Eni: fourth quarter and full year 2014 results

Financial highlights

• Record cash flow1 over the last six years: €5.37 billion for the quarter (up 69%); €15.09 billion for the full year 2014 (up 37%);
• Leverage decreased to 0.22 (0.25 at the end of 2013);
• Adjusted operating profit: €2.32 billion for the quarter (down 34%); €11.57 billion for the full year 2014 (down 9%);
• Adjusted net profit: €0.46 billion for the quarter (down 64%); €3.71 billion for the full year 2014 (down 16%);
• Reported net loss of €2.34 billion for the quarter; reported net profit of €1.33 billion for the full year 2014;
• Dividend2 per share: €1.12 of which €0.56 paid in September 2014 (€1.10 in 2013);
• Share repurchases in 2014 were 21.66 million for a cash outlay of €0.38 billion, together with the dividend this ensured a distribution yield3 of 8.3%.

Operational highlights

• Hydrocarbon production4: 1.65 mmboe/d for the quarter (up 6.7%); (1.6 mmboe/d for the full year 2014, up 0.6%);
• Preliminary year-end proved reserves estimate in accordance with US SEC requirements: 6.6 billion of boe. The organic reserve replacement ratio was 112%;
• Started up the West Hub and Nené projects in Angola and Congo, setting the industry benchmark in terms of time-to-market;
• Achieved important exploration success in Congo, Angola, Gabon, Indonesia, Ecuador and Egypt in proven areas;
• Acquired exploration licences offshore Portugal, South Africa, the United Kingdom, Vietnam, Egypt, China, Norway, the United States and Myanmar; Block 15/06 exploration licence in Angola renewed for an additional three-year period;
• Divested Eni’s interest in the South Stream gas-pipeline project.

Claudio Descalzi, Chief Executive Officer, commented:
“In spite of an unfavourable trading environment, Eni delivered excellent results in the fourth quarter, underpinned by record cash flow generation over the last six years. The performance was driven by the increased contribution from upstream production and the accelerated restructuring of our mid and downstream businesses. We continue to deliver on the initiatives launched in May 2014 as we rebalance the Group’s portfolio, pursue a higher level of efficiency and focus on core upstream activities, which have been further strengthened by continued exploration success and the organic growth of our proven reserves. In light of these results, I will propose to the Board of Directors the distribution of a 2014 final dividend of €0.56 per share.‘

⁽¹⁾ Net cash provided by operating activities.
⁽²⁾ Dividend proposal. Eni’s Board of Directors is scheduled to formalize the proposal on March 12, 2015 when approving the Annual Report 2014 and the parent company separate financial statements. The Shareholders’ Meeting is scheduled to deliberate on the dividend proposal on May 13, 2015.
⁽³⁾ Sum of dividend yield and buyback yield.
⁽⁴⁾ On a homogeneous basis, excluding the impact of the divestment of Artic Russia.

Adjusted operating profit

In the fourth quarter of 2014, Eni’s adjusted consolidated operating profit was €2.3 billion, down by 33.8% compared to the fourth quarter of 2013. This was adversely impacted by lower oil prices (down by 30.2% for the Brent marker) which decreased the operating profit of the Exploration & Production segment (down by €1.3 billion or 38.8%). The Refining & Marketing segment reverted to profit and earned €0.2 billion which favourably compares with an operating loss of €0.1 billion in the fourth quarter of the previous year. This improvement reflected a recovery in refining margins and gains driven by efficiency and optimization initiatives.
Versalis reduced its operating loss by €0.1 billion due to improved product margins and restructuring initiatives. Despite the unfavourable trading environment, the Gas & Power segment remained profitable due to improved competitiveness on the back of the renegotiation of a substantial portion of the long-term gas supply portfolio. It is worth noting that the Gas & Power operating profit in the fourth quarter of 2014 declined by 68.3% compared with the fourth quarter of 2013 due to lower one-off effects of contracts renegotiation related to the purchase costs of volumes supplied in previous reporting periods. Eni’s listed subsidiary Saipem reported an 80% decline in operating profit.
In the full year 2014, the group adjusted operating profit was €11.6 billion, down by 8.5% from 2013, reflecting a lowered performance in the Exploration & Production segment (down by €3.1 billion or 21.1%) due to a decline in oil prices. The mid and downstream business segments reported cumulatively an improved performance of €1.2 billion. This reflected gas contract renegotiations, cost efficiencies, as well as optimization and restructuring initiatives. Eni’s subsidiary Saipem registered an increase of €0.6 billion in adjusted operating profit reflecting the extraordinary project losses reported in 2013 against the backdrop of challenging market conditions.

