Eni Results for the Third Quarter and Nine Months of 2023

Source: www.gulfoilandgas.com 10/27/2023, Location: Europe

Eni's Board of Directors, chaired by Giuseppe Zafarana, yesterday approved the unaudited consolidated results for the third quarter and the nine months of 2023. Eni CEO Claudio Descalzi said:
“In Q3 ’23, we continued to advance our strategy of transformation, while delivering another excellent set of operating and financial results. On E&P we are accelerating our plan to boost equity gas and LNG production, a key driver to secure reliable supply and at the same time pursue our decarbonization goals. The outstanding Geng North-1 exploration discovery, currently the industry’s largest this year, together with the soon to be completed Neptune acquisition and recent purchase of Chevron’s interests in Indonesia, will enable us to target exploitation of material resources offshore the Kutei basin. The start-up, in less than two years from discovery, of the giant Baleine oilfield off the Cote d’Ivoire reaffirms the validity of our value accretive fast-track development approach, ensuring traditional energy supplies whilst, as Africa’s first net-zero scope 1 and 2 project, decarbonizing our operations. GGP substantially enhanced the contracted LNG portfolio with three new long-term agreements in Congo, Qatar and Indonesia totalling 6.5 bcm/year at plateau. The businesses of the energy transition are growing quickly. Enilive (Eni Sustainable Mobility) has closed the Chalmette biorefinery JV deal in the USA and is targeting other international biofuels projects leveraging our distinctive technologies and expertise. Plenitude is on track to achieve the planned 3 GW of renewable installed capacity by year-end while also delivering its financial targets, while the completion of the Novamont acquisition will strengthen Versalis’ green chemicals transformation. And finally, our leading portfolio of CCS solutions was further enhanced by the award of the Hewett storage license in the UK and by important progress on both the technical and regulatory sides. In a volatile trading environment, proforma adjusted Ebit including our JV and associates reached €4 bln driven by sequential growth in E&P, Refining and our Retail business. Operating cash flow was €3.4 bln resulting in an organic FCF of about €1.5 bln after funding €1.9 bln of capex. Both cash and operating results stand out at the top of our historical quarterly performances. To date, the cumulative organic FCF of about €6.2 bln, has been well above the 2023 expected pay-out to shareholders including share repurchases, contributing to our financial flexibility and strengthening the balance sheet with leverage stable at 0.15. Looking forward, we believe that the evident underlying improvement of the business and our strategic progress will support highly attractive returns to our shareholders. In line with this, we are raising our full-year guidance of Ebit and cash flow, while accelerating our buyback plan for this year.”

Financial highlights of the third quarter 2023
Q3 '23 adjusted profit before tax of €3.3 bln, in a weaker scenario (Brent price down by 14% and the benchmark gas price down more than 80%), still marked another strong set of results driven by continuing underlying improvements (in the nine months adjusted profit before tax was €11.9 bln). Proforma adjusted EBIT[1]for Q3 ’23 including the operating margin of equity accounted entities was €4 bln (€14.1 bln in the nine months). This performance was driven by a recovery in E&P earnings vs. Q2 ’23 thanks to higher production volumes and better realizations and solid contribution from Refining, Enilive (the Sustainable Mobility business) and Plenitude.

E&P earned €2.6 bln of adjusted EBIT in Q3 ’23, down 39% from Q3 ’22 impacted by weaker realized prices, but almost 30% higher than the previous quarter. Including the contribution of JV/associates, proforma adjusted EBIT was €3.4 bln. Nine months ’23 E&P adjusted EBIT was €7.5 bln (versus €13.5 bln in the nine months ’22). Production in the quarter was up 4% year-over-year at 1.64 mln boe/d.

GGP Q3 ’23 adjusted EBIT was €0.11 bln reflecting limited benefits from asset optimization in a market characterized by relatively lower volatility and narrower gas spreads compared with the Q3 ’22.

Enilive, Eni Sustainable Mobility, delivered €0.27 bln of adjusted EBIT, slightly below Q3 ’22 but up by 9% in the nine months ’23 at €0.61 bln.

