Eni: full year 2019 and fourth quarter results

Yesterday, Eni’s Board of Directors approved the Group results for the fourth quarter and the full year 2019 (unaudited) and convened the Annual Shareholders' Meeting. Commenting on the results, Claudio Descalzi, CEO of Eni, remarked:

“Eni is pleased to have reported excellent results in 2019, despite a tough period characterised by geopolitical tensions and much less favourable commodity prices than in 2018. The results today reflect the successful strategy we have pursued in recent years, which has seen Eni become more resilient and growing business. In the Upstream in particular, we achieved record production of 1.87 million barrels a day with a reserve replacement ratio of 117%.
The results achieved in the Gas & Power and oil Marketing were particularly positive. Refining and Chemicals endured a challenging period, although the results were however mitigated by Eni’s restructuring actions taken in previous years.
Finally, during the year we continued to expand our renewables division, while also expanding our “bio-refineries” business, with production beginning at Gela. These measures underpin our efforts to expand the low carbon profile of our portfolio, in preparation for the strategy which will be pursued in the coming years. In addition to these results, the ongoing diversification of our Upstream growth in Norway and the United Arab Emirates has further bolstered our portfolio, while the purchase of 20% of the refining capacity Ruwais in the Emirates will increase our refining resilience in unfavourable market conditions.
Today Eni is a transformed company. Eni has clear growth options and is financially robust, with operating cash flow generation of €12.1 billion, €1 billion higher than capex, of €7.7 billion and shareholder distribution, including the buy-back, of €3.4 billion.
Based on these results, the Board of Directors today approved the proposed distribution of a dividend of €0.86 per share, of which €0.43 had already been distributed in September.”

Highlight

Exploration & Production

• Hydrocarbon production at record plateau:
  • FY 2019 average production: 1.87 million boe/d; fourth quarter at 1.92 million boe/d;
  • net of price and portfolio effects, hydrocarbon production grew by 1.7% in both reporting periods. Excluding the termination of the Intisar production contract in Libya from the third quarter of 2018, annual production was up by 5% y-o-y;
  • added 253 kboe/d of production from new fields start-ups and ramp-ups, with the bulk coming from the Zohr field, the reaching of full plateau at certain Libyan projects which started up in 2018 (Wafa compression and Bahr Essalam phase 2), increases in Ghana and Angola and start-ups in Mexico, Norway, Egypt and Algeria. These positives more than offset lower gas offtakes in certain countries due to worldwide gas oversupplies and mature field declines.
• 2019 main start-ups:
  • Area 1 offshore Mexico, early production in just eleven months after the FID;
  • Baltim SW gas project in the Great Nooros Area, in Egypt, in just nineteen months after the FID, and recent near-field oil discoveries in the South West Melehia development area and Sidri South;
  • Trestakk field in Norway, Berkine North oil field in Algeria and Nasr phase 2 in the United Arab Emirates;
  • Agogo oil field in the offshore Block 15/06 in Angola, started up in just nine months after the discovery, leveraging on the synergies with the FPSOs operational in the area.
• Portfolio:
  • Vår Energi, the joint venture between Eni (70%) and HitecVision (30%), finalized the acquisition of ExxonMobil’s upstream assets in Norway, with annual production of 150 kboe/d, for a total consideration of $4.5 billion fully financed by the JV. This strategic deal will make Eni and Vår Energi the second biggest upstream player in Norway and boost the production target to over 350 kboe/d by 2023 thanks to the development of the JV portfolio of projects;
  • divested to Qatar Petroleum Eni’s interests in exploration permits in Morocco, Mozambique and Kenya, the latter awaiting ratification;
  • divested to Neptune a 20% interest in the East Sepinggan block, offshore East Kalimantan in Indonesia, which includes the Merakes field and the East Merakes discovery. Eni will retain a 65% interest and the operatorship;
  • made final investment decisions at five projects:  the expansion project of the Bonny liquefaction plant owned by Nigeria LNG to reach more than 30 Mtpa of capacity by 2024, Berkine North phase 2 in Algeria, Dalma Hub in the UAE, Agogo in Angola and Balder X in Norway.
• Proved hydrocarbon reserves at year end:  7.3 billion boe, with a life index of 10.6 years;
  • all sources replacement ratio: 117%;
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  • organic replacement ratio: 92% (100% net of price effect) or 98% on a three-year average.