Adjusted net profit

In the fourth quarter of 2014, adjusted net profit amounted to €0.46 billion and was down by 64% from the fourth quarter of 2013 due to a reduced operating performance and lower results from equity-accounted entities and other investments (down by €0.42 billion), mainly reflecting a €0.38 billion loss on the fair-valued interests in Galp and Snam (compared to an income of €0.07 billion in the fourth quarter of 2013) which underlay two convertible bonds. The adjusted consolidated tax rate registered an increase of approximately 15 percentage points reflecting the higher share of taxable profit reported by the Exploration and Production segment, as well as the afore mentioned non-deductible losses.
In the full year, the adjusted net profit of €3.71 billion was 16.3% lower compared to 2013 reflecting the same drivers disclosed in the quarterly review, with a tax rate declining by 1 percentage point.

Reported net profit

In the fourth quarter of 2014, the Group reported a net loss of €2.34 billion which was impacted by a loss on the alignment of crude oil and product inventories to current market prices (down by €0.86 billion) and asset impairments and other post-tax charges amounting to €1.94 billion. These charges included the write-off of certain deferred tax assets (€0.50 billion) due to projections of lower future taxable profit at Italian subsidiaries and €0.48 billion relating to a windfall tax levied on Italian energy companies (the so-called Robin Tax) provided by article 81 of the Legislative Decree 112/2008 which were assessed to be no more recoverable as, on February 11, 2015, an Italian Court stated the illegitimacy of this tax. For the first time, a sentence states the illegitimacy of a tax rule prospectively, denying any reimbursement right. The effect was considered to be an adjusting event of 2014 results, on the basis of the best review of the matter currently available, considering the recent pronouncement of the sentence.
For the full year, reported net profit amounted to €1.33 billion, including the above mentioned charges, whose negative effects were partly offset by the recognition of a tax gain of €0.82 billion due to the settlement of a tax dispute with the Italian fiscal Authorities regarding how to determine a tax surcharge of 4% due by the parent company Eni SpA as provided by law No. 7/2009 (the so called Libyan tax) since 2009. In 2013 significant disposal gains were recognized due to the divestment of a 20% stake in the Mozambique discovery (€2.99 billion, recognized in the full year 2013) and the fair-value evaluation of Eni’s interest in Artic Russia (€1.68 billion, recognized in the fourth quarter and the full year 2013), partly offset by extraordinary charges and inventory holding losses for €3.9 billion (post-tax). These transactions affected the year-on-year comparison of reported net profit.

