Eni: first quarter 2021 results

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April 30, 2021

Eni: first quarter 2021 results

Key operating and financial results

IVQ				IQ
2020			2021	2020	% Ch.
44.23	Brent dated	$/bbl	60.90	50.26	21
1.193	Average EUR/USD exchange rate		1.205	1.103	9
153	Spot Gas price at Italian PSV	€/kcm	198	120	65
(1)	Spread PSV vs. TTF		3	17	(82)
0.2	Standard Eni Refining Margin (SERM)	$/bbl	(0.6)	3.6	..
1,713	Hydrocarbon production	kboe/d	1,704	1,790	(5)
488	Adjusted operating profit (loss) ⁽ᵃ⁾	€ million	1,321	1,307	1
802	E&P		1,378	1,037	33
(101)	Global Gas & LNG Portfolio (GGP)		(30)	233	..
(104)	R&M and Chemicals		(120)	16	..
132	Eni gas e luce, Power & Renewables		202	191	6
50	Adjusted net profit (loss) ⁽ᵃ⁾ ⁽ᵇ⁾		270	59	358
0.01	per share ‐ diluted (€)		0.08	0.02
(797)	Net profit (loss) ⁽ᵇ⁾		856	(2,929)
(0.22)	per share ‐ diluted (€)		0.24	(0.82)
1,582	Cash flow from operations before changes in working capital at		1,960	2,222	(12)
replacement cost ⁽ᵃ⁾
988	Net cash from operations		1,376	975	41
1,206	Net capital expenditure ⁽ᶜ⁾ ⁽ᵈ⁾		1,387	1,905	(27)
11,568	Net borrowings before lease liabilities ex IFRS 16		12,239	12,920	(5)
16,586	Net borrowings after lease liabilities ex IFRS 16		17,507	18,681	(6)
37,493	Shareholders' equity including non‐controlling interest		39,957	45,385	(12)
0.31	Leverage before lease liabilities ex IFRS 16		0.31	0.28
0.44	Leverage after lease liabilities ex IFRS 16		0.44	0.41

1. Non‐GAAP measure. For further information see the paragraph "Non‐GAAP measures" on page 17.
2. Attributable to Eni's shareholders.
3. Include capital contribution to equity accounted entities.
4. Net of expenditures relating to business combinations, purchase of minority interests and other non‐organic items.

Eni's Board of Directors, chaired by Lucia Calvosa, yesterday approved the unaudited consolidated results for the first quarter of 2021. Having examined the results, Eni CEO Claudio Descalzi said:

"The first quarter of 2021 has been significantly impacted by ongoing national lockdowns, however despite this Eni has achieved significantly improved results, most notably driven by E&P and the chemicals business. Meanwhile, our retail G&P business continued to grow steadily, with year-on-year EBIT increasing by 19% as we leverage our unique and expanding customer base in the power segment and benefit from a greater contribution from extra-commodity services. The performance of R&M was largely driven by lower demand for fuels across Europe due to the pandemic, plus negative refining margins. Against the backdrop of an ongoing complex scenario, adjusted EBIT of €1.3 billion is in line with the first quarter of last year and three times higher than the fourth quarter of 2020, while net profit grew to €270 million, an almost five times increase compared to the first quarter of 2020. Across the quarter, we generated around €2 billion of organic cash flow before working capital, significantly larger than the €1.4 billion of expenditure incurred during the same period. With the pandemic situation gradually improving, and a broadening economic recovery looking more likely, we have been able to improve our outlook for the coming months, forecasting free cash flow generation in 2021 of more than €3 billion under a Brent scenario of 60 $/bbl. In this environment, we will continue implementing our decarbonization and energy transition strategy, maintaining a strong focus on the robustness of the balance sheet and targeting a competitive distribution policy to our shareholders."

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Quarterly highlights

• A strengthened upstream price environment in the first quarter 2021 was driven by a recovery in the main market benchmarks: the Brent crude at 61 $/bbl on average was up by 21% and 38% respectively from the first quarter and fourth quarter 2020. Eni's hydrocarbons realized prices did not capture this improvement entirely due to the appreciation of the cross-rate EUR vs. USD which was up by about 10%.
• Eni's benchmark refining margin "SERM" was in negative territory (down to minus 0.6 $/bbl) due to the impact of lockdowns and a delayed recovery in air traffic.
• Adjusted EBIT: €1.3 billion in the first quarter of 2021, a strong improvement from the fourth quarter of 2020 (up by 171%) with flat hydrocarbon production (1.7 million boe/d).
  The first quarter 2021 EBIT was unchanged from the first quarter 2020 notwithstanding 86 kboe/d of lower production, mainly in liquids, and the negative performances of R&M (down by €240 million) driven by an unfavourable refining scenario (the SERM was negative) and lower sales volumes due to regional lockdowns (a 10% decrease at the network of service stations), and of the GGP business which was down by €263 million mainly due to one-off positive contributions from portfolio optimization in the year-ago quarter and narrowing spreads between the PSV vs. the TTF spot gas prices.
  The E&P segment EBIT was up by €341 million due to higher crude oil prices. Versalis (up by €104 million) responded to the unusual industry-wide disruption from extreme winter weather in the US by leveraging on higher plant availability against the backdrop of an improving demand for commodities.
• Adjusted net profit: €270 million, almost five-fold the result reported in the first quarter 2020.
• Cash flow from operations before changes in working capital at replacement cost: €1.96 billion and net capex of €1.4 billion (-27%vs. IQ 2020). Organic free cash flow generation was robust at approximately €600 million before changes in working capital.
• Portfolio: net cash outflows of about €400 million, fully invested in the green business.
• Net borrowings ante IFRS 16: €12.2 billion, a slight increase vs. December 31, 2020 due to the financing of M&A transactions and currency translation effects. Leverage was flat at 31%.