Exploration

• Main successes:
  • in the year approximately 820 mmboe of equity exploration resources were discovered, with an average discovery cost of 1.5 $/boe;
  • achieved excellent results in Block 15/06 (Eni operator with a 36.8% interest) offshore Angola,  with three discoveries (Agogo, Ndungu and Agidigbo), which including the discoveries of the end of 2018 (Kalimba and Afoxè) have increased the block’s additional mineral potential to 2 billion barrels of oil in place;
  • made significant near-field discoveries in Egypt (three) and Nigeria (one), which were promptly linked to existing production facilities with a fast time-to-market;
  • promising results in gas/NGLs plays in the Ken Bau prospect (Eni operator with a 50% interest) in Vietnam and in the CTP-Block 4 (Eni operator with a 42.47% interest) in Ghana;
  • three discoveries made by the JV Vår Energi in the Norwegian North Sea;
  • first gas and NGLs discovery in the Sharjah Emirate (UAE), in the prospect Mahani-1, in just one year after the signing of concession agreements.
• Reloading Eni’s mineral interest portfolio: in 2019, acquired new exploration acreage covering 36,000 square kilometers in Algeria, Bahrain, Cyprus, Egypt, Côte d'Ivoire, Kazakhstan, Mexico, Mozambique, Norway, the UAE, as well as Albania and Angola, these latter waiting to be ratified.
• Adjusted operating profit Exploration & Production: €2.1 billion, down by 30% q-o-q; €8.6 billion in the full year, down by 20%. Excluding the impact of the loss of control over Eni Norge which occurred at the end of 2018 to allow a-like-for-like comparison, and net of scenario effects, IFRS 16 accounting and the impact of lower interest rates on the present value of the ARC (asset retirement cost) resulting in higher DD&A, the adjusted operating profit was up by 10% q-o-q (up by 7% in the full year), mainly due to production growth. Higher volumes and new, more profitable barrels partially offset an unfavourable scenario mainly related to lower gas prices, particularly affecting European gas sales, for a negative impact of €0.8 billion in the quarter and €2.2 billion in 2019.

Gas & Power

• Retail business
  • increased the customer base by approximately 230,000 delivery points, to 9.42 million at 2019 year-end due to growth in the power business and outside Italy;
  • closed the acquisition of a 70% interest in the Evolvere company. With this deal Eni becomes the leader in the market of distributed generation from renewables in Italy.
• Wholesale gas business: progressed the portfolio renegotiation following the renewal of the agreements with Sonatrach to import the Algerian gas to Italy till 2027 and the extension of transport contract relating to the onshore and offshore Tunisian pipeline.
• LNG business: signed long-term supply agreements with Nigeria LNG for 2.6 million tons/year of LNG from 2021.
• Adjusted operating profit G&P: €143 million in the fourth quarter 2019, more than a threefold increase q-o-q. The performance was driven by optimizations of gas and power assets portfolio in Europe which captured the high market volatility and by growth in the retail business. Adjusted operating profit for the full year was €654 million.

Refining & Marketing and Chemicals

• Closed the acquisition of a 20% interest in ADNOC Refining in Abu Dhabi, for a consideration of $3.24 billion. The transaction is part of Eni’s strategy aimed at achieving better geographical diversification of the portfolio and at rebalancing along the hydrocarbons value chain, with an increase of 35% interest of its refining capacity.
• In August 2019 ,the  Gela biorefinery started up and is ramping up toward the target processing capacity of 750,000 tonnes per year.
• Bio throughputs increased by 23% in 2019.
• Versalis has upgraded its  green chemicals and circular economy businesses by launching a new line of polyethylene and polystyrene developed from recycle of wasted plastics. Progress is also being made towards the start-up of production of bio-ethanol from bio-mass on an industrial scale.
• Adjusted operating result R&M business: operating loss of €62 million in the fourth quarter of 2019 (operating profit of €220 million in the full year of 2019) due to an unfavourable refining scenario, partially offset by the steady performance of the marketing activity. Eni’s share of ADNOC Refinery result amounted to €23 million since the acquisition date.
• Breakeven refining margin: 5.8 $/barrel in 2019, 3.5 $/barrel at the budget scenario, due to narrowing price differentials between heavy crudes and the Brent market benchmark and to lower product spreads, in particular lubricants and gasolines.
• Adjusted result of the Chemicals business: operating loss of €124 million in the fourth quarter in a persistently difficult environment. In the full year of 2019 the operating loss was €268 million, negatively affected by the scenario, the incident at the Priolo steam-cracker occurred in January and by other unplanned shutdowns.

