Eni: first quarter 2022 results

Eni CEO Claudio Descalzi said:
“This quarter has been one of major strategic developments for Eni. We rapidly reacted to the ongoing challenges of the energy market by leveraging our global upstream and partnerships with producing countries to find alternative and additional supply opportunities for Europe. We have signed important agreements in Algeria, Egypt and the Republic of Congo, while another one was reached in Angola, consolidating our joint operations in the countries and promoting increased gas exports to Italy and Europe in the interest of transitioning to a low carbon economy. During the quarter, we successfully completed the listing of our Norwegian upstream company, Vår Energi, in which we retain 64% stake, and launched with BP the combination of our respective significant portfolio in Angola. Plenitude, our retail company integrating renewable and gas & power, is progressing towards the listing that is planned for 2022 subject to markets conditions, and we have announced the set-up of a Sustainable Mobility entity, integrating biorefineries, our network of multi-energy and multi-service outlets and their clients. With Plenitude and Sustainable Mobility we aim to serve our customer base with distinctive decarbonized products and sustainable services. We also successfully completed the IPO of NEOA in London, a SPAC targeting low carbon and transition opportunities. Coming to Q1 ’22 results, our performance exhibited strength and resilience against a backdrop of high market volatility and uncertainty linked to the ongoing war and international tensions. We delivered €5.2 billion of consolidated adjusted Ebit, €3.9 billion higher than in Q1 ’21, driven by robust trends at E&P on the back of a strong pricing environment, and GGP driven by larger LNG international operations and the flexibility of our supply portfolio. We earned €3.3 billion of adjusted net profit. Crucially, in such a volatile environment, we remained financially disciplined and generated an organic FCF of €1.8 billion, despite the higher cyclical working capital requirements in the first part of the year further raised by increased input commodities prices.
In conclusion, a quarter of clear progress in executing our strategy of delivering security and sustainability of the energy system, while keeping sharp focus on a just energy transition and creating value for our stakeholders.”

• In Q1 ’22, the Group reported an adjusted EBIT of €5.19 billion, up by 300% from Q1 ’21.
• This performance was driven by the robust results of the E&P segment that reported a €3 billion increase in adjusted Ebit capturing the higher realized prices in equity production (up by 70% on average). Hydrocarbons production for the quarter was 1.65 million boe/d, consistent with the full year guidance.
• The GGP segment reported an adjusted Ebit of €0.93 billion, compared to breakeven in Q1 ’21 due to higher gas sales, better results of the international LNG business amid a strong pricing environment, and margin optimization leveraging the flexibility of the natural gas supply portfolio.
• The R&M business achieved a positive result of €24 million, a significant improvement from the €159 million loss of Q1 ’21. This trend was driven by plant optimizations allowing to reduce the use of gas and utilities expenses, as well as a strong rebound of refining margins in the second half of March ’22 benefitting from a tight market for refined products, particularly of gasoil.
• The chemical business managed by Versalis has weakened due to the rise in oil-based feedstock costs and higher plant utilities expenses. The business reported lower results of €154 million year-on-year.
• The retail, renewable & electric mobility businesses managed by Plenitude are well positioned to achieve the full-year guidance of adjusted EBITDA (over €0.6 billion), notwithstanding the high volatility of the scenario, confirming the resilience of our integrated business model.
• The Group adjusted net profit in Q1 ’22 was about €3.27 billion, increasing by €3 billion from Q1 ’21, supported by improved results from our equity accounted entities and a lower tax rate resulting from geographical mix effects and higher prices in E&P and positive business contribution from GGP and R&M in the overall results.
• The Group adjusted cash flow before working capital at replacement cost came in at €5.61 billion supported by the strong base business performance (up by 186% compared to Q1 ’21).
• After funding organic capex of €1.62 billion, slightly higher versus last year, and working capital needs, the Group earned an organic FCF of €1.8 billion. Seasonal factors that typically shape working capital requirements in the first quarter, drove a cash absorption of about €1.96 billion that reflected the higher nominal value of trade receivables.
• The cash flow of the quarter was boosted by the closing of the share offering in Vår Energi with proceeds for Eni of about €0.4 billion.
• Non-organic cash outflows of €1.25 billion relate to Plenitude acquisitions (€0.8 billion) and a capital contribution to the Saipem JV (€0.46 billion) as part of the financial restructuring of the investee.
• Net borrowing as of March 31, 2022, before the IFRS 16 effect stood at €8.62 billion, and the leverage continued to improve at 0.18 versus 0.20 as of December 31, 2021.