Operating cash flow 

Cash flow from operating activities was €15.09 billion (up by €4.06 billion from December 31, 2013), notwithstanding lower trade receivables due after the end of the reporting period transferred to factoring institutions (down by €0.96 billion from December 31, 2013). Divestment proceeds were €3.68 billion primarily relating to the divestment of Eni's interest in Artic Russia, an 8% stake in Galp and non-strategic assets in the Gas & Power and Exploration & Production segments. These cash inflows funded cash outlays relating to capital expenditure totalling €12.24 billion and investments of €0.41 billion for the development of oil&gas resources and exploration projects, dividend payments of approximately €4 billion and share repurchases for €0.38 billion, with the surplus used to pay down net debt.
As of December 31, 2014 net borrowings5 amounted to €13.71 billion and were down by €1.25 billion from December 31, 2013.
Compared to September 30, 2014, net borrowings decreased by €2.13 billion. Cash flow from operating activities (€5.37 billion) and asset disposals (€0.45 billion) generated enough cash to fund capital expenditure (€3.63 billion) and pay down net borrowings.
As of December 31, 2014, the ratio of net borrowings to shareholders’ equity including non-controlling interest – leverage6– decreased to 0.22 from 0.25 as of December 31, 2013 reflecting a lowered net borrowings and an increased total equity. The latter was favourably impacted by the sizable appreciation of the US dollar against the euro (up by 12% at the closing rates of December 31, 2014 compared to December 31, 2013) in the translation of the financial statements of Eni’s subsidiaries that uses the US dollar as functional currency with a gain of €5 billion.

Dividend 2014

The Board of Directors will propose to the Annual Shareholders’ Meeting to distribute a cash dividend of €1.12 per share7(€1.10 in 2013), of which €0.56 per share was paid as interim dividend in September 2014. The balance of €0.56 per share will be payable to shareholders as of May 20, 2015, with the ex-dividend date being May 18, 2015.

Exploration & Production

In the fourth quarter of 2014, Eni’s hydrocarbon production was 1.648 million boe/d, up by 6.7% from the fourth quarter of 2013 on a homogeneous basis i.e. excluding the impact of the divestment of Eni’s interest in Siberian assets. On the same basis, hydrocarbon production for the full year 2014 was up 0.6% at 1.598 million boe/d compared to the previous year. Production increases in the United Kingdom, Algeria, the United States and Angola, more than offset mature fields’ declines.

Gas & Power

In the fourth quarter of 2014, natural gas sales amounted to 23.70 bcm, down by 7.3% compared to the same period of 2013, against the backdrop of weak demand and persistent competitive pressure. Sales in Italy (8.35 bcm) decreased by 22%, mainly driven by mild weather conditions, lower spot sales and the downturn in the thermoelectric market. Sales in the European markets were 11.86 bcm, almost unchanged from the fourth quarter of 2013. On a yearly basis, natural gas sales were down by 4.3% to 89.17 bcm due to the mild winter weather and weaker gas demand, particularly in the thermoelectric segment.

Refining & Marketing

In the fourth quarter of 2014, the Standard Eni Refining Margin (SERM) that gauges the profitability of Eni’s refineries, increased fivefold due to the fall of Brent marker prices. However, the European refining business continues to be affected by structural headwinds from lower demand, overcapacity and increasing competitive pressure from import streams of refined products from Russia, Asia and the United States with a more efficient cost structure. On a yearly basis, Eni’s refining margin was up by 32.1%.
Retail sales in Italy were 1.51 mmtonnes, down by 3.8% mainly driven by strong competitive pressure (6.14 mmtonnes, down by 7.5% on yearly basis). Eni’s retail market share dropped by 1.2 percentage points to 24.7% in the fourth quarter, compared to 25.9% in the same quarter of the previous year. In 2014, Eni’s retail market share decreased by two percentage points to 25.5%, from 27.5% in 2013.

Currency

The fourth quarter’s results were positively impacted by the depreciation of the euro vs. the US dollar (down by 8.2%). On a yearly basis, the exchange rate was barely unchanged due to the relevant appreciation of the euro vs the US dollar recorded in the first months of the year.

