Having examined the results, Eni CEO Claudio Descalzi said:
“Eni’s second quarter results are extremely positive considering we have gone through what is likely to be one of the most challenging quarters the oil and gas industry has faced in its history. Prices collapsed along with demand due to both the pandemic crisis and geopolitical tensions. While actions taken by OPEC+ have allowed the market to reach some stability, emerging from the pandemic will be difficult, with signs of great uncertainty still to come. Given the current circumstances, Eni has promptly reacted by reviewing its 2020-2021 industrial plans with the aim of maintaining a robust balance sheet. In particular, we have taken action to reduce operating costs by €1.4 billion in 2020, without compromising employee job security. Capex has been cut by €2.6 billion, mainly in the upstream business, which has been most impacted by the crisis. Our gas, retail and bio-refining businesses have shown particular robustness, posting better results than those achieved in 2019 despite the effects of the pandemic and beating market expectations. These results have allowed us to once again generate cash flow exceeding capex, without affecting our €18 billion liquidity reserve at June 30, 2020.”
Highlights for the first half and the second quarter
Exploration & Production
- Hydrocarbon production: 1.71 million boe/d in the second quarter 2020, down by 6.6% compared to the second quarter 2019 (1.74 million boe/d in the first half, down by 5.1%).
Net of price effects, the decline was due to COVID-19 effects and related OPEC+ production cuts as well as lower gas demand, mainly in Egypt. The positive performance reported in Nigeria, Kazakhstan and Mexico and the additions due to the purchase of mineral interests in 2019 in Norway, more than offset the lower volumes in Libya driven by an anticipated contractual trigger, geopolitical instability and lower entitlements/spending.
- In the first quarter 2020, started up oil production at the Agogo field, in Block 15/06 offshore Angola, just nine months after the discovery, thanks to the synergies with the Ngoma FPSO vessel operating the West Hub fields.
- Completed a “fast track” project for exporting volumes of associated gas produced in Block 403 in Algeria, paving the way for the synergic development of the gas fields in the North Berkine leases.
- Portfolio developments:
- awarded the operatorship of Block 28 (Eni’s interest 60%) in the Namibe and Benguela basins offshore Angola;
- awarded to the JV Vår Energi 17 new exploration licenses (7 of which operated) in the three main basins of the Norwegian continental shelf.
- Exploration success:
- the estimate of oil in place was confirmed to 1 billion barrels at the Agogo discovery in Block 15/06, offshore Angola, following the successful outcome of a second appraisal well;
- made an oil discovery in the Saasken exploration prospect in Block 10, offshore Mexico. Estimated 200-300 million barrels of oil in place;
- made a gas and condensate discovery in the exploration prospect Mahani-1, onshore the Sharjah Emirate (UAE), in the Concession B area, just one year after signing the concession agreement;
- made a gas discovery in the license of North El Hammad, in the Bashrush prospect in the Nile Delta, located near Nooros and Baltim South West fields;
- oil discovery in the SWM-A-6X exploration prospect, in South West Meleiha concession, in the Western Desert of Egypt. Production from South West Meleiha concession, started up in July 2019, in just one year ramped up to 12,000 boe/d leveraging on the contribution of new discoveries;
- the estimate of gas and condensate potential was increased to 200-250 billion cubic meters of gas in place and 400-500 million of barrels of condensate at the Ken Bau discovery in Block 114, offshore Vietnam.
- E&P’s adjusted operating result: adjusted operating loss of €0.81 billion in the second quarter 2020 vs. adjusted operating profit of €2.14 billion in the same quarter of 2019 (profit of €0.23 billion in the first half, down by €4.2 billion y-o-y) driven by materially lower hydrocarbon prices and by COVID-19 related effects.
Gas & Power
- Acquired a 20% interest in Tate s.r.l., a start-up operating in the activation and management of the electricity and gas contracts through digital solutions.
- Eni gas e luce and OVO launched a strategic partnership to deliver a digital service in France to raise customer awareness for a responsible use of energy and access to zero-emission technologies. Leveraging on this initiative, Eni gas e luce strengthened its position as energy advisor in the retail business and contributes to Eni’s energy transition.
- Increased its customer base by 135,000 delivery points from the end of 2019 (up by 1.4%) due to the development of activities in Italy and in other markets in Europe, notwithstanding the pandemic impact.
- G&P’s adjusted operating profit of €0.22 billion for the second quarter 2020, a fivefold-increase compared to the same quarter of 2019 (€0.65 billion in the first half, up by 72% from the first half of 2019), driven by the wholesale business which leveraged optimizations of the gas and power assets portfolio in a volatile market. The retail business reported solid and growing results, despite lower seasonal sales and the impact of COVID-19 on power demand and the counterparty risk.
Refining & Marketing and Chemicals
- Achieved stable run rates at the Gela bio-refinery with throughputs 58% higher than the budget. The HVO spread was increased due to higher biofuel demand in the main European countries (Germany, France) to comply with mandatory targets of biofuels to be sold on the market.
