Eni: full year 2020 and fourth quarter results

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February 19, 2021

Eni: full year 2020 and fourth quarter results

Key operating and financial results

IIIQ 2020	2020 IVQ 2019 % Ch.	2020 Full Year 2019 % Ch.
43.00 1.169 36.78 95 0.7 1,701	Brent dated $/bbl Average EUR/USD exchange rate Brent dated PSV Standard Eni Refining Margin (SERM) Hydrocarbon production €/bbl €/kcm $/bbl kboe/d	44.23 1.193 37.08 156 0.2 1,713	63.25 (30) 1.107 8 57.13 (35) 158 (1) 4.2 (95) 1,921 (11)	41.67 1.142 36.49 112 1.7 1,733	64.30 (35) 1.119 2 57.44 (36) 171 (35) 4.3 (60) 1,871 (7)
537 515 64 21 57	Adjusted operating profit (loss) ⁽ᵃ⁾⁽ᵇ⁾ € million E&P Global Gas & LNG Portfolio (GGP) R&M and Chemicals Eni gas e luce, Power & Renewables	488 802 (101) (104) 132	1,805 (73) 2,051 (61) (46) (120) (161) 35 156 (15)	1,898 1,547 326 6 465	8,597 (78) 8,640 (82) 193 69 21 (71) 370 26
(153) (0.04) (503) (0.14)	Adjusted net profit (loss) ⁽ᵃ⁾⁽ᶜ⁾⁽ᵈ⁾ per share - diluted (€) Net profit (loss) ⁽ᶜ⁾⁽ᵈ⁾ per share - diluted (€)	66 0.02 (725) (0.20)	546 0.15 (1,891) (88) (0.53)	(742) (0.21) (8,563) (2.39)	2,876 0.80 148 0.04 (126)
1,774 1,456 902 14,525 19,853 36,533 0.40 0.54	Net cash before changes in working capital at replacement cost ⁽ᵉ⁾ Net cash from operations Net capital expenditure ⁽ᶠ⁾⁽ᵍ⁾ Net borrowings before lease liabilities ex IFRS 16 Net borrowings after lease liabilities ex IFRS 16 Shareholders' equity including non-controlling interest Leverage before lease liabilities ex IFRS 16 Leverage after lease liabilities ex IFRS 16	1,582 988 1,206	2,412 (34) 3,725 (73) 2,154 (44) 11,477 1 17,125 (3) 47,900 (22) 0.24 0.36	6,726 4,822 4,970	11,700 (43) 12,392 (61) 7,734 (36) 11,477 1 17,125 (3) 47,900 (22) 0.24 0.36
11,568 16,586 37,556 0.31 0.44	11,568 16,586 37,556 0.31 0.44

• (a) Non-GAAP measure. For further information see the paragraph "Non-GAAP measures" on page 24.

• (b) Due to a new Group-wide structure approved by the management last June to adhere to the decarbonization strategy underway, effective July 1, 2020 the reportable segments of the Company's financial reporting have been re-designed. As required by international accounting standards, the new segment information is effective as of the beginning of the reporting year with the restatement of the 2019 comparative periods. For more information see page 22.

• (c) Attributable to Eni's shareholders.

• (d) Net results do not include Eni's share of the JV Saipem result for the fourth quarter 2020, because the investee is due to release its full-year financial report later on.

• (e) Non-GAAP measure. Net cash provided by operating activities before changes in working capital excluding inventory holding gains or losses, provisions for extraordinary credit losses/other charges, changes in fair value of commodity derivatives lacking the formal criteria to be designed as hedges, as well as the fair value of forward contracts to sell volumes of gas with physical delivery which were not accounted based on the own use exemption.

• (f) Include capital contribution to equity accounted entities.

• (g) 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 full year and the fourth quarter of 2020. Having examined the results, Eni CEO Claudio Descalzi said:

"In a year like no other in the history of the energy industry, Eni has proven the robustness and flexibility of its business model by reacting swiftly and effectively to the extraordinary crisis context, while progressing the Company's irreversible path for the energy transition. In the space of a few months after the outbreak of the pandemic we reduced capital spending and limited the impact of the sharp drop in crude oil prices on the cash flow, strengthening our liquidity and preserving the robustness of our balance sheet. The fourth quarter operating profit and net profit outperformed estimates, achieved through a 44 $/barrel oil price, underpinned by our operating cash generation and the effectiveness of our response to the crisis. The upstream business is strengthening its recovery, while our businesses in the production and sale of decarbonized products achieved excellent results in the year, driven by a 17% Ebit increase from Eni Gas e Luce, a 130% increase in bio-refining processing and 1 GW of new solar and wind generation capacity already installed or sanctioned. We laid foundations for strong growth in renewables by entering two strategic markets, the US and the Dogger Bank wind project in the UK's North Sea offshore wind market, which will be the largest in the world in the sector. Through leveraging the actions we put in place, our 2020 adjusted cash flow of €6.7 billion was able to finance our capex, with a surplus of €1.7 billion. Net borrowings (before IFRS 16) are at the same level as at the end of 2019, and leverage is at around 30%".

