Eni has announces its group results for the first quarter of 2009.
Paolo Scaroni, Chief Executive Officer, commented, "2009 first quarter results are good in the face of a sharp reduction in the oil price and European gas demand. We continue to invest to drive growth and efficiency with the objective of delivering industry leading returns."
- Adjusted operating profit was €3.75 billion, down 36.3% from the first quarter of 2008. This was due to the weaker operating performance reported by the Exploration & Production and Gas & Power divisions as a result of falling oil prices and lower European demand for natural gas.
- Adjusted net profit was €1.76 billion, down 42.2%, mainly as a result of the weaker operating performance, lower results reported by equity-accounted entities and an increased adjusted tax rate (from 47.5% to 49%).
- Capital expenditures for the quarter were €3.15 billion mainly related to continuing development of oil and gas reserves, the construction of rigs and offshore vessels in the Engineering & Construction division and the upgrading of gas transportation infrastructure.
- Net cash generated by operating activities amounted to €5.44 billion coupled with cash from divestments for €182 million, were used to fund the financing requirements associated with capital expenditures (€3.15 billion) and to pay down finance debt. At March 31, 2009 net borrowings2 amounted to €16.53 billion decreasing by €1.85 billion from the end of 2008, also taking into account negative exchange rates translation differences.
- Return on Average Capital Employed (ROACE)3 calculated on an adjusted basis for the twelve-month period to March 31, 2009 was 15.1%.
- Ratio of net borrowings to shareholders' equity including minority interest -- leverage3 -- decreased to 0.32 at March 31, 2009 from 0.38 as of December 31, 2008.
Operational Highlights and Trading Environment
- Oil and natural gas production for the first quarter amounted to 1,779 kboe/d, representing a decrease of 0.9% from the first quarter of 2008 mainly due to OPEC production cuts (down 31 kboe/d), the impact of unplanned facility downtime in Nigeria owing to security reasons and mature field declines. Those negatives were partially offset by continuing production ramp-up in Angola, Congo, Egypt and Venezuela, and the positive price impact reported in the Company’s PSAs.
- Eni's worldwide natural gas sales were 32.35 bcm, up 4.7% reflecting a contribution from the Distrigas acquisition. Net of this effect, sales declined by 14.3%, due to weaker European gas demand associated to the current economic downturn, especially in the Italian market which has been particularly hit by the slowdown (down 3.78 bcm).
- Oil realizations declined by 50.9% driven by falling Brent prices (down 54.2% from the first quarter of 2008). Natural gas realizations followed an opposite pattern mainly due to the impact of time lags in the pricing formulae.
- Realized refining margins were slightly impacted by the favourable trading environment as measured by movements in the relative prices of products compared to the cost of the oil feedstock (the margin on Brent was 5.3 $/bbl, up 40.2% from the first quarter of 2008), mainly due to narrowing differentials between light and heavy oil. Margins were favourably supported by the euro vs. the US dollar exchange rate. Retail marketing margins were lower.
- 2009 first quarter results were positively influenced by the depreciation of the euro vs. the dollar (down 13.2%).
- On April 7, 2009 Gazprom exercised its call option to purchase a 20% interest in OAO Gazprom Neft held by Eni following agreements between the two partners. The 20% interest in Gazprom Neft was acquired by Eni on April 4, 2007 as part of a bid procedure for the assets of bankrupt Russian company Yukos. The exercise price of the call option is equal to the bid price (US$3.7 billion) as adjusted by subtracting dividends distributed and adding the contractual yearly remuneration of 9.4% on the capital employed and financing collateral expenses. At the same time, Eni and Gazprom signed new cooperation agreements targeting certain development projects to be conducted jointly in Russia and other countries of interest.
- On March 19, 2009, the mandatory tender offer on the minorities of Distrigas was finalized. Shareholders representing a 41.61% of the share capital of Distrigas tendered 292,390 shares on Eni's offer. Publigaz SCRL tendered its entire interest (31.25%). The transaction has been accounted in Eni financial statements as at March 31, 2009. On April 8, 2009 Eni paid to those shareholders cash consideration amounting to €1,991 million. Following the tender offer, Eni owns 98.86% of the share capital of Distrigas. The squeeze-out on the residual 1.14% of the share capital is ongoing. Distrigas shares will be delisted from Euronext Brussels.