E&P and GGP

• In March/April: leveraging our consolidated partnership with the North and Western African countries, we signed framework agreements with Algeria, Egypt and the Republic of Congo on April 11, 13 and 21 to boost joint upstream operations and increase natural gas exports towards Europe. Additional contributions will come from Angola.
• Under the terms of the agreement with Algeria, Eni expects to gradually increase the volumes of gas exported to Italy through the Transmed pipeline as part of the existing long-term supply contracts with Sonatrach, with additional gas deliveries starting in the next heating season and rising to up to 9 billion cubic meters per year in 2023-24. Additional gas reserves will be jointly developed by Eni and Sonatrach leveraging Eni’s distinctive fast track model, to support export flows to Italy.
• Eni and the Egyptian state-owned company “EGAS” agreed to valorize local gas reserves by increasing activities in jointly operated concessions and by exploring near field areas, with the goal of boosting production and gas exports to Italy via the Damietta liquefaction plant at an expected initial rate of up to 3 billion cubic meters in 2022.
• With the petroleum authorities of the Republic of Congo, Eni signed a letter of intent to increase gas production and export to Italy through the development of a Liquefied Natural Gas (LNG) project with start-up expected in 2023 and a capacity of 4.5 billion cubic meters/ year once fully operational. LNG exports will allow to valorize the production of gas that exceeds Congo’s internal market needs.
• In February, with the equity fund HitecVision completed the listing of Vår Energi on the Oslo stock exchange, the largest O&G IPO in Europe in 15 years, placing an interest of about 11.2% of the investee’s share capital. Eni’s interest was reduced to 64.3% following the closing of the deal.
• In March, Eni signed an agreement with BP to establish a financially independent, equally-owned joint venture in Angola, Azule Energy, that will combine the two companies’ respective portfolios of oil&gas assets in the Country to enhance growth and value.
• In February, the Ndungu satellite project in Block 15/06 off Angola began early production, by connecting the field to the Ngoma Floating Production Storage and Offloading (FPSO) vessel. While production at the Ndungu field has been ramping up, appraisal activities in March have allowed a significant upgrade to the resource base of the discovery area to around 1 billion barrels of oil equivalent in place. This makes Ndungu, together with Agogo, the largest accumulation discovered in Block 15/06, and highlights the efficacy of both Eni’s model of infrastructure-led-exploration and its phased approach in putting reserves into production with fast time-to-market.
• In February, the Miamte FPSO started hydrocarbon production at the Miztón field, within the Development Project in Area 1 in the Gulf of Mexico.
• In February, positive preliminary results were obtained at the first exploration well, XF-002, in Block 2 (Eni 70%, operator) off Abu Dhabi. More results from drilling operations are expected in the second quarter of 2022.
• In March, a significant oil and associated gas discovery was made in Algeria at the Zemlet El Arbi concession in the Berkine North Basin, jointly operated by Eni (49%) and Sonatrach (51%). The discovery with estimated 140 million barrels of oil in place, is close to the processing facilities of the Bir Rebaa North field, ensuring a fast-track development.
• In April, near-field oil and gas discoveries were made in the Meleiha concessions, in Egypt’s Western Desert, which have already been tied into production, in line with the near-field exploration strategy, allowing to maximize exploration opportunities nearby existing infrastructures.
• In January, following the "2021 Awards in Predefined Areas" (APA) tender process of the Norwegian Ministry of Oil and Energy, Vår Energi was awarded ten exploration licenses (of which five were as the operator) covering areas in the main mining basins of the Norwegian continental shelf (NCS).
• In January, following the successful participation in the Egypt International Bid Round for Petroleum Exploration and Exploitation 2021, Eni was awarded five exploration licenses (out of which four as operator) in the main mining basins of interest to Eni: offshore East Mediterranean, the Western Desert and the Gulf of Suez, for a total acreage of about 8,410 square kilometers.
• In March, awarded a new PSC in the basin of Berkine South in Algeria; Eni operator with a 49% interest, Sonatrach 51%.
• In March, Eni signed a new PSC related to the CI-401 and CI-801 blocks, offshore the Ivory Coast, close to the Baleine discovery.
• Eni signed agreements in February in Mozambique and in March in Benin to develop the projects of circular economy and of agriculture that do not compete with the food chain to supply green feedstock to Eni’s biorefineries. Those agreements also included initiatives intended to preserve forests and to decarbonize the local energy mix.
• In February, the HyNet North-West project received 19 expressions of interest by industrial companies willing to have their emissions captured, transported and stored in Eni UK’s depleted hydrocarbon reservoirs. The project is being developed by a multi-partner consortium led by Eni UK to build a carbon capture and storage (CCS) hub.

R&M and Chemicals

• In April, signed an agreement with the Chinese Shandong Eco Chemical Co. Ltd. to license Versalis proprietary continuous mass technology to manufacture styrenic polymers with a low-carbon footprint.
  
