A new beginning. With this premise, Eni unveils the new 2016-19 business plan which presents 6 billion of cost reductions, new resignations for 7 billion (without considering the potential of a Gas & Power sale, which remains in the background, but including chemicals and Versalis) and a further cut in investments of 21% to 37 billion (34 without the huge Egyptian field of Zohr) against an increase in production of 13% accumulated in the period (3% annually over the plan) against the 10% already achieved in 2015. Dividend of 80 cents confirmed also in 2016.
Claudio Descalzi's new Eni therefore takes shape in this London presentation, the first fully attributable to the new top management after the first swerve started last year, a few months after the appointment of the post-Scaroni board of directors. Analysts found themselves in front of a completely redesigned company focused on oil & gas and appreciated the figures and prospects with the share price rising by 1,54% to 13,8 euros, the highs of 2016.
In the scenario of an oil that has lost 75% in price while costs have decreased by 25%, Descalzi presents Eni as a company that better than the others can face what he himself defines as "the dilemma of how to align costs with prices not only in the short but in the medium and long term. Eni – he says – is in an excellent position. We are starting a new cycle." The strong point on which the top management focused is the drastic reduction of the average break-even of new projects brought from 45 to 27 dollars a barrel, a result to be achieved in the period thanks to portfolio flexibility, synergies with existing assets and contract renegotiations. The new average breakeven is the result of a drop to $15 onshore and $30 offshore.
Descalzi presented the exploration successes that lead Eni to a discovery/production ratio of 2,4 points against the 0,3 of its main competitors, as a choice pursued over time and certainly one of the strengths of the group.
He was asked if in this scenario of focus on oil & gas the group was now projected more towards foreign countries than towards Italy and what updates he could communicate on the Versalis operation. Just today the unions sent a letter to Prime Minister Renzi asking him to interrupt the ongoing negotiations with SK Capital, deeming the American fund unfit to take charge of such an important company.
“Italy remains very important for Eni – assured Descalzi – and as far as Versalis is concerned, it has worked very well and has achieved the positive result two years ahead of schedule. We are happy about it. We presented our strategy focused more on oil & gas and upstream a year ago, therefore we confirm our intention to reduce our stake in Versalis. We are negotiating." "Chemicals are included in the new 7 billion divestments - Eni's CFO Massimo Mondazzi then specified in response to analysts - and we assume that the sale will be made at the end of 2016". Speaking of the divestments, Mondazzi also said that "the assets are attractive to potential buyers" and that "80% of divestments are planned in the first two years". The first equity investments to be disposed of will come from Mozambique and Egypt: "Area 4 in Mozambique and that of Zohr in Egypt" are the first two possible responses for disposals" said Descalzi, specifying that "50% of Mozambique is too much and therefore we're working on it and even 100% Zohr is too much."
The other decision with a strong impact is the reduction in costs of approximately 6 billion over the period of the plan obtained for 3,5 billion thanks to the renegotiation of contracts with a reduction in the differential between oil prices and costs. Another $2,5 billion by 2019 is cumulative savings in general and administrative expenses compared to the $2 billion under the previous plan.
Lastly, Gas & Power: structural break-even is expected for 2017 thanks precisely to the renegotiation of long-term contracts. The new Eni plan estimates Brent at 40 dollars in 2016, 50 dollars in 2017, 60 in 2018 and 65 in 2019.
