ENI S.p.A. Form 6-K Summary
Business Context and Reporting Period
This Form 6-K filing, dated October 31, 2015, reports on Eni S.p.A.'s unaudited financial results for the third quarter and the first nine months of 2015. The filing includes two press releases: one regarding a favorable court ruling on an alleged bribery case involving Saipem in Algeria, and the primary financial results for the period ended September 30, 2015. The company is currently undergoing a strategic transformation, highlighted by the agreed sale of a 12.5% interest in its Engineering & Construction subsidiary, Saipem, to FSI.
Key Financial Metrics
| Metric | Q3 2015 | Q3 2014 | 9M 2015 | 9M 2014 |
|---|---|---|---|---|
| Net Sales (€ million) | 18,807 | 26,600 | 64,786 | 83,156 |
| Operating Profit (€ million) | 61 | 2,579 | 2,006 | 8,480 |
| Adjusted Operating Profit (€ million) | 752 | 3,032 | 3,081 | 9,251 |
| Adjusted Operating Profit ex-Saipem (€ million) | 604 | 2,877 | 3,513 | 8,803 |
| Net Profit/Loss (€ million) | (952) | 1,714 | (361) | 3,675 |
| Adjusted Net Profit/Loss (€ million) | (257) | 1,169 | 530 | 3,243 |
| Net Cash from Operations (€ million) | 1,710 | 3,984 | 7,388 | 9,724 |
| Capital Expenditure (€ million) | 2,416 | 3,083 | 8,653 | 8,607 |
| Net Borrowings (€ million) | 18,414 | 13,685 | 18,414 | 13,685 |
| Leverage Ratio | 0.30 | 0.22 | 0.30 | 0.22 |
Note: All figures are in millions of Euros unless otherwise stated. Adjusted figures exclude special items and inventory holding gains/losses.
Material Changes vs. Prior Period
- Revenue Decline: Net sales dropped 29.3% in Q3 and 22.1% in the first nine months of 2015 compared to the prior year, primarily driven by a 50.7% decrease in Brent crude oil prices.
- Profitability Impact: Operating profit fell 97.6% in Q3 and 76.3% in the nine-month period. Adjusted operating profit excluding Saipem declined 79% in Q3 and 60% in the nine-month period.
- Net Loss: The company reported a net loss of €952 million in Q3 and €361 million for the nine months, contrasting with net profits of €1.71 billion and €3.68 billion in the respective prior-year periods. This was exacerbated by a consolidated tax rate of 143% in Q3.
- Production Growth: Despite price headwinds, hydrocarbon production increased 8.1% in Q3 to 1.703 million boe/d and 8.7% in the nine-month period. Excluding price effects, production grew 4.3% in Q3.
- Segment Performance:
- Exploration & Production (E&P): Adjusted operating profit fell 75.5% in Q3 due to lower commodity prices, partially offset by volume growth.
- Gas & Power (G&P): Reported an adjusted operating loss of €469 million in Q3, driven by the reversal of prepaid gas volumes booked at higher historical costs.
- Refining & Marketing (R&M) and Chemicals: Showed marked improvement, with adjusted operating profit rising to €335 million in Q3, the best since Q3 2006, due to restructuring and favorable trading margins.
Guidance, Outlook, and Risks
- Saipem Divestment: Eni agreed to sell a 12.5% interest in Saipem to FSI. Upon closing (expected Q1 2016), Saipem will be derecognized, and Eni expects to be reimbursed €6.1 billion net in financing receivables. This transaction is projected to reduce pro-forma leverage by 8 percentage points.
- Production Outlook: Full-year 2015 production guidance is raised to approximately 9% growth (up from prior guidance of >7%), driven by new field start-ups in Venezuela, Norway, the US, Angola, Egypt, and Congo.
- Cost Reduction: Capital expenditure (capex) for FY 2015 is targeted to be reduced by 17% (up from a prior 14% cut). Opex per barrel is expected to decrease by 12% to $7.30/bl.
- Cash Flow: Excluding Saipem, capex is expected to be self-financed by operating cash flow in 2015 under a Brent scenario of $55/bl. Free cash flow for R&M and Chemicals is projected to be positive in 2015, two years ahead of schedule.
- Legal Contingency: The Milan Court dismissed a case against Eni and its management regarding alleged bribery by Saipem in Algeria. Eni maintains it was not involved.
- Risks: Forward-looking statements are subject to risks including oil price volatility, political stability in operating regions, and the timing of new field start-ups.
Investor Verification Checklist
- Saipem Transaction Timing: Verify the closing date of the 12.5% Saipem stake sale and the exact timing of the €6.1 billion reimbursement of financing receivables.
- Gas Prepaid Reversal: Assess the magnitude of the remaining prepaid gas volume reversals in the G&P segment and the timeline for the review of accrued gas revenues in Italy.
- Tax Rate Volatility: Investigate the drivers of the 143% consolidated tax rate in Q3, specifically regarding non-deductible exploration costs in high-tax jurisdictions.
- Capex Execution: Monitor the ability to achieve the 17% capex reduction target while maintaining the revised 9% production growth guidance.
- Exploration Success: Confirm the development timeline and commercial viability of the Zohr gas discovery in Egypt and other recent finds.