ENI Q1 2024 Earnings Call Transcript

Quartr
Provided by Quartr
April 24, 2024

There are 21 speakers on the call.

Operator

Good afternoon, ladies and gentlemen, and welcome to Eni's 2024 First Quarter Results Conference Call hosted by Mr. Francisco Gapei, Chief Financial Officer. For the duration of the call, you will be in listen only mode. However, at the end of the call, you will have the opportunity to ask questions. I'm now handing over to your host to begin today's conference.

Operator

Thank you.

Speaker 1

Thank you. Good afternoon, and welcome to any quarter 1 2024 results conference call. Our Q1 is an excellent results. We have reported pro form a EBIT of €4,100,000,000 and cash flow from operation of €3,900,000,000 production growth in our Upstream of 5% and excellent contribution from our transition business of any life and Plenitude meant that we substantially resisted the overall deterioration in scenario. The continued excellent cash conversion and CapEx discipline also meant that the balance gearing remained comfortably within our range despite completing on Natron and the 2023 share buyback program in this quarter.

Speaker 1

I will analyze our results in more detail shortly, but these slides also emphasize how busy we continue to be in actions to invest to high grade and transform our company. I wanted to highlight a few items in the year to date because they provide helpful context for our strategic progress. In January, we completed the purchase of Neptune. The transaction is highly synergistic and it has already delivered very material value to any with significant upside in Indonesia and new optionality in U. K.

Speaker 1

As we will see later. With the Neptune deal following on from Chalmette and Novamonte last year, we have concluded the phase of inorganic positioning a new platform for growth and we enter into a different cycle characterized by the valorization of these new business lines and by the dilution of exploration discovery. As a first step in this new phase, in March, we completed a EUR 600,000,000 equity investment by Energy Infrastructure Partners into Plenitude. This is an important proof point for our satellite strategy, introducing a line of capital from a variable partner, supporting the future growth of the business and confirming the value created. At the same time, we are organically expanding our growth opportunities.

Speaker 1

In March, we announced the cloud discovery offshorerival cost. This is another major high equity discovery with potential resources of between €1,000,000,000 to €1,500,000,000 of oil equivalent. It follows our discovery of Belen in the count in 2022 and the discovery of over 16,000,000,000 barrels of oil equivalent over the past 15 years, translating to organic production growth plus over $10,000,000,000 of cash via the dual exploration actions over the past 10 years. We strongly believe in value created via the drill bit and we continue to reinforce our technical competencies paired with the most advanced technological solution. In this regard, in January, we began the construction of HP C6 supercomputer that will raise any back to the top 5 computing system in the world with a computing power of over 600 petaflops, 9 times bigger than our current one.

Speaker 1

Finally, we have just announced the agreement to combine our U. K. E and P activities with those of Hitaka Energy, creating a new satellite inside the any universe. We believe that the hydrocarbon potential of the UKCS remain relevant and we have immediately leveraged on our enhanced U. K.

Speaker 1

Portfolio after the acquisition of Neptune to further reinforce our long term positioning in this country. It is a well understood model based on complementary portfolio and technical capabilities and once successfully followed at VAR and Azul where the right combination generates significant top line operating financial and fiscal synergies. Just before going into the 4th the Q1 numbers in more detail, here is a recap of the key industrial message from our Capital Market update in March. We now have a complementary portfolio of high quality businesses that align with the transition and the dilemma. Whilst that integrate across the company that leverage any strength in technology focus and early mover status and which crucially together offer the prospect of sustained growth.

Speaker 1

We see 13% CAGR in cash flow from operation per share in a flat scenario, among the highest in our P group and a progressive diversification and improved quality in our sources of cash. Our strategy will make Eni a larger and more profitable company at the end of our current plan and beyond. Our distinctive industrial approach is supported by a robust financial framework that balances the use of cash flow for shareholder returns with the investment for growth and the balance sheet. Our satellite model has to appropriate aligned capital allocation and provide investors with visibility on the performance and valuation of activity with very different financial profiles. Ultimately, transition will only be real if it creates material and sustainable returns and profitable business.

Speaker 1

Moving to the quarter, the next three slides provide analysis of today's results. We recorded an quarter for production with impact of the Neptune acquisition, the ramp up of Ivory Coast in Norway and good performance in Libya. This production performance helps to mitigate the weaker gas price. GGP results are down year on year versus an exceptional quarter for trading and optimization in the Q1 2023 and also down versus the last quarter of 20,203, which saw the benefit of the arbitration procedure. However, the Q1 result is in line with our expectation given seasonal strength but low market volatility.

Speaker 1

You will have seen we have resegmented Enelive and Plenitude together to highlight their importance, together as material growth business for Eni in the changing energy market. An important theme of this quarter is growth. I mentioned hydrocarbon production up 5% year on year. But in these transition businesses, it is really significant. Bio throughputs have more than doubled.

Speaker 1

Renewable energy generation is up 12% and quarter end capacity up 30% year on year, while charging points are up 33%. And we are also progressing the regulatory framework for our CCS program. Our more traditional downstream businesses are now grouped together with the refining showing improved utilization and capturing the quarter over quarter improvement in the refining margins. Versalis was again loss making, albeit an improvement over the last quarter of the quarter number 4 of last year. But recall, we set out our plans at the Capital Market Day in March to restructure and transform our chemical operation and you should expect more on this as we go through the year.

