Eni results for the third quarter and nine months of 2021

Eni CEO Claudio Descalzi said:

“The excellent results this quarter demonstrate our continued strong economic and financial performance. Upstream production has recovered from maintenance and grown by 6% to 1.69 million boe/d in line with guidance. Eni also strengthened its leading position in exploration and in the model of valorizing and developing discovered resources. The company is fast tracking execution of the Baleine Prospect in Côte d'Ivoire to supply gas to the domestic market – designing for the first time an upstream project with net zero operational emissions since the beginning. In the Gas and LNG business, we have optimized our portfolio and have been progressing important negotiations with a significant expected contribution to our full year results. Thanks to the performance of all our businesses, in the third quarter we’ve generated a €2.5 billion adjusted Ebit and a €1.4 billion adjusted net profit amongst the highest of recent years. Furthermore, in the first nine months of this year, strong cash generation and the careful management of costs has created over €4 billion of free cash flow, which more than covers the overall 2021 dividend and buyback. In an increasingly solid business context, we are accelerating our transition plan: the listing of our Retail & Renewables company will allow us to generate further value from a unique business model, which is essential for decarbonising the consumption of our retail customers. We also continue to invest to progress the UK HyNet CCS project, which is competing to obtain funds from the UK Government. Our long-term range of options has been further enhanced with the success of the magnetic fusion test which could lead to a disruptive technological evolution for future power generation. Eni will remain focused on capital discipline to reduce our cash neutrality, the rapid deployment of new technologies to speed up the execution of our decarbonization plans and, on the acceleration in establishing dedicated business vehicles as a key strategic element to focus our growth and to highlight the full value of our portfolio. ”

Highlights

DECARBONISATION STRATEGY

• Eni has begun the process of launching the Initial Public Offering to list the shares of its newly-formed businesses, comprising EGL, retail, renewable energy production and EV charging points divisions (named conventionally as "ENI R&R"). Eni plans to complete the transaction during 2022 (further information on this transaction, including the name of the new company, will be made public during the capital markets day, scheduled on November 22, 2021). This transaction aims to unlock the value of this asset by giving greater visibility to its unique competitive advantages, in line with the Company's strategy to deliver value through the energy transition and the achievement of net zero emissions.
• A major milestone was reached by CFS^[1], of which Eni is the largest shareholder, in its research on magnetic confinement fusion, which promises to be a game changer for decarbonisation technologies, making it possible to potentially produce large amounts of virtually infinite energy in a safe and sustainable manner, with no resulting GHG emissions.
• Signed agreements with governmental agencies and state-owned oil companies in the Republic of Congo, Angola, Kenya for the joint development of circular economy and decarbonisation projects, aimed at developing crops not in competition with the food supply-chain at an industrial scale to supply Eni’s bio-refineries.
• Eni has launched its first Energy Compact, a public commitment recognized by the United Nations, to accelerate progress towards Sustainable Development Goal No. 7 relating to accessible and clean energy and the targets of the Paris Agreement. Eni has thereby taken on a leading role in contributing to global climate targets, in line with the company’s strategic commitment to achieve carbon neutrality by 2050.
• Eni scored among the ten best companies of the newly launched ESG MIB index of Euronext, with the company’s leadership also recognized in the main ESG ratings and specialized indexes (MSCI, Sustainalytics, V.E, FTSE4Good Developed Index), obtaining Prime Status index from the ISS ESG rating. Excellent results also in climate-focused ratings (Climate Action 100+ Net Zero Benchmark, Carbon Tracker, Transition Pathway Initiative).

