Eni results for the third quarter and nine months of 2018

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

“I am very pleased with our performance in the third quarter, which allowed us to record cash flow from operations of €4.1 billion, double the amount we achieved in the same period last year and, even more remarkable, 35% higher than the previous quarter with a Brent price broadly unchanged. All the businesses have performed well, with the Upstream division showing that it can thrive either in an environment of increasing oil prices when compared with the third quarter 2017 and, above all, in an environment of flat oil prices when compared with the second quarter 2018. The Mid and Downstream businesses continue their recovery, demonstrating sustainable profitability despite an unfavorable environment. Net debt reduced €900 million from June to €9 billion following payment of the full year dividend. We are reaffirming our guidance of Group cash neutrality, including the funding of the dividend, at $55 per barrel, roughly $20 lower than the current Brent price. This is in line with the financial discipline we aim to maintain over time.”

Highlights

Exploration & Production

• Hydrocarbon production:
  • 1.8 million boe/d in the third quarter of 2018, up by 1.2% q-o-q net of price effects (stable on a reported basis ). Production growth negatively affected by lower-than-expected produced gas volumes due to the impact of exogenous factors in certain countries;
  • 1.84 million boe/d in the nine months of 2018, up by 3.9% y-o-y net of price effects (up by 3% on a reported basis¹); 
  • In the quarter hydrocarbon production benefited from:
    • Production ramp-up at highly-profitable giant projects (Zohr, Noroos, Jangkrik, OCTP, Nenè phase 2);
    • Start-ups of the period: Ochigufu, OCTP gas phase and Bahr Essalam phase 2;
    • Increased production at the Kashagan and Val d’Agri fields (the latter shutdown in 2017);
    • The entry in Abu Dhabi;
    these positives more than offset the termination of a production contract in Libya (Intisar) in the second quarter of 2018.

• Exploration & Production adjusted operating profit: €3.1 billion in the third quarter, a threefold increase q-o-q (more than doubled to €7.9 billion in the nine months). 13% higher than the second quarter of 2018, in a flattish Brent scenario.
• Zohr ramp-up in Egypt: achieved the production target of 2 bscfd (365 kboe/d) with the start-up of the fifth treatment unit, in just few months since the first gas (December 2017).
• Mexico: local Authorities approved the accelerated development plan of Area 1 discoveries, offshore Mexico, with estimated 2.1 billion of barrels of oil in place. The Final Investment Decision is planned in the fourth quarter, with early production seen in 2019.
• Obtained in Egypt a ten-year extension of the Great Nooros Area concession located in the Nile Delta and a five-year extension of the Ras Qattara Concession Agreement in the Western Desert, unlocking new near-field opportunities.
• Exploration:
  • Gas discovery in Egypt at the East Obayed concession in proximity of producing assets. Successful appraisal of the Cape Vulture oil discovery in the Norwegian Sea;
  • Acquired the exclusive exploration and development rights of Block A5-A offshore Mozambique and 124 exploration licenses onshore Alaska in a high potential area;
  • Libya: signed an agreement with the National Oil Corporation and BP to resume exploration activity;
  • New exploration acreage: in the nine months, awarded a total of approximately 30,000 square kilometers;
  • Resource base: added approximately 330 mmboe in the nine months. Guidance of additions in the range of 500 mmboe for the full year.

Gas & Power

• Consolidated the recovery of profitability thanks to growing the LNG business and optimizations in power and logistics;
  • In the third quarter, weakest in the year due to seasonal trends, retained profitable operations with an adjusted operating profit of €71 million, sharply higher than the €193 million loss of the third quarter of 2017;
  • In the nine months, achieved adjusted operating profit of €0.5 billion, compared to the breakeven of the previous-year period.
• LNG sales: up by 34% to 7.9 bcm in the nine months 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 the two businesses.
• Retail business: continuous increase in the customer base, excluding the impact of the divestments.

