Yesterday, Eni’s Board of Directors approved the Group results for the third quarter and the nine months of 2019 (unaudited)1. Commenting on the results, Claudio Descalzi, CEO of Eni, remarked:
“Eni has delivered robust results in the quarter, while also finalizing the acquisition of Exxon’s assets in Norway and a 20% stake in the Ruwais refinery in the UAE, providing a further boost to growth and stability. We achieved significant 6% growth in upstream production in the quarter, mainly from Egypt, Kazakhstan and Ghana, as well as first production from Mexico, just 11 months after the final investment decision was made. The growth in production and results from gas sales and oil marketing allowed us to generate significantly better cash flow of €9.4 billion in the first nine months of the year, despite an adverse trading environment. This is sufficient to cover not only the €5.6 billion in net investments during the period, but also the planned dividend and buy-back for the entire year, forecast at approximately €3.4 billion. This shows that Eni's efficient portfolio can achieve breakeven at prices well below current difficult conditions. In particular, in the third quarter Brent prices decreased by 13 $/barrel and European gas prices fell by over 50%, as the downward trend which began in 2018 gathered pace. From the end of the year, the acquisition in Norway, adding further production of around 100 thousand barrels per day, in addition to the stabilizing contribution from our stake in the Ruwais refinery, which will increase our current refining capacity by 35%, will contribute to the robustness of our results.
Finally, it is important to highlight the continued progress from our complementary businesses of the future, from bio-refineries to renewables and the first waste to fuel pilot plants, which draw on in-house research and will become more and more our “second exploration activity” in terms of new business generation.
On this basis, I am very confident in Eni’s position as I look to the near future as well as to the medium and long-term transition.”
Exploration & Production
- Strong growth in the third quarter: 1.89 million boe/d, up by 6%, when excluding price and portfolio effects, the highest ever third quarter (1.85 million boe/d in the nine months, up by 1.8%);
- Further production ramp-up anticipated in the fourth quarter;
- Added 240 kboe/d from start-ups and ramp-ups in the nine-month period, with the bulk coming from Egypt, Libya, Ghana, Angola, Mexico and Algeria;
- 2019 main start-ups:
- Area 1 offshore Mexico, started up in early production in just eleven months after the FID;
- in Egypt, the Baltim SW gas project in the Great Nooros Area, in just nineteen months after the FID, and recent near-field oil discoveries in the Melehia SW development area;
- Trestakk field in Norway and the Berkine oil field in Algeria.
- Vår Energi, the joint venture between Eni (70%) and HitecVision (30%), announced the acquisition of ExxonMobil’s upstream assets in Norway, which are expected to produce 150 kboe/d in 2019, with a production target in excess of 350 kboe/d by 2023. The consideration of the transaction amounting to $4.5 billion will be funded by Vår Energi’s own cash flows and dedicated credit lines. Closing is expected by the end of 2019 with accretive effects on the net cash flow.
- Signed agreements to divest exploration permits in Kenya, Morocco and Mozambique to Qatar Petroleum.
- Divested a 20% interest in the Merakes discovery to Neptune.
- Main successes:
- in the nine-month period approximately 650 mmboe of exploration equity resources were discovered;
- in Block 15/06 (Eni operator with a 36.8% interest) offshore Angola, since the beginning of the year, three discoveries have been made totaling five since the resumption of exploration in 2018. The cumulative resources found are pegged at 2 billion barrels of oil in place;
- Vietnam: a gas and condensates discovery in the exploration permit Ken Bau, in the offshore Block 114 (Eni operator with a 50% interest);
- Niger Delta: made a significant near-field discovery, already linked to production facilities, with a capacity of approximately 3 mmcm/d of gas and 3 kbbl/d of condensates;
- Offshore Ghana: new gas and condensates discovery made in the CTP-Block 4 (Eni operator with a 42.47% interest), with estimated resources in place ranging between 550-650 bcf of gas and 18-20 mmbbl of associated condensate, representing a potential commercial discovery due to its proximity to existing production infrastructures;
- Norwegian North Sea: new oil and gas discoveries in the PL 869 license participated by Vår Energi;
- Egypt: a gas discovery in the Nour exploration licence (Eni operator with a 40% interest). Near-field discoveries in the Western Desert, the Nile Delta and in the Gulf of Suez which have already been linked to the production facilities.
- Reloading the Eni’s mineral interest portfolio: in 2019, acquired new exploration areas covering 27,541 square kilometers in Algeria, Bahrain, Cyprus, Egypt, Ivory Coast, Kazakhstan, Mexico, Mozambique, Norway and the UAE.