Refining reported an adjusted EBIT of €0.33 bln in Q3 ’23 compared to €0.4 bln of Q3 ‘22 (€0.41 bln in the nine months ’23), impacted by negative trends in crude differentials not captured by the SERM. However, the quarter showed a significant sequential improvement due to the recovery in the products’ crack spreads.

Plenitude & Power delivered solid results with €0.22 bln of adjusted EBIT (up 27% year-on-year; €0.57 bln, up 15% in the nine months ’23). Continued steady performance in the retail business and the material ramp-up in renewable capacity plus optimization of gas-fired power plants, were partly offset by lower market margins for both renewables and gas-fired plants. Plenitude generated €0.75 bln of proforma adjusted EBITDA in the nine months ’23, higher than the initial planning assumption of €0.7 bln for the year and increased the EBITDA guidance to approximately €0.9 bln.

Versalis was negatively impacted by reduced demand across all business segments and comparatively higher production costs in Europe that exacerbated competitive pressures from imported product streams and overcapacity. This resulted in an adjusted operating loss of €0.2 bln in Q3 ’23 (a loss of €0.38 bln in the nine months ’23).

Q3 ’23 adjusted net profit attributable to Eni shareholders was €1.82 bln impacted by weaker hydrocarbon prices, but significantly offset by underlying business outperformance. In the nine months ’23 adjusted net profit attributable to Eni shareholders was €6.66 bln.

In Q3 ’23, Group adjusted operating cash flow before working capital at replacement cost was €3.4 bln, exceeding outflows related to organic capex of €1.9 bln, resulting in an organic FCF of €1.5 bln. In the nine months ’23, adjusted cash flow was €12.9 bln, exceeding outflows related to capex of €6.7 bln, resulting in an organic free cash flow of around €6.2 bln.

Portfolio activities in the nine months comprised net investment of €1.5 bln mainly relating to the St. Bernard bio-refinery in Chalmette, in the USA, upstream gas assets in Algeria and bolt-on renewables acquisitions, partly offset by the divestment of natural gas transport rights from Algeria and other minor assets. In the nine months dividend payments amounted to €2.3 bln and share repurchases were €1 bln.

Net borrowings ex-IFRS 16 as of September 30, 2023, were €8.7 bln, an increase of around €1.7 bln from December 31, 2022. Group leverage stood at 0.15, versus 0.13 as of December 31, 2022.

Eni’s Board of Directors approved the distribution of the second out of four instalments of the dividend for the fiscal year 2023 of €0.23 per share for a total annual dividend of €0.94 as resolved by the Shareholders’ Meeting in May. The ex-dividend date of the second instalment is November 20, 2023, payable on November 22, 2023.

The first tranche of 2023 share buy-back program, launched on May 12, 2023, was completed with the purchasing of 62 mln treasury shares (equal to 1.84% of share capital) for a total cost of €825 mln. As part of the authorization of the Shareholders' Meeting of May 10, 2023, in September Eni launched the second tranche of the share buy-back program up to a maximum of €1.375 bln, a maximum number of 275 million shares (approximately 8% of the share capital) to be executed by April 2024. Through October 20, 2023, 26.5 mln shares have been purchased for a cash outlay of €400 mln.

In September, Eni placed a €1 bln sustainability-linked senior unsecured convertible bond with a 7-year maturity, the first in its sector with this format. The bonds are convertible in a 1:1 ratio into Eni shares listed on Euronext Milan (Borsa Italiana) and will pay an annual coupon of 2.95 per cent.

[1] For a reconciliation of Group proforma adjusted EBIT and segment breakdown see page 25.