Refining & Marketing and Chemicals

• Versalis:
  • Acquired in Italy activities and technologies in the segment of green chemicals based on use of renewable resources, particularly biomass;
  • Started up a new elastomer plant in Ferrara, mainly supplying specialties to the automotive industry;
  • Petrochemical sales up by 6% in the third quarter of 2018 (up by 7% in the nine months of 2018), driven by better plant performance.
• Refining & Marketing adjusted operating profit: €0.14 billion in the third quarter of 2018, down by 38% q-o-q (€0.22 billion in the nine months of 2018, down by 52%) due to an unfavorable trading environment.
• Chemicals adjusted operating profit: operating loss of €47 million in the third quarter of 2018, negatively affected by rapidly escalating costs of oil-based feedstock; €18 million in the nine months of 2018 (down by 96%).

Group results

• Adjusted operating profit: €3.3 billion, a more than threefold increase q-o-q; €8.25 billion in the nine months of 2018 more than doubled compared to the nine months of the previous year.
• Adjusted net profit: €1.39 billion in the third quarter of 2018 (€0.23 billion in the third quarter of 2017); €3.13 billion in the nine months (more than doubled y-o-y).
• Net profit: €1.53 billion in the third quarter; €3.73 billion in the nine months.
• Cash flow from operations: €4.1 billion in the third quarter (up by 90% q-o-q); €9.32 billion in the nine months (up by 37% from to the nine months of 2017). Compared to the second quarter of 2018, the increase was 35%, in a flattish crude oil price environment.
• Adjusted cash flow from operations² before changes in working capital at replacement cost at €3.4 billion in the third quarter (up by 75% q-o-q; up by 20% compared to the second quarter of 2018, in a flattish crude oil price environment). €9.4 billion in the nine months of 2018 (up by 37% y-o-y) determining a capex funding ratio of 170%.
• Net capex: €5.52 billion³ in the nine months.
• Net borrowings: €9 billion, down by €1.91 billion compared to December 31, 2017, which also includes dividend payments of €2.95 billion.
• Leverage: 0.18, lower than the level of December 31, 2017 (0.23).

Outlook 2018

Exploration & Production
Hydrocarbon production: assuming the budget Brent price scenario of 60 $/barrel, expected a roughly 3% growth in the FY 2018 vs. 2017, including the negative impact on gas production of exogenous factors in certain countries, with an expected negligible effect on cash flow. Production growth will be driven by: continuing production ramp-up at the fields started up in 2017, in Zohr and Noroos in Egypt, Jangrik in Indonesia and OCTP oil in Ghana, start-ups of the period (Ochigufu, OCTP gas phase, Bahr Essalam phase 2 and Wafa Compression), a larger contribution from the Kashagan, Goliat and Val d’Agri fields, as well as the contribution of the new venture in UAE.

Gas & Power
Recovery in profitability: already achieved the guidance on the FY adjusted operating profit at around €400 million. New guidance for adjusted operating profit at €550 million.
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
Refining breakeven margin of approximately 3.2 $/barrel on average in 2018 at the budget scenario. Confirmed the achievement of the target breakeven margin of 3 $/barrel leveraging on the restart of the EST unit, at the Sannazzaro refinery, planned by the first half of 2019.
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. A higher refineries utilization rate is projected.
Retail sales were substantially unchanged y-o-y in Italy and in European markets. Market share in Italy is expected to be stable at around 24%.
Versalis: spreads of the main commodities, mainly cracker and polyethylene margins, are expected to decline due to the rapid increase in costs of oil-based feedstock, as well as certain segments (butadiene) coming off the peaks seen in 2017. Growth in sales volumes is expected in all business segments driven by higher product availability and by fewer planned standstills and upsets, while polyethylene is expected to decline driven by weaker market conditions.

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

¹Including price effects to PSAs contracts.
²See table on page 13.
³See details on page 1, footnote (d).

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