Business developments

Exploration & Production

Exploration

In 2014 Eni continued its track record of exploratory success. Additions to the Company’s reserve backlog were approximately 900 million boe of resources for the full year, at a competitive cost of $2.1 per barrel. Near-field discoveries marked the year’s activity; such discoveries are expected to achieve a quick time-to-market leveraging on the synergies from the front-end-loading and the utilization of  existing well production infrastructures. In particular:
(i) Angola: the Ochigufu 1 NFW well, located in the deep waters of Block 15/06 (Eni operator with a 35% interest). This discovery with a potential in place estimated at approximately 300 million barrels of oil, is located near the West Hub project, which started up at the end of 2014. In January 2015 Eni obtained from the Angolan authorities a three-year extension of the exploration period of the above mentioned block;
(ii) Congo: in the conventional waters of block Marine XII, the Minsala Marine 1 NFW was the third discovery in the last two years increasing the block’s resources in place by 1 billion barrels with characteristics similar to the previous discoveries of Litchjendily and Nené, the latter started up early production in record time;
(iii) Ecuador: the Oglan-2 exploration well in Block 10 (Eni operator with a 100% interest) with a potential in place estimated at approximately 300 million barrels of oil in place, located near the processing facilities of the operated field of Villano;
(iv) Indonesia: a gas discovery has been made at the Merakes prospect through the Merakes 1 NFW in East Sepinggan offshore block
(Eni operator with a 85% interest). This discovery with a potential in place estimated at approximately 1.3 Tcf, is located in proximity of the operated field of Jangkrik, which is currently under development and will supply additional gas volumes to the Bontang LNG plant;
(v) Mozambique: the appraisal gas wells Agulha 2 and Coral 4 DIR, confirming the extension of their respective fields with a potential in place in Area 4 estimated at approximately 2,500 billion cubic meters (Eni operator with a 50% interest).

Other relevant discoveries have been made in:
(i) Gabon: the Nyonié Deep 1 well, in the conventional waters of Block D4 (Eni 100%, operator), with an estimated potential of approximately 500 million boe in place of gas and condensates;
(ii) Norway: the oil and gas Drivis discovery made at the offshore license PL532 (Eni 30%), with volumes in place estimated in the range of 125 and 140 million barrels and will be put into production with the development of the Johan Castberg Hub;
(iii) the United States: successfully completed the Stallings 1H and Mitchell 1H exploratory wells, under the agreement with Quicksilver Resources signed at the end of 2013 providing for joint evaluation, exploration and development of unconventional oil reservoirs (shale oil) in the southern part of the Delaware Basin in West Texas. The wells were already connected to existing production facilities;
(iv) Egypt: the oil discovery ARM-14 in the Abu Rudeis license (Eni 100%) in the Gulf of Suez, doubled production level in 2014.

New exploration acreage

New exploration acreage was acquired covering approximately 100,000 square kilometers, net to Eni, in:
(i) China: signed a new Production Sharing Contract (PSC) with the state-owned CNOOC for the exploration of the offshore block 50/34, located in the conventional waters of South China Sea. The exploration period will last 6.5 years;
(ii) Egypt: obtained the operatorship of Shorouk (Eni 100%) located in the deep offshore of the Mediterranean Sea;
(iii) Myanmar: signed Production Sharing Contract (PSC) for the exploration of two onshore fields. The exploration period will last six years;
(iv) Portugal: acquired from Galp’s subsidiary Petrogal a 70% interest and operatorship of the Gamba, Santola and Lavagante offshore permits;
(v) South Africa: acquired a 40% interest and the operatorship of the offshore license ER236, covering a total area of 82,000 square kilometers located along the East coast of the Country;
(vi) Vietnam: signed Production Sharing Contracts (PSC) for the exploration of Block 122, 116 (Eni’s interest 100%) and Block 124 (Eni’s interest 60%), located offshore. The PSCs provide for an exploration period of seven years;
(vii) Norway: awarded two exploration licenses in the Barents Sea, where Eni is now operator of the PL 806 area, and in the North Sea;
(viii) the United Kingdom: acquired the operatorship of exploration licenses 22/19c (Eni 50%), 22/19e (Eni 57.14%) e 30/1b (Eni 100%); 
(ix) the United States: acquired the operatorship of exploration licenses MC246 and MC290 (Eni 100%) in the Gulf of Mexico and in the Leon Valley (Western Texas) with a 50% interest for exploring and developing an area with unconventional oil reservoirs;
(x) Algeria: three prospection permits were obtained in the basins of El Guefoul, Tinerkouk and Terfas in the onshore southern Algeria.

