For the period 2016-2019 we intend to increase and improve the exploratory resources and increase cashflow. To do this we will carry out appraisal activities on recent discoveries and near-field and additional activities in the legacy area; we will renew exploration share portfolios and will quickly start production in the resources that have been discovered. The upstream development model will continue to be characterised by the presence of large-scale projects and reduced costs of single unit development. The risk analysis will include all factors from price fluctuation to geopolitical risk and particular focus will be on the technical risks. Sustainability will continue to be central to our strategy and will concentrate in particular on the reduction of the carbon footprint and the gradual elimination of routine gas flaring.
Large projects at low unit cost
The upstream development model will continue to be characterised by the presence of large-scale, conventional projects generated by organic activity, by reduced costs per unit development and which are sustainable also at contained Brent price levels. The significant exploratory success achieved has ensured an increase in hydrocarbons, not to mention a considerable increase in the value, due to the swift monetisation of excess resources discovered and in excess of the replacement rate.
Our main priorities are to increase and improve exploration resources and increase cashflow. The increase and improvement of exploration resources will be carried out by:
- Focusing on appraisal activities of the recent discoveries (Egypt, Congo, Indonesia and Angola), on near-field, additional activities in legacy areas and near fields undergoing development, predictions of new discoveries of 1.6 billion boe at a competitive cost of $2.3 per barrel.
- The renewal of the exploration securities portfolio, with particular attention to issues of high materiality.
- Swift production start-up of discovered resources through the optimisation of time-to-market and a focus on the “execution” phase of the projects.
Cash generation will be boosted in the following ways:
- by the growth of production at an average annual rate higher than 3%, maintaining a solid project base in core areas, also by means of negotiations with the producer countries and tight monitoring of non-operative activities. The start-ups which have already been planned and the development of those started in 2015, will produce over 800 thousand boe/day in 2019. The main projects already underway are the Goliat oilfield (Eni operating 65%) in the Barents Sea in Norway, the Jangkrik project (Eni operating with 55%) in Indonesia, the development of oil and gas of the licensed Offshore Cape Three Points (Eni operating 47,22%) in Ghana, the re-start of Kashagan (Eni 16,81%) by the end of 2016, not to mention the accelerated start-up of the giant discovery of Zohr (Eni 100%) offshore in Egypt and the continuous production of the discoveries of Block 15/06 (Eni operator 35%) in Angola.
- By modular approach towards the development of projects in phases, in order to reduce financial exposure and speed up the starting of production.
- By increasing efficiency through widespread action regarding operational cost reduction, carried out also through the renegotiation of supply contracts.
- By focussing on money in circulation by optimising credit for third parties and partners in joint ventures and minimising surplus in warehouses-
- By monetising swiftly the discoveries made.
The main risk factors that could impact upstream performance, above all in the short or medium term, are:
- the risk linked to the decrease of Brent prices. Mitigation shares foresee further interventions of rationalisation, as well as the renegotiation of the cost of goods and services related to the new market trend. With reference to investments, in the 2016-19 plan, a reduction of about 18% on the previous plan is expected, the exchange being the same due to the improvement of efficiency in exploration, centring on near-field activity and appraisals, the re-phasing of non-sanctioned projects as well as the revision of service contracts. Added to all this is the reduction of operational costs by 12% at constant exchange rates compared to the old plan.
- The geo-political risk related to politics and social instability in some countries where Eni operates. At present Eni’s operational activities are predominantly in areas unaffected by instability, while the most significant growth is expected in countries of low or average risk (about 90% of investments in the four-year period).
- The risk connected to technological and logistical complexity of some projects. The main action to mitigate this foresees the control and reduction to a minimum of the time taken to start production and of the resources and a high level of maintenance operatorship (production of assets in the project portfolio amounting to 75% in 2019, with an average growth rate in the course of the plan of 4.3%).
- The technical risk related to the “critical” drilling activities regarding deepwater, high pressure, high temperature well perforation. In the 2016-2019 plan, the number of critical wells is expected to decrease by 24% and the percentage of critical operational activity is expected to increase guaranteeing greater direct control and respecting Eni’s high standards.
Sustainability of business
Business sustainability in the short and long term plays a key role in the achievement of objectives through increasing involvement of all stakeholders, continuous relations with the local authorities and by pursuing the following goals:
- a 30% reduction in gas flaring in 2019 compared with 2014, in line with the target of zero routine flaring in 2025.
- a reduction of the carbon footprint through increased investment in gas, energy savings initiatives and the development of renewable energy.