Energy Solutions, decarbonization and circular economy

• Upstream GHG emission intensity: 19.6 tCO₂ eq/kboe, representing a cumulative 27% decrease from the 2014 baseline.
• Energy Solutions: at the end of 2019, total installed capacity from renewables amounts to 167 MW, of which 82 MW in Italy and around 86 MW abroad. By February 2020, the construction of Badamsha in Kazakhstan and Volpiano in Italy had been finalized, taking total capacity to over 190 MW. Including the Falck Renewables plants in the United States, for which a negotiation is underway, total installed capacity is around 250 MW.
• Agreement with Falck Renewables for the joint development of renewable energy projects in the United States  to develop at least 1 GW of installed capacity by the end of 2023.
• Following two competitive bids, rights for the construction of a50 MW   photovoltaic plant  in the Southern Kazakhstanand  permits to build a48 MW wind farm in Badamsha, were awarded to the subsidiary ArmWind LLP in Kazakhstan.
• Began working on “forestry” projects focused on conservation: Enibecame an active member alongside BioCarbon Partners for the governance of the REDD+ Luangwa Community Forests Project in Zambia, with a commitment to purchase carbon credits for the next 20 years, until 2038.
• Signed a number of agreements with public and private partners intended to develop circular economy projects, targeting the recycle and reuse of organic and inorganic waste for the production of energy feedstock, as well as, to test innovative systems for the production of renewable energy.
• Signed a Memorandum of Understanding (MoU) in Angola for the development of social and sustainable projects to improve the living standards of a community of at least 180,000 people contributing to the Sustainable Development Goals (SDGs) of the United Nations, including the construction of a 50 MW photovoltaic plant.

Group results

• Adjusted operating profit: €1.80 billion in the fourth quarter, down by 40% q-o-q (€8.60 billion in the full year, down by 24%). Excluding the impact of the loss of control over Eni Norge occurred at the end of 2018 to allow a-like-for-like comparison, and net of scenario effects, a lower time value of the money and IFRS 16 accounting, the Group adjusted operating profit increased by 9% q-o-q (a 5% increase y-o-y).
• Adjusted net profit: €0.55 billion for the quarter, down by 62% q-o-q (down by 61% excluding IFRS 16 accounting effects); €2.88 billion in the full year, down by 37% (down by 35% excluding IFRS 16 accounting effects).
• Net result: net loss of €1.89 billion in the quarter; net profit of €0.15 billion in the year.
• Cash flow before working capital at replacement cost²: €2.6 billion (down by 20%) in the fourth quarter and €12.1 billion in the full year, a slight reduction of 4% y-o-y notwithstanding the remarkable deterioration of the scenario (before IFRS 16 accounting effects, €2.4 billion in the quarter and €11.4 billion in the full year). Cash flow was a surplus of €1 billion, after funding net capex of €7.73 billion and returns to shareholders of €3.4 billion including the dividends and the share buy-back.
• Cash flow provided by operating activities: €3.73 billion in the fourth quarter (down by 14%); €12.39 billion in the year (down by 9%), which was negatively affected by an extraordinary payment to settle an arbitration outcome (approximately €330 million).
• Capital expenditure and investment, net: €7.73 billion in the year, net of the acquisition of a 20% interest in ADNOC Refining and of expenditures to purchase hydrocarbons reserves for an overall amount of €3.3 billion (IFRS 16 effects were immaterial).
• Net borrowings: €11.5 billion before the effect of IFRS 16, up by 38% from 2018 year-end mainly due to the acquisition of a 20% interest in ADNOC Refining (€2.9 billion). Including IFRS 16, net borrowings was €17.13 billion, of which around €2 billion pertains to the share of lease liabilities attributable to joint operators in Eni-led upstream project.
• Leverage: 0.24 before the effect of IFRS 16, higher than the ratio at December 31, 2018 (0.16). Including IFRS 16, leverage was 0.36, or 0.32 excluding the share of lease liabilities attributable to E&P joint operators.
• Buy-back: at the end of 2019 completed the buy-back program for a total consideration of €400 million (28.6 million of shares have been repurchased).
• 2019 dividend proposal³: €0.86 per share, of which €0.43 already paid as interim dividend.
• Cash neutrality: funded net capex for the FY and the dividend with the operating cash flow at the Brent scenario of 59 $/bbl, 64 $/bbl when excluding IFRS 16 effects. Assuming the budget scenario, the cash neutrality came at 50 $/bbl (55 $/bbl when excluding IFRS 16 effects).

Outlook

The Group financial outlook, its business prospects and the key industrial and profitability targets in the short, medium and long term will be disclosed during the Strategy Presentation which will be held later today. A press release has been issued today and disseminated through the Company’s website (eni.com) and other public means as required by applicable listing standards.

_{²See table on page 15.
³ The Board of Directors intends to submit a proposal for distributing a dividend of €0.86 per share (€0.83 in 2018) at the Annual Shareholders’ Meeting convened for May 13, 2020. Included in this annual payment is €0.43 per share paid as interim dividend in September 2019. The balance of €0.43 per share is payable to shareholders on May 20, 2020, the ex-dividend date being May 18, 2020.}

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