Eni's 4Q Earnings Exceed Expectations
Eni announced preliminary results for the fourth quarter and the full year 2010 (unaudited).
- Adjusted operating profit: €4.74 billion in the quarter (up 28%); €17.3 billion for the full year (up 31.9%).
- Adjusted net profit: €1.72 billion in the quarter (up 23.6%); €6.87 billion for the full year (up 31.9%).
- Net profit: €0.55 billion in the quarter (up 40.2%); €6.32 billion for the full year (up 44.7%).
- Cash flow: €3.15 billion in the quarter; €14.69 billion for the full year.
- Dividend proposal for the full year of €1.00 per share (includes an interim dividend of €0.50 per share paid in September 2010).
- Oil and natural gas production: 1.954 million barrels per day in the quarter, up 2% from 2009 on a comparable basis 1 (up 1.1% for the full year).
- Preliminary year-end proved reserves estimate: 6.84 bboe with a reference Brent price of $79 per barrel. All sources reserve replacement ratio was 125% on a comparable basis 1.
- Natural gas sales: up 1.3% to 28.76 billion cubic meters in the quarter (down 6.4% for the full year).
- Junin 5 in Venezuela: established a joint venture for developing the giant oilfield with first oil expected in 2013.
- Giant Zubair field in Iraq: first production booked in the fourth quarter.
- Giant Perla field: appraised to be the largest gas discovery ever in Venezuela with volumes of gas in place of 400 billion cubic meters.
- Poland: awarded licences in high potential areas for shale gas.
- Ecuador: renewed the service contract for the Villano oilfield with extension in the Oglan discovery area.
- Started production at all 12 fields planned for the year.
Paolo Scaroni, Chief Executive Officer, commented, "In 2010, Eni delivered operating and financial results which rank among the best in its peer group. In E&P, where we reported record production, we paved the way for future growth thanks to our entry into new countries, including Togo, Democratic Republic of Congo and Poland. We also strengthened our position in established areas of operation, such as Venezuela and Iraq, where we expect high productive potential. Thanks to our excellent strategic positioning, Eni will continue to generate industry-leading results, and create value for its shareholders."
Capital expenditures amounted to €3.9 billion for the quarter and €13.9 billion for the full year, mainly relating to the continuing development of oil and gas reserves, the upgrading of rigs and offshore vessels in the Engineering & Construction segment and of the gas transport infrastructure.
The main cash inflows for the quarter were net cash generated by operating activities amounting to €3,146 million (€14,694 million for the full year) benefiting from a cash inflow from transferring certain account receivables without recourse to factoring institutions, amounting to €1,279 million due in 2011. These inflows were balanced by outflows for pre-payments to the Company's suppliers of gas under long-term contracts upon triggering the take-or-pay clause (€937 million for the quarter and €1,238 million for the full year). Proceeds from divestments amounted €211 million (€1,113 million for the full year). These inflows were used to fund part of the financing requirements associated with capital expenditures of €3,912 million (€13,870 million for the full year), the dividend payments to Eni's shareholders amounting to €3,622 million, relating to the interim dividend for fiscal year 2010 and the payment of the balance of 2009 dividend. Other dividend payments to
non-controlling interests amounted to €514 million. As a result, net borrowings as of December 31, 2010 amounted to €26,119 million, representing an increase of €858 million from September 30, 2010 and €3,064 million from December 31, 2009.
Exploration & Production
In the fourth quarter of 2010, Eni's reported liquids and gas production reached the record level of 1.954 mmboe/d (1,815 kboe/d for the full year). This was calculated assuming a natural gas conversion factor to barrel equivalent which was updated to 5,550 cubic feet of gas equals 1 barrel of oil (it was 5,742 cubic feet of gas per barrel in previous reporting periods). On a comparable basis, i.e. when excluding the effect of updating the gas conversion factor, production showed an increase of 2% on a quarter-to-quarter basis, and was up 1.1% for the full year. Production growth was driven by additions from new field start-ups, particularly the Zubair field in Iraq started up in the fourth quarter, amounting to 90 and 40 kboe/d in the quarter and full year, respectively. Those trends were partly offset by mature field declines. Lower entitlements in the Company's Production Sharing Agreements (PSAs) due to higher oil prices, as well as lower gas uplifts in Libya as a result of oversupply conditions in the European market were partly offset by lower OPEC restrictions resulting in a net negative impact of approximately 7 kboe/d on an annual basis and in a net positive impact of approximately 10 kboe/d in the quarter.
