Eni: first quarter 2019 results

Today, Eni’s Board of Directors approved the Group results for the first quarter of 2019 (unaudited).

Today, Eni’s Board of Directors approved the Group results for the first quarter of 2019 (unaudited). Commenting on the results, Claudio Descalzi, CEO of Eni, remarked:
“I am very pleased of the excellent industrial and financial performance delivered by Eni in IQ 2019. Particularly, in light of a substantially unchanged market scenario, the E&P business has improved its operating profit by 25% compared to the first quarter of 2018, confirming our expectations of the business growing cash generation for the full year. The results of the G&P segment also improved; the 16% increase in operating profit to €372 million puts us on the path to achieving our €500 million profit target for the full year. The performance of the Downstream R&M and Chemicals business offset the effect of weaker margins and we expect to see a broad recovery over the next nine months, particularly in oil Refining and Marketing. Overall, first quarter operations generated a cash flow of €3.42 billion, up 8% and €1.5 billion greater than the investments for the period of around €1.9 billion, which is in line with the expectations of €8 billion for the whole year. The Group confirms that it can leverage on the quality and robustness of its asset portfolio, capable of covering costs, investments and dividends at a Brent price of US$ 55, in addition to generating a cash surplus in the event of higher prices, as in current trading conditions.”

Highlights

Exploration & Production

• Hydrocarbon production of the first quarter 2019: 1.83 million boe/d; down by 1.3% net of price and portfolio effects;
  -q-o-q change is affected by the termination of the Intisar production contract in Libya from the third quarter of 2018 and mature fields decline. These negative effects were almost completely offset by strong organic production increases due to the ramp-up of the Zohr field and of the projects started in 2018 (overall 200 kboe/d).
  
  
• Exploration:

main successes:

- new discoveries totaled 174 mmboe:

a major oil discovery was made in the Agogo exploration permit located in Block 15/06 (Eni operator 36.8%) deep offshore Angola, with up to 650 million barrels of oil in place. Agogo is the third discovery made since the resumption of exploration activities in 2018 in Block 15/06, following Kalimba and Afoxé;

Vår Energi made an oil and gas discovery in the PL 869 licence in the Norwegian North Sea;

a gas discovery was made in the exploration permit Nour in the Egyptian Mediterranean Sea, operated by Eni (40%).

rebuilding Eni’s mineral interests portfolio:

- acquired 13 licences by Vår Energi in the Norwegian APA Round;

- acquired certain interests in two exploration blocks onshore Egypt: “South East Siwa” (Eni 100%) covering 3,013 km², close to the “SW Melehia” concession and “West Sherbean” (Eni operator 50%) covering 1,535 km², located in the Nile Delta close to the Nooros field;

- signed an Exploration and Production Sharing Agreement for Block A, covering 2,412 km² offshore Ras Al Khaimah (UAE). Eni will retain operatorship with a 90% participating interest.

• Signed agreements to divest to Qatar Petroleum:
  - a 30% interest in the Tarfaya exploration license, offshore Morocco, which includes 12 exploration blocks. At the closing date, Eni will retain a 45% interest and the operatorship;
  - a 25.5% interest in Block A5-A, offshore Mozambique. At the closing date, Eni will retain the operatorship with a 34% interest.
  
  
• Net capex: €1.6 billion, mainly relating to new fields development and ramp-ups of fields started up in 2018. Progress at initiatives designed to increase 2019 production capacity are in line with plans.
• Adjusted operating profit of Exploration & Production: €2.31 billion, up by 11% q-o-q, a 25% increase when excluding the prior year contribution from the former subsidiary Eni Norge which was merged with Point Resources to establish Vår Energi, in operation since 1/1/2019.

Gas & Power

• LNG sales: unchanged at 2.7 billion cubic meters.
• Retail business: increasing the customer base by 6% q-o-q due to growth in the power business and the acquisition of assets in Greece. Natural gas volumes declined by 4.5% due to mild winter weather.
• Adjusted operating profit G&P: €0.37 billion, up by 16% q-o-q supported by growth in both the midstream and retail businesses.

Refining & Marketing and Chemicals

• Gela green refinery: started up some production units; expected further start-ups in May and full operations in the fourth quarter of 2019.
• EST plant at the Sannazzaro refinery: accomplished the early start-up in March 2019, full start-up expected by the third quarter.
• ADNOC refinery: activities are ongoing to finalize the acquisition of the 20% interest in the third quarter of 2019.
• Adjusted operating profit R&M: substantially at breakeven thanks to the contribution of marketing activities, offsetting a weak refining scenario and the advanced maintenance standstills at refineries to counteract the scenario.
• Adjusted result of the Chemicals business: a €46 million loss, negatively affected by the unplanned shutdown at the Priolo hub, which is now in the process of restarting. Excluding this effect, results are substantially at breakeven, notwithstanding weak margins in all product lines (polymers, elastomers and styrenics).