Main business developments

Exploration & Production
The acquisition of Neptune has been cleared by the relevant EU antitrust authorities and is on track to be completed by the first quarter 2024.
During the nine months ’23, new exploration resources added to the portfolio reached about 580 mln boe, driven mainly by the discoveries made off Egypt, Congo, Mexico and Indonesia.
In August, the startup of Baleine oilfield, off the Côte d’Ivoire, demonstrated a rapid time-to-market, less than two years after the discovery and less than a year and a half after the Final Investment Decision. This is thanks to our distinctive phased development and fast-track approach. Baleine stands out as the first emissions-free - Scope 1 and 2 - production project in Africa. The gas production will be delivered to the national grid, enabling the country to meet its domestic electricity requirements, facilitating energy access, and strengthening its role as a regional energy hub for neighboring countries.
In September, Eni signed an agreement with the local partner Oando PLC (Nigeria’s leading indigenous energy solutions provider) to divest Eni’ subsidiary Nigerian Agip Oil Company Ltd (NAOC Ltd), with onshore oil & gas exploration and production activities, as well as the ancillary power generation business. The agreement does not include Eni’s interest in the SPDC JV.
In October, Eni announced the important gas discovery at Geng North-1, an exploration well drilled in the North Ganal PSC, off Indonesia, with a preliminary estimated discovered volume of 5 trillion cubic feet (tcf) of gas and 400 mmbbl condensate in place. This discovery, together with the pending completion of the acquisition of Neptune that owns shares in the assets in the area and with the recent purchase of Chevron interests in the Rapak and Ganal PSC blocks, opens up exciting potential in the Indonesia gas sector. Massive natural gas resources will be developed in synergy with the Eni’s existing operating fields (i.e. Jangkrik), new developments (i.e. Geng North) and leveraging on the Bontang LNG export terminal, offering the prospect of transforming the Kutei basin into a new world class gas hub.

Global Gas & LNG Portfolio (GGP)
In September, Eni signed with the Marine XII JV in Congo a purchase contract for LNG volumes from the Congo LNG project of up to approximately 4.5 bcm/year starting from December 2023. The project and the relative offtakes will have two phases: in the first phase the Tango FLNG facility will have a liquefaction capacity of 0.9 bcm/year, then a second FLNG with a capacity of 3.6 bcm/year will begin production in 2025.
In October, Eni signed a 0.8 bcm/year LNG sales and purchase agreement with Merakes LNG Sellers, starting from January 2024 for 3 years. This agreement, in addition to the contract with Jangkrik LNG Sellers for 1.4 bcm/year, in place since 2017, expands the overall LNG available from Bontang facility.
In October, Eni signed a long-term contract with QatarEnergy LNG NFE (5), the JV between Eni and QatarEnergy for the development of the North Field East (NFE) project in Qatar, for the delivery of up to 1.5 bcm/year of LNG. LNG will be delivered at the receiving terminal “FSRU Italia”, currently located in Piombino, Italy, with expected deliveries starting from 2026 with a duration of 27 years. This agreement expands the import portfolio from Qatar given that Eni is already importing in Europe 2.9 bcm/year since 2007.
These new LNG contracts contribute to the build-up of the overall LNG contracted portfolio by leveraging on Eni’s integrated approach in the countries where we operate and are in line with the company’s energy transition strategy, which aims to progressively increase the share of gas in overall upstream production to 60% by 2030, while also increasing the contribution of equity LNG.

Enilive, Refining and Chemicals
In June, operations started at the Chalmette biorefinery in Louisiana (USA), through a 50-50 joint venture partnership in St. Bernard Renewables LLC (SBR) between Eni Sustainable Mobility Spa and PBF Energy Inc. (PBF). The biorefinery is targeted to have processing capacity of about 1.1 mln tonnes/year of raw materials.
In September Versalis signed an agreement with Technip Energies, aimed at integrating Versalis' Hoop® and Technip Energies' Pure.rOilTM and Pure.rGasTM purification technologies by developing a technological platform for the advanced chemical recycling of plastic waste.
In September, Enilive and LG Chem, South Korea's leading chemical producer, announced the beginning of an evaluation of the development and operation of a new biorefinery at LG Chem's Daesan chemical complex, located Southwest of Seoul. The biorefinery is envisaged as having a capacity of around 400 ktonnes of organic raw materials per year and would use Eni's Ecofining™ technology.
In October, Versalis completed the purchase of the remaining 64% participating interest in Novamont from its other shareholder Mater-Bi.