- Adjusted operating profit Exploration & Production: €2.14 billion, down by 31% q-o-q; €6.59 billion in the nine months, down by 17%. Excluding the impact of the loss of control over Eni Norge on the 2018 results to allow a-like-for-like comparison, and net of scenario effects and IFRS 16 accounting, the adjusted operating profit increased by 12% in the quarter (up by 7% in the nine months), mainly due to production growth. A large portion of the scenario effects was driven by significantly lower gas prices, mainly in Europe, which negatively affected the result for €530 million in the quarter and €690 million in the nine months.
Gas & Power
- Retail business: enlarged the customer base by approximately 130,000 delivery points in the nine months of 2019 due to growth in the power business and outside Italy; expected additional growth by the end of the year.
- Adjusted operating profit G&P: €93 million in the third quarter of 2019, up by 31% compared to the third quarter of 2018; €511 million in the nine months (up by 2%). The performance was mainly driven by optimizations of the gas assets portfolio in Europe which captured the high market volatility and by growth in the result of the retail business.
Refining & Marketing and Chemicals
- Closed the acquisition of 20% stake in ADNOC Refining in Abu Dhabi, for a consideration of $3.24 billion, including the 20% of a Trading Joint Venture for oil products marketing to set-up. The transaction is part of Eni’s strategy targeting geographical diversification of the portfolio in order to balance it along Eni’s value chain, with a 35% increase in its refining capacity.
- In August 2019, the Gela Green Refinery started-up which is ramping up toward the target processing capacity of 750,000 tonnes per year.
- Strong recovery in the R&M business results: adjusted operating profit of €0.22 billion in the third quarter of 2019, representing a three-fold increase compared to a year-ago (up by 54% from the third quarter of 2018) due to a robust marketing performance in the peak demand period and a recovery in refining margins at simple throughputs as pointed out by trends in the Company’s SERM2, offset by a continued deterioration in price differentials between heavy crudes vs. the Brent crude. In the nine months, operating profit at €0.28 billion was up by 29% due to a better performance of marketing activity, while the refining business was affected by a weaker refining scenario for complex throughputs and unplanned refinery downtime.
- Adjusted result of the Chemical business: operating loss of €70 million in the third quarter in a persistent difficult environment. In the nine months the operating loss was €144 million, negatively affected by the scenario, the incident at the Priolo steam-cracker, and by unplanned shutdowns.
Decarbonization and circular economy
- Energy Solutions, power generation from renewables: 42 MW of installed capacity as of September 30, 2019. The main initiatives of the quarter are specified below:
- the acquisition of two construction-ready solar photovoltaic projects in the Northern Territory of Australia, 12.5 MW each at Batchelor and Manton sites, scheduled for completion by the third quarter of 2020;
- a co-operation agreement with Mainstream Renewable Power, the wind and solar development company, to develop projects in high-growth markets;
- an allotment to ArmWind LLP, joint venture between Eni and General Electric, of a project for a 48 MW wind farm in the Northern Kazakhstan following a reverse auction.
Began construction of the following plants:
- Badamsha, in Kazakhstan, a 50 MW wind farm;
- Porto Torres (Sassari), a 31 MW photovoltaic plant and a 18 MW plant at Volpiano (Turin), in Italy;
- Katherine, in Northern Australia, a 33.7 MW photovoltaic plant, equipped with a storage system;
- Tataouine, in Southern Tunisia, a 10 MW (Eni 50% interest) photovoltaic plant, and Adam, located near the homonymous oil concession, a 5 MW (Eni 50% interest) photovoltaic plant;
- Bhit in Pakistan, a 10 MW photovoltaic plant.
Installed generation capacity expected at 190 MW by year-end.
- Eni has been confirmed as a Global Compact LEAD participant, as a result of its ongoing commitment to the United Nations’ Sustainable Development Goals (SDGs).
- Signed a number of MOUs to develop circular economy projects, targeting mainly the recycling of solid urban waste to convert it in bio-feedstock.
- Signed a joint declaration with the United Nations Industrial Development Organization, setting up an innovative public-private cooperation model aimed at enhancing the UN’s SDGs.
- Adjusted operating profit: €2.16 billion in the third quarter, down by 35% q-o-q (€6.79 billion in the nine months, down by 18%). Excluding the impact of the loss of control over Eni Norge on the 2018 results to allow a-like-for-like comparison, and net of scenario effects and IFRS 16 accounting, the Group adjusted operating profit decreased by 1% in the quarter (a 4% increase in the nine months).
- Adjusted net profit: €0.78 billion for the quarter, down by 44% q-o-q (down by 42% excluding IFRS 16 accounting effects); €2.33 billion in the nine months, down by 26% (down by 23% excluding IFRS 16 accounting effects).
- Net profit: €0.52 billion and €2.04 billion in the quarter and the nine months, respectively.