Speaker 1

We have demonstrated good cash conversion once again and this will drive a higher distribution as we indicated it would be in March. With a strong first quarter delivery and the prospect of improved macro conditions versus the plan, we are raising our guidance for cash flow from operation. We are now seeing cash flow from operation for the full year in excess of EUR 14,000,000,000 Incidentally, mark to market based on a snapshot of the market this week would generate even a higher figure. As we set out in March, our distribution commitment is to share up to 60% of additional cash flow above plan with our investor via the buyback. Therefore, we are raising the 2024 buyback by 45% to EUR 1,600,000,000 from EUR 1,100,000,000 with a continuing commitment to revisit in each of the remaining quarters to update on ASPETE financial performance and the associated distribution.

Speaker 1

Our aim is that at a minimum, we deliver the underlying business performance we target and ensure we capture the available upside from the scenario. Our shareholder meeting on 15 May will consider the proposal to authorize our new buyback program up to a maximum of €3,500,000,000 Our normal practice will be to begin repurchases shortly after this authorization. If authorized, our 2024 dividend on €1 per share paid quarterly will start in September. Our CapEx in the Q1 of €2,000,000,000 was in line with a full year figure of around €9,000,000,000 Take into account this period is historically lighter of spending. Similarly, we confirm that our major strategic inorganic acquisition have been completed and we are making good progress in our target of a front end loaded net €8,000,000,000 cash in over the 4 year plan period, which will result in net CapEx of €7,000,000,000 to €8,000,000,000 in 2024.

Speaker 1

In the annex, you will see also the bridge to net debt with leverage of 23% at the end of March, which remains well within our guided range despite the portfolio cash out and the completion of the 2023 buyback. Turning back to the proposed combination of our U. K. E and P operation with Ithaca, let's take a more detailed view. You are familiar with our use of satellite structure at Var and Azul.

Speaker 1

In the Upstream, we use the satellite structure to build scale, realize synergies, increasing near field exploration, development potential and matching complementary cash flow profile and efficiently access capital mature and quite from a mature and quite marginal position in U. K. To a leading status in term of production of over 100,000 barrels per day in resources. Quite clearly, the U. K.

Speaker 1

Has its challenges, but we are confident we are now in a position to access considerable operating and cost synergy critical for business success in a mature basin, give ourselves significant optionality and helping to provide additional supply while addressing emissions. Together with our existing activity in CCS, which were also boosted with the Neptune purchase and our participation in the giant Dogger Bank Wind Farm development, we are establishing ourself as a significant participant in the U. K. Energy industry as it grows and decarbonizes. Reviewing our guidance versus Mars, we have increased confidence in upstream production.

Speaker 1

Underlying profitability at GGP, Eni Live and Plenitude are all confirmed. So with a more positive scenario, we have raised 2024 guidance for both group pro form a EBIT and cash flow from operation in excess of €14,000,000,000 each. With that in mind, we can also confirm our gearing guidance and raise the expected buyback for the year by 45 percent to €1,600,000,000 evidencing our commitment to share upside with our shareholder by means of a clear attractive distribution policy. Finally, I can provide some guidance for Q2. We expect production to be lower sequentially, reflecting seasonal maintenance impact and any divestment we conclude, In line with typical seasonal pattern, a flat in current trading environment, we expect the Coutu results from GGP to be lower than Q1.

Speaker 1

For Plenitude, we expect a solid Coutu performance in retail, albeit with lower seasonal volume as well as a renewable contribution that continues to reflect recent capacity growth. We anticipate utilization rate in our conventional refineries to be down sequentially because of planned maintenance while biorefinery availability is expected to remain steady at around 90% with scope to capture higher seasonal demand in marketing. To conclude, we are very pleased with our progress at the outset of 2024, demonstrating evidence of delivering against all our key objectives and we can see continued positive momentum across the remainder of this year. We are also pleased to be able to materially raise the shareholder distribution for the year while continuing to grow a larger and more profitable ENY. This concludes my review of the quarter.

Speaker 1

Along with ENY top management, I'm ready to answer your questions.

Operator

This is the Chorus Call conference operator. We will now begin the question and answer session. The first question is from Josh Stone with UBS. Please go ahead.

Speaker 2

Hi, good afternoon, Francesca, and thanks for the presentation. Two questions, please. Firstly, your net debt was up sharply in the quarter, and you've given a helpful chart on that. Looking forward, clearly, it will come down. You've got some disposals to get away.

Speaker 2

You're probably working capital releases. But question more about timing. When do you expect to see the benefits of these things to come down? Will it be this year, later this year? Will it start to be next year?

Speaker 2

Just help us understand, yes, what the progressive net debt, that would be great. Secondly, on Ithaca, congratulations on agreeing the merger. So we got another satellite, soon to go up into orbit. I guess the question is at what point do we think you reach critical mass on these satellites, acknowledging we still got plenitude, any life, many other potentially to come. Will you continue to be active in this strategy elsewhere in the portfolio?

Speaker 2

Are there other things you're looking at, potential satellites? Thank you.

Speaker 1

Okay. On the timing of the net debt reduction, clearly, this quarter is the year is the quarter where we are summing up the 2 major element of raising the net debt for the year. These two major elements clearly are related to the acquisition of Neptune. That is between the amount we cashed out and the debt acquired is around €2,500,000,000 On the other side, this quarter, as we have seen, is also seasonally and traditionally impacted by working capital effect. So these two elements together are in excess of 5% percentage point of impact.

