Eni Strengthens Gas in Tough Quarter
Italian energy firm Eni saw its adjusted net profit for Q2 fall 27% from €767mn in Q2 2018 to €562mn, and adjusted operating profit fall 11% to €2.279bn. But CEO Claudio Descalzi was upbeat, saying July 26 that the cashflow would rise assuming that the price of Brent crude, forecast at $62/barrel, exceeds Eni's breakeven price of about $55/b. It is therefore continuing to increase returns to shareholders, in a buy-back programme that started in May and has clocked up €52mn so far.
Cashflow was €4.52bn in the second quarter, up by 49% on Q2 2018 and would have been higher but for an extraordinary payment to settle an (unspecified) arbitration case (€330mn).
The Upstream model, designed to minimise the time-to-market, obtained "another great success" in Mexico with the start-up of Area 1 in less than a year following approval of the plan of development. And Eni expanded production capacity by growing mainly in Egypt where production from the Zohr field – another project brought online sooner than expectations – is approaching full plateau. It found more gas offshore Egypt in its 40% owned and operated Nour exploration permit and found some gas onshore. Some discoveries have been linked to producing facilities.
Adjusted operating profit was €2.14bn, down by 22% on Q2 2018. Excluding the impact of the sale of Eni Norway on the 2018 results to allow a-like-for-like comparison, and net of scenario effects and IFRS 16 accounting, the adjusted operating profit decreased by 5% in the quarter (up by 5% in the first half).
Hydrocarbon production was 1.83mn barrels of oil equivalent/d both in the second quarter and in the first half, almost unchanged year on year net of portfolio effects and ramp-ups. With liquids production at 857,000 b/d, gas accounted for just over half the total.
The Gas & Power segment enhanced its long-term gas portfolio, with the renewal of the gas agreement with Sonatrach and the transport contract to Italy through the Tunisian onshore pipeline and the offshore one. The gas retail business reported robust results by enlarging its customer base by 130,000 delivery points. Gas sales were 17.80bn m³, down by 2% from the second quarter of 2018.
Gas sales in Italy were down by 1% to 9.69bn m³ in Q2, mainly owing to lower sales to wholesalers, partly offset by higher sales to thermoelectric segment and hub deliveries. Sales in European markets (4.87bn m³) were down 14%, as result of portfolio optimisations and lower sales to Botas, it said.
And the outcome of the first phase of arbitration with Dutch exporter GasTerra was favourable for Eni, which will affect the price of gas delivered for the three gas years October 1, 2012 –September 30, 2015. GasTerra's claim was dismissed and Eni has incurred no liability, meaning the bank guarantee may be released. Eni enlarged the customer base by about 130,000 delivery points in the first half of 2019 due to growth in the power business. But the segment’s adjusted operating profit was down 57% compared with Q2 2018, at €46mn.
New field start-ups and ramp-ups are projected to add about 250 kboe/d. following the bulk of our plant maintenance executed in the second quarter, production growth will resume at a faster rate in the third quarter still affected by residual maintenance activity and will further accelerate in the fourth quarter.