Development activities

Kazakhstan

Signed a strategic agreement with the Kazakh national company KazMunayGas (KMG) for the exploitation of exploration and production rights in the Isatay area, located in the North Caspian Sea, through a joint operating company.

Congo

In July 2014, a cooperation agreement was signed with the relevant authorities to extend existing oil permits and to develop new initiatives in the Country’s coastal basin, which extends from onshore Mayombe to frontage deep waters.
At the end of December 2014, Eni started production at the recent Nené discovery in Block Marine XII (Eni’s interest 65%, operator) just eight months after obtaining the production permit. The early production phase is yielding 7,500 boe/d and the fast-track development of the field has leveraged on the synergies with the front-end loading and the infrastructures of the fields located in the area. The full-field development will take place in several stages and will include the installation of production platforms and the drilling of over 30 wells, with a plateau of over 120,000 barrels of boe/d.

Egypt

In August 2014, the DEKA (Denis-Karawan) project was started up with a production of 1.8 million cubic meters of gas and about 800 barrels of associated condensates per day. Produced gas is being processed at the onshore El Gamil Plant. Peak production of 6.5 million cubic meters per day net to Eni is expected by the first quarter of 2015.

Venezuela

In June 2014, Eni signed a Memorandum of Understanding with the Venezuelan national company PDVSA for the commercial development of the condensates reserves associated with the super-giant gas discovery Perla field. The agreement provides for the establishment of a joint venture company (Eni and Repsol with a 20% interest and PDVSA with a 60% interest). The two international companies will fund the share of development costs of PDVSA by contributing up to $1 billion. The agreement is subject to the relevant Authorities’ approval.

Alaska

In June 2014, the Nikaitchuq oil field achieved production target of 25 kboe/d. This relevant result required the expertise and the application of Eni’s proprietary technologies in an area with extreme climate and environmental constraints, which helped to build one of the most advanced production facilities in the North Slope.

Turkmenistan

In November 2014, Eni and the State oil company Turkmenneft agreed to extend up to 2032 the Production Sharing Agreement regulating exploration and production activities at the onshore Nebit Dag block. The agreements also establish the transfer of a 10% stake out of the contractor share to Turkmenneft.

Mexico

In October 2014, a Memorandum of Understanding and Cooperation was signed with the National Company Petróleos Mexicanos (Pemex) establishing the basis for future cooperation in the upstream and other business segments and areas.

Angola

In December 2014, first oil was achieved at the West Hub Development Project in Block 15/06 in the deep offshore. This first Eni-operated producing project in the country is currently producing 45,000 boe/d through the N’Goma FPSO, with production ramp-up expected to reach a plateau up to 100,000 bopd in the coming months. The start-up was achieved in just 44 months from the announcement of the commercial discovery, a result that is at the top of the industry for development in deep waters. The N’Goma FPSO is currently producing from the Sangos discovery, future production will leverage the progressive hooking up of the Block’s discoveries including the latest Ochigufu field discovery.

Gulf of Mexico

In January 2015, production started up from the Lucius field, located in the deep waters of the Gulf of Mexico. Production is supported by six subsea wells tied back to a moored production handling spar. Once all wells are ramped up, Eni’s share of the Lucius daily production is expected to be approximately 7,000 boe/d.

Ghana

In January 2015, Eni and the relevant authorities of the Country sanctioned the OCTP integrated oil and gas project (Eni 47.22%, operator). First oil is expected in 2017, first gas in 2018 and production is expected to peak at 80,000 boe/d.

