed the target of refining breakeven margin at 3 $/barrel in 2018.

Refinery intakes on own account are expected to decrease slightly y-o-y due to the downtime of certain assets at the Sannazzaro refinery and of the Taranto refinery, partially offset by higher volumes at Livorno and Milazzo refineries. Against a backdrop of strong competition, management expects to consolidate volume and market share in the Italian retail market by leveraging innovation and product and service differentiation. In the rest of Europe, sales on a like-for-like basis are expected to slightly increase.

In the Chemical business, sales are expected to trend up, due to higher production supplies. Cracker and polyethylene margins are expected to decline.

Group

Confirmed the target of around 18% reduction in capex y-o-y on a pro-forma basis, i.e. net of the capex which will be reimbursed in connection with asset disposals and advances paid by the Egyptian partners in the Zohr project.

Cash neutrality: confirmed the organic coverage of capex and dividends at a Brent price of approximately 60 $/bbl in 2017.

Leverage at the end of 2017: projected to substantially decline from 2016 level, also reflecting the expected closing of portfolio transactions, particularly the Mozambique deal.

¹ Net of reimbursement of capex relating to asset disposals and advances made by the Egyptian partners in the Zohr project, see page 12.

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