- Cash flow before working capital at replacement cost3: €2.6 billion (down by 23%) and €9.4 billion (up by 5%) in the third quarter and in the nine months of 2019, respectively (€2.4 billion in the quarter; €8.9 billion in the nine months of 2019 when excluding IFRS 16 accounting effects). Cash generation was negatively affected by lower gas prices, mainly in Europe, with an impact of €340 million in the quarter and €520 million in the nine months.
- Cash flow provided by operating activities: €2.06 billion in the third quarter (down by 50%); €8.67 billion in the nine months (down by 7%), which was negatively affected by an extraordinary payment to settle an arbitration outcome (€330 million).
- Capital expenditure and investment, net: €5.6 billion in the nine months, net of the acquisition of ADNOC Refining and hydrocarbons reserves (IFRS 16 effects were immaterial).
- Net borrowings: €12.7 billion before the effect of IFRS 16, up by 53% from 2018 year-end mainly due to the acquisition of a 20% interest in ADNOC Refining (€2.9 billion), net capex of €5.6 billion and cash returns to shareholders for €3.24 billion. Including IFRS 16, net borrowings was €18.5 billion, of which around €2 billion pertains to the share of lease liabilities attributable to joint operators in Eni-led upstream project.
- Leverage: 0.25 before the effect of IFRS 16, higher than the values at December 31, 2018 (0.16) and June 30, 2019 (0.15) having accounted for the acquisition of a 20% interest in ADNOC Refining, net capex and cash returns to shareholders. Including IFRS 16, leverage was 0.36, or 0.32 excluding the share of lease liabilities attributable to E&P joint operators.
- Buy-back: the buy-back program of Eni’s shares started at June 5, 2019; as of September 30, 2019 16.2 million of shares have been repurchased for a total consideration of €229 million.
Exploration & Production
Hydrocarbon production: reaffirmed the target of a production plateau in the range of 1.87 -1.88 mmboe/d, assuming a Brent price forecast of 62 $/bbl. The projected range assumes a degree of volatility in the Asian demand for LNG and in Venezuelan production. As previously anticipated, production growth has been faster in the third quarter which was nonetheless affected by residual maintenance activity. Production is expected to ramp-up further in the fourth quarter. New field start-ups and ramp-ups are projected to add approximately 250 kboe/d of new production in the year, mainly relating the Zohr field, the achievement of full production at fields started in 2018, particularly in Libya, Ghana and Angola, as well as the fields started in 2019, mainly the Area 1 oil project offshore Mexico, Baltim SW in Egypt, North Berkine in Algeria and the Trestakk project in Norway and other additions. Those increases are expected to more than offset mature field declines.
Exploration resources: equity additions for the year expected at 700 million boe.
Gas & Power
Operating profit: expected at approximately €600 million.
Portfolio of retail customers projected to increase due to the development of the power business and activities outside Italy.
Refining & Marketing and Chemicals
Refinery breakeven margin expected at approximately 5.2 $/bbl in 2019 reflecting an unfavourable trading environment due to narrowing differentials between heavy/sour crudes and the light Brent crude and with the industrial system running below full operations. At the budget scenario and at full capacity, the breakeven margin would be 3.5 $/bbl at the end of 2019.
R&M pro-forma operating profit (including the contribution of ADNOC Refining): revised down to €400 million, due to a further deterioration in the scenario for complex refineries in the third quarter, which has been stabilizing lately.
Refinery throughputs on own account: substantially unchanged.
Green throughputs: an increase expected due to the start-up of the Gela plant.
Retail sales of refined products seen as stable, in line with the market share in Italy.
Petrochemical production volumes and sales: expected to decline y-o-y due to the shutdown of the Priolo steam-cracker in the first quarter and fully in operation by the end of July, as well as other unplanned standstills. Sale volumes are expected to be significantly affected by a slowdown in demand from the automotive sector and by weaker demand of “single-use plastics”.
Capex: revised a slight decrease in the previous guidance of €8 billion for FY 2019 at the budget exchange rate of 1€=1.15 USD.
Cash flow from operations before working capital at replacement cost: confirmed guidance of approximately €12.8 billion at the budget scenario assumptions, 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, or 52 $/bbl including IFRS 16 effects.
(1) Results of operations, cash flow and statement of financial position for the second and third quarter and nine months of 2019 included the effects of the new accounting standard IFRS 16 –Leases. Since as permitted by the standard the comparative periods have not been restated, to enable the users of this report to make a homogeneous comparison, the effect of IFRS 16 on the results of the second and third quarter and the nine months of 2019 have been disclosed with reference to the single items of the profit and loss, cash flow and statement of the financial position and as whole in the tables presented on pages 17-18.
(2) SERM is the standard Eni refining margin. See page 9.
(3) See table on page 14.
The full version of the Press Release is available in PDF format.