ENI: Results for the Third Quarter and the Nine Months of 2017

Source Press Release
Company ENI S.p.A.ExxonMobilRosneft 
Tags Chemicals Activities, Strategy - Chemicals, Power, Refining & Marketing Activities, Strategy - Downstream, Pipelines/ tankers/ distribution, Production/Development, Upstream Activities, Strategy - Upstream, Capital Spending, Guidance, Financial & Operating Data, Strategy - Corporate
Date October 27, 2017
IIQ      IIIQ    Nine months   
2017    2017  2016  % Ch.  2017  2016  % Ch. 
49.83  Brent dated  $/bbl  52.08  45.85  14  51.90  41.77  24 
1.101  Average EUR/USD exchange rate    1.175  1.116  1.114  1.116   
1,771  Hydrocarbon production  kboe/d  1,803  1,710  1,790  1,726 
1,019  Adjusted operating profit (loss) (a)  € million   947  258  267  3,800  1,029  269 
845  of which: E&P    1,046  644  62  3,306  1,094  202 
(146)                     G&P    (193)  (374)  48  (1)  (318)  100 
352                     R&M and Chemicals    337  175  93  878  508  73 
463  Adjusted net profit (loss) (a)     229  (484)  ..  1,436  (799)  .. 
0.13  - per share (€)     0.06  (0.13)    0.40  (0.22)   
18  Net profit (loss) (b)    344  (562)  ..  1,327  (1,391)  .. 
..  - per share (€)     0.10  (0.16)    0.37  (0.39)   
2,284  Adjusted cash flow from operations (c)    1,722  1,353  27  6,603  3,830  72 
2,706  Net cash flow from operations    2,161  1,325  63  6,799  4,425  54 
2,106  Capital expenditure (d)      2,023  2,057  (2)  6,996  8,088  (14) 
15,467  Net borrowings    14,965  16,008  (7)  14,965  16,008  (7) 
0.32  Leverage  0.32  0.32    0.32  0.32   

(a) Non-GAAP measure. For further information see the paragraph "Non-GAAP measures" on page 15.
(b) Attributable to Eni's shareholders - continuing operations.
(c) Non GAAP measure. Net cash flow from operations before changes in working capital and excluding inventory holding gains or losses.
(d) Include capital contribution to equity accounted entities.

Yesterday, Eni’s Board of Directors approved the Group results for the third quarter and the nine months of 2017 (unaudited). Commenting on the results, Claudio Descalzi, CEO of Eni, remarked:

“In the third quarter, we achieved excellent results with an increase in operating profit almost four times higher, a net result above €700 million and net growth in operating cash flow compared to the third quarter of 2016. Investments followed trends in line with expectations, with a reduction of approximately 18% during the year compared with 2016.
In 2017 we expect to achieve organic coverage of investments and dividends, entirely paid in cash, at a Brent price of 60$ a barrel as planned, or 45$ a barrel when taking into account our dual exploration model initiatives.
These results have been achieved thanks to progress made in pursuing our strategy.
In the Upstream sector, hydrocarbon production grew by 7%, net of the cuts imposed by OPEC and the price effect.
The Downstream refining and chemical sectors exceeded our expectations by doubling operating profit. They benefited from an optimized industrial structure and demonstrated their ability to seize growth opportunities in the market. In G&P we have achieved structural breakeven and expect a positive result for the full year.”

Highlights

Exploration & Production

  • Robust hydrocarbon production growth:
    • Produced an average of 1.8 million boe/d in the third quarter, up by 5.4% (up by 3.7% in the nine months of 2017); excluding price effects at PSAs and OPEC cuts, up by 7% (up by 6% in the nine months of 2017).
    • Start-ups and ramp-ups additions:224 kboe/d added in the nine months thanks to the optimization of major projects started in 2017.
    • Production expected to ramp up further in the fourth quarter, reaching approximately1.9 million boe/don average in the period, the highest level in seven years, with the contribution of high valuable barrels.
  • Dual exploration model:closed in October the divestment of a 30% stake in the super-giant Zohr gas field, off Egypt, to Rosneft.
  • Expected to be completed by the end of 2017 the divestment to Exxon Mobil of a 25% stake in Area 4 in Mozambique.
  • Libya: resumed the second development phase of the giant offshore field Bahr Essalam. First gas is expected in 2018.
  • Continued exploration success offshore Mexico: the resources of the whole contractual Area 1 were boosted to 1.4 billion boe in place thanks to the appraisal of the Mizton discovery, which followed that of Amoca. Expected a fast-track development plan. Awarded three new exploration and production licenses at Block 7, 10 and 14, in the Sureste basin.
  • Ongoing progress at the Zohr project:start-up confirmed by the end of 2017.
  • E&P adjusted operating profit: €1.05 billion in the third quarter (up by 62%); more than tripled to €3.31 billion in the nine months of 2017.