Gas & Power

Renegotiation of long-term gas supply contracts and take-or-pay reduction
In 2014, following the renegotiation of a number of the main long term supply contracts, gas prices and related trends were better aligned to market conditions. More than 60% of long term gas supply portfolio is now indexed to hub prices. Furthermore, the cash advances paid to suppliers due to the take-or-pay clause in those long-term supply contracts were reduced by €0.66 billion thanks to contract renegotiation and sales optimization.

Refining & Marketing

Development plan of the Gela site

In November 2014, Eni defined with the Ministry for Economic Development, the Region of Sicily and interested stakeholders (including trade unions and local communities) a plan to restore the profitability of the Gela refinery. Key to the agreement is the reconversion of the Gela site into a bio-refinery. This will follow the model adopted in the Venice green refinery scheme, where green-diesel will be produced from raw vegetable materials by using the proprietary EcofiningTM technology. The agreement also defines terms for building a modern logistic pole and new initiatives in the upstream sector in Sicily. Eni will also perform environmental remediation and cleanup activities and institute a competence center for safety. The investment plan for such initiatives amounts to €2.2 billion, mainly relating to upstream projects in the Sicily region.

Start-up of Venice bio-refinery

In June 2014, the start-up of the bio-refinery of Porto Marghera was achieved, with green diesel capacity of approximately 300 ktonnes/year, from refined vegetable oil, utilizing the proprietary EcofiningTM technology. The production will fulfil half of Eni's annual requirement of green diesel, thus ensuring new perspectives for the industrial site of Venice and allowing economic and environmental benefits.

Versalis

Restructuring of petrochemical activities in Sardinia

In June 2014, the green chemical project of Matrìca, a 50/50 joint venture between Eni’s subsidiary Versalis and Novamont, started operations marking the full conversion of the Porto Torres site. Matrìca’s plant is currently leveraging innovative technology to transform vegetable oils into monomers and intermediates that are feedstock for the production of complex bio-products destined for a number of industries such as the tyre industry, bio-lubricants and plastic production. The overall production capacity of approximately 70 ktonnes per year will come gradually online during 2015. Cracking production line was closed definitively.

At the end of December 2014, Versalis signed an agreement to divest the Sarroch plant to the refining company Saras, which owns a refinery close to Eni’s petrochemical site. The agreement includes the disposal of the Versalis plants connected with the production cycle of the refinery, in particular the reforming unit, the propylene splitter unit and other related services, including the logistics system. Versalis will continue to operate on the site with the planned HSE activities and environmental remediation activities, not included in the transaction.

Restructuring of Porto Marghera petrochemical hub

In November 2014, Eni defined with the Ministry for Economic Development and the interested stakeholders a plan to restore the profitability of the petrochemical plant at Porto Marghera. The agreement includes the development of an innovative green chemical project and the definitive closure of the oil based petrochemical cracking plant. The “green‘ project, in partnership with the U.S.-based company Elevance Renewable Science Inc, envisages building global plants for the production of bio-chemical intermediates from vegetable oils destined for high added-value industrial applications such as detergents, bio-lubricants and chemicals for the oil industry.

In November 2014, Versalis signed a partnership with Solazyme, an US-based renewable oil and bio products company, to expand market access and commercial use of Encapso™ – the world’s first commercially-available, biodegradable encapsulated lubricants for drilling fluids. Encapso will also be used in oil and gas fields operated by Eni.

Divestments

South Stream

In December 2014, Eni divested to Gazprom its 20% stake in South Stream Transport B.V. engaged in the economic feasibility, procurement and construction of the offshore section of the South Stream pipeline. Pursuant to the shareholders’ agreement, Eni exercised a put option of its stake whereby the Company will recover the capital invested to date in the project, determined in accordance with existing agreements.