Q3 AND NINE MONTHS 2021 RESULTS

• Macroeconomic growth, the normalization of global stocks, the production management of the OPEC+ alliance, withheld capital spending by international O&G companies, and finally a disruption to production in the Gulf of Mexico caused by Hurricane Ida drove up the price of crude oil in the third quarter with the Brent crude oil benchmark averaging 73.5 $/bbl in Q3; up by 7% vs. Q2 2021.
• Natural gas prices in Europe reached all-time highs: Q3 prices averaged approximately 500 €/kcm for the main benchmarks: TTF (Northern European hub) and PSV (Italian spot market) with increases respectively of +500% and +400% vs. the same period of the previous year, while almost doubling compared to Q2 2021, due to an increasingly tight market due to lower global supplies, lower storage levels than historical averages at the peak of the injection season and strong demand led by the economic recovery. On the negative side, the PSV-TTF spread continued to decline, plunging into negative territory in Q3 for the first time in history to -9 €/kcm, down from +1 €/kcm in the Q2 2021 and from +10 €/kcm in the same quarter 2020.
• Chemical margins have slowed down from the record values of the last quarter, in particular the polyethylene spread at approximately 450 €/tonnes on average in Q3 almost halved compared to Q2 2021; elastomer and styrene spreads were still at high levels, although remained lower than the previous quarter.
• The refining scenario in the European/Mediterranean region remained depressed with the Eni benchmark margin SERM down to historic lows (-0.4 $/bbl on average in the quarter, in line with the previous) due to the strong increase of Brent prices, oversupplies of medium distillates and high cost of gas.
• Group adjusted EBIT: €2.49 bln in the Q3 2021, up by 22% vs. Q2 2021 (€5.86 bln in the nine months 2021, an increase of €4.4 bln, +315% vs the nine months 2020). The quarterly Group result was driven by the positive performance of all Eni’s businesses:
     - E&P: EBIT of €2.44 bln, up by 33% vs. Q2 2021 (+375% vs. the same period of 2020) due to a strengthening price scenario and a 6% increase in production to 1.69 mln boe/d. In the nine months 2021, EBIT was €5.66 bln (+660% vs. nine months 2020) mainly due to the ability to fully capture the upside in hydrocarbon prices;
     - EGL, Power & Renewables business: EBIT at €64 mln, declining when compared to the Q2 2021 due to seasonal factors; up by 12% from the same period of 2020. In the nine months 2021, EBIT amounted to €374 mln, up by 12% compared to the nine months 2020;
     - R&M: positive EBIT of €161 mln compared to a loss of €12 mln in Q2 2021 (+€87 mln compared to the Q3 2020) thanks to higher throughputs and volumes sold through the retail stations’ network benefitting from the economic recovery as well as seasonal factors due to the driving season. In the nine months 2021, the performance was affected by a weak refining scenario and higher costs for CO₂ emission allowances with an EBIT lower by €304 mln compared to the nine months 2020;
     - Chemicals: EBIT of €25 mln, declining by €177 mln compared to the Q2 2021 (+€78 mln vs. the same period 2020) due to a normalization in products margins and a catch up in maintenance activity that was delayed to capture the upside of the strong Q2 market. In the nine months 2021, EBIT amounted to €266 mln (a loss of €184 mln in the nine months 2020) reflecting the turnaround driven by the post-pandemic recovery, temporary products shortages and greater plant utilization rates;
     - GGP: EBIT of €50 mln, more than doubled compared to the Q2 2021. The positive performance in the quarter leveraged on capturing the spike in spot prices, which enabled to optimize the portfolio more than offsetting the negative PSV – TTF spread. The comparison with the corresponding reporting periods of 2020 (EBIT was -22% vs. Q3 2020; €44 mln in the nine months of 2021 compared to over €400 mln in 2020) has been affected by trends in gas prices spreads, significant one-off positive effects accounted for in 2020 from portfolio optimizations and contractual renegotiations.
• Adjusted net profit: €1.43 bln in Q3 2021 with an increase of 54% vs. Q2 2021 due to the ability to catch market scenario and production growth. In comparison to the corresponding 2020 reporting periods, impacted by the COVID pandemic, it saw a material recovery: up by €1.6 bln and €3.4 bln respectively vs. Q3 and the nine months 2020 due to a better operating performance, improved results of equity accounted investments and a normalized Group tax rate (50% in the nine months of 2021) due to a lowered tax rate in the E&P segment due to a broad-based recovery in taxable profit and a better profitability outlook of the green activities in Italy.
• Cash flow from operations before changes in working capital at replacement cost: €3.3 bln in the Q3 2021, enough to fund net capex of €1.1 bln. In the nine months of 2021, the Group generated €8.1 bln of cash flow, which after funding €4 bln of net capex left a free cash flow of over €4 bln.
• Portfolio: net investment of about €2.2 bln in the nine months 2021, including net borrowings of acquired entities, fully deployed to accelerate growth in the renewables and low-carbon businesses.
• Net borrowings ante IFRS 16: €11.3 bln, down by €0.3 bln vs. December 31, 2020. Leverage lowered to 0.28 (vs. 0.31 as of December 31, 2020).
• Paid the 2021 interim dividend in September amounting to €0.43 per share, equal to 50% of the 2021 dividend, with a cash out of €1.5 bln.
• Buy-back: started the €400 mln buy-back program at the end of August; as of October 22, 2021, 17.63 mln shares were purchased at a cost of €197 mln.

Outlook 2021

• FY 2021 cash flow from operations before changes in working capital at replacement cost expected to grow to approximately €12 bln under assumption of a Brent scenario of 70 $/bbl and a SERM benchmark refining margin slightly in negative territory.
• Reaffirmed the guidance for hydrocarbon production at almost 1.7 mln boe/d for the FY 2021. Q4 hydrocarbon production expected at 1.76 mln boe/d.
• Upgraded the target of new exploration resources to 700 mln boe in 2021, mainly due to the significant discovery in Côte d'Ivoire (previously guided 500 mln boe).
• Renewable installed capacity expected to reach 1.2 GW at year end (2 GW including capacity under construction), much higher than the initial target for 2021.
• GGP: expected to exceed €500 mln of adjusted EBIT and €300 mln of free cash flow thanks to continuing portfolio optimization in this favorable market scenario and to expected one off contribution from the conclusion of contract renegotiations underpinning the alignment with current and future gas market conditions. This guidance could be possibly revised upward under sustained volatile and tight market conditions.
• Eni gas e luce & Renewables: adjusted EBIT confirmed at €350 mln; pro-froma adjusted EBITDA confirmed at €600 mln.
• Downstream: pro-forma adjusted EBIT at about €200 million, which is expected to be negatively affected by a deteriorated margin environment driven by higher feedstock and utilities costs. This guidance could be revised downward under current market conditions.
• 2021 organic capex confirmed at approximately €6 bln, of which approximately €4.5 bln in the E&P segment.
• Leverage expected at around 0.28.

^{[1] Commonwealth Fusion Systems, spin-out company of Massachusetts Institute of Technology (MIT).}

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