In 2010, Eni continued to progress its growth strategy, particularly in the Exploration & Production segment, as foundations of a new development phase were laid. We strengthened our presence in two countries with tremendous mineral potential: in Venezuela, we signed agreements for developing the giant Junin 5 oilfield and discovered the maxi gas field Perla, offshore; and in Iraq we achieved development milestones at the giant Zubair oilfield. 2010 also marked Eni's entry in new high potential countries such as Togo, the Democratic Republic of Congo and, in non conventional resources, Poland. In the Gas & Power segment, Eni consolidated its presence in the French market and renewed its strategic partnership with Gazprom. Eni's portfolio was rationalized by divesting non strategic assets.
In November 2010, Eni and Venezuelan company PDVSA signed the contracts for the development of the giant Junín 5 oilfield, located in the Orinoco Oil Belt with certified volumes of oil in place of 35 billion barrels. The two partners plan to achieve first oil by 2013 at an initial rate of 75,000 barrels per day, targeting a long-term production plateau of 240,000 barrels per day to be reached in 2018. In addition to development, the project provides for the construction of a refinery designed to process the field production.
Appraisal activities performed in 2010 confirmed Perla as a major gas discovery, one of the most significant in recent years and the largest ever in Venezuela, with volumes of gas in place of over 400 bcm. The Perla field, located in the Cardón IV Block, in the shallow water of the Gulf of Venezuela, is currently licensed and operated by a 50/50 Joint Venture with an international oil company. The partners are planning to fast track development of Perla through an early production phase of 10 bcm per day, targeted to start-up by 2013. The Venezuelan state company PDVSA owns a 35% back-in right to be exercised in the development phase.
Eni has achieved an increase in production by more than 10% above the initial production rate of approximately 180 kbbl/d at the giant Zubair oilfield. Lifting production above that level means that Eni has begun the cost recovery of its work on the field by booking its share of production for the fourth quarter, including receiving a remuneration fee for every extra barrel of oil produced above the 10% target. Eni, with a 32.8% share, is leading the consortium in charge of redeveloping the Zubair field over a 20 year period, targeting a production plateau of 1.2 mmbbl/d in the next six years.
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. Peak production is expected at 28 kbbl/d.
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 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 November 2010, Eni signed with the Government of Ecuador new terms for the service contract for the Villano oilfield, due to expire in 2023. Under the new agreement, the operated area is enlarged to include the Oglan oil discovery, with volumes in place of 300 mmbbl. Development will be achieved in synergy with existing facilities.
Democratic Republic of Congo
In August 2010, Eni signed an agreement with UK-based Surestream Petroleum to acquire a 55% stake and operatorship in the Ndunda block located in the Democratic Republic of Congo. The agreement has already been sanctioned by the relevant authorities.
In October 2010, Eni was awarded operatorship of offshore Block 1 and Block 2 (Eni 100%) in the Dahomey Basin as part of its agreements with the Government of Togo to develop the country's offshore mineral resources. The area is located in a scarcely explored basin bordered to the west by the analogous Tano Basin where major discoveries have been made previously.
In December 2010, Eni acquired the Minsk Energy Resources operating 3 licences in the Polish Baltic Basin, a highly prospective shale gas play. Drilling operations are expected to start in 2011. Through this agreement, Eni makes its entrance into European unconventional gas, in line with the company's strategy of expanding its position in unconventional resources.
Signed an extension to the strategic agreement with Gazprom
Eni and Gazprom signed the extension to 2012 of the strategic agreement signed in November 2006. This consolidates a long term partnership to launch joint projects in mid and downstream gas, in the upstream sector and in technological cooperation.
In December 2010, Eni increased its share in Altergaz, a company marketing natural gas in France to retail and middle market clients, to 55.2%, as founding partners of the company exercised a put option on a 15% stake. Eni now controls the entity.
In 2010, significant exploratory successes were achieved. In addition to Perla, the main discoveries were made in:
- Angola with the exploratory wells Cabaca South East and Mpungi located in the 15/06 offshore block (Eni 35%, operator);
- offshore United Kingdom with the Culzean appraisal well (Eni 16,9%);
- Indonesia with a gas well in the Jangkrik (Eni 55%) field;
- Norway with the Fossekall (Eni 11.5%) and the Flyndretind oil discoveries (Eni 29.4%);
- onshore Egypt with the North El Qara gas discovery (Eni 75%) and the Arcadia oil discovery (Eni 56%), both already in production;
- Nigeria with the Tuomo 4 oil discovery (Eni 20%).
Operates 11 Offshore Rigs
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