Further assets divestments and non-strategic interests divestments related to:
-  the divestment of an 8% interest in Galp for a cash consideration of €824 million;
-  the divestment of Eni’s 50% stake in EnBW Eni Verwaltungsgesellschaft (EEV), a joint venture which controls the companies Gasversorgung Süddeutschland (GVS) and Terranets BW operating in the gas marketing and transport, to the partner EnBW.

Eni also signed a preliminary agreement to divest its fuel marketing activities in Czech Republic, Slovakia and Romania as well as the refinery capacity to supply the marketing network through a 32.445% interest in the joint refining asset Ceská Rafinérská a.s. (CRC). The closing of the transaction is still pending.

Outlook

The Company is forecasting a moderate strengthening in global economic growth in 2015, driven by the United States. However, certain risks have the potential to mitigate this outlook: uncertainty remains around the strength of the Eurozone recovery, the extent of the slowdown of the Chinese economy and of other emerging economies, as well as financial stability. Oil prices are forecast to be significantly lower than the last year, due to an oversupplied global market. In the Exploration & Production segment, management will perform efficiency initiatives and investment optimization, while retaining a strong focus on project execution and time-to-market in order to cope with the negative impact of a lower oil price scenario. Looking at the Company’s other business segments exposed to the European economic outlook, Eni’s management anticipates challenging trading conditions reflecting structural headwinds due to weak commodity demand, oversupply/overcapacity and competitive pressure from more efficient producers. The fall of oil prices may only lessen the negative impact of such trends. The preservation of profitability in these sectors will leverage on the continued renegotiation of gas supply contracts, restructuring/reconversion of the production capacity tied to the oil cycle, cost efficiencies and margin optimization.

Management expects the following production and sales trends for Eni's businesses:
-  Production of liquids and natural gas: production is expected to increase compared to the previous year when excluding price effects on the Company PSAs, thanks to new field start-ups and the ramp-up of the projects launched in 2014, mainly in Angola, Congo, the United Kingdom, the United States and Norway;
-  Gas sales: excluding the impact of the divestment of Eni’s assets in Germany and the unusual weather conditions in 2014, natural gas sales are expected to remain stable compared to 2014. Management intends to leverage on marketing innovation, both in the wholesale and retail market, in order to mitigate competitive pressure in the market driven by oversupply, particularly in Italy;
-  Refining throughputs on Eni’s account: volumes are expected to be slightly higher than those processed in 2014 in order to capture short term opportunities in the current scenario. The production of biofuels is foreseen to increase following an expected production ramp-up at the Venice refinery;
-  Retail sales of refined products in Italy and the Rest of Europe: retail sales are expected to remain stable compared to 2014. While we anticipate weak demand trends and strong competitive pressure, we plan to leverage on marketing initiatives to maintain the Company’s market share;
-  Engineering & Construction: in spite of an anticipated challenging trading environment in the oilfield services sector due to lower crude prices, we forecast that the execution of recently-acquired projects will support operating results.

In the context of lower oil prices, in 2015 Eni’s management plans to implement capital project optimization and rescheduling which will reduce expenditure compared to the 2014 levels (€12.2 billion in capital expenditure and €0.4 billion in financial investments in 2014). These initiatives are estimated to have a limited impact on our production growth outlook in the near to medium term.

On March 13, 2015, Eni is hosting a strategy presentation to outline the Company’s targets and strategies for the 2015-2018 four year plan, as well as the economic and financial outlook.

This press release has been prepared on a voluntary basis in accordance with the best practice on the marketplace. It provides data and information on the Company’s business and financial performance for the fourth quarter and the full year 2014 (unaudited).
Results and cash flow are presented for the fourth and third quarter of 2014, for the fourth quarter of 2013 and for the full year 2014 and 2013. Information on liquidity and capital resources relates to the end of the periods as of December 31 and September 30, 2014, and December 31, 2013. Statements presented in this press release are comparable with those presented in the management’s disclosure section of the Company’s annual report and interim report. Accounts set forth herein have been prepared in accordance with the International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB) and adopted by the European Commission according to the procedure set forth in Article 6 of the European Regulation (CE) No. 1606/2002 of the European Parliament and European Council of July 19, 2002 and do not differ from the accounting standards adopted in the preparation of our statutory consolidated annual report for the year ended December 31, 2013 and the semi-annual consolidated statutory report at and for the six months ended June 30, 2014.