Speaker 1

And clearly, by having disposal, having a progression in the timing of cash in, we will be able to return to the range that we would like to be after a phase of, let's say, a number of acquisition. Just to give you a flavor, in the last 15 months with the acquisition, as mentioned, of Neptune, the one of Chalmette, Novamonte and also some renewables, the overall amount that we have, let's say, expanded was in excess of €5,000,000,000 So that is around 10% point of leverage. Now we are entering the following phase. The following phase is a phase of valorization, is a phase of dual exploration model application and therefore, let's say, benefiting and is clearly also will collect additional sources from the tail asset that we are going to sell. So this is, I would say, is a progress that you will see during the coming quarters, already starting from the Q2 and clearly speeding up during the rest of the year.

Speaker 1

This is something that is completely aligned and also we are good evidence of the start of the even at the start of this year of the quality of this portfolio that we are putting for valorization in the market. About the Ithaca and the satellites, clearly satellites has already proved to be material. If you look at what was our position in Var before in Norway, sorry, before the start of Var and the even the situation or the position that we have both in Planet to DNA Live and in Angola, you see that is a materiality. There is a strong growth. So the satellites help you to focus, to cash in, to fuel your growth and that you have you collect more tools to use, as we did, for example, with RAR, to use this currency if you're speaking about the listed entities, eventually also for doing M and A opportunity or capturing M and A opportunity.

Speaker 1

So the materiality of the satellites is evident. We continue to grow in all these war. Clearly, Itaca is adding to this list. We are thinking to few other, but clearly still early early stage to speak around to speak about. But clearly, this is a model that will have still some additional bullet to be

Speaker 2

issued. Got it. Thank you.

Operator

The next question is from Giacomo Romero with Jefferies. Please go ahead.

Speaker 3

Yes, thank you. The first question is on GGP. What you reported today is about 40% of the target you have for the year. It's at the time of the CMD, you clearly said that the guidance was based on market conditions that you were seeing back then. Just wondering, it seems that these conditions have somewhat improved, not just the flat price, but also in general volatility around spreads.

Speaker 3

Can you confirm that you're actually seeing these improvements? And do you expect PSV to be a healthy premium during the summer on the back of the trend of Italian gas storage? The second question is still relatively close to GGP and just thinking about what the what we have from the Egyptian government about the outlook of importing LNG this summer, 8 to 10 cargoes. Just wondering what this means in your mind for the overall outlook for LNG exports out of Egypt for the year.

Speaker 1

I will leave the answers to Christian, Senior Retired of GGP.

Speaker 4

Yes. So thanks for the question. So when it comes to the target, so yes, in the Q1, we have realized 40% of the base case target that we have set during the Capital Market Update. I think this is a bit usual in the sense that usually for a seasonal reason, I mean, the Q1 is always the strongest Q quarter of GGP also in the past. So I'd say in terms of volatility, well, the Q1 actually was pretty much in line with what we expected during the capital market update.

Speaker 4

So that means that we are still looking forward for the next 9 months to see more volatility and more opportunities to be spread and captured in the market. And also the guidance the upper part of the guidance is also linked to some renegotiations that we have ongoing. And so in the next 9 months, we will be trying to close them down and get the upside that we were looking for. When it comes to Egypt, yes, clearly the Q1 of this year, we have seen a steep reduction of export capacity from Egypt due to the supply and demand imbalance and the Middle East situation. December, the country expects to bring LNG from outside.

Speaker 4

We feel we think that the next winter season could be another window of opportunity for export some NG cargoes, clearly not many visavis the past. But given the strong seasonal demand and supply balance of Egypt, we still think that there is a real opportunity for the next winter to be exporting some cargoes.

Speaker 5

Thank you.

Operator

The next question is from Matt Smith with Bank of America. Please go ahead.

Speaker 6

Hi there. Good afternoon. Thank you for taking my questions. A couple from me. I think the first one going back to sort of net debt and also timing.

Speaker 6

I guess there's thank you for the gross CapEx guidance for the year. And I suppose like you've alluded to, there's a bit of a gap that still remains between the net CapEx guidance and the gross CapEx guidance for 2024. So I suppose my question is, how confident are you on delivering these disposal proceeds in the year? And I suppose the question is really how important is that completing that timing to you in terms of hitting the net CapEx guidance in 2024 versus the wider 4 year plan and against a backdrop of, I'm sure, looking to maximize value. So question on confidence over timing on the disposals.

Speaker 6

And then the second question back to GGP, but less so on volatility, more so your opinions on the fundamentals of the European gas market. I think some investors have been surprised by how well prices have held up in Europe. So just your reflections and also if you had any thoughts on how European gas demand has evolved, that might be useful, please.

Speaker 1

In terms of the confidence of the deals of the disposal, we are extremely confident. We are working with already in a number of dossier that are in advanced stage. We have already let's say, we are in many cases or in few cases already in a substantial in final discussions or and therefore, we are very, very close. We are working on different, let's say, terms with other dossier. But for us, in any case, everything is related to the proper value.

Speaker 1

So we are not, let's say, rushing and we are forced to sell because we target a reduction specifically. We want to do good deals. We I think that we proved in the past years to be extremely effective And we're also extremely effective in, let's say, concluding the real closing, the actual closing of the deal after the announcement and this is also will be the case for the coming deals. About the situation of the European Fundamental of Gas, I'll give back the floor to Christian.

