Eni Profit Soars in 2Q10
Eni announced its group results for the second quarter and the first half of 2010 (unaudited).
- Adjusted operating profit: €4.13 billion in the quarter (up 61.9%); €8.46 billion in the first half (up 34.2%).
- Adjusted net profit: €1.63 billion in the quarter (up 80.2%); €3.45 billion in the first half (up 29.5%).
- Net profit: €1.82 billion in the quarter (up 119.2%); €4.05 billion in the first half (up 47.9%).
- Cash flow: €4.59 billion in the quarter; €9.14 billion in the first half.
- Interim dividend proposal of €0.50 per share.
- Oil and natural gas production: 1.758 million barrels per day in the quarter, unchanged from 2009 on a comparable basis 1 (up 1.0% in the first half).
- Natural gas sales: down 6.2% to 19.2 billion cubic meters in the quarter (down 5.9% in the first half).
- In the first half of 2010, 5 new fields were put into production in Italy, Congo, Algeria and Tunisia and Eni is on track to achieve the target of 12 field start-ups for 2010.
- Significant exploration success was achieved in Angola, Venezuela, Pakistan, Norway and Indonesia increasing Eni's resource base by 600 million barrels in the first half 2010.
Paolo Scaroni, Chief Executive Officer, commented, "Eni achieved robust financial and operating results in the first half of 2010 despite ongoing challenging market conditions especially in the gas market. In E&P in particular we are delivering on all our targets with excellent results in terms of startups and exploration success. Eni continues to invest for growth while maintaining strict financial discipline and a strong balance sheet."
At the same time the Board has approved the interim report as of June 30, 2010, which has been prepared in accordance to Italian listing standards as per article 154-ter of the Code for securities and exchanges (Testo Unico della Finanza). The report was immediately submitted to the Company's external auditor. Publication of the interim report is scheduled within the first half of August alongside completion of the auditor's review.
Adjusted operating profit
Adjusted operating profit for the second quarter of 2010 was €4.13 billion, an increase of 61.9% compared with the second quarter of 2009. For the first half of 2010, adjusted operating profit was €8.46 billion, an increase of 34.2% compared with the first half of 2009. These results reflected an excellent operating performance reported by the Exploration & Production division (an increase of 66.8% compared with the second quarter of 2009) driven by higher oil realizations and the appreciation of the US dollar vs. the euro. Also the downstream refining and petrochemical divisions reported better results as business conditions have improved, particularly the
second quarter refining margins.
Adjusted net profit
Adjusted net profit for the second quarter of 2010 was €1.63 billion, up 80.2% compared with a year ago. In the first half of 2010, net profit of €3.45 billion increased by 29.5%. These results reflected improved operating performance and higher results reported by equity-accounted entities, partly absorbed by an increased adjusted tax rate (up 1.2 percentage points in the second quarter; up 3.3 percentage points in the first half).
Capital expenditures were €4.3 billion for the quarter and €7.1 billion for the first half mainly relating to continuing development of oil and gas reserves, the upgrading of rigs and offshore vessels in the Engineering & Construction segment and of the gas transport infrastructures.
The main cash inflows for the quarter were net cash generated by operating activities amounting to €4,585 million (€9,139 million in the first half) and proceeds from divestments of €66 million (€795 million in the first half). These inflows were used to fund part of the financing requirements associated with capital expenditures of €4,328 million (€7,107 million in the first half) and dividend payment amounting to €2,164 million, which included payment of balance dividend for the fiscal year 2009 to Eni's shareholders and dividends paid to minorities by consolidated entities. As a result, net borrowings2 as of June 30, 2010 amounted to €23,342 million, representing an increase of €2,290 million from March 31, 2010 and €287 million from December 31, 2009.
Return on Average Capital Employed (ROACE) 3 calculated on an adjusted basis for the twelve-month period to June 30, 2010 was 9.7% (13% at June 30, 2009).
Ratio of net borrowings to shareholders' equity including non-controlling interest – leverage3 – decreased to 0.41 at June 30, 2010 from 0.46 as of December 31, 2009, benefiting from a sizeable increase in shareholders' equity associated with the appreciation of the US dollar.
