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Eni releases 1Q20 results

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Oilfield Technology,

Eni has released its consolidated results for 1Q20.

Exploration and production

  • Hydrocarbon production: 1.774 million boe/d, 3.6% lower than in 1Q19. Net of price effects, the decline was 50% due to lower volumes in Libya driven by an anticipated contractual trigger, force majeure and lower entitlements/spending, more than offsetting positive portfolio contribution mainly from Norway. The remaining 50% of the reduced output for the quarter was due to the impact of lower gas demand, mainly in Egypt.
  • E&P’s adjusted operating profit of €1.04 billion, 55% lower y/y mainly driven by a significantly deteriorated trading environment and, to a lesser extent, by lower production volumes.

Group results

  • Adjusted operating profit: €1.31 billion, down by €1 billion, or by 44%, compared to 1Q19. Net of scenario effects of €1.1 billion and the negative impacts associated with Covid-19 of €0.15 billion, the performance was a positive of €0.2 billion, up by 16%.
  • Adjusted net profit at €59 million.
  • Net result: net loss of €2.93 billion (net profit of €1.1 billion in 1Q19) mainly due to the alignment of the book value of inventories to market prices current at the end of the quarter. Special charges also included impairment losses from oil and gas assets and negative fair-valued derivatives, which could not be accounted as hedges, due to the scenario effects.
  • Net cash before changes in working capital at replacement cost: €1.95 billion, 43% lower than the same period of 2019 due to scenario effects of -€1.5 billion, including a non-cash change in fair-valued derivatives and the negative impacts associated with Covid-19 of €0.15 billion1, partly offset by a positive performance of €0.2 billion.
  • Net cash from operations: approximately €1 billion (down by 54%), including a cash draw at the working capital which normally features the first quarter due to seasonal factors in gas and other products consumption.
  • Net investments: €1.9 billion, fully funded through cash flow provided by operating activities before working capital effects.
  • Net borrowings: €18.7 billion (€12.9 billion when excluding lease liabilities) increasing by about €1.6 billion (up 9%) from 31 December 2019.
  • Leverage: 0.28, before the effect of IFRS 16, higher than the ratio at 31 December 2019 (0.24). Including IFRS 16, leverage was 0.41, or 0.37 excluding the share of lease liabilities attributable to E&P joint operators.

Outlook 2020

Eni assumes a gradual recovery in global consumption of oil, natural gas and power in the second half of the year, particularly in Eni’s reference markets.

Based on this macroeconomic scenario, Eni reduced the company’s outlook for Brent crude oil prices, down to US$45/bbl and US$55/bbl respectively in 2020 and 2021. Spot gas prices at the Italian hub have been reduced by 15% in 2020 and by 30% in 2021, while refining margin is expected to decline by 18% in 2020.

Eni has reviewed the industrial plan for the year 2020 and 2021. The review of the industrial plan foresees:

  • CAPEX curtailments of approximately €2.3 billion for 2020, 30% lower than the initial capital budget, and anticipated further reductions of €2.5-3 billion in 2021, i.e. 30-35% lower than original plans.
  • Expected a production level of 1.75 – 1.80 mboe/d in 2020, which is lower than initial projections due to CAPEX curtailments, Covid-19 effects, a lower global gas demand also impacted by the pandemic effects and finally extension of force majeure in Libya for the entire first half of the year. This production guidance does not take into account any possible impacts associated with the recently announced OPEC+ cuts that are to be implemented on a field-by-field basis.
  • CAPEX revisions focused in the E&P segment, with the re-phasing of a number of projects, which are nonetheless expected to resume quickly once market fundamentals improve, thus recovering any lost production volumes.
  • Implemented widespread initiatives to save approximately €600 million of expenses in 2020.
  • At management’s assumption of an average Brent price of US$45/bbl for FY20, expected adjusted cash flow before working capital changes of €7.3 billion. The sensitivity of this cash flow to movements in crude oil prices is estimated at €180-190 million for each one-dollar change in the Brent crude oil prices and commensurate changes in gas prices applicable to deviation in a range of US$5-10/bbl from the base-case scenario, also assuming no further management’s initiatives and excluding effects on dividends from equity accounted entities.
  • 2020 Ebit adjusted mid-downstream (G&P, R&M with pro-forma ADNOC and Versalis): €0.6 billion.
  • Suspended the share repurchase plan for 2020.The plan will be reconsidered when the Brent price for the referenced year, which is the benchmark for decisions relating to the buy-back plan activation, is at least equal to US$60/bbl.
  • At 31 March 2020, the company can count on a liquidity reserve of €16 billion, consisting of cash on hands of €3.6 billion, €6.6 billion of readily disposable securities, €1.1 billion of short-term financing receivables and €4.7 billion of undrawn committed borrowing facilities.

Eni CEO, Claudio Descalzi, said:

“The period since March has been the most complex period the global economy has seen for more than 70 years. For the energy industry, and in particular for oil and gas, the complexity is even greater given the overlap of the effects of the pandemic with the collapse in oil prices. Eni is tackling this period by relying on a safe operating organisation for its employees, contractors, and the populations of its host countries. Furthermore, Eni’s people have shown an incredible capacity and willingness to adapt to the difficult circumstances at the moment, allowing the Group to operate with full continuity. I would like to thank them for this. The business portfolio is more resilient than ever before, while the capital structure is very solid thanks to actions taken in recent years. The Upstream portfolio, in particular, has a competitive break-even point and is flexible, allowing for activities and financial commitments to be adjusted as the situation develops. The mid-downstream portfolio is reacting well to the consumer crisis, recording EBIT that was higher than the same period in 2019. Overall, EBIT was above market forecasts, while cash flow from operations before working capital financed investments of €1.9 billion. The balance sheet is robust and above all shows €16 billion of cash on hand, which will allow the Group to manage the drop in business due to prices and the pandemic. Like everyone, we expect a complicated 2020, but thanks to our strengths we are sure we can swiftly resume our journey towards an even more profitable and sustainable future, as set out in our latest strategic plan.”

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