With effect from January 1, 2014, Eni adopted, among others, the new accounting standards IFRS 10 “Consolidated Financial Statements‘, and IFRS 11 “Joint Arrangements‘ which were issued by the IASB in 2011 and were adopted by the European Commission on December 11, 2012 with Regulation No. 1254. Therefore the comparative data presented in this press release has been restated as a result of the adoption of the above mentioned new accounting standards which were illustrated in the explanatory notes to the consolidated financial statements for the year 2013 filed with the Italian securities and exchange authorities on April 10, 2014. For a full disclosure about the impacts of the adoption of the new international accounting standards see the press release on Eni’s first quarter results of 2014, published on April 29, 2014 and interim report, published on August 1, 2014.

The following table sets out the main results of the comparative reporting periods presented in this press release including the full year results, which were restated following adoption of the new accounting standards.

Non-GAAP financial measures and other performance indicators disclosed throughout this press release are accompanied by explanatory notes and tables to help investors to gain a full understanding of said measures in line with guidance provided by recommendation CESR/05-178b.

Eni’s Chief Financial and Risk Management Officer, Massimo Mondazzi, in his position as manager responsible for the preparation of the Company’s financial reports, certifies that data and information disclosed in this press release correspond to the Company’s evidence and accounting books and records, pursuant to rule 154-bis paragraph 2 of Legislative Decree No. 58/1998.

Disclaimer
This press release, in particular the statements under the section “Outlook‘, contains certain forward-looking statements particularly those regarding capital expenditure, development and management of oil and gas resources, dividends, buyback programs, allocation of future cash flow from operations, future operating performance, gearing, targets of production and sales growth, new markets and the progress and timing of projects. By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that will or may occur in the future. Actual results may differ from those expressed in such statements, depending on a variety of factors, including the timing of bringing new oil and gas fields on stream; management’s ability in carrying out industrial plans and in succeeding in commercial transactions; future levels of industry product supply; demand and pricing; operational issues; general economic conditions; political stability and economic growth in relevant areas of the world; changes in laws and governmental regulations; development and use of new technology; changes in public expectations and other changes in business conditions; the actions of competitors and other factors discussed elsewhere in this document. Due to the seasonality in demand for natural gas and certain refined products and the changes in a number of external factors affecting Eni’s operations, such as prices and margins of hydrocarbons and refined products, Eni’s results from operations and changes in net borrowings for the fourth quarter of the year cannot be extrapolated on an annual basis.
The all sources reserve replacement ratio disclosed elsewhere in this press release is calculated as ratio of changes in proved reserves for the year resulting from revisions of previously reported reserves, improved recovery, extensions, discoveries and sales or purchases of minerals in place, to production for the year. A ratio higher than 100% indicates that more proved reserves were added than produced in a year. The Reserve Replacement Ratio is a measure used by management to indicate the extent to which production is replaced by proved oil and gas reserves. The Reserve Replacement Ratio is not an indicator of future production because the ultimate development and production of reserves is subject to a number of risks and uncertainties. These include the risks associated with the successful completion of large-scale projects, including addressing ongoing regulatory issues and completion of infrastructure, as well as changes in oil and gas prices, political risks and geological and other environmental risks.

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Eni
Società per Azioni Roma, Piazzale Enrico Mattei, 1
Share capital: euro 4,005,358,876 fully paid
Tax identification number 00484960588
Tel.: +39 0659821 - Fax: +39 0659822141

This press release for the fourth quarter and the full year 2014 (unaudited) is also available on the Eni web site eni.com.

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