Speaker 4

Yes. So thanks for the question. So if you remember, I mean, during our Capital Market update, we have commented about the fact that we see still a very finely balanced market for Europe and actually for the world in the next at least 12 to 18 months. And this actually is the case because I mean we are seeing in Asia and especially in China a pickup in the demand. In the 1st 3 months, we have seen 17% of LNG growth in that area in China.

Speaker 4

And it's true that demand in Europe has not been very robust because of the weather. But if you look at the fundamentals, we are seeing some pickup in the industrial demand recovery. We have seen also countries like Egypt, as we said before, flipping from being a sporter to being importer and that actually give another, let's say, story to the balance of the LNG market. Freeport is out of is actually they have 2 trains out of for maintenance. So let's say, a few million ton of LNG can change really can change the balance of the market.

Speaker 4

Again, we think that the summer will be still volatile because of this situation. Clearly, also the geopolitical situation can add on to that. We know also that there is uncertainty about the end of the Russian transit in Ukraine by the end of this year. So we feel that the next 12 months could be still interesting and volatile from a market perspective.

Operator

The next question is from Alessandro Pozzi with Mediobanca. Please go ahead.

Speaker 7

Good afternoon. Two questions for me. On any live, I noticed that the biorefining throughput has increased materially well above 90%. And I'm not sure whether that was driven by a redetermination of the effective capacity. But I was wondering if you can maybe give us some color on the increase in throughput there.

Speaker 7

The second question is on the tax rate and income from associates in the E and P. Clearly the E and Ps having more equity accounted volumes. And I was wondering whether that will have an effect on the group tax rates. And also overall, whether the income from investments in E and P will be lumpy going forward, whether there will be more quarters or quarters where dividends are going to be richer compared to other quarters? That's all for me.

Speaker 7

Thank you.

Speaker 1

I leave the first question to Stefano Balista that should be on the phone.

Speaker 8

Yes, Stefano. Yes, the utilization rate got a significant step up. We are around 94% with Gela and Venice even a little bit higher. Main reason are twofold. First, we didn't get any maintenance, any planned maintenance in this period.

Speaker 8

And actually second, we are getting in place our operational excellence program that is step by step improving overall operating performance. So this quarter, we got, I would say, the full results of this effort with pretty much no issue at all. And that's the level of utilization rate we have in place.

Speaker 7

What throughput do you expect for the year in terms of utilization rates?

Speaker 8

Let's see. Average utilization rate, including plant maintenance, it's about 85%, 90%. Next quarter is expected to be around 90%, even a little bit higher given low number of plant maintenance.

Speaker 2

Thank you.

Speaker 1

About the tax rate, well, the main difference on the tax rate is related to the mix of production countries, gas pricing because this is versus last year a major factor of difference more than the contribution from Assocet. So that is margin is not explaining the tax rate change. In term of distribution and dividend, we have different distribution policy between in the various associates and these are spread relatively steady during the quarters.

Speaker 7

And in terms of tax rate at the group level for 2024, should we assume a little bit below 50 percent?

Speaker 1

Yes. Clearly related to the price assumption that we are showing.

Speaker 7

Okay. Thank you very much.

Operator

The next question is from Birajee Borjakara with Royal Bank of Canada. Please go ahead.

Speaker 9

Hi, thanks for taking my question. The first one is just a follow-up on Egypt. I was wondering if you could just give a bit more sort of broader perspective on your activities in the country. Obviously, it's an important one for Eni. It doesn't look like the receivable balance has moved this quarter.

Speaker 9

But could you just talk about whether you are looking to shift your activity levels up or down given the situation is ongoing? Then the second question is on divestments and the gross and net CapEx. You've talked to the net CapEx figure at the CMD and I guess there's two parts of that as the upstream, which arguably is a bit more straightforward and then there's a satellite portion with the various transactions that are going on. But when you farm down things like Plenitude, where the new partners are recapitalizing the entity, do you count that as in your divestment targets? Because I guess from the outside, you don't actually receive the cash on that front.

Speaker 9

So I'm trying to understand how you're accounting for the various different things that go on because there's a lot of corporate transactions you're planning to do. Thank you.

Speaker 1

First of all, I answer on this. Clearly, once I receive the cash from outside partner in Planet Relay, I consolidated the cash exactly I fully consolidated the debt of the company. So that is a reduction in our, let's say, cash imbalance. So by definition, I will take into account of that. I'm surprised by this kind of comment.

Speaker 1

In term of Egypt, I can confirm that the overdue is in line. It was substantially not, let's say, impacted in the quarter. And I leave the floor to Guido Brusco, the Head of Natural Resources for the description or the feedback related to the activity in the country.

Speaker 10

Given the I mean, the size of operation in activity, of course, we still have some limited infill activity and production optimization projects. We have clearly slowed down a little bit the exploration, but I mean overall, we are running our activity as per the plan and as we expected to carry out over this year. So no big changes other than some slowdown on exploration activity.

Operator

The next question is from Henry Carr with Berenberg. Please go ahead.

Speaker 11

Hi, and thanks for taking my question. 2, one is just on the share buyback uplift. I guess the increase comes from the higher scenario and so the lift to your cash flow estimates. But if you could just sort of talk through how you got to the €1,600,000,000 that will be great. And then I guess the current guidance is if cash flow is better than the €14,000,000,000 is it an incremental 60% of the incremental that will come through into the buyback?

