Eni SpA Form 20-F Summary
Business context and reporting period
Eni SpA is an integrated energy company operating in exploration and production, gas and power, refining and marketing, chemicals, LNG, trading and emerging renewable and circular-economy activities. It operated in 66 countries and had 32,053 employees at December 31, 2019. The filing is an annual report for the fiscal year ended December 31, 2019, prepared under IFRS as issued by the IASB; it is not a standalone fourth-quarter filing.
Key financial and operating metrics
| Metric | 2019 | 2018 | Change |
|---|---|---|---|
| Sales from operations | €69,881 million | €75,822 million | Down 7.8% |
| Operating profit | €6,432 million | €9,983 million | Down 36% |
| Net profit attributable to Eni | €148 million | €4,126 million | Down 96% |
| Net cash from operating activities | €12,392 million | €13,647 million | Down 9% |
| Capital expenditures | €8,376 million | €9,119 million | Down 8% |
| Adjusted operating profit | €8,597 million | €11,240 million | Down 24% |
| Adjusted net profit | €2,876 million | €4,583 million | Down 37% |
| Operating margin | 9.2% | 13.2% | Down 4.0 percentage points |
| Net borrowings | €17,125 million | €8,289 million | Increase of €8,836 million |
| Leverage | 0.36 | 0.16 | Higher; 0.24 excluding IFRS 16 |
| Cash and cash equivalents | €5,994 million | €10,836 million | Down €4,842 million |
| Liquidity reserve securities | €6,760 million | €6,552 million | Higher |
The 2019 reported results included approximately €2.2 billion of impairment losses and €2.7 billion of negative non-core items in net profit. The effective tax rate was approximately 97%, reflecting the geographic mix of upstream earnings, losses on Libyan gas resales and a roughly €0.9 billion write-off of deferred tax assets in Italian subsidiaries.
- Exploration and Production operating profit was €7,417 million, down from €10,214 million. Production averaged 1.736 million barrels of oil equivalent per day, broadly flat year over year, while proved reserves totaled 7,268 million BOE.
- Gas and Power operating profit was €699 million, up from €629 million, supported by retail and portfolio optimization despite lower gas volumes and prices.
- Refining, Marketing and Chemicals recorded an operating loss of €854 million versus a €380 million loss in 2018. The segment included an approximately €684 million impairment at the Sannazzaro refinery and a €103 million impairment of chemical assets.
- Worldwide gas sales were 73.07 BCM, down 4.7%; refinery throughputs were 22.74 million tonnes, down 2.1%; and chemical production was 8.068 million tonnes, down 14.9%.
- Proved reserves replacement was 117% on an all-sources basis and 92% excluding acquisitions and disposals. Approximately 29% of total proved reserves were undeveloped.
Material changes versus the prior comparable period
- Lower Brent and European gas prices reduced operating profit by an estimated €2.5 billion. Brent averaged $64.30 per barrel in 2019 versus $71.04 in 2018, while the European PSV gas benchmark declined approximately 34%.
- Exploration and Production results were affected by lower realized prices, a loss on reselling Libyan partner gas, higher depreciation and impairment charges, and the absence of the former consolidated Eni Norge contribution following the creation of Vår Energi. Production growth from Zohr and other new projects partly offset these factors.
- Downstream performance weakened because of refining overcapacity, narrower sour-crude discounts, lower petrochemical demand and plant incidents or outages, including Priolo, Porto Marghera, Dunkerque and Bayernoil.
- Eni adopted IFRS 16 using the modified retrospective method. This increased opening lease liabilities by approximately €5.8 billion, increased 2019 operating profit by an estimated €204 million and raised reported leverage; prior periods were not restated.
- Eni acquired a 20% interest in ADNOC Refining for approximately €2.9 billion in cash and completed other upstream portfolio transactions, including the Vår Energi acquisition of ExxonMobil assets in Norway.
Guidance, outlook, commentary and risks
- Subsequent events disclosed in the filing include the COVID-19 demand shock and the early-2020 collapse in oil and gas prices. Management assumed Brent of $40–45 per barrel for 2020 and $50–55 per barrel for 2021.
- Management planned to reduce 2020 capital expenditures by approximately €2 billion and operating expenses by approximately €400 million. Planned 2021 capital expenditure reductions were approximately €2.5–3 billion.
- 2020 production was expected at 1.80–1.84 million BOE per day, with production expected to remain broadly unchanged in 2021. Management retained a longer-term target of approximately 3.5% annual production growth through 2023.
- Management proposed a 2019 dividend of €0.86 per share and forecast a 2020 dividend of €0.89 per share, subject to the stated risks. The share repurchase program was suspended and was to be reconsidered if the reference Brent price reached at least $60 per barrel.
- Cash flow sensitivity was estimated at approximately €150 million for each $1 change in Brent and approximately €235 million for each $1/MMBtu change in PSV gas prices, relative to the 2020 planning assumptions.
- Major risks include commodity-price volatility, COVID-19 and macroeconomic weakness, oversupplied gas and LNG markets, take-or-pay and ship-or-pay obligations, political and security conditions in Libya, Venezuela, Nigeria and other non-OECD countries, counterparty credit risk, climate regulation, environmental liabilities, cyber risk, project execution and reserve-estimation uncertainty.
- At December 31, 2019, Eni reported €13.299 billion of undrawn uncommitted facilities and €4.667 billion of undrawn committed facilities. The filing identified 2020 debt maturities of approximately €3.2 billion of long-term debt and €2.45 billion of short-term debt, alongside approximately €8 billion of take-or-pay and similar obligations under the budget scenario.
- Legal and regulatory matters include OPL 245 proceedings in Nigeria, Congo-related investigations, environmental proceedings, Val d’Agri matters and other litigation. The filing states that no material adverse effect is currently expected, but several outcomes remain uncertain and some claims are not reliably estimable.
Most important facts for investors to verify
- Whether the sharp 2020 commodity-price decline and COVID-19 disruption resulted in additional impairments, reserve revisions, covenant pressure or changes to dividend policy after the filing date.
- The sustainability of operating cash flow after excluding dividends received from equity-accounted ventures, particularly the €1.057 billion dividend received from Vår Energi in 2019.
- The effect of IFRS 16 and lease liabilities on leverage, debt-service capacity and comparability with prior periods.
- Progress and financing requirements for major upstream projects, including Zohr, Mozambique Coral, Mexico Area 1, Angola and Vår Energi assets.
- Exposure to Libyan production disruptions, Venezuelan receivables and other state-owned counterparties; trade and other receivables totaled €12.873 billion and included significant higher-risk exposures.
- Refining and chemicals recovery prospects, including the Sannazzaro impairment, the Gela biorefinery ramp-up and persistent petrochemical oversupply.
- Potential cash costs from environmental remediation, decommissioning, legal proceedings, guarantees and long-term purchase commitments.
- Whether the proposed 2019 dividend of €0.86 per share and the planned 2020 dividend of €0.89 per share were approved and paid as described.