Eni, the international oil and gas company, today announces its group results for the first quarter of 20111 (unaudited).
Paolo Scaroni, Chief Executive Officer, commented, "In the first quarter of 2011, marked by the Libyan events, Eni delivered a solid set of financial results on the back of a favorable oil price environment. In spite of ongoing uncertainties regarding resumption of our activities in Libya, the profitability and growth outlook for our Company has remained positive underpinned by a sound financial position, the quality of our asset portfolio, and a strong projects pipeline."
Adjusted operating profit
Adjusted operating profit was €5.13 billion, up 18.4% from the first quarter of 2010. This was due to a better operating performance reported by the Exploration & Production Division (up 32.1%) on the back of stronger oil prices. The Engineering & Construction Division reported a strong performance. The Petrochemical Division also improved versus a year ago as operating losses were substantially cut. These positive trends were partially offset by poor performance reported by the Refining & Marketing Division due to high costs for oil feedstock which were only partially transferred to refined product prices and the Gas & Power Division which was affected by weaker margins on gas sales.
Adjusted Net Profit
Adjusted net profit was €2.22 billion, up 21.6% compared with a year ago, as a result of better operating performance and a decreased adjusted tax rate (from 53% to 50.5%).
Capital expenditure for the quarter amounted to €2.87 billion mainly related to continuing development of oil and gas reserves, the construction of rigs and offshore vessels in the Engineering & Construction segment and the upgrading of gas transport infrastructure.
Net cash generated by operating activities amounted to €4.19 billion and were used to fund capital expenditure (€2.87 billion) as well as pay down net borrowings2 which was down by €1.17 billion from December 31, 2010, to €24.95 billion. Cash flow from operating activities was negatively affected by a lower cash inflow of €347 million associated with transferring trade receivables due beyond end of 2010 to factoring institutions amounting to €1,279 million in the fourth quarter 2010, while the current quarter benefitted from transferring €932 million of trade receivables due beyond March 31, 2011 to those institutions.
Return on Average Capital Employed (ROACE)3 calculated on an adjusted basis for the twelve-month period ending on March 31, 2011, was 11.4%. The ratio of net borrowings to shareholders' equity including non-controlling interest – leverage3 – decreased to 0.44 at March 31, 2011, from 0.47 as of December 31, 2010. This change was due to profit for the period and reduced net borrowings, notwithstanding the appreciation of the euro against the US dollar as recorded at March 31, 2011, vs. December 31, 2010 (up 6.4%) which reduced shareholders' equity by €1.9 billion.
Exploration & Production
Eni reported liquids and gas production of 1,684 kboe/d for the first quarter of 2011, down by 8.6% from the first quarter of 2010 (down 158 kboe/d). The magnitude of this reduction was the result of the shutdown of activities at several of Eni's producing sites in Libya and the closure of the GreenStream pipeline transporting gas from Libya to Italy which occurred on February 22, 2011, as a result of ongoing political instability and conflict in the Country. From April 2011, Eni production in Libya has been flowing at a level of 50-55 kboe/d and with the full supply supporting local production of electricity. Performance in the quarter was negatively impacted by lower entitlements in the Company's PSAs due to higher oil prices with an overall effect of 32 kboe/d compared to the year-earlier quarter, in addition to the above mentioned Libyan shutdown that caused a production loss of 129 kboe/d compared to the first quarter of 2010. These negatives were partly offset by continuing production ramp-up in Egypt, Iraq and Italy.
Gas & Power
Eni's worldwide natural gas sales recovered from the first quarter of 2010 (up 6% to 32.33 bcm). Sales on the Italian market increased by 10.2% due to client additions in the industrial, power generation and wholesale segments as well as higher volumes supplied. In Europe, Eni sales showed growth in all of the Company's major markets (up by 14.2% on average), excluding Belgium as a result of strong competitive pressures. Turkey, France, the Iberian Peninsula and Germany/Austria were the markets posting the largest increases. Sales to shippers which import gas to Italy decreased by 42.5%. This was due to lower availability of Libyan production and lower volumes purchased.
In April 2011, Eni reached an agreement with Cadogan Petroleum plc for the acquisition of an interest in two exploration and development licenses located in the Dniepr-Donetz basin, in Ukraine. This agreement is part of the development of cooperation initiatives in hydrocarbon exploration and production in the Country also reaffirmed in a Memorandum of Understanding with the Ukrainian Ministry of Ecology and Natural Resources.
In February 2011, production start-up was achieved at the Nikaitchuq operated field (Eni 100%), located in the North Slope basins offshore Alaska, with resources of 220 million barrels. Production is expected to peak at 28 kbbl/d.
In January 2011, Eni signed a Memorandum of Understanding with CNPC/PetroChina to promote common opportunities to jointly expand operations in conventional and unconventional hydrocarbons in China and outside China. The parties will also cooperate in the field of advanced technology, with a special focus on the exploitation of unconventional oil and gas resources.
In January 2011, Eni was awarded rights to explore and the operatorship of offshore Block 35 in Angola, with a 30% interest. The agreement foresees drilling 2 wells and 3D seismic surveys to be carried out in the first 5 years of exploration. This deal is subject to the approval of the relevant authorities.
In the first quarter of 2011, significant exploratory success was achieved in:
Management expects that the global economic recovery will progressively strengthen across the year 2011. Nonetheless, the 2011 outlook is characterized by a certain degree of uncertainty and volatility also in light of ongoing political instability and conflict in Libya. Eni forecasts an upward trend for Brent crude oil prices supported by healthier global oil demand. For short-term economic and financial projections, Eni assumes an average Brent price of 101 $/bbl for the full year 2011. Management expects that the European gas market will remain weak as sluggish demand growth is insufficient to absorb current oversupplies. Refining margins are expected to remain unprofitable due to weak underlying fundamentals and high feedstock costs. Against this backdrop, management expectations about the main trends in the Company's businesses for 2011 and beyond are disclosed below.
In 2011, management plans to make capital expenditures broadly in line with 2010 (€13.87 billion was invested in 2010) and will mainly be directed to developing giant fields and starting production at new important fields in the Exploration & Production Division, refinery upgrading related in particular to the realization of the EST project, completing the program of enhancing Saipem's fleet of vessels and rigs, and upgrading the natural gas transport infrastructure. Assuming a Brent price of $101/barrel and the planned divestment of certain assets, management forecasts that the ratio of net borrowings to total equity (leverage) at year-end will be lower than in 2010.
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