Business context and reporting period
Eni SpA’s Form 20-F reports consolidated IFRS results for the fiscal year ended December 31, 2020. The filing is an annual report rather than a quarterly filing; it does not present a standalone “2020 Q4” reporting period. Eni operates across exploration and production, wholesale gas and LNG, refining and chemicals, retail gas and power, power generation, renewables and related support activities.
2020 performance was dominated by the COVID-19 pandemic, the collapse in energy demand and commodity prices, OPEC+ production restrictions, weak refining margins and accelerated energy-transition concerns. Eni reorganized its activities into the Natural Resources and Energy Evolution groups and adopted revised reportable segments.
Key financial and operating metrics
| Metric | 2020 | 2019 | Change |
|---|---|---|---|
| Sales from operations | €43,987 million | €69,881 million | Down 37.1% |
| Operating profit/(loss) | (€3,275 million) | €6,432 million | Turned to loss |
| Net profit/(loss) attributable to Eni | (€8,635 million) | €148 million | Turned to loss |
| Adjusted operating profit | €1,898 million | €8,597 million | Down 78% |
| Adjusted net profit/(loss) | (€758 million) | €2,876 million | Turned to loss |
| Net cash from operating activities | €4,822 million | €12,392 million | Down 61% |
| Capital expenditures | €4,644 million | €8,376 million | Down 45% |
| Finance debt including lease liabilities | €31,704 million | €30,166 million | Up €1,538 million |
| Net borrowings excluding lease liabilities | €11,568 million | €11,477 million | Broadly stable |
| Leverage excluding IFRS 16 | 0.31 | 0.24 | Increased |
| Cash and cash equivalents | €9,413 million | €5,994 million | Up €3,419 million |
| Dividend per share | €0.36 proposed | €0.86 | Reduced |
Reported operating loss included €3.183 billion of net impairment losses, primarily €1.888 billion on oil and gas assets, €1.225 billion on refining assets and €46 million on chemical assets. Eni also recorded an approximately €1.3 billion inventory valuation loss, a €1.66 billion loss from investments and approximately €1.3 billion of deferred-tax-asset write-downs.
Eni’s liquidity reserve was €20.4 billion at year-end, comprising €9.4 billion of cash, €5.3 billion of undrawn committed facilities, €5.5 billion of readily disposable securities and €0.2 billion of short-term financing receivables. Short-term obligations identified by management included €2.9 billion of short-term debt, €2.2 billion of maturing bonds and other long-term debt, €4.3 billion of committed investments, €1.1 billion of lease installments and approximately €1.5 billion of floor-dividend payments.
Segment and operating indicators
- Exploration & Production reported a €610 million operating loss, versus €7.417 billion of profit in 2019. Average production was 1,609 kboe/d, down from 1,736 kboe/d.
- Global Gas & LNG Portfolio reported a €332 million operating loss, versus €431 million of profit. Worldwide gas sales declined 10.8% to 64.99 bcm.
- Refining & Marketing and Chemicals reported a €2.463 billion operating loss, versus a €682 million loss. The Standard Eni Refining Margin declined 60% to $1.7/bbl.
- Eni gas e luce, Power & Renewables reported €660 million of operating profit, versus €74 million. Retail power sales increased 14.4% to 12.49 TWh, while retail gas sales declined 10.9% to 7.68 bcm.
- Renewable installed capacity reached 307 MW at year-end, compared with 174 MW in 2019. Renewable energy sold increased to 339.6 GWh from 60.6 GWh.
- Total proved reserves were 6,905 mmboe, down 5% from 7,268 mmboe. The organic reserves replacement ratio was 43%, and the all-sources ratio was also 43% in 2020.
Material changes versus the prior comparable period
- Brent averaged approximately $42/bbl, down 35% from 2019; Italian spot gas prices declined approximately 35%.
- Production declined because of lower capital spending, OPEC+ quotas, lower gas demand and operational disruptions, including instability in Libya.