Outlook 2021

• The rebalancing of the global oil market and a recovery in fuel consumption in the course of 2021 are exposed to continued risk from the ongoing impact of the COVID-19 pandemic in a number of large global economies, such as in multiple West European countries that are still in lockdown, as well as new restrictions being reimposed in other parts of the world.
• Reaffirming the guidance for hydrocarbon production at about 1.7 million boe/d for the FY, assuming OPEC+ cuts of about 35 kboe/d through the year on average, and an organic capex spending forecast for 2021 of approximately €6 billion; forecast cash flow from operations before working capital requirements at replacement cost higher than €9 billion at current Brent prices of 60 $/bbl.
• Cash neutrality at a Brent price of 51 $/bbl to fund organic capex and the floor dividend.
• The outlook for oil prices will be reassessed in Eni's 2021 interim report in July for the purpose of establishing the variable dividend as well as in view of the possible resumption of the buy-back of the Eni share. The floor dividend set at €0.36 per share will be complemented by a variable dividend, which amount will increase when the Brent reference price for 2021 rises above the threshold of 43 $/bbl. The share buy-back program is expected to resume with a Brent reference price 2021 of at least 56 $/bbl.

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Business overview

Exploration & Production

• Hydrocarbon production in the first quarter: 1.7 million boe/day, down by approximately 4%
  compared to the same period of 2020 (net of OPEC+ production cuts, positive price effects at PSAs and marginal portfolio effects) due to a slowdown in expenditures for the development of reserves, partly offset by a strong recovery of natural gas production in Egypt spurred by higher demands.
  Production at the Zohr gas field achieved a record 3,200 mmscf/d, at full capacity.
  In April, started-up the Merakes gas field offshore Indonesia, in synergy with the Jangkrik FPU.
  In the first quarter 2021, start-upsand ramp-ups added 33 kboe/d mainly due to Berkine in Algeria, Agogo in Angola, and the Mahani gas project (Eni's interest 50%), in the Sharjah Emirate (UAE), which was started just one year after discovery.
• Exploration successes: in line with the exploration strategy focused on areas and basins close to existing infrastructure (infrastructure-led-exploration) and short time-to-market, in the first quarter of 2021, we delivered:
• • the Cuica-1 oil discovery in the operated block 15/06 (Eni's interest 36.84%) off Angola, the second discovery in the Cabaça development area, which will allow for the extension of the useful life of the FPSO operating the field;
  • two oil discoveries off Norway made by the JV Vår Energi close to producing assets in the Blasto Main prospect in the North Sea and Isflak in the Barents Sea, with reserves of oil in place expected to be in the range of 200-350million of barrels.
• Renewal of exploration portfolio with approximately 9,000 square kilometers of new leases:
• • the United Arab Emirates: assigned Block 7 (Eni's interest 90%), located in the Ras Al Khaimah onshore area;
  • Vietnam: completed the acquisition as operator of the Block 115/09 (Eni's interest 100%), in the Song Hong basin;
  • United Kingdom: awarded the operatorship of the P2511 exploration license (Eni's interest 100%) in the North Sea;
  • Norway: awarded to the JV Vår Energi ten new exploration licenses, of which two as operator in the North Sea and three as operator in the Barents Sea. The licenses acquired are located nearly areas in production or under development.
• Portfolio rationalization:
• • Pakistan: signed an agreement to divest to a local player the entire upstream activity in the Country, including interests in eight development and production licenses and in four exploration licenses.
  • Nigeria: divested the onshore production and development block OML 17 (Eni's interest 5%).
• Received funding from UK Research and Innovation (UKRI), the UK Government's body that supports research and innovation in the country, to fund part of ongoing planning and projects studies relating to the development of the integrated HyNet North West project aimed at the realization of carbon capture and storage (CCS) infrastructure in the UK. Eni will be the operator of the transporting and storing activities of the CO2 in its depleted hydrocarbon reservoirs, located at around 30 kilometers offshore the Liverpool Bay.
• E&P's adjusted operating profit continued rebounding in the first quarter 2021 at €1.38 billion, up by approximately 70% compared to the fourth quarter 2020. The comparison against the previous year reporting period (up by 33%) was driven by a recovery in the scenario for hydrocarbon prices.

