Eni: results for the second quarter and half year 2023

Eni's Board of Directors, chaired by Giuseppe Zafarana, yesterday approved the unaudited consolidated results for the second quarter and first half 2023. Eni CEO Claudio Descalzi said:

“Eni has delivered excellent operating and financial results in Q2 ’23 despite a less supportive environment. This resilience is significant after having successfully captured upside in the previous stronger scenario. Furthermore, alongside the results delivery Eni has also made considerable steps forward in advancing strategy across the business. Q2 adjusted EBIT of €3.4 bln (€4.2 bln including the contribution proforma of our JV/associates) was underpinned by a solid and growing Upstream and another excellent result in GGP. The market scenario impacted our Refining and Chemicals results but Sustainable Mobility and Plenitude & Power continue to deliver earnings and capacity growth in line with plan despite volatile conditions. Adjusted cash flow was notable at €4.2 bln and well in excess of the capex funding requirements of €2.6 bln. In the first half of 2023, also taking into account working capital needs, we delivered about €3 bln of organic free cash flow, almost matching the entire full year 2023 dividend cash out. Actions in the strategic transformation of the company are already positively impacting our results and 2023 has seen further significant advances. Alongside expanding our biorefining capacity with the Chalmette JV and the Novamont green chemicals purchase, in June we announced the proposed acquisition of Neptune Energy. Neptune’s gas focused portfolio, geographic and operational complementarity with Eni and its low operating emissions profile is an exceptional fit with our strategic objectives yielding significant operating and financial upside. Our strategic initiatives will each contribute towards the very positive performance progression targeted in our plan. Considering our first half results and continuing business performance that drives raised guidance, we have a solid position from which to pay our first quarterly installment of the raised €0.94 per share 2023 dividend in September and continue our €2.2 bln buyback which commenced in May.’’

• Q2 2023 adjusted profit before tax of €3.7 bln was down 41% and represents a highly robust outcome given the 30% fall in crude oil prices and with gas price and refining margin down over 60%. Particularly, pro-forma adjusted EBIT including the operating margin of equity accounted entities was €4.2 bln vs. €7 bln in Q2 2022. This performance reflects resilient E&P earnings featuring growing production, another very strong contribution from GGP, plus contributions from Sustainable Mobility and Plenitude.
• E&P earned €2.1 bln of adjusted EBIT in Q2 2023, impacted by weaker realized prices and with year-on-year comparisons impacted by the deconsolidation of Azule. Including the contribution of JV/associates, proforma adjusted EBIT was €2.8 bln, down 52%, also impacted by a higher exploration charge. IH 2023 result was €4.9 bln (versus €9.3 bln in IH 2022). Production in the quarter was up 2% year-over-year
• GGP earned €1.1 bln of adjusted EBIT in Q2 2023, compared to around breakeven in the same period of 2022, resulting in a very good IH EBIT outcome of €2.5 bln. The Q2 result was mostly driven by specific benefits relating to contractual triggers, renegotiations and settlements related to previous periods that are a feature of the business. Additionally, in a market environment still characterized by some degree of volatility and arbitrage opportunities, the continued asset optimization and trading have also contributed to the quarterly performance.
• Eni Sustainable Mobility, operational as of January 1, 2023, delivered €0.20 bln of adjusted EBIT, little changed compared with Q2 2022 (€0.34 bln in IH 2023, up by 38%).
• Refining was impacted by SERM decreasing to $6.6/bbl in Q2 2023 ($17.2/bbl in Q2 2022) and reported a negative €0.05 bln of adjusted EBIT compared to a profit of €0.76 bln of Q2 2022 (a positive €0.08 bln in IH 2023). The performance was impacted by scenario conditions not fully captured by the SERM including lower leverage to natural gas price energy costs, crude differentials and turnaround activity at important upgrading refinery units.
• Plenitude & Power delivered solid results with €0.17 bln of adjusted EBIT (up 18% year-on-year; €0.35 bln, up 8% in IH 2023) supported by good results of the retail business and the ramp-up in the renewable installed capacity and production volumes, and optimizations in gas-fired power generation activities. Plenitude generated €0.47 bln of proforma adjusted EBITDA in IH 2023, rateably ahead of the yearly guidance of more than €0.7 bln partly as a result of seasonality.
• Versalis was negatively impacted by an exceptionally low demand across all business segments and competitive pressures of product streams from import resulting in an adjusted operating loss of €0.07 bln in Q2 2023 (a loss of €0.18 bln in IH 2023).
• Q2 2023 adjusted net profit attributable to Eni shareholders was €1.94 bln impacted by the weaker scenario, but significantly offset by underlying business performance. The Group adjusted tax rate, which did not include Italian extraordinary contributions, was under 50% despite inclusion of the UK energy profit levy. IH 2023 adjusted net profit attributable to Eni shareholders was €4.84 bln.
• In Q2 2023, Group adjusted operating cash flow before working capital at replacement cost was €4.2 bln, exceeding outflows related to organic capex of €2.6 bln and dividend payments (€0.7 bln). In IH 2023, adjusted cash flow was €9.5 bln resulting in an organic free cash flow of €3 bln.
• Portfolio activities in IH were around €1.2 bln and related to the first installment of the St. Bernard Bio-refinery in Chalmette, gas upstream assets in Algeria and renewable assets. IH dividend payments amounted to €1.5 bln and share buy-back of €0.4 bln.
• Eni’s Board of Directors approved the distribution of the first of the four tranches (resulting in a total annual dividend of €0.94) of the dividend for the fiscal year 2023 of €0.24 per share outstanding at the ex-dividend date as of September 18, 2023, payable on September 20, 2023, as resolved by the Shareholders’ Meeting of May 10, 2023.
• Net borrowings ex-IFRS 16 as of June 30, 2023, were €8.2 bln, and Group leverage stood at 0.15, versus 0.13 as of December 31, 2022.
• Following the authorization granted by the Shareholders Meeting on May 10, 2023, concerning €2.2 bln up to a maximum of €3.5 bln for the year, the 2023 buy-back program commenced at the end of May and through July 21, 2023, 45 mln shares have been purchased for a cash outlay of €588 mln.

