More oil and hydrocarbons for Eni. More similar to Exxon, Chevron or BP (or Agip, as some will recall) than the current conglomerate. The first moves of Claudio Descalzi, the group's new managing director, make it clear that the shift towards the oil&gas company model that the market has been clamoring for for many years has already begun. And it will not be marginal. Paolo Scaroni's dolphin, as someone wanted to paint him, actually took off. Without jolts but with determination. The lightning-fast reorganization of the internal organizational structure, three weeks after taking office, has already provided a first taste of the new course. Then, just in recent days, the stop by the unions on refining has made it clear that this time the change will be strong, to face a node that has already cost ENI 3,5 billion since 2008.
Even the chemistry will be sieved. The rest will be understood more clearly in a fortnight when, on 31 July, the new CEO will present the half-yearly report and an initial update of the strategy in London, which will then be refined during the year. "More cash, more oil, more profits" is the extreme synthesis of market demands after the last February Strategy presentation on the 2014-2017 plan. For the sixth largest international company, with over 60% of the capital in the hands of institutional investors, this is a message not to be dropped on deaf ears. And in any case Descalzi – who has led Exploration and Development over the past five years and has done so from London, in direct contact with Big Oil and the market – seems intent on picking it up.
Past and future. The essence is that Eni has simplified the management chain, merged the old three divisions (almost like companies) into the corporate one and built the new business units around the central hub of exploration and development. This is where all of the group's net profit of 5,2 billion in 2013 comes from, the result of an operating profit of 14 billion in E&P while all the other sectors have only recorded losses: 663 million in the sale and transport of gas and electricity, 482 million in refining, 386 million in chemicals. We change to generate more cash, invest selectively in profitable activities (therefore in the production of hydrocarbons) and guarantee the high level of dividends to which Paolo Scaroni has accustomed his shareholders in his 9-year reign over the group.
And here the real issue to tackle is the recovery of production which instead, despite the record discoveries announced in the last two years (first of all, the giant in Mozambique), has decreased by 150.000 boe/day since 2009. If in December 2013 Crédit Suisse (Cs) predicted "another year, 2014, of uncertainty on cash flow", at the end of February it was hiding behind a "seeing is believing" in the face of management's promise to generate "robust operating cash flow" in the short-medium term. “The risks – added the report – are in upstream production, lower than expected”. For a real restart, projects such as Goliat in the Barens Sea and the giant Kashagan, repeatedly postponed and expected respectively between mid and late 2015, "must go into production" urged Cs analysts. In the meantime – they concluded – better to suspend the judgement. Merrill Lynch is less severe, which in June, more prosaically, sees the 5,5% yield on the dividend as the more attractive side of the six-legged dog compared to its competitors, stuck at 4,5%.
A high level not covered by current management but guaranteed by the 2 billion euro collected with the sale of the minority stakes in Galp and Snam and by the potential of a sale of Saipem now among the possible things, Merrill Lynch continues. But what would happen if there were a deterioration in general conditions or if the margins of Gas & Power, refining and chemicals continued to deteriorate? Claudio Descalzi seems determined to answer this question with more business and less finance, ie repositioning ENI on its core business.
Branches to cut. In the new strategy, spending will be selective and aimed at projects capable of ensuring profitability. So yes to a further sale of 15% of the rights in Mozambique to finance the operational development of the field, yes to reduce management inefficiencies by 1 billion (in three years). Yes to accentuate the focus on assets in the East (Vietnam, Pakistan, but also Australia) and lighten the impact on the accounts of the crisis fronts in Africa, such as Libya and Nigeria. In a small way, the cut in communication expenses is significant (from 200 to 100 million and just to promote the product). Yes finally to an Eni less conditioned by the import of gas which has penalized the group's accounts in recent years.
Talking about leaving Russia is perhaps too much but certainly Descalzi's bond with Moscow is less close than Scaroni's. The take or pay contracts with Gazprom were renegotiated, as were those with Statoil; the acceleration now concerns the negotiations with Sonatrach which has been started. But Descalzi seems to want to take the refining bull in a deep crisis by the horns due to the production surplus of 120 million tons of refined in Europe. The break with the unions on Gela and Marghera and the possible revocation of 700 million of investments in Sicily took place two days ago. Priolo and Taranto are also at risk.
“If it is true that Eni loses in refining also due to its lack of investments in the sector, it is equally true that Italy needs Eni's investments and industrial presence. We cannot watch a large group stand by and risk leaving the industry”, said Emilio Miceli, secretary general of Filctem-Cgil. However, there do not seem to be any alternatives even if Eni will try to reconvert the plants in some way. Industry experts are convinced that the 20% cut in refining capacity decided so far is insufficient. And above all that there are no alternatives: the productions will leave Italy and Europe, if they haven't already done so.