Interim dividend 2010
In light of the financial results achieved for the first half of 2010 and management's expectations for the full-year results, the interim dividend proposal to the Board of Directors on September 9, 2010 will amount to €0.50 per share (€0.50 per share in 2009). The interim dividend is payable on September 23, 2010 to shareholders on the register on September 20, 2010.
Exploration & Production
In the second quarter of 2010, Eni's reported liquids and gas production of 1,758 kboe/d (1,800 kboe/d in the first half of 2010) which was calculated assuming a conversion rate of gas 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; for further disclosure on this matter see page 6). On a comparable basis, i.e. when excluding the effect of updating the gas conversion rate, production was nearly unchanged on a quarter-to-quarter basis, while reporting an increase of 1.0% for the first half of 2010. Production increases were driven by organic growth
achieved in Nigeria and Congo, new field start-ups and production ramp-ups at fields which were started-up in 2009. Those trends were offset by planned facility shutdowns in the North Sea and in Kazakhstan, as well as mature field declines. The quarterly performance was also affected by lower gas uplifts in Libya due to oversupply conditions on the European market. Finally, the combined negative impact associated with lower entitlements in Company's PSAs due to higher oil prices net of lower OPEC restrictions (overall down 10 kboe/d) reduced growth by half of a percentage point in both periods.
Realized Oil and Gas Prices
Oil realizations in dollar terms increased by 32.9% in the second quarter and by 48.3% in the first half driven by a recovery in market benchmark Brent prices (up 33.2% and 49.7% from the second quarter and first half of 2009, respectively). Gas realizations showed a slower pace of increase (up 15.5% in the quarter but down 4.8% in the first half) due to time lags in oil-linked pricing formulae and weak demand in areas where gas is sold on a spot basis.
In the first half of 2010 the Company executed exploration activities which resulted in adding approximately 600 million barrels to the Company's resource base. Main results were achieved:
In Venezuela, the Perla 2 appraisal well (Eni 50%) showed results that exceeded the initial resource estimation of the discovery by 30% with further improvements to be assessed through future drillings.
In Angola, three oil discoveries were made in the 15/06 block (Eni 35%, operator) off the Angolan coast with the Nzanza, Cinguvu, and Cabaca South East-1 exploration wells. The first two of these have been flowing at more than 1,600 and 6,400 barrels per day respectively.
In Indonesia, a second well located in the Jangkrik gas discovery in the Muara Bakau permit (Eni 55%, operator), was successfully drilled. The well yielded approximately 3.2 kboe/d during flow test.
In what remains an uncertain and volatile energy environment, Eni forecasts a modest improvement in global oil demand and a Brent price of 76$/barrel for the full year 2010. Considering ongoing trends, management expects that gas demand in Europe and Italy will recover at a faster pace than the Company's base case assumptions following the steep decline suffered in 2009 in the industrial and power generation sectors. In the refining business, underlying fundamentals are expected to remain weak as highlighted by margins volatility. Against this backdrop, key volumes trends for the year are expected to be the following:
- Production of liquids and natural gas is forecast to be in line with 2009 (production in 2009 was 1.769 million boe/d). This estimate is based on the Company's assumption for a Brent price of 76$/barrel for the full year, the same level of OPEC restrictions as in the first half of 2010 and asset disposals underway. It excludes the effect of updating the gas conversion rate. Growth will be driven by continuing field start-ups, mainly in Italy, Congo and Norway and marginally the Zubair project in Iraq, as well as production ramp-up at the Company's recently started fields, mainly in Nigeria and Angola. These additions will be offset by mature field declines, lower gas uplifts in Libya due to oversupply conditions on the European market and rescheduling of certain projects expected in the Gulf of Mexico as consequence of the accident occurred at the BP-operated Macondo well;
- The Engineering & Construction business is expected to see solid results due to a robust order backlog.
In 2010, management plans to make capital expenditures slightly higher compared with 2009 (€13.69 billion were invested in 2009) as a result of interventions aimed at optimizing production and the impact of the appreciation of the US dollar over the euro. 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.
Operates 11 Offshore Rigs
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