Speaker 11

That's the first question. And then just on the second question, you mentioned the supercomputer that you're investing in. What sort of an edge do you think it gives you through the reservoir modeling and exploration side?

Speaker 1

Okay. In terms of the updated guidance of the buyback, clearly, this is a mix of 2 elements. 1 is the strategic execution. If you have seen production performance, the growth in the renewables and any live, the downtime of the biorefineries, even the performance clearly that we have already accumulated in the traditional refineries. All these are facts that are behind our the past month, the past quarter.

Speaker 1

So we have already cashed this advantage in the past month. The other element clearly is the scenario. The scenario that we designed at the beginning of the year was a scenario where the price of oil was 80, the price of oil today, year to date, it has practically 4 months already occurred is 85%, almost 85%. The gas in Europe, as we discussed before, is much stronger than expected. Serm proved to be extremely resilient.

Speaker 1

So I think that that proves that the energy environment is more supportive. There is also a geopolitical risk that had with the Iranian events of the past weeks, some additional factors to be bullish. And clearly, we are quite confident that the performance that we have seen so far is continuing. So I would say that there is a contribution of internal and external factors. On the supercomputer, I will leave to Guido Brusco for the comment.

Speaker 10

I mean, the supercomputer is just one element of our competitive advantage together with, of course, the technology, which I mean, is the our proprietary algorithm, which helps our staff to better understand the geological and the reservoir modeling and of course, the skill set of our people. We have teams. We have we always trusted in the exploration as an engine for growth of the company. We never dismissed the through the cycle people and we maintained knowledge capability in the company. So the supercomputer is a big enabler, of course, but I mean, the high computational capacity without the right skill set and without the algorithm which would drive this computational capacity towards something meaningful is wouldn't explain completely our competitive hedge.

Speaker 11

Okay. Is there a CapEx number that you've given for the computer itself? Is it material or not really?

Speaker 1

It is around €40,000,000 €50,000,000 so no particular expense.

Speaker 9

Okay.

Speaker 1

Sorry, €140,000,000 €140,000,000 100

Speaker 11

and 40. All right. Great. Thank you very much.

Operator

The next question is from Irene Hajimona with Bernstein. Please go ahead.

Speaker 12

Thank you. Good afternoon, Francisco. My first question on Any Live, if you can talk a little bit about the performance of marketing within that in the quarter? And also, as you step up your biorefining throughput, are you seeing a corresponding step up in the agri feedstocks where I think you aim to be sort of 30%, 35% integrated? And then the second question, if we go back to the asset disposal plan, the €8,000,000,000 over 4 years, which really to take you back to pre Neptun, I guess we add Neptun, so it's really €10,000,000,000 over 4 years.

Speaker 12

You said at the beginning in your prepared remarks that the dual exploration model has delivered €10,000,000,000 in 15 years, I think. So how confident are you in €10,000,000,000 over 4 years basically? Thank you.

Speaker 1

First of all, then I will let the answer related to the marketing and to the agriphistock to other people about the disposal. That €10,000,000,000 actually were accumulated in less than 5 years because we're 20132018, if you remember, we clearly we showed that this overall disposal plan over the last 10 years because we associated to the amount of discovery that we did over the 10 years. But if you remember, the Mozambique deal and the Dor deals were substantially concluded between 201320 18 or there was just as small as, let's say, this portion at the end in 2018, so in 4 years, 5 years. Clearly, now we are even more confident because at the end of the day, we are working on a larger set of opportunities that are coming from the traditional upstream, but also through the new satellites. So I believe that 5 4 years, 5 years in order to execute a plan of disposal as the one that we mentioned in the Capital Market Day is absolutely achievable.

Speaker 1

I then leave the floor to Ballista, Stefano Ballista for the marketing and then to Guido for the agri feedstock.

Speaker 8

Yes. Thank you, Francisco. Yes, marketing, we got very good performance in this first quarter. Twofold main reasons. The first one, it's related to a very good contribution from the wholesale business.

Speaker 8

This is coming from a revived strategy focused on the optimal trade off between volume and margins. Contribution got fully realized this quarter as well. And second point on retail performance, it's good. We manage in a very peculiar way, let's say, the optimal pricing strategy per cluster. And then we start to get increased results from non oil activities.

Speaker 10

On the integration and the feedstock, I mean, the 30% is, of course, at a regime. So when we mentioned this level of integration was at the back end of the plan. As you know, we have quite an exciting ramp up of production over time. Just 2 years ago, we were producing a few thousands of tons of oil, vegetable oil. Last year, we produced around 40 and this year 100.

Speaker 10

So you can see the scale of the ramp up. We have currently project in 9 countries, Kenya, Congo, Ivory Coast, Mozambique, Angola, Rwanda, Kazakhstan, Vietnam, Italy and more countries. And we are adding more countries over time, which provides us a kind of diversification by geography and by kind of feedstock, which makes us more confident on our ability to deliver those volumes at the end of the plan.

Speaker 12

Thank you very much.

Operator

The next question is from Peter Low with Redburn Atlantic. Please go ahead.

