The core of Eni's business will continue to be the upstream sector, i.e. oil exploration and production, in which the six-legged dog will invest 77% of A total of 33 billion Capex between now and 2022 (of which 8 already in 2019 and of which around 2,4 in Italy alone, in line with previous years), without however forgetting the energy transition, with a 3 billion plan for decarbonisation through circular economy, biofuels and renewable sources , and financial solidity, with cash flow that – with today's oil price – will grow by 17% to 2022, with 22 billion generated by upstream alone and an operating cash flow that will increase by 3,6 billion in arc of the floor. These are the cornerstones of Eni's new strategic plan, presented in San Donato by CEO Claudio Descalzi and which also provides good recognition for shareholders starting this year, with a dividend of 0,86 euros per share (+3,6% ) and a subsequent buyback program of 400 million a year in the current Brent scenario (60-65 dollars a barrel), which could even double to 800 million a year with Brent above 65 dollars.
“Over the past five years – commented Descalzi – we have implemented a transformation strategy with the aim of strengthening the business model by drastically reducing debt”. The net one, in 2018, fell to 8 billion, in a budget which also saw the growth of revenues to almost 77 billion, the doubling of adjusted operating profit compared to 2017 to 11,24 billion and the dividend already increasing to 0,83 euros per share. “We have built a new Eni founded on efficiency, integration and new technologies, which are also decisive for decarbonisation, which is a strategic priority for our board. We will grow in renewables and biofuels making Eni a more profitable company”, added the manager.
UPSTREAM
The driver of the activity, as mentioned, remains hydrocarbon exploration and production, with an investment of 3,5 billion in exploration alone, which will lead to the discovery of 2,5 billion new barrels, drilling approximately 40 wells per year for an overall extension that will reach almost half a million square kilometers worldwide (equal to 0,1% of the total land area, considering the seas). Production is estimated to grow by 3,5% annually through 2022, with the 18 new projects expected to produce 660.000 barrels of oil per day by 2022, breaking even with a Brent price much lower than that currently set at $25 a barrel. The expansion activity of already active plants will contribute an additional 290.000 barrels per day by 2022.
Growth will be sustained thanks to an important geographical diversification: in fact Eni will focus mainly on three areas, which are the Middle East, Norway (also through the creation of the Var Energi company) and Mexico, which becomes a bit like the new frontier, after opening up to private operators just a few years ago. The situation is opposite in Venezuela, where tensions and the lack of maintenance of the plants by the operator, i.e. the Venezuelan state-owned company, have already led to a slowdown, while the role of Africa will remain important, where Eni today produces more than half of the its production. The Middle East, Norway and Mexico alone will contribute, by 2022, to the production of 290.000 barrels per day, or 44% of the total new production.
GAS & POWER
Gas will also continue to play a central role, with the LNG (liquefied natural gas) portfolio reaching 14 million tonnes per year in 2022 and 16 million tonnes by 2025. Strong growth is also forecast for gas in the European retail sector , with the prediction that speaks of reaching around 12 million customers within four years, up 26% compared to 2018. All this will have a significant impact on the accounts, given that the Ebit of the sector will reach 700 million in 2022, of which 70% coming from the retail sector, and the overall free cash flow for the four-year period will be equal to 2,3 billion euro.
ENERGY TRANSITION
In the new plan, Eni openly declares its intention to commit itself to the international goal of decarbonisation by 2030: given that it will hardly be possible to completely eliminate CO2 emissions, CEO Descalzi has planned to offset the residual emissions through a large forestation project. In general, 3 billion will be invested in the green turnaround, with the forecast of installing a total of 5 GW of renewable capacity by 2025. This business will generate cash flow but will also be important for lowering operating costs, given that, for example, renewables can be used for self-consumption needs, replacing gas, which can thus be sold.
Not only that: investment in green technologies will also make the activity itself cleaner, such as that of "green refining", in the Italian plants of Gela and Venice. Furthermore, in Gela the plant powered by OFMSW (the material collected from separate waste collection) is already active, capable of producing biofuel from organic waste and generating water to be used for agriculture, as part of the enhancement of the circular economy, which among other things will extend the life of industrial sites. Eni has also already implemented a new technology to produce thermal energy (and therefore power the processes) from solar energy, as well as a new generation of photovoltaic panelsthinner and lighter.
“Clean energy will carve out an increasingly important space for itself – explained Descalzi -: renewables today already generate 10-12% return on investment, still much less than the percentage guaranteed by the upstream, but the upstream is also linked to mining risks and geopolitical risks, not to mention that a green business qualifies the company, makes it more credible and more flexible. We need to make our investors understand that a few points of profit can be renounced if this means creating value. Eni must transform itself because it will also have to exist in 10, 20, 30 and more years. On the one hand we are judged every quarter, on the other our task is to have a ten-year vision”.
FINANCIAL STRATEGY
Eni is aiming for increasingly rigorous financial solidity. For this reason, in the face of a massive investment plan, for a total of 33 billion Capex, which will lead to production growing by no more than 3% but 3,5% per year, it has also lowered the breakeven price to 25 dollars a barrel for Brent, taking into account a scenario that is very different from the current one and oriented towards low carbon. Despite the generous dividend policy, Eni expects an improvement in post-dividend cash neutrality, which will go from 55 dollars a barrel in 2019 to 50 dollars at the end of the plan, in 2022.
This will make it possible to support, in a reasonable scenario, the remuneration of the shareholders. Also through a robust buyback, of 400 million a year (or 800 with Brent above 65 dollars a barrel) up to 2022: "No one has made such a long commitment", Descalzi kept reiterating, who in the meantime has also cashed a lukewarm applause from the markets, with the Eni share gaining barely half a percentage point in the early afternoon, at 15,6 euros per share, with a lower performance than the Ftse Mib price list.