Plenitude & Power
In July, Vårgrønn, a joint venture between Plenitude and HitecVision, and the Irish renewable-focused integrated utility Energia Group, signed a partnership to co-develop offshore wind projects in Ireland with a potential to deliver total capacity up to 1.8 GW by 2030.
In September, Plenitude inaugurated its first photovoltaic plant in the Republic of Kazakhstan, with a 50 MW installed capacity. The photovoltaic plant will produce up to around 90 GWh of electricity annually.
In October, Dogger Bank, the world’s largest offshore windfarm in which Vårgrønn holds a 20% stake, produced power for the first time, transmitted to the UK’s national grid.

Decarbonization and Sustainability
Eni UK has been awarded a Carbon Dioxide Appraisal and Storage Licence (CS Licence) for the depleted Hewett gas field, in the Southern North Sea sector of the UK. Subsequently, in October, Eni and the UK Government reached an agreement in principle on the key terms and conditions for the economic, regulatory and governance model for the transportation and storage of CO2 at the HyNet North West industrial CCS cluster. Hynet North West is expected to be operational around the middle of this decade with storage capacity of 4.5 mmtonnes/y of CO2.
ESG/Climate Ratings: Sustainalytics has maintained Eni in the “medium risk” band once again in 2023. Eni has been also confirmed first among its peers in terms of number of aligned metrics in the Climate Action 100+ Net Zero Benchmark evaluation issued in October. Moreover, Eni has been recognized for the fourth consecutive year by Carbon Tracker's "Absolute Impact 2023" research as the only company among the 25 largest ones in the Oil & Gas sector to have established climate objectives that meet the prerequisites to be aligned with Paris Agreement.
In October, Eni signed a Letter of Intent with the pharmaceutical company Dompé to launch joint research and development activities focusing on the health of people and communities in the areas where Eni operates, as well as other relevant global health issues.

Outlook 2023
The Company is issuing the following 2023 updated operational and financial guidance:
E&P: 2023 guidance for hydrocarbon production is narrowed to between 1.64-1.66 mln boe/d (vs. previous guidance 1.63-1.67 mln boe/d).
E&P: following the recent exploration success (Egypt and Indonesia), the target initially set of resources additions of 700 mln boe will be exceeded.
GGP: the previously raised guidance of FY adjusted EBIT in the €2.7 bln - €3 bln range is confirmed.
Plenitude: proforma adjusted EBITDA guidance is raised to around €0.9 bln, higher than the initial planning assumptions for the year (€0.7 bln).
Enilive, Refining and Chemicals: Enilive proforma adjusted EBITDA is seen at around €1 bln, higher than the prior guidance of more than €0.9 bln. Downstream proforma adjusted EBIT[2] is now expected at about €1 bln, higher than the mid-year guidance of €0.8 bln.
Financials: Group adjusted EBIT guidance is raised to around €14 bln, higher than the mid-year guidance of €12 bln, reflecting improved market conditions[3] and incorporating an improved underlying performance of around €2.6 bln, €0.6 bln higher than the mid-year estimate. Consistently, we are now revising upwardly the projections of cash flow from operations before working capital to reach around €16.5 bln (vs. previous guidance €15.5-€16 bln). As of September 30, 2023, we have delivered about 80% of the Group revised yearly guidance of adjusted EBIT and cash flow. Those projections are exposed to the volatility of hydrocarbons prices; management is currently estimating an impact of about €130 mln on cash flow for each one-dollar change in Brent crude oil prices (yearly basis).
Capex: estimated at about €9 bln for the FY, representing a saving of about 6% from original plans due to continuing optimization and efficiency measures. Balance Sheet: leverage is expected to remain within the stated range of 10% - 20%.
Shareholder Remuneration: as authorized by the Shareholders Annual General Meeting (AGM) on May 10, 2023, a dividend of €0.94 per share will be paid for fiscal year 2023 in four instalments: the first payment was made in September 2023 and the following are due in November 2023 (€0.23 per share[4]), March 2024 and May 2024. The planned €2.2 bln share buyback also 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, with an accelerated pace in the final months of 2023 compared to initial plans.


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