Eni Delivers Strong 1Q Operating, Financial Results

Eni announcee its group results for the first quarter of 2010 (unaudited).

Financial Highlights

  • Adjusted operating profit: up 15.4% to $5.78 billion
  • Adjusted net profit: up 3.6% to $2.43 billion
  • Net profit: up 16.7% to $2.96 billion
  • Cash flow: $6.08 billion

Operational Highlights

  • Oil and natural gas production: up 2.1% to 1.816 million barrels per day.
  • Natural gas sales: down 5.7% to 30.51 billion cubic meters.

Paolo Scaroni, Chief Executive Officer, commented, "Eni delivered solid operating and financial results for the first quarter of 2010, in spite of ongoing market challenges. We continue investing to drive growth and efficiency as we maintain our focus on creating value for our shareholders."

Financial Highlights

Adjusted operating profit

Adjusted operating profit was $5.78 billion, up 15.4% from the first quarter of 2009. This was due to an excellent operating performance reported by the Exploration & Production division driven by increased oil prices and production growth. The Petrochemical division also improved versus a year ago as operating losses were cut in half. Theses positive trends were partially offset by reduced results reported by both the Refining & Marketing and the Gas & Power divisions.

Adjusted Net Profit

Adjusted net profit was $2.43 billion, up 3.6% compared with a year ago, as a better operating performance was partly absorbed by the negative impact associated with an increased adjusted tax rate (from 49% to 53%).

Capital expenditures

Capital expenditures for the quarter amounted to $3.71 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.

Cash flow

The main cash inflows for the quarter were net cash generated by operating activities amounting to $6.08 billion and proceeds from divestments of $974 million. These inflows were used to fund the financing requirements associated with capital expenditures ($3.71 billion) and to pay down finance debt. As of March 31, 2010 net borrowings amounted to $28.12 billion, representing a decrease of $2.67 billion from year end 2009, notwithstanding negative exchange rate translation differences (down approximately $494 million).

Financial Ratios

Return on Average Capital Employed (ROACE) calculated on an adjusted basis at March 31, 2010 was 9.1%. The ratio of net borrowings to shareholders’ equity including minority interest – leverage – decreased to 0.39 at March 31, 2010 from 0.46 as of December 31, 2009.

Operational Highlights and Trading Environment Fourth Quarter

Exploration & Production


Eni reported liquids and gas production of 1,816 kboe/d for the first quarter of 2010. Production grew by 2.1% as a result of continuing production ramp-up in Nigeria, Congo and the United States, and additions from fields which were started-up in 2009. These positive trends were partly offset by a combined negative impact associated with lower entitlements in Company’s PSAs due to higher oil prices, and lower OPEC restrictions. Also, production for the quarter was negatively affected by unplanned facility shutdowns and mature field declines, particularly in the North Sea.

Portfolio developments

Venezuela

The Perla 2 well, located in the Cardón IV Block, in the shallow waters of the Gulf of Venezuela, was successfully drilled. The results exceeded the initial resource estimation by 30% with potential for further improvements to be defined through the future wells. This result confirms Perla as a world-class gas discovery, one of the most significant in recent years, and the largest ever in Venezuela.

Angola

Two oil discoveries were made offshore in the 15/06 block (Eni 35%, operator) with the exploration wells Nzanza-1 e Cinguvu-1, which have been flowing at more than 1,600 and 6,400 barrels per day respectively.

Russia

As part of the transaction to divest a 51% stake in the joint-venture Eni-Enel OOO SeverEnergia to Gazprom, based on the call option exercised by the Russian company on September 24, 2009, Eni collected a second installment of the transaction by March 31, 2010. This amounted to $703 million (as converted at the EUR/USD exchange rate of 1.35 as of the transaction date, corresponding to approximately $710 million, approximately 75% of the whole amount).

Main production start-ups

In line with the Company’s production plans, production was started at the Annamaria B field (Eni 90% operator), located in the offshore section between Italy and Croatia, which flowed at approximately 28 mmcf/day. A production plateau of 42 mmcf/day (7,500 barrels of oil equivalent) is targeted. Other start-ups were achieved in Algeria, China and Congo.

Outlook

In what remains an uncertain energy environment, Eni forecasts a modest improvement in global oil demand and a Brent price of $76/barrel in 2010. Gas demand in Europe and Italy is expected to recover gradually from the steep decline suffered in 2009, which mainly impacted the industrial and thermoelectric sectors at a time when new import capacity was coming on line. The Company faces a challenging refining environment, excluding any significant recovery in industry fundamentals, which will result in prolonged weakness in refinery margins.

  • Production of liquids and natural gas is forecast to slightly increase compared to 2009 (production in 2009 was 1.769 million boe/d). This estimate is based on the Company’s scenario for a Brent price of 76$/barrel for the full year, the same level of OPEC restrictions as in the first quarter of 2010 and asset disposals underway. Growth will be driven by continuing field start-ups, mainly in Italy, Algeria and Norway and marginally the Zubair project in Iraq, and production ramp-up at the Company’s recently started fields, mainly in Nigeria, Angola and the USA. These additions will be partly offset by mature field declines.
  • Natural gas sales are forecasted to decrease slightly compared with 2009 (approximately 104 bcm were achieved in 2009). Increasing competitive pressures, mainly in Italy, are expected to be partly offset by an expected recovery in European gas demand. Other positive trends include a benefit associated with integrating Distrigas operations and the optimization of its supply portfolio, including re-negotiation of longterm supply contracts.
  • Regulated businesses in Italy will benefit from the pre-set regulatory return on new capital expenditures and cost savings from integrating the whole chain of transport, storage and distribution activities.
  • Refining throughput on Eni’s account are planned to be in line with 2009 (actual throughput in 2009 were 34.55 mmtonnes). Volumes processed at wholly-owned refineries are expected to increase, resulting in a higher capacity utilization rate, due to a reduction of volumes on third party refineries reflecting the Company’s decision to terminate certain processing agreements. Efficiency improvement actions will partly offset the unfavorable trading environment.
  • Retail sales of refined products in Italy and the rest of Europe are expected to be unchanged from 2009 (12.02 mmtonnes in 2009) reflecting weak demand. New marketing initiatives are planned in order to strengthen Eni’s leadership on the Italian retail market and to develop its market share in European markets.
  • The Engineering & Construction business is expected to see solid results due to a robust order backlog. In 2010, management plans to make capital expenditures broadly in line with 2009 (€13.69 billion were invested in 2009). Capital expenditures will mainly be directed to the development of oil and natural gas reserves, exploration projects, the upgrading of construction vessels and rigs, and the upgrading of natural gas transport infrastructure. Management has planned a number of measures designed to ensure the achievement of a ratio of net borrowings to total equity (leverage) which will adequately support a strong credit rating.
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Brent Crude Oil : $53/BBL 1.72%
Light Crude Oil : $49.77/BBL 2.27%
Natural Gas : $3.6/MMBtu 1.09%
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