Speaker 13

Thanks. The first question was on the Plenitude result, pro form a EBITDA more than double double Q on Q and you're already a third of the way to the full year guidance of €1,000,000,000 Can you perhaps give a bit more color on what's driving that improvement and whether there are any seasonal or one off effects in there? I'm just trying to gauge whether you're kind of running ahead of plan there. And then another question on the biorefining business. How do you see margins evolving for the rest of this year?

Speaker 13

In the U. S, it looks like they're still quite weak, but we have less visibility as to what's happening in Europe. Thanks.

Speaker 1

Yes. The first question, Plenitude to Stefano Guberte. They said they had a Plenitude and then again to Stefano Ballisto.

Speaker 14

Peter, the Q1 2024 was a good quarter for us, but we are taking advantage of what we have done so far also last year. So putting in production our renewable capacity and also we see good result in our retail utility, both in Italy, where we maintain good marginality and also abroad where we are recovering marginality because the market conditions are better off compared to prior period where the regulator put in place a measure to protect the vulnerable clients. So now better prices, better market condition, we could do our job clearly better. So there is no, let's say, one off element in our result is just putting together our activity and then getting the results.

Speaker 8

Yes. On margin, 2024 is a transitional year both in Europe and in U. S. This is well known. It's given from, let's say, macro dynamics supply and demand.

Speaker 8

Main reason, it's a expect, in any case, increasing margin in the second half of the year in Europe for two main reasons. First, we got the content. This means an upside of about 400 ks ton per year. And given current market size, this is pretty much 10% of increase. That's the first comment.

Speaker 8

The second one, there is ongoing an anti dumping procedure related to, let's say, flows from Far East and this could revise the market dynamics and market competition with a significant effect on margin. Looking forward on the following year, of course, we have a big change related to the refuel aviation and to the deployment of the RAD3 that has been approved, but will be each state will have 18 months to get it deployed. So it's going to be effective from the following years. Last comment on U. S, again, let's say similar expectation and more focused on 2025, we are waiting for the last the final approval of the revised target for from the CARB related to the GAG reduction for California.

Speaker 8

Rumors are talking of an increased step up already in 2020 5 initially was expected 5% increase. Now there is a chance to have between even 7% 9%. These will drive a significant step up in terms of demand and in terms of market dynamics.

Speaker 2

Thank you.

Speaker 15

Welcome.

Operator

The next question is from Michele Della Vigna with Goldman Sachs. Please go ahead.

Speaker 16

Thank you very much and congratulations on the higher buyback. Two questions, if I may. The first one is on LNG. You're probably negotiating some long term contracts for some of your new projects, including Congo, the second floating LNG in Mozambique. And I was wondering how you're finding the appetite to sign long term contracts at this time.

Speaker 16

And if the shape still looks more or less as 12% to 13% of Brent prices? And then second, I wanted to come back a little bit to your buyback framework. It's very clear how you're distributing to shareholders 60% of the extra cash flow from the initial forecast you made at the Capital Markets Day. But I was wondering if perhaps it wouldn't be worth also considering some of the value from the proceeds you are getting from some of your high margin businesses as part of something that you may want to share with investors in the form of buyback?

Speaker 1

The first on the buyback and then I leave to Guido Christian the answer related to the LNG market. On the buyback, we prefer to associate or to link our distribution policy to the strategic evolution of the company in term clearly of cash flow distribution, higher distribution in case of upside, etcetera. It's clear that once you proceed with the overall rebalance from the point of view of leverage, from the point of view of the portfolio activity, then you have a different configuration of your asset or of your setup. And therefore, you could think to a policy that will, let's say, support a distribution in term of cash flow from operation with different percentage. But we don't want to consider some one off element of distribution related to the portfolio.

Speaker 1

Portfolio is an element that is used was used for designing the E and I or any setup of today will be, again, an element to fine tune the value or exiting certain mature assets or extracting the cash flow anticipated cash flow from exploration. But this is clearly is a part of a broader strategic view where the distribution is an element connected to the cash flow from operation. And then I leave to Guido for the LNG.

Speaker 10

Michele, I mean, following my comments in the when we were discussing the Q4 result, we still see appetite. And I mean, at that time, we were commenting some result of some of our bids. We have now more data indicating that there is appetite, particularly in the Far East, where there is, I mean, interest to sign long term contract. Clearly, this is based on the view of those players on the growth of the economies and also the pace of the phase out of the coal in the energy mix of that part of the world.

Operator

The next question is from Alastair Syme with Citi. Please go ahead.

Speaker 5

Hi, thanks. So, Francesco, apologies if I missed this at the Capital Markets Day, but can you explain on Planitude what was behind the reduction in equity that was sold to EIP for 9% to 7.6% to close? Is it something to do with the amount of debt that was put into the business? And then my second question was, you press reports that you sold out a little bit of Gacher and Abu Dhabi. I would say a little bit, you've gone from 25% to 10%.

Speaker 5

Can you just explain what's driving this change? And you haven't disclosed the price, but maybe you can give us some sort of broad context as we look at the deleverage question.

Speaker 1

Yes. About the planning to deal, if you remember, the EP had let's say, they presented an initial offer with an option to increase and they raised that option for a certain amount that is not covering the overall full option. Clearly, has nothing to do with us. It's a decision by the potential buyer. Discussions are going on.

Speaker 1

It's still continuing on potential upside of this stake, but is something that is related to the funding capability of the buyer and from their point of view, the willingness to proceed with an higher stake. About the gas in Abu Dhabi, I leave to

Speaker 10

About the reduction on the participating interest in the project Thailand Gasia, let me start from the very beginning. So this project started in, I mean, 2018, 2019. We started to look at this project. Then there was the COVID. We relooked into the projects.