Decarbonization and circular economy

• Started the construction of two new solar photovoltaic projects, near the gas field of Bhit in Pakistan and in the oil concession of Adam in Tunisia, respectively.
• Finalized the acquisition of a construction-ready solar photovoltaic project near Katherine, in the Northern Territory of Australia, with a targeted installed capacity of 33.7 MW.
• Constructed the InertialSea Wave Energy Converter at the Ravenna offshore platform, an innovative technology that will convert wave-generated energy into electricity.
• Signed an agreement between Syndial and Veritas to build a plant at Porto Marghera to transform the organic fraction of solid municipal waste (OFSMW) into bio-oil and bio-methane.
• Signed a collaboration agreement with RenOils, the Italian national vegetable and animal oils and fats Consortium, aimed at recovering used vegetable oils to produce biofuels at Eni’s biorefineries.

Group results

• Adjusted operating profit: €2.35 billion for the quarter, in line q-o-q. Excluding on a-like-for-like comparison the effect of the loss of control over Eni Norge on the 2018 results, adjusted operating profit increased by 10% or 7% excluding IFRS 16 accounting effects. Furthermore, 2019 results are negatively affected by the elimination of unrealized profit in stock amounting to €134 million (it was a positive €58 million in the IQ 2018).
• Adjusted net profit: €0.99 billion for the quarter, in line q-o-q (up by 4% excluding IFRS 16 accounting effects).
• Net profit: €1.09 billion.
• Cash flow provided by operating activities: €2.1 billion, which was negatively affected by an extraordinary payment for the settlement of an arbitration (€330 million). Excluding this payment and the positive IFRS 16 impact from the 2019 cash flow, the performance was in line with IQ 2018.
• Cash flow provided by operating activities before working capital changes at replacement cost: €3.42 billion for the quarter; €3.18 billion excluding IFRS 16 accounting effects, in line with the IQ 2018.
• Capital expenditure and investment, net: €1.85 billion net of the purchase of reserves in Alaska and Algeria (IFRS 16 effects were immaterial).
• Net borrowings: €14.5 billion, of which around €2 billion pertaining to the share of lease liabilities attributable to joint operators in Eni-led upstream Joint Operations. Net borrowings would be €8.68 billion when excluding the overall effect of IFRS 16.
• Leverage: 0.27, or 0.24 excluding the above mentioned share of lease liabilities attributable to joint operators. Leverage would be 0.16 billion when excluding the effect of IFRS 16, unchanged compared to December 31, 2018.

Outlook 2019

Exploration & Production

Hydrocarbons production: the growth rate for 2019 is confirmed at 2.5% y-o-y, under a Brent price forecast of 62 $/bbl and net of portfolio transactions. Growth will be fuelled by continuing production ramp-up at fields started in 2018, increases at the Zohr and Kashagan fields, as well as the planned 2019 start-ups including the Area 1 oil project offshore Mexico, the Baltim SW in Egypt, the North Berkine in Algeria and Trestakk project in Norway. A yearly contribution from start-ups and ramp-ups is expected to reach approximately 250 kboe/d. Production growth vs. 2018 will accelerate from the third quarter of 2019, after the maintenance activities concentrated in the second quarter of 2019 (Kashagan and Goliat fields).

Exploration resources: confirmed the target of 600 million boe of equity additions for the year.

Gas & Power

Operating profit: expected at €500 million as guided.

LNG contracted volumes expected in line vs. 2018.

Portfolio of retail customers projected to increase due to the development of the power business.

Refining & Marketing and Chemicals

Refinery breakeven margin expected at approximately 3.5 $/bbl at the end of 2019 leveraging on the full operability of the industrial system and widening differentials between light Brent crude benchmark and high-sulphur content crudes.

Refinery throughputs on own account: seen at stable levels.

Green throughputs: expected a large increase due to the start-up of the Gela green refinery.

Retail sales of refined products seen stable.                      

Petrochemical production volumes and sales: expected to decline y-o-y due to the shutdown of the Priolo hub.

Group

Capex: confirmed the guidance of €8 billion for FY 2019 at the budget exchange rate of 1€=1.15 USD.

Cash flow from operations before working capital is expected at €12.8 billion at the Brent price of 62 $/bbl, PSV gas price of 266 €/kmc and the EUR/USD exchange rate of 1.15, before IFRS 16 effects.

Cash neutrality: organic capex and the dividend are expected to be fully funded by operating cash flows at the Brent scenario of 55 $/bbl before IFRS 16 effects, which would improve the target to 52 $/bbl.

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