Highlights for the fourth quarter and the full year 2020

• • Implementation Eni's strategy to become a leader in the supply of decarbonized products by 2050 combining value creation, sustainability and financial resilience, and to achieve a better-balanced portfolio, reducing the exposure to the volatility of hydrocarbons prices. For these purposes Eni created a new organizational setup in line with the transformative strategy by establishing two business groups: the Natural Resources business which has the task of valorizing the oil&gas portfolio in a sustainable way and of managing the projects of forestry conservation (REDD+) and CO2 capture; and the Energy Evolution business which has the task of growing the businesses of power generation, products manufacturing and retail marketing, progressing the portfolio evolution by expanding the generation of green power and developing sustainable products from decarbonized processes (blue) and from bio masses (bio).

• • The trading environment in 2020 saw the largest drop in oil demand in history (down by an estimated 9% y-o-y) driven by the lockdown measures implemented globally to contain the spread of the COVID-19 pandemic causing a material hit to economic activity, international commerce and travel.

• • The pandemic-induced demand shock led to a collapse in the prices and margins of commodities: the Brent crude oil benchmark was down by 35% y-o-y, the benchmark price of natural gas at the Italian spot market was down by 35% and the Eni benchmark refining margin "SERM" was down by 60%, which materially and adversely affected the Group results of operations and cash flow.

• • To cope with the fallouts of the crisis, management took decisive actions to preserve the Company's liquidity and to strengthen the balance sheet, while aiming to increase the profitability of operations and the financial resiliency. The Company is set to resume growing once the macro backdrop normalizes.

• • Revised the Company's strategy and plans for the short-to-medium term leveraging on a reduction of €8 billion in the outlays for expenses and capital expenditures in the two-year period 2020-2021, more exposed to the downturn. Additional financial resources of approximately €0.8 billion are expected to be allocated in the post-crisis years to the expansion of the green businesses, including the installed capacity of renewable power, bio-refineries and growth in the retail market.

• • Capex optimizations achieved mainly in the E&P business by means of re-phasing development projects, which could be resumed once the scenario normalizes. Reshaped the growth profile of production.

• • Assumed a more conservative oil price scenario with a long-term deck of 60 $/barrel for the Brent crude oil benchmark in real terms 2023, down from the previous assumptions of 70 $/barrel, to factor in risks of a delayed macroeconomic recovery, with the potential for weaker energy demands for a sustained period and growing expectations that the aftermath of the pandemic will accelerate the pace of the energy transition considering the fiscal measures being enacted by governments to rebuild the economy on more sustainable grounds. Recognized impairment losses at non-current assets of approximately €3.2 billion, driven by the revised long-term oil and gas price outlook and lower refining margins. In addition €1.3 billion of impairment losses were accounted by Eni's investees.

• • Issued hybrid bonds for a total amount of €3 billion.

• • The segment information of the Group statutory financial reporting has been upgraded by disclosing the results of the new operating segment "Eni gas e luce, Power & Renewables".

  ***

• • Hydrocarbon production for the FY 2020: 1.73 mmboe/d, in line with the Company's guidance updated following the pandemic.

• • Added 400 million boe of new equity exploration resources at a competitive unit cost of 1.6 $/boe.

• • Proved hydrocarbon reserves at year end: 6.9 billion boe, all sources replacement ratio: 43%;

(96% on a three-year average).

• • Adjusted EBIT: €1.9 billion in the full year (€0.5 billion in the fourth quarter) decreased by approximately €6.7 billion, €6.8 billion of which was due to the decline in prices and margins of hydrocarbons and €1 billion due to the effects of COVID-19, partially offset by a better performance for €1.1 billion.

• • Adjusted EBIT Exploration & Production segment: €1.5 billion in the year (€0.8 billion in the fourth quarter), lower y-o-y due to a depressed scenario in hydrocarbon prices and lower production.

• • Adjusted EBIT in the mid-downstream businesses: totaling €0.63 billion; GGP reported €0.33 billion came in higher than the guidance. R&M (including the pro-forma ADNOC Refining result), the Chemicals business, EGL and Power reported results of €0.3 billion in line with guidance, supported by the growth of biofuels and a better performance in the retail gas&power business.

• • Adjusted net profit: €66 million in the quarter. For the full year the adjusted net result was a loss of €0.74 billion.

• • In 2020, net organic capital expenditures were lowered to €5 billion (down by €2.6 billion or 35% vs. the original budget at constant exchange rates) due to the optimizations implemented. Opex were reduced by €1.9 billion compared to the pre-COVID level, of which about 30% is structural.