Acquisition of Neptune Energy Group Ltd “Neptune”

• Eni and its associate Vår Energi ASA have signed a sale and purchase agreement to acquire Neptune, a leading independent exploration and production company with global, low emission, gas-oriented operations, which also retains several projects for CO₂ capture. Eni will acquire an asset portfolio which features strong complementarity at both operational and strategic level with its own, strengthening the presence in key geographic areas, like UK, Algeria, Indonesia and Australia. Vår will consolidate its position in Norway. The deal with an enterprise value of $4.9 bln, of which $2.6 bln acquired by Eni and $2.3 bln by Vår, is expected to increase Eni production plateau by over 100 Kboe/d including its share of Vår, by adding cost-competitive, low-emission volumes that will underpin the Group strategy of growing its share of natural gas production and speeding up the transition, while at the same time enhancing security of energy supplies to Europe. The transaction whose economic effects are retroactive to January 1, 2023, is expected to close at the beginning of 2024 subject to the finalization of antitrust procedures and other customary conditions and will be immediately accretive to Eni’s earnings and cash flow also leveraging expected synergies of at least $0.5 bln.

Exploration & Production

• During Q2 2023, the new resources added through exploration reached the total for the first half of the year of about 360 mln boe, driven mainly by the discoveries made off Egypt, Congo and Mexico.
• In April, the FPSO Firenze sailed out from Dubai to the Baleine field in Côte d'Ivoire. The FPSO to be renamed Baleine upon its mooring has been refurbished and upgraded to increase its processing capacity up to 15,000 bbl/d of oil and around 25 mmcf/d of associated gas.
• In June, Eni signed with Perenco the agreement for the sale of its participating interest in several production licences in Congo. The transaction value is approximately $300 mln. The closing is subject to the authorization of relevant local and regulatory authorities.
• In July, Eni acquired Chevron’s development and production assets in offshore Indonesia. The operation will ensure the fast track development of ongoing projects in the area and the integration with Neptune Energy assets. This acquisition is also in line with Eni's energy transition strategy to increase the share of natural gas production to 60% by 2030. The closing of the transaction is subject to the customary governmental and regulatory approvals.

Global Gas & LNG Portfolio

• In April, Eni and SPP, the Slovakia’s largest energy supplier, signed a Memorandum of Understanding (MoU) for a commercial cooperation in the gas and LNG sector, aimed at evaluating initiatives in the areas of trading and management of regasification and transportation capacities to secure and strengthen supplies of natural gas to the Slovak Republic.
• In April, Eni inaugurated the Congo LNG project, the country's first natural gas liquefaction project and one of Eni's core supply diversification initiatives. The project is expected to start-up before the end of the year and to reach an overall LNG production capacity of 3 mln tons per year (approximately 4.5 bln cubic meters/year) from 2025.
• In May, Eni offloaded the first LNG cargo from Egypt’s Damietta liquefaction plant into Snam’s new regasification terminal in Piombino, off Tuscany. This was followed the delivery of the first commercial cargo, from Algeria’s Betihoua plant, in July.

Sustainable Mobility, Refining and Chemicals

• In June, Eni Sustainable Mobility Spa and PBF Energy Inc. (PBF) finalized the 50-50 joint venture partnership in St. Bernard Renewables LLC (SBR), an operating biorefinery co-located with PBF’s Chalmette Refinery in Louisiana (US). The biorefinery started operations in June and is currently targeted to have processing capacity of about 1.1 mln tonnes/year of raw materials, with full pretreatment capabilities. It will produce mainly HVO Diesel using the Ecofining™ process developed by Eni in cooperation with Honeywell UOP.
• In April, Versalis, currently owning a 36% interest in Novamont, finalized an agreement to purchase the remaining 64% participating interest owned by the other shareholder Mater-Bi. The closing of the transaction is subject to the customary conditions precedent.
• In May, Kenya Airways made its first flight, powered by Eni Sustainable Mobility's SAF (Sustainable Aviation Fuel). The conventional JetA1 fuel was blended with Eni Biojet produced by Livorno refinery by distilling the bio-components produced in the Gela biorefinery.

