ENI SPA current report, Q2 FY2017

Business Context and Reporting Period

This Form 6-K filing by Eni S.p.A. covers the period ending May 31, 2017, primarily reporting unaudited financial results for the first quarter of 2017 (IQ 17). The filing includes a press release dated May 10, 2017, detailing Q1 2017 performance, and a separate report on payments to governments for the full year 2016.

Key Financial Metrics

Metric IQ 2017 IQ 2016 Change
Net Sales €18,047 million €13,344 million +35.2%
Adjusted Operating Profit €1,834 million €583 million +215%
Adjusted Net Profit €744 million €2 million Significant increase
Net Profit (GAAP) €965 million (€383 million) Turnaround to profit
Net Cash Flow from Operations €1,932 million €1,370 million +41%
Capital Expenditure €2,831 million €2,455 million +15%
Net Borrowings €14,931 million €12,222 million +22%
Leverage Ratio 0.28 0.23 Stable/Increased

Production: Hydrocarbon production averaged 1,795 kboe/d, up 2.3% year-over-year. Liquids production decreased 6.5%, while natural gas production increased 11.2%.

Material Changes vs. Prior Period

  • Profitability Surge: Adjusted operating profit tripled compared to Q1 2016, driven primarily by a 59% increase in the Brent crude benchmark price and production growth.
  • Segment Performance:
    • Exploration & Production (E&P): Adjusted operating profit surged to €1.42 billion (from €95 million in Q1 2016) due to higher realizations and production volumes.
    • Gas & Power: Adjusted operating profit rose 19% to €338 million, aided by contract renegotiations and cost optimization.
    • Refining & Marketing: Adjusted operating profit remained flat at €66 million despite a shutdown at the Sannazzaro refinery.
  • Asset Disposals: Eni agreed to dispose of a 25% interest in Area 4, Mozambique, to ExxonMobil for approximately $2.8 billion and closed the sale of a 10% interest in the Zohr asset to BP.

Guidance, Outlook, and Risks

  • 2017 Targets Confirmed:
    • Production: Target of 1.84 million boe/d (up 5% from 2016), leveraging new projects in Egypt, Kazakhstan, Angola, Indonesia, and Norway.
    • Exploration: Target of 0.8 billion boe of new resources at a unit cost of ~$1/bbl.
    • Capex: Target of an 18% year-over-year reduction on a pro-forma basis.
    • Cash Neutrality: Organic coverage of capex and dividends confirmed at a Brent price of approximately $60/bbl.
  • Outlook: Management expects leverage to decline by the end of 2017, reflecting the closing of portfolio transactions. The Gas & Power segment targets structural break-even from 2017, and Refining targets a breakeven margin of $3/barrel from 2018.
  • Risks and Contingencies:
    • Forward-looking statements are subject to risks including timing of new fields, operational issues, and geopolitical stability.
    • Val d'Agri shutdown is expected to last up to 90 days, though actions are underway to reduce downtime.
    • Cracker and polyethylene margins in the Chemicals business are expected to decline, offset by recovery in butadiene and styrenics.

Investor Verification Checklist

  • Oil Price Sensitivity: Verify the impact of Brent price fluctuations on the confirmed cash neutrality target of $60/bbl.
  • Asset Disposal Timing: Confirm the closing dates and final consideration for the Mozambique (ExxonMobil) and Zohr (BP) transactions to assess cash flow impact.
  • Val d'Agri Shutdown: Monitor the duration of the Val d'Agri facility shutdown and its effect on the 2017 production guidance.
  • Non-GAAP Reconciliations: Review the reconciliation of Adjusted Operating Profit and Adjusted Net Profit to GAAP figures, specifically regarding special items and inventory holding gains/losses.
  • Debt Maturity: Review the schedule of bonds maturing within the next 18 months to assess refinancing needs.