Gas & Power

  • Continuous, strong  progressin the wholesale business leveraging improvements at long-term supply contracts and logistics.
  • Retail business: better performance in converting revenues into cash; growth in the customer base, excluding the impact of disposals.
  • G&P adjusted operating result: in spite of weak seasonal trends, the third quarter of 2017 showed a remarkable improvement y-o-y (up by 48%); the 2017 nine months period was at breakeven (up €0.32 billion y-o-y).

Refining & Marketing and Chemicals

  • Confirmed refining breakeven margin below 4 $/barrelon average for the FY.
  • Record quarterly results in R&M:  adjusted operating profit more than doubled y-o-y at €0.22 billion, despite the partial downtime of the Sannazzaro and Livorno refineries (€0.46 billion for the nine months, up by 117%).
  • Chemical business adjusted operating profit:€0.11 billion in the third quarter 2017, up by 51% y-o-y; €0.42 billion in the nine months of 2017 (up by 42%). Expected record full year results.

Group results

  • Adjusted operating profit increased almost four times both for the third quarter and the nine months of 2017, to €0.95 billion (up €0.69 billion y-o-y) and €3.80 billion (up €2.77 billion y-o-y), respectively.
  • Adjusted net profit: €0.23 billion in the third quarter, €1.44 billion in the nine months of 2017 compared to net losses reported in the comparative periods of last year.
  • Net profit: €0.34 billion in the third quarter (€1.33 billion in the nine months of 2017).
  • Continued structural improvement incash generation: €2.16 billion in the third quarter, up by 63% y-o-y; €6.8 billion in the nine months of 2017 (up by 54%).
  • Adjusted cash flow from operations before changes in working capital at replacement cost: €1.72 billion in the third quarter (up by 27%) and €6.60 billion in the nine months of 2017 (up by 72%), affected by an extraordinary tax payment in Angola amounting €0.15 billion.
  • Capex: €7 billion in the nine months of 2017 (€5.7 billion on a pro-forma1 basis), spending has reduced in the third quarter after a peak registered in the first half of 2017 due to the completion of certain large projects. Self-financing ratio of pro-forma capex at approximately 120%.
  • Disposals: expected €3.7 billion to be cashed in for the FY, of which approximately €1.5 billion in the nine months of 2017, mainly related to the dual exploration model.
  • Net debt: €14.96 billion; expected to decrease y-o-y following the closing of disposals. 
  • Leverage at September 30, 2017: 0.32, expected at 0.25 at year end driven by cash flow from operations and disposals.  

Outlook 

Exploration & Production
Confirmed the 2017 target of 0.8 bln boe of new resources discovered, at a unitary discovery cost of approximately 1 $/bbl.
Expected an average FY production of 1.815 million boe/d, matching the all-time high in 2010, a 5% increase from 2016 excluding price effects at PSAs and OPEC cuts. This will be driven by new project start-ups (Indonesia, Angola and Ghana), ramp-ups of fields entered into operation in 2016, mainly in Kazakhstan, Egypt and Norway, as well as the restart of certain Libyan fields. Contingent factors such as the shutdown of the Val d’Agri oil centre, which was down for almost the entire second quarter, the impact of OPEC cuts, as well as certain contractual one-offs recorded in 2016, will be absorbed by the implementation of other initiatives to optimize production, as well as by the earlier than planned start-up of the large projects in Angola, Indonesia and Ghana. 

Gas & Power
Expected structural positive results from 2017. The wholesale business is seen to achieve structural breakeven one year earlier than planned.
Eni plans to retain market share in the retail segment, increasing the value of the existing customer base by developing innovative commercial initiatives, integrating services and optimizing operations. 

Refining & Marketing and Chemicals
Confirmed the target of refining breakeven margin at 3 $/barrel in 2018.
Refinery intakes on own account are expected to decrease slightly y-o-y due to the downtime of certain assets at the Sannazzaro refinery, which has been almost completely offset by higher volumes at Milazzo. Stable at approximately 90% the refinery utilization rate. Against a backdrop of strong competition, management expects to consolidate both volume and market share in the Italian retail market by leveraging innovation and product and service differentiation. In the rest of Europe, sales on a like-for-like basis are expected to increase slightly.
In the Chemical business, we expect stable sales volumes. Cracker margins are expected to be broadly in positive territory, with a peak in butadiene, while polyethylene margins are expected to decline. Expected record full year results. 

Group
2017 FY capex projected at €7.5 billion on a proforma basis, i.e. net of the capex which will be reimbursed in connection with asset disposals and advances paid by the Egyptian partners in the Zohr project. Confirmed the target of reducing capex by approximately 18% y-o-y at constant exchange rates.
Cash neutrality: confirmed organic coverage of capex and dividends at a Brent price of 60 $/bbl in 2017; 45 $/bbl considering cash inflow yielded by the dual exploration model.
Leverage at the end of 2017: projected at 0.25, substantially declining from the 2016 level, also reflecting the expected closing of portfolio transactions, particularly the Mozambique deal.

(1) Net of reimbursement of capex relating to asset disposals and advances made by the Egyptian partners in the Zohr project, see page 12.

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