Plenitude & Power

• In May, the European Commission and Cassa Depositi e Prestiti awarded more than €100 mln to Be Charge for the construction, by 2025, of a network of over 2,000 “ultra-fast” charging points, with a minimum power of 150 kW along the main European transport corridors involving eight European countries.
• In June, Plenitude through its subsidiary Be Charge signed an agreement with Ikea to provide the installation of 250 latest generation charging station, within the parking areas of stores and Ikea centers throughout the country.
• In June, the new Plenitude’s first utility-scale size battery plant of Assemini (Cagliari) realized in Italy started operations. The plant, with an installed capacity of 15 MW and an energy storage capacity of 9 MWh, has been realized with battery modules based on Lithium Iron Phosphate (LFP) technology.
• In June, Eni and KazMunayGas (KMG) announced a joint project for a 250 MW Hybrid Renewables-Gas Power Plant in Zhanaozen, in the Mangystau Region. The project, the first of its kind in the country, comprises a solar power plant, a wind power plant and a gas power plant for the production and supply of low-carbon and stable electricity to KMG subsidiaries in the area.
• In June, Eni Plenitude SpA SB finalized the acquisition from Helios UK (Spain) Ltd of a portfolio comprising two photovoltaic plants with a total capacity of 96.4 MWp in Spain’s Albacete.
• In July, GreenIT, a JV owned by Plenitude and CDP Equity, signed an agreement with Hive Energy Limited and SunLeonard Energy Limited to support the development of four photovoltaic projects with a total capacity of up to 200 MW. The new sites will be developed in Apulia, Sicily, and Lazio leveraging agri-voltaic technology, installing raised structures to achieve synergy between agriculture and the production of renewable energy.

Decarbonization and Sustainability

• In May, Eni signed a Memorandum of Intent (MoI) with the Government of Republic of Guiné Bissau to explore potential areas of collaboration in exploration, nature and technology-based climate solutions, agriculture, sustainability and health. Other areas of collaboration include the evaluation of exploration potential of the country's offshore area.
• In May, Eni signed a Memorandum of Understanding (MoU) with Sonangol to evaluate possible joint initiatives in the areas of energy transition, including agro-industrial supply chains for the production of low-carbon fuels, the valorization of biomass for agro-industrial applications and critical minerals.
• In June, Eni signed a Memorandum of Understanding with Libya to evaluate possible opportunities to reduce GHG emissions and develop sustainable energy in the country. Under the terms of the memorandum, Eni will work on reducing CO₂ emissions through the reduction of routine gas flaring, fugitive emissions and venting, as well as possible projects for the reduction of hard-to-abate sector emissions.

The Company is issuing the following updated operational and financial guidance.

• E&P: Hydrocarbon production for 2023 is confirmed in the range of 1.63-1.67 mln boe/d in a price scenario of $80/bbl. In Q3 2023 production is forecast to be about 1.63 mln boe/d.
• E&P: Exploration target of 700 mln boe of discovered resources is confirmed.
• GGP: Adjusted EBIT guidance is raised to €2.7 bln - €3.0 bln for the year versus the previous guidance of €2.0 bln - €2.2 bln.
• Plenitude & Power: Plenitude proforma adjusted EBITDA guidance is raised to around €0.8 bln, higher than €0.7 bln previously.
• Sustainable Mobility, Refining and Chemicals: Sustainable Mobility proforma adjusted EBITDA is confirmed at more than €0.9 bln. Downstream proforma adjusted EBIT is now expected to be €0.8 bln, lower than €1.0 bln - €1.1 bln reflecting market conditions not captured by the benchmark SERM.
• Financials: We confirm Group adjusted EBIT guidance of €12 bln even at the lowered reference scenario¹, an underlying raise in guidance of around €2 bln. At the lowered scenario assumptions we expect cash flow from operations before working capital to be between €15.5-€16 bln, similarly reflecting an improvement in underlying performance.
• Capex: Now expected to be under €9.0 bln, lower than previous guidance of €9.2 bln and original guidance of €9.5 bln and resulting from continuing optimization and efficiency measures.
• Balance Sheet: Leverage is expected to remain within the stated range of 10% - 20%.
• Shareholders Remuneration: Full year 2023 dividend of €0.94 per share was approved by the Shareholders Annual General Meeting (AGM) on May 10, 2023, with the first quarterly installment of €0.24 per share due to be paid on September 20, 2023². The planned €2.2 bln share buyback, commenced in May after authorization at the AGM of a total of up to €3.5 bln, and is expected to be completed within April 2024.

The above-described outlook is a forward-looking statement based on information to date and management’s judgement and is subject to the potential risks and uncertainties of the scenario (see our disclaimer on page 18).

_{[1] Updated 2023 Scenario is: Brent 80 $/bbl (from $85/bbl); SERM 8 $/bbl (unchanged); PSV 484 €/kmc (from 529 €/kmc); and average EUR/USD exchange rate of 1.08 (unchanged).}

_{[2] Ex-dividend date: September 18, 2023; record date: September 19, 2023.}

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