Eni results for the second quarter and half year 2018

Yesterday, Eni’s Board of Directors approved the Group results for the second quarter and first half of 2018 (unaudited). Commenting on the results, Claudio Descalzi, CEO of Eni, remarked:

“Eni recorded another period of strong profitability in the second quarter. In the context of a 38% rise in the price of Brent, Eni reported a 152% increase in operating profit, driven by the performance of the Exploration & Production business, which more than tripled its contribution. Our cash generation also grew significantly, driven by the price of Brent and increased production levels, contributing to $20 per barrel, allowing us to confirm the lowering of our cash neutrality to $55 per barrel for 2018. The Gas & Power segment also reported excellent results, thanks to the strong integration of the LNG business with upstream activities and the positive impact of the restructuring carried out over the last years. A deterioration in Refining and Chemicals environment – which runs counter-cyclically to the price of Brent – meant a reduction in the contribution of these businesses, albeit remaining positive thanks to recent restructuring. There was significant progress in our portfolio management this quarter with the creation of Vår Energi in Norway as well as the funds received for the sale of Eni’s 10% stake in the Zohr field to Mubadala. As a result, net debt fell below €10 billion – the lowest level in 11 years. Consequently I will propose an interim dividend of €0.42 per share at the Board meeting on 13 September.”

Highlights

Exploration & Production

• Strong growth reported in hydrocarbon production at 1.86 million boe/d (in both the reporting periods): up by 5.2% q-o-q, up by 4.6% in the first half. Net of price effects in PSAs, the growth rate was 6.6% in the quarter and 5.4% in the first half;
  production growth fueled by the ramp-up of giant projects, recently started up: Zohr, Noroos, Jangkrik, OCTP, Ochigufu, Nenè phase 2; higher production at the Kashagan and Val d’Agri fields (the latter shutdown in the second quarter 2017) and the entry in Abu Dhabi;
  main start-ups: Ochigufu offshore Block 15/06 in Angola, maintaining the production plateau at 150 kboe/d; Phase 2 of the giant Bahr Essalam gas field in Libya, just three years after the final investment decision.
• Strengthened Eni presence in Norway following the agreement to merge the subsidiary Eni Norge AS with Point Resources. The combined entity will be a leading Norwegian upstream company producing around 180 kboe/d in 2018. Closing is expected by the end of 2018.
• Significant progress has been made towards the final investment decision of the Rovuma LNG project to monetize the gas reserves of Area 4 in Mozambique. The development plan of the first phase of the project has been submitted to the Mozambique government. Under negotiation Rovuma LNG sales and purchase agreements. The final investment decision is expected in 2019.
• Zohr ramp-up in Egypt: the fourth treatment unit started up in record time increasing installed capacity to approximately 1.6 bscfd (220 kboe/d). Expected in September the start-up of the fifth treatment unit, for a total capacity of approximately 2 bscfd.
• Dual exploration model: the divestment to Mubadala Petroleum of a 10% stake in the Shorouk concession in offshore Egypt, where the super-giant Zohr gas field is producing, was finalized.
• Exploration:
  Oil exploration successes at the Block 15/06 in Angola, as well as at two exploration prospects located in the Faghur basin, in the South West Meleiha license in Egypt.
  New exploration acreage: awarded 100% interest in the East Ganal deepwater exploration block, in Indonesia. In the first half, awarded new mineral licences in Mexico, Lebanon and Morocco, a total of 22,000 square kilometers.
  Resource base: in the first half of 2018 added approximately 280 million boe.
• A cooperation agreement with Sonatrach was finalized to develop new gas resources in conjunction with existing assets.
• Exploration & Production adjusted operating profit: €2.74 billion in the second quarter, a more than three-fold increase q-o-q; €4.83 billion in the first half, more than doubling y-o-y.

Gas & Power

• Robust recovery in profitability due to the restructuring of the portfolio of long-term gas contracts, a growing LNG business and optimizations in power and logistics: in the second quarter, adjusted operating profit of €0.11 billion, compared to a loss of €0.15 billion in the second quarter of 2017; more than doubling at €0.43 billion in the first half of 2018 (€0.19 billion in the first half of 2017).
• Finalized an agreement with Sonatrach for gas supplies in the 2018-2019 thermal year.
• LNG sales: up by 54% to 5.40 bcm in the first half of 2018, more than half sold on the Asian markets leveraging on supplies of upstream equity gas in Indonesia, as result of the improved integration across businesses.
• Retail business: continuous increase in the customer base, excluding the impact of the divestments.
• Finalized the divestment of gas distribution activities in Hungary.

