Low carbon oil & gas portfolio

One of the drivers used by Eni to pursue its decarbonization strategy is the Oil & Gas portfolio characterized by conventional projects developed in stages and with low CO2 intensity. The new upstream projects in execution, which represent about 65% of the total development investments in the sector in 2018-2021, break-even at Brent price below 30 $/bl and are therefore resilient even in low carbon scenarios. Eni projects an internal rate of return (IRR) of 13% and 18% at Brent prices of 50 $/bl and 70 $/bl respectively (flat since 2018). Furthermore, these projects have a positive cumulative Free Cash Flow as early as 2019, due to the cash in from the application of the Dual Exploration Model, which is the early monetization of exploration successes through the sale of minority stakes. The equity resources of 3P+Contingent hydrocarbons at 31/12/2017 show an over 50% of natural gas, a bridge towards a low carbon future.

Portfolio resilience

Portfolio resilience is ensured by the regular review of the assets portfolio and new investments in order to identify and assess potential emerging risks associated with changes in emissions regulations and in the physical conditions of operations. The return on the main investment projects is tested using a sensitivity to carbon pricing of 40 $/ton CO₂eq in actual terms in 2015, when the Final Investment Decisions (FID) is made and later during the six-monthly monitoring of projects, based on the following assumptions:

• Eni’s scenario of hydrocarbon prices and cost of CO₂ 20;
• IEA SDS low-carbon scenario of hydrocarbon prices and cost of CO₂.

The results of the most recent monitoring have highlighted marginal impacts (-0.8 percentage points) on internal return rates. In addition, the portfolio composition and Eni’s decarbonization strategy minimises the risk of stranded assets in the upstream sector, since the breakeven price of Oil & Gas projects have been gradually reduced through the optimization of the asset portfolio with the high incidence of conventional gas, near-field exploration and efficiency improvements in development projects. In this regard, the management has subjected to a sensitivity analysis the book value of all CGUs (Cash Generating Units) in the upstream sector, adopting the IEA SDS scenario; this stress test highlighted the substantial retention of the asset book values, with a reduction of about 4% of the fair value. Having tested its resilience, Eni’s flexibility and adaptability are confirmed in the fact that the uncommitted portion of the capital expenditures is 36% in 2018-2021 and equal to approximately 50% with reference to the last two-year period 2020-2021.

Gas for access to energy

Another important element of the portfolio resilience is associated with the development of gas projects near growing markets in emerging economies with increasing energy needs, particularly in Africa. According to the IEA, 1.1 billion people in the world do not have access to electricity, half of them in Sub-Saharan Africa. This has decreased since 2000s, when the number was around 1.7 billion people. In particular, from 2000 to 2016, most people who have had access to energy have used energy produced by fossil fuels. In Sub- Saharan Africa, the situation is not expected to change by 2030, despite the enormous availability of energy sources (enough gas resources to cover actual consumption for 800 years). Moreover, in Africa 50% of the energy mix is based on the use of biomass. Eni has always been committed to researching and developing resources for local development and is committed to projects aimed at access to energy and energy mix diversification, towards low impact sources such as gas and renewables.

Gas advocacy

Gas is the ideal partner for the development of renewables, which still have some economic and technological limits when deployed on a large scale. Use of the gas-renewables mix will also enable coal consumption to be reduced. Currently, coal contributes less than 40% to global power generation and is responsible for over 70% of CO₂ emissions in the electricity sector. In order to stimulate this transition, the technologies and measures related to energy policy will have an important role. Eni intends to maximize the use of gas as a fuel bridge, particularly in electricity generation, but also to enhance its use in the transport sector.