E

Business Context and Reporting Period

Company: Eni S.p.A.
Filing Type: Form 6-K (Report of Foreign Issuer)
Reporting Period: Third Quarter (Q3) and Nine Months ended September 30, 2022.
Filing Date: October 28, 2022.

Eni reported unaudited consolidated results for Q3 and the first nine months of 2022. The period was characterized by high market volatility, with the company focusing on securing energy supplies while advancing its decarbonization strategy. Key strategic moves included the formation of the Azule Energy joint venture with bp in Angola and the acquisition of the Tango FLNG vessel.

Key Financial Metrics

Note: Reported Net Profit for Q3 2022 includes a €2.45 billion special gain from the Azule Energy contribution.

Material Changes vs. Prior Period

• Profitability Surge: Adjusted operating profit for the nine months of 2022 increased by 187% year-over-year (YoY), driven by higher hydrocarbon prices, tight natural gas markets, and improved refining margins.
• Segment Performance:
  • E&P: Adjusted operating profit rose 139% YoY (9M) to €13.5 billion, despite a 3% decline in production due to outages in Kazakhstan and Nigeria.
  • Global Gas & LNG (GGP): Adjusted operating profit reached €2.0 billion (9M), a significant turnaround from €44 million in 2021, fueled by high gas prices and portfolio optimization.
  • Refining & Marketing: Adjusted operating profit jumped 505% YoY (9M) to €1.55 billion, benefiting from strong diesel margins and operational efficiency.
  • Chemicals: Reported an adjusted operating loss of €167 million (9M) due to high energy costs and weak demand, contrasting with a profit in the prior year.
• Balance Sheet Strengthening: Net borrowings decreased by €2.5 billion compared to year-end 2021, reducing leverage to 0.11. Shareholders' equity increased by €13.3 billion.
• Special Items: The reported net profit for Q3 2022 was inflated by a €2.45 billion gain from the Azule Energy JV contribution. Conversely, Italian operations incurred a net loss of approximately €1 billion due to the accrued windfall tax.

Guidance, Outlook, and Risks

Updated 2022 Guidance

• E&P Production: Expected at 1.63 million boe/d (down from previous 1.67 million guidance) due to force majeure in Nigeria and unplanned events in Kazakhstan.
• GGP Adjusted EBIT: Updated to be higher than €1.8 billion for the full year.
• Downstream Adjusted EBIT: Raised to €2.5 billion (Versalis and pro-forma R&M with ADNOC).
• Plenitude & Power: Reaffirmed EBITDA guidance of higher than €0.6 billion and renewable capacity of more than 2 GW by year-end.
• Cash Flow: Adjusted cash flow before working capital expected at €20 billion (based on $100/bbl Brent).
• Capital Allocation: Organic capex at €8.3 billion; €2.4 billion share buyback program expected to complete by year-end.

Management Commentary & Risks

Management highlighted the ability to replace at least 50% of Russian gas flows this winter. Key risks include market volatility, geopolitical instability, and the impact of the Italian windfall tax on domestic earnings. The company noted that the adjusted tax rate stabilized around 40%, excluding the one-time windfall tax.

Investor Verification Checklist

• Windfall Tax Impact: Verify the final accrual and cash outflow related to the Italian energy sector windfall tax (Law 51/2022), which significantly impacted reported net profit.
• Azule Energy Gain: Confirm the non-recurring nature of the €2.45 billion gain from the Angolan JV contribution to accurately assess underlying operational performance.
• Production Volumes: Monitor production recovery in Kazakhstan (Kashagan) and Nigeria, which caused a 7% YoY decline in Q3 hydrocarbon production.
• Refining Margins: Track the Standard Eni Refining Margin (SERM), which fell 80% sequentially in Q3, to gauge downstream resilience.
• Share Buyback Execution: Verify the completion of the €2.4 billion buyback program by year-end, with €1.66 billion already spent as of October 21, 2022.