Refining & Marketing and Chemicals

• Improved refinery utilization rates: 87% in the second quarter, 92% in the first half of 2018 (up by 4 and 6 percentage points, respectively).
• Petrochemical sales up by 12.5% in the second quarter of 2018 (up by 7% in the first half of 2018), driven by an improvement in plant performance.
• Refining & Marketing adjusted operating profit: €61 million, down by 63% q-o-q (€79 million for the first half, down by 66%) due to an unfavorable trading environment.
• Chemicals adjusted operating profit: €6 million in the second quarter, negatively affected by rapidly-escalating costs of oil-based feedstock, not yet fully recovered in product prices; €65 million in the first half (down by 79%).

Group results

• Adjusted operating profit: €2.56 billion, up by 152% on a quarterly basis; €4.94 billion in the first half (up by 73% vs. first half of 2017).
• Adjusted net profit: €0.77 billion, up by 66% q-o-q; €1.74 billion, up by 45% in the first half of 2018.
• Net profit: €1.25 billion in the second quarter (€2.20 billion in the first half).
• Strong cash flow from operations: €3 billion (up by 12% q-o-q); €5.2 billion in the first half (up by 13%).
• Adjusted cash flow from operations¹ before changes in working capital at replacement cost at €2.82 billion in the second quarter, €5.99 billion in the first half (up by 21% q-o-q and y-o-y).
• Net capex: €3.67 billion² in the first half; more than funded by organic cash flow.
• Net borrowings: €9.9 billion.
• Leverage: 0.20, lower than the level of December 31, 2017 (0.23).
• 2018 interim dividend proposal: €0.42 per share³, out of a full-year dividend of €0.83 per share.

Outlook 2018

Exploration & Production
Hydrocarbon production: the Company is forecasting a 4% increase for the FY 2018 vs. 2017 at a Brent price scenario of 60 $/bbl, equalling to a production level of about 1.9 million boe/d. This growth is expected to be driven by: continuing production ramp-up at the fields started up in 2017, particularly in Egypt, Indonesia and Ghana, a larger contribution from the Kashagan, Goliat and Val d’Agri fields, new fields start-ups in Angola, Libya and Ghana, as well as the contribution of the new venture in UAE. These increases are expected to be partly offset principally by mature fields declines.

Gas & Power
Revised upwardly the guidance of the FY adjusted operating profit at €400 million, notwithstanding the business seasonality with the third quarter being the weaker in the year.
Gas sales: expected to decline in line with an expected reduction in long-term contractual commitments both to procure and to supply gas. An increase in nearly 9 million tons of LNG contracted volumes expected by 2018 year-end.

Refining & Marketing and Chemicals
A projected refining break-even margin of approximately 3 $/barrel by the end of 2018, leveraging on the restart of the EST unit, at the Sannazzaro refinery.
Refining throughputs on own accounts expected to be flat compared to 2017, due to better performance at the Sannazzaro and Livorno refineries because of unplanned shutdowns in 2017, offset by reductions at the Taranto and Milazzo plants. Green diesel productions are expected to grow at the Venice plant. A higher refineries utilization rate is projected.
Retail sales were substantially unchanged y-o-y in Italy and in European markets. The market share in Italy is expected to be stable at around 24%.
Versalis: spreads of the main commodities, which were negatively affected by rapidly-escalating oil-based feedstock costs in the second quarter 2018, are expected to normalize. Sales volumes are expected to grow in all business lines driven by higher product availability and by fewer planned standstills and upsets.

Group
Cash neutrality: funding of capex for the FY and the dividend is confirmed at a Brent price of approximately 55 $/bbl in 2018.
2018 FY Capex expected to be €7.7 billion, in line with the guidance.

¹ See table on page 14.
² See details on page 1, footnote (d).
³ Dividends are not entitled to tax credit and, depending on the receiver, are subject to a withholding tax on distribution or are partially cumulated to the receivers' taxable income.

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