• In March, Eni announced the establishment of a Sustainable Mobility company that will enhance value by integrating our biorefineries, strong customer base and our network of multi-energy, multi-service outlets.
• In March, Eni strengthened the partnership between Versalis and Novamont to develop the green chemistry business conducted through the Matrìca joint venture by establishing a new shareholder agreement, whereby Versalis will increase its stake in Novamont from 25% to 35%.
• In February, Eni started the production of bioethanol from residual biomass at the Crescentino hub, managed by Versalis. The plant is capable of processing 200 ktonnes of biomass per year, with a maximum production capacity of approximately 25 ktonnes of bioethanol per year.
• In January, Matrìca signed an agreement with Lanxess, a leader in specialty chemicals, covering the supply of renewable raw materials obtained from vegetable oils at the Matrìca’s Porto Torres plant to be used by Lanxess to manufacture biocidal industrial additives for the consumer end-markets.
• In the first quarter, Eni signed agreements with the Italian companies “SEA” and “Aeroporti di Roma” managing the main national airports to speed up the decarbonization both of the airline sector and of ground operations by using Eni’ sustainable fuels (SAF and HVO).

Plenitude and Power

• GreenIT, a joint venture between Plenitude and the Italian agency CDP Equity, engaged in the development of electricity generation capacity from renewable sources, in April signed an agreement with the equity fund Copenhagen Infrastructure Partners (CIP) to build and operate two floating offshore wind farms in Sicily and Sardinia, with an expected total capacity of approximately 750 MW.
• In March, GreenIT signed an agreement to acquire the entire portfolio of Fortore Energia Group, consisting of four onshore wind farms operating in Italy with a total capacity of 110 MW.
• In January, Eni acquired the Greek company Solar Konzept Greece “SKGR”, owner of a portfolio of photovoltaic plants in Greece with a pipeline of projects targeting about 800 MW.
• In February, Eni acquired a portfolio of renewable capacity in Texas (USA) from BayWa r.e. with an installed capacity of approximately 266 MW and a storage project in an advanced development phase of about 200 MW/400 MWh.
• In March, Eni inaugurated the Badamsha 2 Wind Farm located in the Aktobe Region, Kazakhstan, the second wind installation in the region resulting in a doubling of the installed capacity of Badamsha 1 project (48 MW, for a total amount of 96 MW installed in the Country).
• In March, Eni reached a preliminary agreement to divest a minority stake of 49% in the share capital of EniPower to Sixth Street, a leading global investment firm. Eni will retain control of EniPower in terms of operations as well as over the financial consolidation of the company.

Decarbonization & Sustainability

• In February, Eni signed an agreement with Edison and Ansaldo Energia to assess the economic feasibility of the production of green hydrogen derived from water electrolysis, or blue hydrogen with the use of natural gas and an associated system for the capture and storage of the CO₂ emitted in the process, with the target to replace a portion of natural gas as fuel for the new Edison plant in Porto Marghera.
  
• In March, Eni started a collaboration with Air Liquide to assess how to best deploy Carbon Capture and Storage (CCS) solutions to help decarbonize hard-to-abate industrial sectors in the Mediterranean region of Europe.
• In March, Eni successfully completed the IPO of New Energy One Acquisition Corporation Plc (“NEOA”) on the main market of the London Stock Exchange, raising £175 million of equity funds, of which Eni will contribute £17.5 million. NEOA has been established for the purpose of executing a business combination with targets that are positioned to participate in or benefit from the transition towards a low carbon economy.
• In March, Eni completed the commissioning of eleven integrated, solar-powered water projects in the Borno and Yobe States in North-East Nigeria, which will provide fresh water for domestic consumption and micro- irrigation purposes. These projects were built under the framework of the ‘Access to Water’ initiative implemented by FAO and Eni, in collaboration with the Nigerian National Petroleum Corporation.

The Company is issuing the following operational and financial guidance for the FY ’22 based on information available to date, management’s judgement of the possible risks and uncertainties associated with the ongoing war in Ukraine and assuming no material disruptions in Russian gas flow:

• E&P: Hydrocarbon production is confirmed as expected at 1.7 million boe/d at the Company’s price deck of 80 $/bbl in 2022.
• GGP: Revised upwardly the guidance of adjusted Ebit now forecast at around €1.2 billion vs a previous target of €0.9 billion considering the expected evolution of the market.
• Our main price sensitivities foresee a variation of €140 million in free cash flow for each one-dollar change in the price of Brent crude oil and around €600 million for a 5 USD/cent movement in the USD/EUR cross rate vs our new assumption of 1.115 USD/EUR for 2022 and considering 90$/bbl Brent price.
• Plenitude & Power: Plenitude EBITDA is expected higher than €0.6 billion in line with our guidance. We confirm our guidance of more than 2 GW of installed capacity of renewable generation at 2022 year-end (at 100%). We also confirm our plan to list on the Milan Stock Exchange our subsidiary Plenitude through an IPO within 2022 subject to market conditions.
• Downstream: Adjusted Ebit (R&M with ADNOC pro-forma and Versalis) is raised to positive from our previous expectation of negative.
• Adjusted cash flow before working capital at replacement cost is expected to be €16 billion at 90 $/bbl (from more than €15 billion previously).
• Organic capex is seen at €8 billion in line with our original guidance of €7.7 billion assuming the EUR vs USD exchange rate of our initial planning assumptions.
• Cash neutrality is expected at a Brent price of around 46 $/bbl.
• Leverage ante IFRS 16 is seen well below our 0.2 ceiling at 2022 year-end.

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