Speaker 10

And then by then, our pipeline of project, thanks to, I mean, the discoveries made and other opportunities that came across, basically expanded quite significantly. At the moment, we have a few of them running. We have a project in Ivory Coast. We have a project in Congo LNG. We have project in Libya and coming project in Indonesia, Mozambique.

Speaker 10

So we had to, I mean, relook that our capital allocation in the upstream project and rebalance allocation both geographically and also by the, I mean, type of commodity. That was the reason of the rebalancing of the participating interest in the Island Gasia project.

Speaker 5

And can you say if there's much value? Or is it more about the forward CapEx allocation?

Speaker 10

It was more about the CapEx allocation that was driving us to I mean, to be, I would say, more balanced.

Speaker 5

Thank you very

Operator

much. Next question is from Lydia Rainforth with Barclays. Please go ahead.

Speaker 17

Thank you and good afternoon. Two questions, if I could, please. On VASELIS, can you just walk us through what steps get taken over the course of 2024? I know you're looking at sort of EBITDA neutral by sort of EBITDA in 2025, but obviously there's quite a lot of work to do there. So I just want to work through what steps we might see in 2024?

Speaker 17

And then secondly, if I could come back to the Ithaca transaction, just kind of going through the details, they've talked about the $500,000,000 potential dividend payout for this year. Can you just check, is it a cash flow accretive event for ENI that is a good transaction? Thank you.

Speaker 1

I leave the floor to Adrian and then I will return back for the answer on Itau.

Speaker 18

Thanks, Olivia, for the question. As we communicate in the Capital Market Day in March, the transformation of Versailles' journey is not a 1 quarter journey, but is a 4 year journey and probably will take a few more as we said. Quarter over quarter, I mean, we are constantly increasing our efficiency in term of cost reduction. And this is something that we've been able to do already in part in Q1, but it's not all coming in a quarter. We continue to accelerate the transformation of the company in order to build a platform.

Speaker 18

And this is the reason why, although it was not in Q1, but in April, we announced the acquisition of another compounding company, the Technofilm, that will enable to specialize in the end user market. Of course, we have a strong discipline like we always have done in the past, but we are accelerating the CapEx reduction, especially not for not at all the reduction on agency and asset integrity that remain our first priority, but on business that generate less margin. So we are perfectly on trajectory with what we announced in Capital Market Day, but the progress are quarter on quarter, not in 1 single quarter.

Speaker 1

About the Itaca, the distribution policy that was designed with this target of €500,000,000 is, let's say, partially accretive versus our stand alone case. We have already included this in our plan. So I will the answer is yes.

Speaker 17

Perfect. Thank you.

Operator

The next question is from Kim Fuschier with HSBC. Please go ahead.

Speaker 19

Hi, good afternoon. Thanks for taking my questions. Just another follow-up please on the Ithaca combination. I guess the implied consideration paid by Ithaca seems to imply quite a large discount to the fair value NAV of your U. K.

Speaker 19

Assets. And I'm also a little surprised that there was no adjustment to the initial 38% to 39% range despite quite a big slide that we've seen in Ithaca's share price in the

Speaker 12

past 4 weeks. So maybe could you talk

Speaker 19

a little bit about how the final valuation was derived in that context? And secondly, could you talk a little bit about the impact the potential impact of the reimposition of U. S. Sanctions in Venezuela on your activities? Thank you.

Speaker 1

On the Itaca deal, clearly, we negotiated the deal over a number of months. I think that is, let's say, the reference of a price level that is on a daily basis strategic deal that is based on cash flow expectation, on rerating expectation, on synergies and upside. So the 38.5% is the result of all this assumption and not the effect of daily trading. I would like also to add that we have a 200 or more improvement in term of, let's say, value net book value. So the deal is generating, let's say, rerating in the range of €200,000,000 versus what we have in our accounting.

Speaker 1

For Venezuela, I leave to Guido.

Speaker 10

Well, on Venezuela, just as we are recording an increase the trend of lifting equity over time in the last quarter. And despite the I mean, the GL I mean, 44 being removed, we still expect to continue this positive trend of cargo assignment. I mean, the GL 44 has not been renewed, but is still in place the I mean, the so called dog comfort procedure that the U. S. Authorities could provide to recover credit, which in our case, being the gas production very necessary for the country has always been granted in the past.

Speaker 12

Thank you.

Operator

The next question is from Arjan Robidio with Santander.

Speaker 9

Yes, hello. Thank you for taking my questions. Just one question about the CCS, your CCS strategy. When are you expecting the first FID of the projects and the potential side of the investment? Thank you.

Speaker 9

Guido?

Speaker 10

On the CCS, our broad strategy is I mean, we consider CCS one of the lever of the We are currently running a project in Italy in Ravenna, Phase 1 of a bigger project, which we expect to start up in the I mean, within the quarter, the quarter 2. Then we have a Phase 2. The size of this Phase 2 is 4,000,000 ton per annum. We expect to make an FID in 2025 and start up the injection before 2,030. Equally, in U.