- Restarted and upgraded the Crescentino plant for the production of a bioethanol disinfectant from corn glucose syrup, based on the formulation provided by the WHO and utilized as a medical device; restarted the biomass power plant for renewable electricity generation. R&D activities currently focused on developing a production process of bio-plastics from second-generation saccharose.
- In July, Versalis finalized the acquisition of a 40% interest in Finproject, a company engaged in the high-performance polymers segment, increasing exposure to products more resilient to the volatility of the chemical scenario.
- Signed an agreement with COREPLA (National Consortium for the Collection, Recycling and Recovery of Plastic Packaging) to develop effective solutions to valorize utilized plastics applying Eni’s expertise in the fields of gasification and chemical recycling by means of pyrolysis.
- R&M’s adjusted operating profit of €139 million in the second quarter was a significant improvement over the year-ago quarter, up by €60 million or 76% (€220 million, a two fold increase from the first half 2019), driven by growing bio-fuels production with the ramp-up of the Gela bio-refinery. Retail and wholesale activities were negatively affected by a drop in fuels demand due to the lockdown measures adopted to contain the COVID-19 pandemic.
- Chemicals’ adjusted operating loss of €66 million in the quarter (a loss of €131 million in the first half) was due to lower sale/production volumes impacted by lower demand in connection with the ripple effects on the economy of the COVID-19 pandemic.
Energy Solutions, decarbonization and circular economy
- Expansion program for renewable energy generation capacity: as of June 30, 2020, installed capacity amounted to 251 MW (up by 77 MW compared to December 31, 2019).
- Closed the acquisition of a 49% stake in Falck Renewables that is operating five photovoltaic plants in the US (for a total installed capacity of 116 MW), including storage capacity, with the aim of developing joint projects in this market.
- Acquired from Asja Ambiente three wind projects for a total capacity of 35.2 MW, which are expected to produce approximately 81 GWh/y, avoiding around 33,400 tonnes of CO2 emissions per year. The three plants, currently under construction, are the first wind project to be launched by Eni in Italy.
- Started in July the photovoltaic plant at Volpiano (total capacity of 18 MW), with an expected production of 27 GWh/y, avoiding 370,000 tonnes of CO2 emissions over the service life of the plant.
- Direct GHG emissions (Scope 1): in the first half reduced to 18.86 million tCO2 eq. from 20.86 million tCO2 eq. in the first half 2019.
Quarterly results were negatively and materially affected by the combined impact of the ongoing economic recession due to the COVID-19 effects on production, international commerce and travel, with a major impact on energy demand, and by oil and gas oversupplies.
- Adjusted operating result: reported an adjusted operating loss of €0.43 billion in the second quarter 2020 vs. a profit of €2.28 billion in the second quarter 2019 (adjusted operating profit of €0.87 billion in the first half 2020, down by 81% compared to 2019). The lower quarterly performance was driven by scenario effects of -€2.6 billion and the operational effects of COVID-19 for -€0.3 billion1, partly offset by an improved underlying performance of €0.2 billion. In the first half 2020, the underlying performance was positive for €0.3 billion.
- Adjusted net result: adjusted net loss at €0.71 billion in the second quarter and €0.66 billion in the first half, driven by a lower operating profit and an increased Group tax rate that was negatively affected by the depressed scenario.
- Net result: the Group reported a net loss of €4.41 billion and €7.34 billion in the second quarter and the first half 2020, respectively, due to the recognition of pre-tax impairment losses at non-current assets for €3.4 billion (of which €2.8 billion in the second quarter) mainly relating to oil&gas assets and refinery plants, due to a revised outlook for oil and natural gas prices and product margins, equaling to a post-tax amount of €3.6 billion that includes the write-off of deferred tax assets (of which €3.5 billion booked in the second quarter). Net result was also affected by a post-tax loss on stock of €1 billion due to the alignment of the book value of inventories to current market prices.
- Adjusted net cash before changes in working capital at replacement cost: €3.26 billion in the first half 2020, down by 52% vs. the first half 2019 (€1.31 billion in the quarter, down by 61%) driven by negative scenario effects for -€3.5 billion, including the impact of dividends from equity accounted entities, operational impacts associated with the COVID-19 for -€0.6 billion, a non-cash change in fair valued derivatives for -€0.3 billion, while the underlying performance was a positive of €0.8 billion.
- Net cash from operations: approximately €2.4 billion in the first half, down by 64% (€1.4 billion in the quarter, down by 69%).
- Net investments: €2.86 billion, down by 24% due to the curtailment of the capex plan adopted since March 2020, fully funded by the adjusted cash flow.
- Net borrowings: €19.97 billion (€14.33 billion when excluding lease liabilities), up by €2.85 billion from December 31, 2019.
- Leverage: 0.37, before the effect of IFRS 16, higher than the ratio at December 31, 2019 (0.24) and at March 31, 2020 (0.28). Including IFRS 16, leverage was 0.51.
1 They comprise a reduction in hydrocarbon production due to capex cut and lower global gas demand, lower offtakes at LNG supply in Asia, lower production sale volumes in R&M and Chemicals, higher allowances for doubtful accounts due to an expected deterioration in the counterparty risk.
The full version of the Press Release is available in PDF format.