- On February 12, 2009, Eni’s Board of Directors approved the divestment of 100% of Italgas SpA and Stoccaggi Gas Italia SpA (Stogit) to Snam Rete Gas (50.03% owned by Eni) for total cash consideration of €4,720 million (€3,070 million and €1,650 million, respectively). The transaction will be financed by Snam Rete Gas through:
(i) a rights issue up for a maximum of €3.5 billion (Eni has already committed to subscribe its relative share of the rights issue); and (ii) new medium to long-term financing for €1.3 billion. The main impacts expected on Eni's consolidated financial statements when the transaction closes will be: (i) a decrease of €1.5 billion in net borrowings and a corresponding increase in total equity as a consequence of the pro-quota subscription of the Snam Rete Gas capital increase by the minorities; (ii) a decrease in Eni’s net profit equal to 45% of the aggregate net profit of Italgas and Stogit, with a corresponding increase in net profit attributable to minorities. From an industrial perspective the transaction, expected to close in July 2009, will create significant synergies in the regulated businesses segment and maximize the value of Italgas and Stogit due to the higher visibility of regulated businesses as a part of Snam Rete Gas.
- On March 18, 2009 Eni signed a Protocol for Cooperation with the government of Pakistan to develop a number of important upstream, midstream and downstream projects in the Country. This deal follows Eni's growth strategy through the discovery of new reserves. Eni will provide its expertise as well as new technologies developed in the oil and gas sector, mainly in the exploration and production of hydrocarbon fields.
- On February 9, 2009 Eni signed the first three agreements pertaining to the Memorandum of Understanding signed in August 2008 with Angola’s state oil company Sonangol. These agreements provide for: (i) a feasibility study that addresses the utilization of associated gas feeding a new onshore power plant; (ii) a joint study that evaluates areas of the highly prospective Angolan onshore basins and their production potential for further upstream sector initiatives; (iii) the definition of educational projects and the training of Angolan professionals with the aim of implementing energy initiatives.
- Finally, Eni continued to experience exploration success in the Gulf of Mexico, North Sea and offshore Indonesia.
Taking into account the current economic downturn, Eni assumes a Brent price of 43 $/bbl for the full year 2009 and a decline in European demand for natural gas and fuels. Key business trends for the year are expected to be the following:
- Hydrocarbon production: the Company confirms that its oil and gas production will grow when excluding the impact of OPEC cuts. Still, the Company guides for a partial downward revision of its growth rate compared to its initial plans for a 3% growth rate for 2009 due to lower than anticipated gas demand, rescheduling of certain projects in order to capture the expected downturn in costs and the impact of unplanned facility downtime, particularly in West Africa;
- Worldwide natural gas sales: are forecasted to increase from 2008 (actual sales volumes in 2008 were 104.23 bcm) reflecting the full contribution of the Distrigas acquisition and marketing activity designed to support the market share in target European markets, despite lowering gas demand. Sales in Italy are expected to decline sharply due to the economic downturn and competitive pressures;
- Refining throughputs on Eni's account: are expected to increase slightly from 2008 (actual throughputs in 2008 were 35.84 mmtonnes) reflecting improved performance at certain plants;
- Retail sales of refined products in Italy and the rest of Europe: are expected to decrease from 2008 (12.03 mmtonnes in 2008, excluding the impact of the divestment of marketing activities in the Iberian Peninsula that was executed late in 2008) due to weak demand for fuels forecast in the main European markets.
In 2009, management expects a decrease in capital expenditures as compared to 2008 (€14.56 billion in 2008). Capital expenditures will be directed mainly to the development of oil and natural gas reserves, the upgrading of construction vessels and rigs, and the upgrading of natural gas transport infrastructures.
On the basis of the Company projections of cash flow at a price of $43 per Brent barrel for the full year, management expects that the Group’s leverage at 2009 year-end will record a slight increase from 2008 yearend (0.38). Still, management believes that the Group projected leverage at 2009 year-end will be adeguate to support the Company's current credit rating.
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