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Global Gas & LNG Portfolio

• In March 2021, it was agreed with the Arab Republic of Egypt (ARE) and the Spanish partner Naturgy of the JV Unión Fenosa Gas to resolve all pending issues with the Egyptian partners and to resume operations at the Damietta liquefaction plant. A few LNG loadings have been made already.
• Through the subsequent restructuring of the UFG venture, Eni acquired a 50% interest in the Damietta plant and related liquefaction capacity as well as the gas marketing activities in Spain owned by UFG. The deal will strengthen Eni's portfolio of LNG and its integrated strategy, leveraging on the integration with its upstream assets.
• GGP's adjusted operating result: was a loss of €30 million in the first quarter, worse than the performance achieved in the first quarter 2020 (down by €263 million), due to one-off positive contributions from portfolio optimization in the year-ago quarter and narrowing spreads between the PSV vs. the TTF spot gas prices.

Refining & Marketing and Chemicals

• Started up a new Biomass Treatment Unit at the Gela bio-refinery enabling the use up to 100% of biomass not in competition with the food chain for the production of biofuels.
• The construction of new units for the enhancement of the feedstock pre-treatment facilities at the Venice bio-refinery are currently under evaluation, aiming at increasing the plant flexibility to achieve zero use of palm oil to manufacture biofuels by 2023.
• In line with Eni's growth strategy in circular economy, signed an agreement for the acquisition of FRI- EL Biogas Holding, the Italian leader in the biogas producing sector, in order to transform biogas into biomethane to be supplied to the Eni's network.
• Launched a new range of solid polystyrene products for food packaging as part of the Versalis Revive® products, containing up to 75% of recycled solid polystyrene. This new product developed by Versalis and Forever Plast S.p.A., is the result of the collaboration with a number of partners engaged in the polystyrene recycling business, such as Corepla, Pro Food and Unionplast.
• R&M's adjusted operating result: adjusted operating loss of €159 million in the first quarter, a marked decline compared to first quarter of 2020 due to an unfavorable refining scenario and lower sales volumes due to an ongoing crisis in fuel demand in the main reference markets (Italy and Western Europe) due to COVID-19 mitigation measures.
• Chemicals' adjusted operating result: rebounded strongly delivering an adjusted operating profit of €39 million, compared to a loss of €65 million reported in the first quarter of 2020, as the business took advantage from unusual industry-wide disruption from extreme winter weather in the US by higher plants availability and from a spike in commodity prices, against the backdrop of a mild recovery of demand for plastics across all end-markets.

Eni gas e luce, Power & Renewables

• Entered the Iberic energy market with the signing of an agreement to acquire 100% of Aldro Energía, with a portfolio of approximately 250,000 retail customers of power, natural gas and services, and an agreement with X-Elio for the acquisition of three photovoltaic projects for an overall capacity of 140 MW.
• Agreement with the Italian operator Be Charge, to increase the national supply of charging infrastructures for electric mobility. The charging stations will be powered by renewable energy supplied by Eni gas e luce.
• Established GreenIT, a joint venture with the Italian agency CDP Equity, for building, commissioning and managing power generation plants from renewable sources in Italy. The JV will target an installed capacity of approximately 1 GW.

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• Retail portfolio substantially in line with the end of 2020, with 9.56 million of PoD.
• Expansion of the generation capacity in renewable energies: as of March 31, 2021, reached an installed capacity of 307 MW (up by 56 MW compared to March 31, 2020). More than 1 GW of capacity already installed or sanctioned.
• EGL, Power & Renewables' adjusted operating result: €202 million in the first quarter of 2021, up by 6% compared to the same period of 2020, notwithstanding a still weak recovery of the Italian economy.

Business segments operating results

Exploration & Production

Production and prices

IVQ			IQ
2020			2021		2020	% Ch.
	Production
809	Liquids	kbbl/d	814		892	(9)
4,800	Natural gas	mmcf/d	4,726		4,768	(1)
1,713	Hydrocarbons	kboe/d	1,704		1,790	(5)
	Average realizations
41.57	Liquids	$/bbl	57.23		43.58	31
3.92	Natural gas	$/kcf	4.55		4.28	6
31.55	Hydrocarbons	$/boe	40.80		33.71	21

• In the quarter oil and natural gas production averaged 1.704 million boe/d and decreased by 5% compared to the first quarter of 2020. Net of positive price effects, the decrease was 6% driven by the need to comply with OPEC+ production cuts and marginal portfolio effects (overall effect of two percentage points), a spending slowdown in the development of reserves with lower contributions from Nigeria, Kazakhstan, and Angola, as well as mature field declines. These negatives were partly offset by continuing production ramp-up in Mexico, better contribution of Libya and increased gas supplies to Egypt spurred by a demand recovery in the local market.
• Liquids production in the quarter was 814 kbbl/d, down by 9% from the first quarter 2020. The reduction was due to an expenditure slowdown, the effect of OPEC+ production cuts, as well as mature field declines partly offset by continuing production ramp-up in Area 1 in Mexico, and growth in Libya.
• Natural gas production in the first quarter amounted to 4,726 mmcf/d, slightly decreased compared to the first quarter of 2020. Lower production was partly offset by a robust recovery of natural gas demand in certain areas (mainly in Egypt), and growth in Algeria due to the start-up of the Berkine gas project.

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