• • FY cash flow adjusted before working capital at €6.73 billion was enough to fund the net capex, with a surplus of €1.7 billion.

• • Compared to the initial guidance for the cash flow adjusted of €11.5 billion at a Brent price of 60 $/barrel, the shortfall is due to lower hydrocarbon prices (for a total effect of approximately -€4.5 billion) and COVID-19 impact (approximately -€1.7 billion), partly offset by opex savings and a better performance.

• • Year-end leverage: 0.31.

• • Liquidity: Eni is well equipped to withstand an uncertain trading environment in 2021. As at December 31, 2020, the Company can count on a liquidity reserve of approximately €20.4 billion, consisting of €9.4 billion of cash and cash equivalents, €5.5 billion of readily disposable securities, €0.2 billion of short-term financing receivables and €5.3 billion of committed undrawn credit facilities.

• • Confirmed 2020 dividend proposal1 equal to the floor dividend of €0.36 per share (of which, €0.12 paid as interim dividend in September 2020).

Outlook 2021

The Group financial outlook, its business prospects and the key industrial and profitability targets in the short, medium and long term will be disclosed during the Strategy Presentation which will be held later today. A press release illustrating the Group's strategy has been issued today and disseminated through the Company's website (eni.com) and other public means as required by applicable listing standards.

1 The Board of Directors intends to submit a proposal for distributing a dividend of €0.36 per share (€0.86 in 2019) at the Annual Shareholders' Meeting convened for May 12, 2021. Included in this annual payment is €0.12 per share paid as interim dividend in September 2020. The balance of €0.24 per share is payable to shareholders on May 26, 2021, the ex-dividend date being May 24, 2021.

Business overview

Exploration & Production

• • Hydrocarbon production:

  1.71 million boe/d in the fourth quarter 2020 (down by 11% compared to the same period of 2019), 1.73 boe/d in the full year, in line with the consensus.

  • - Net of price effects, the decline was due to COVID-19 impacts, related OPEC+ production cuts and lower gas demand, mainly in Egypt. Production start-ups/ramp-ups, better contribution of Kazakhstan and portfolio contributions in Norway were partly offset by lower volumes in Libya driven by an expected contractual trigger, lower entitlements/spending and losses due to force majeure, as well as mature field declines.

  • - In the full year start-ups and ramp-ups added 109 kboe/d mainly in Mexico (ramp-up of Area 1), Algeria (Berkine gas field start-up), Congo (Nenè phase 2B start-up) and Angola (Agogo oilfield start-up).

• • Started up gas production in early 2021 in the Sharjah Emirate (UAE), in the Mahani exploration prospect (Eni w.i. 50%) in the onshore Concession B, just one year since discovery and two years after signing the concession agreement.

• • Exploration acreage:

  • - awarded the operatorship of the offshore Block 3 (Eni w.i. 70%) of approximately 12,000 square kilometers, in the United Arab Emirates with near-field targets;

  • - in Angola awarded the operatorship of the offshore Block 28 (Eni w.i. 60%) in the Namibe and Benguela basins, onshore block Cabinda Central (Eni w.i. 42.5%) and Block 1/14 (Eni w.i. 35%) in shallow waters of the Congo Basin;

  • - the JV Vår Energi was awarded 27 new exploration licenses of which 12 operated (as part of the 2019 and 2020 APA rounds), in the three main basins of the Norwegian continental shelf;

  • - ratified the award of the onshore exploration block of West Sherbean (Eni w.i. 50%) in the Nile Delta area, in Egypt;

  • - ratified the award of the onshore exploration lease Dumre in Albania (Eni w.i. 100%);

  • - awarded offshore Indonesia the West Ganal exploration block (Eni operator, w.i. 40%);

  • - awarded in January 2021 the operatorship of the exploration license P2511 (Eni w.i. 100%) in the North Sea in the United Kingdom;

  • - exploration licenses renewed in Kenya as part of a long-term partnership with the country for access to energy and decarbonization.

• • Exploration success:

  • - increased to 1 billion barrels of oil in place at the Agogo discovery in Block 15/06 (Eni operator, w.i. 36.8%), offshore Angola, following a successful appraisal well;

  • - made a gas and condensate discovery in the Sharjah Block B in the exploration prospect Mahani (Eni w.i. 50%);

  • - made an oil discovery in the Saasken exploration prospect in Block 10 (Eni operator, w.i. 65%), offshore Mexico. Estimated 200-300 million barrels of oil in place;

  • - near-field successes in Egypt: two gas discoveries in the Bashrush prospect (Eni operator, w.i. 37.5%) and in the Abu Madi West concession (Eni operator, w.i. 75%) in the Great Nooros Area in the Nile Delta, and two oil discoveries in the Meleiha (Eni operator, w.i. 76%) and in the South West Meleiha onshore concessions (Eni operator, w.i. 100%), all immediately contributing to production and cash flows;