- Refining and fuel sales were heavily affected by lockdowns, travel restrictions, overcapacity and weak product demand. Refinery throughputs on own account declined 25.2%, and retail refined-product sales declined 19.2%.
- Capital spending was reduced by €2.6 billion, or approximately 35% versus the original 2020 budget. Operating expenses were reduced by approximately €1.9 billion, about 30% of which management characterized as structural.
- Net equity fell to €37.493 billion from €47.900 billion, primarily because of the net loss, dividends and €3.314 billion of negative currency-translation differences. The issuance of €3 billion of perpetual hybrid bonds, classified as equity, partly offset the decline.
- Proved reserves declined partly because the SEC pricing assumption for Brent fell to $41/bbl from $63/bbl, resulting in the debooking of 124 mmboe that became uneconomic at the lower price environment.
Guidance, outlook, commentary and risks
- For 2021, management assumed Brent of $50/bbl, SERM of $3.8/bbl and capital expenditures slightly below €6 billion. Production was expected to be broadly flat year over year, assuming approximately 40 kboe/d of OPEC+ cuts.
- For 2021-2024, Eni targeted average hydrocarbon production growth of approximately 4%, contracted LNG volumes of approximately 14 million tonnes per year by 2024, renewable installed capacity of approximately 4 GW by 2024 and more than 11 million retail gas and power customers.
- Management expected average annual organic capital expenditures below €7 billion over 2021-2024, including approximately €4.5 billion per year in E&P and approximately €9 billion over the period for energy-transition businesses.
- The revised long-term planning assumption was Brent at $60/bbl in 2023 real terms, compared with the prior $70/bbl assumption. Management estimated that operating cash flow would change by approximately €150 million for each $1/bbl change in Brent, with proportional changes in gas prices.
- The dividend framework includes a €0.36 per-share floor at a Brent reference price of at least $43/bbl, plus a variable component linked to cash flow. Share buybacks were suspended in 2020 and were expected to resume at Brent prices of $56/bbl or higher, subject to the stated thresholds.
- Principal risks include oil, gas and refining-margin volatility; prolonged pandemic effects; accelerated energy transition and carbon-pricing costs; impairment and reserve-debooking risk; geopolitical exposure in Libya, Nigeria, Venezuela and other non-OECD countries; counterparty defaults; take-or-pay and ship-or-pay commitments; environmental liabilities; legal and anti-corruption proceedings; project delays and cost overruns; cyber risks; and access to financing.
- Contractual obligations were substantial, including approximately €99.4 billion of future take-or-pay gas obligations, €2.9 billion of ship-or-pay obligations, €11.97 billion of decommissioning liabilities, €2.26 billion of environmental liabilities and €103.65 billion of other purchase obligations. These amounts are undiscounted and are not equivalent to current-period cash liabilities.
- Management’s 2050 strategy targets net-zero greenhouse-gas emissions across scopes 1, 2 and 3. The filing identifies significant execution, regulatory, technology, demand and financing risks associated with this transition.
Most important facts an investor should verify
- Whether the planned 2021 recovery in Brent and gas prices offsets weak refining margins and foreign-exchange effects.
- The sustainability of the €0.36 per-share dividend and the conditions for variable dividends and share repurchases.
- Progress toward restoring positive adjusted earnings and operating cash flow after the 2020 loss.
- Future reserve replacement, production growth and the economic viability of undeveloped reserves under lower-price and energy-transition scenarios.
- Exposure to Libya, Venezuela, Nigeria and other counterparties with elevated political, collection or sovereign risks.
- Potential additional impairments of upstream, refining, chemical and equity-accounted assets if commodity prices or margins remain weak.
- Exposure under take-or-pay, ship-or-pay, decommissioning, environmental, guarantee and legal commitments, including the Coral and OPL 245 matters.
- Execution of the renewable, biofuel, LNG, carbon-capture and retail-growth targets, including the required capital allocation and expected returns.
- The filing states that PwC audited the IFRS consolidated financial statements and reported effective internal control over financial reporting as of December 31, 2020.