Speaker 10

K, we have a project in the Liverpool Bay area called INET. We have already negotiated in recently an add of agreement for the economic license, and we expect to receive the full economic license by the Q3 and make a cluster FID together with a group of emitters by the end of the year and start the reinjection also before 2,030. We also have a project like I mean, we also have another project in U. K. Back to in the Northeast of London.

Speaker 10

And the size of this I mean, the size of the investment for this project, I'm talking about the Phase 2 of Ravenna and INET in the transport and storage segment only is between €1,700,000,000 to €1,800,000,000

Speaker 2

gross.

Operator

Next question is from Massimo Bonizoli with Equita.

Speaker 13

Good afternoon. Two follow-up questions remaining. The first on Plenitude. Given the very strong performance in Q1, the implied guidance for the remaining 9 months would be down year on year, if I calculated it correctly. Since your renewable generation should be up year on year.

Speaker 13

Could you shed some light on the assumptions behind the guidance? Maybe you kept a good level of contingencies there. The second follow-up on the buyback, could you comment on the speed of the buyback that should be executed on a monthly basis? Thank you.

Speaker 14

Thank you, Massimo. The guidance is confirmed at €1,000,000,000 of EBITDA. Of course, we are going ahead well with our progress in the strategy. So you're right, we have 3 gigawatts of installed capacity and we are working on 2 gigawatt of installation in 36 different projects across our operation areas. And also in retail, we are doing good progress in our strategy and performance, especially in Europe.

Speaker 14

So for the time being, everything has been doing well and we promised EUR 1,000,000,000 and we target this EUR 1,000,000,000.

Speaker 1

On the buyback, you know that we start buyback as soon as we have received the approval by the GM. It can last up to the following year, up to the month of, let's say, March April of the next year. That is the period we are looking at. Clearly, it will depend on the evolution of the business of the scenario, but you have to consider as a preliminary estimate this, let's say, 10 month period as a reference.

Speaker 2

Very clear. Thank you.

Operator

The next question is from Bertrand Hodee with Kepler Cheuvreux. Please go ahead.

Speaker 15

Yes. Hello. One question left. It's on Ivory Coast. Can you give us a bit more color on the Kalao discovery and the optionality behind that discovery?

Speaker 15

And still it was on a different block from Balmain. So what's the next step on Carao or more broadly on Ivory Coast exploration program going forward? Thank you.

Speaker 1

Aldo Napolitano, Head of Exploration, then Guido will give the broader view on Ivory cost.

Speaker 20

Yes. Thank you. Yes, the Calao discovery is a new discovery. It's a discovery in a different play than Balen. So we think we so we have demonstrated that there are many options in Ivory Coast in terms of exploration.

Speaker 20

So new plays like the kind of the one of Baleno or the traditional play, if you like, in the case of play means or geologic theme. In the case of Kalao, that is coming from the experience that we have done also in neighboring basins. So we have exported the experience that we had there. So there are we believe there are opportunities. So we like you have seen, I guess, in the case of Balenso, we have got also acreage adhesion to the discovery itself.

Speaker 20

We have some more acreage also around Claos. So we will work on defining new opportunities. For what concern Kalao itself, it's quite a large hydrocarbon accumulation that we require some appraisal activity. So we are working on different scenarios for development depending on the then on what will be the final results from the data that we will acquire. So I leave to Guido to complete.

Speaker 10

Yes. So this is Calao and the new discovery. And on Bahrain, we are running full steam now with the Phase 2 of the project, which would come on stream by the end of the year with an additional production of about 40,000 barrel of oil, which would add to the 20 plus 22,000, 23,000 barrel, which is the current production of the Phase 1, which is largely exceeding the initial expectation. So once the Phase 2 will come on stream, we'll have an overall production for oil between 600,701,000 barrel of oil per day and gas production of about 70,000,000 standard cubic feet per day. While we are executing the Phase 2, we are in the feed procurement phase for the Phase 3, where we expect in the I would say, by beginning of 2025 to make a decision on an investment.

Speaker 10

This will be an FPSO, a standalone FPSO and would bring the total production of oil to 1,000 barrel per day and gas to 200,000,000 standard cubic feet per day.

Speaker 1

Okay. I think that we have completed the call. I would like to thank you for all the questions. And clearly, we leave you, if you have any additional request, to be in contact with our Investor Relations team for all the additional information that you look for. Bye.

Speaker 1

Thank you.

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Key Takeaways

  • Eni reported pro forma EBIT of €4.1 billion and operating cash flow of €3.9 billion in Q1 2024, with upstream production up 5% and gearing maintained within target despite major acquisitions and buybacks.
  • The company completed key inorganic moves, notably the Neptune purchase and a €600 million equity investment by Energy Infrastructure Partners into Plenitude, and announced the Cloud offshore discovery with 1–1.5 billion boe potential.
  • Eni’s transition businesses delivered significant growth, with biofuel throughput doubling, renewable generation up 12%, installed capacity up 30%, charging points up 33%, and progress on CCS regulatory approvals.
  • Full‐year guidance was raised, targeting over €14 billion in cash flow from operations and pro forma EBIT, alongside a 45% boost in the 2024 share buyback to €1.6 billion and a policy to share 60% of any upside with shareholders.
  • The “satellite” model expanded with the planned merger of UK E&P assets with Ithaca Energy, aiming to capture operating and fiscal synergies and reinforce Eni’s positioning in mature basins.
A.I. generated. May contain errors.
Earnings Conference Call
ENI Q1 2024
00:00 / 00:00